Not-for-profit Stewardship Group key messages 25 March 2025

Opening and welcome

The ATO thanked members for attending the meeting and for their ongoing support and collaboration on the not-for-profit (NFP) self-review return. The self-review return is due on 31 March 2025. The ATO acknowledged there is still a lot of work to be done, especially for NFPs with out-of-date Australian business number (ABN) registration details. This reinforces the need for integrity and transparency.

Not-for-profit centre

General update

The ATO shared key highlights from the Helping NFPs get it right keynote presentation. The presentation focused on income tax status and reporting obligations, GST and employer obligations, what attracts the ATO's attention, and what NFPs can do to mitigate risks.

The ATO noted rising debt levels are an emerging risk. NFPs are not exempt from debt collection and should engage with the ATO early. The ATO also shared links to essential guidance and to the ATO Tip off form. Members were encouraged to share the presentation slides with their networks.

Operational update

The ATO advised work has doubled compared to this time last year, with an increase in calls and activities leading up to the NFP self-review return due date. Tax concession charity applications and deductible gift recipient (DGR) applications have increased significantly compared to last year.

Additional schedules are being developed as part of streamlining the DGR application process for categories administered by the ATO. Schedules help clients understand the category requirements clearly, which reduces the service standard for processing applications.

DGR risk is an important area of focus, as it is the gateway to exemptions. To ATO will continue work to strengthen that gateway to ensure compliance. A NFP purpose enables access to concessions. Therefore, DGR endorsement, and endorsed NFPs operating for purpose, are important focus areas as part of the ATO’s enterprise risks.

Member comments

Members asked if there will be a schedule for school building fund DGR endorsement. There will be a schedule and the ATO will work with the Australian Charities and Not-for-profits Commission (ACNC) to make it accessible, as part of the ACNC application process.

Members asked about the ATO's DGR compliance focus. The ATO's compliance focus is preventative to ensure DGRs are operating for purpose. For this reason, there is a strong focus on guidance to ensure NFPs and advisers get it right from the start. The ATO will undertake compliance when necessary.

Member's discussed Philanthropy Australia's feedback on the specific listing review the importance of thinking about how questions are framed. The ATO is mindful of sensitivity and the need to collaborate with members and the sector to ensure the messages and tone are right.

Technical update

The primary legislation implementing the Global Anti-Base Erosion Model Rules (GloBE Rules) framework in Australia has received Royal Assent. The rules include provisions which define what constitutes a ‘non-profit organisation’ and ‘excluded service entity’ for GloBE purposes.

The subordinate legislation containing the detailed computational rules that underpin the GloBE framework has been registered as a legislative instrument. It is subject to disallowance. Notably, it contains provisions that define what constitutes an ‘excluded exempt income entity’ and ‘excluded non-profit subsidiary’ for GloBE purposes.

NFPs and intermediaries with queries relating to the implementation of this new measure can contact the Pillar 2 project team at Pillar2Project@ato.gov.au.

Emerging issues – compliance and anti-avoidance

PBI employment entities

A member raised issues relating to employment entities, including public benevolent institution (PBI) structures and uncertainty in the sector surrounding compliance. Members agreed clear guidance with practical examples would be beneficial.

If someone is employed by a PBI undertaking PBI activities, they should be able to access the concessions. However, the ATO is concerned about contrived arrangements where fringe benefits tax (FBT) exemptions are provided to workers employed under labour hire arrangements. Employees are hired to perform work for non-PBI entities and are not directly employed to undertake activities to further the purpose of the PBI. The ATO is aware of these arrangements and is working through compliance implications and signals to market.

The ATO takes an unfavourable view when NFP vehicles are used this way.

Member comments

A member asked if there are plans to publish formal guidance or taxpayer alerts on this topic. The ACNC's view of a PBI was recently reviewed and published. The ATO will consider what further guidance may be needed to ensure that only eligible NFPs access the relevant concessions and apply them correctly.

A member noted some social enterprises and smaller entities evolve over time. They may have received initial advice, but not reviewed their entitlement to tax concessions as their structure and operations develop. Additionally, some advisers are unsure of how to guide NFPs. The ATO will support and work with NFPs trying to do the right thing. Trying to get it right and deliberate non-compliance are different things, and it is the latter that attracts the ATO's attention. There are situations where NFPs are not operating for purpose and have only been created to take advantage of concessions.

Members highlighted that when clients set up a hybrid group with a charitable element, there is often no issue if it is set up correctly at arm’s length. Organisations want to remain competitive but also want to ensure they are complying. Guidance with practical examples will help to address uncertainty. The ACNC is undertaking a review of charities with complex structures and expects to update guidance on this topic. Complex structures don’t always indicate non-compliance, but organisations don’t always need a complex structure to be sustainable.

DGR integrity issues

A member asked if the ATO is still considering DGR pre-filling for income tax deductions as an integrity measure. The ATO project team worked with the Not-for-profit Stewardship Group on the pilot. Based on preliminary results the pilot was placed on hold. The ATO will follow up with the project team for an update.

General compliance observations

The ATO provided an overview of general compliance observations in the NFP sector, including:

• internal restructures and sales of assets by subsidiaries to NFP entities and franking credits
• ancillary fund governance including distributions to non-eligible recipients, not making the minimum distributions, not meeting audit requirements, and not complying with investment strategy requirements
• ensuring NFPs are operating for purpose and meeting all requirements, the ATO noted NFPs accumulating large surplus funds will need to show their accumulation is consistent with the purpose for which it was established
• schools entering arrangements to restructure parent payments, the ATO noted payments made to DGR endorsed school building funds in lieu of school fees are not gifts and are not tax deductible. It is important to ensure school building fund guidelines are met.

Member comments

Members noted auditors raise the accumulated profit issue regularly. The sector would welcome more advice and guidance on this topic. The ATO will review public advice and guidance.

The ATO will consider how to address the issue of school building funds and restructuring parent payments. The ATO will consider meeting with the school sector to ensure there is sufficient, clear guidance on purposes of a school building fund, including meeting gift guidelines. These scenarios highlight the importance of transparency and integrity.

The Helping NFPs get it right presentation will be updated in July and refreshed with the ATO's key messages. It is important for advisers to work with the ATO to address concerns and send appropriate signals to market.

Compliance approach and signals to market

The ATO provided an overview of its risk approach and areas of focus.

Most NFPs are doing the right thing. Therefore, the ATO is focused on front-end compliance as a preventative measure. Whilst the focus is on supporting taxpayers, the ATO must maintain integrity and transparency in the sector. NFPs are like any other taxpayer, they make mistakes, can be non-complaint, and sometimes use their NFP status to access tax concessions inappropriately.

The NFP self-review return has highlighted compliance issues. There is a shift from self-assessment to other taxable positions, both charitable and taxable. The ATO is committed to supporting NFPs through this transition and acknowledged that transitioning to a taxable position may be significant for many NFPs. The ATO has provided extensive guidance for NFPs that require additional support, including on how to assess taxable income and apply mutuality, which can be complex.

Rising debt levels for some NFPs raises concerns around viability, especially when a NFP that has entered a payment arrangement, defaults on that arrangement. The key message is for NFPs to seek early support from the ATO when they are struggling to meet their reporting and/or payment obligations.

Employer obligations is a significant focus area, given the sector employs 10% of Australia’s workforce.

Member comments

Members asked if the ATO has observed instances of insolvent trading. The ATO's focus on transparency and integrity has enabled the increased identification of NFPs that may be having difficulty and need additional support.

A member highlighted an instance where the ATO assisted their client to address issues, without taking a heavy handed approach. The ATO works closely with the debt team to engage NFPs and help them get back on track.

When taxpayers don’t engage early, it can be difficult for the ATO to get them back on track. There have been cases where taxpayers have not met their reporting and payment arrangements because of cashflow restrictions, only to see the debt spiral out of control.

The ATO reinforced its focus on risk prevention and tailored treatment options. Most NFPs want to comply, and the ATO wants to support them to do so.

NFP self-review return

The ATO provided an update on NFP self-review return lodgment based on category type, entity size, and lodgment method. While there is an increase in lodgments, the due date of 31 March 2025 is approaching and there is still a long way to go.

Some NFPs will realise they have charitable purposes. These NFPs can still lodge the self-review return for 2023–24, then apply for charity registration with the ACNC. The ATO will work with the ACNC to support NFPs transitioning to their correct taxable status.

The ATO has run targeted campaigns to support NFPs to update their governing documents for the 2024–25 income year. The ATO has assisted many NFPs with lodgment of the self-review return and has made a significant investment in outreach activities to help NFPs lodge.

The ATO gave members an overview of the self-review return communications strategy, activities and results.

Member comments

Some NFPs do not understand what makes up turnover. This question is raised in seminars and sometimes requires additional support to work through. The ATO advised that the question asks for an estimate of the turnover and not the exact figure. The ATO will consider providing further clarification on this topic.

Updating ABN registration details is likely to impact lodgment. There is still uncertainty around the change of registration details form, including who can sign. Additionally, volunteers are reluctant to provide personal details and NFPs are not receiving confirmation when the form is processed. The ATO acknowledged outdated ABN registration details impact a streamlined lodgment process. To assist NFPs, a step-by-step lodgment approach has been published.

There is still some confusion about whether ACNC registered NFPs need to lodge the NFP-self-review return. The ATO confirmed that a registered charity is not required to lodge. However, where a charitable NFP has mistakenly self-assessed as income tax exempt, and realises they are not eligible, they can still complete the return and select the question that asks whether they have charitable purposes. The ATO will work with these NFPs and the ACNC to transition them to the correct taxable status.

ACNC

The ACNC recently undertook a review of charities with complex structures. Learnings from the review will provide further clarification on when these structures are acceptable. Once the process is finalised, the ACNC will consider publishing guidance on complex structures.

The ACNC provided the following operational update:

• There has been a steady increase in applications. Last week saw the highest number of applications for the year.
• There has been an increase in charities using the bulk application process leading up to 31 March 2025.
• There has been increase in calls, primarily from charities that are not registered but should be registered.
• A backlog of bulk applications at the end of last year is now resolved.

Treasury

Due to caretaker conventions, any ancillary fund consultations will happen after the election.

The ACNC advisory board was refreshed, with an increase in representatives to ensure all states and territories are represented.

Community charities guidelines are out for consultation. The guidelines include what is required to maintain compliance. Community charities are a hybrid ATO endorsed category. Steps to endorsement include ACNC registration, compliance with guidelines, and being named in a legislative instrument. Treasury is working closely with ATO and ACNC to establish the endorsement pathway.

Places of worship within CALD communities

Places of worship run by culturally and linguistically diverse (CALD) communities are more than a place to gather for prayer, they serve as cultural and spiritual hubs for communities. For example, during the recent cyclones, local mosques delivered cooked meals, and people found shelter at places of worship. Most of the funding to run places of worship comes from community donations.

Community places of worship often need to bring qualified practitioners from overseas. This poses some challenges, including with employment conditions. Many people from CALD communities are not working in their qualified field.

Some community members have difficulty understanding their tax obligations. ATO assistance with messaging about tax file number and ABN requirements, and the translation of guidance products, would be very helpful.

Member comments

The ATO will consider suggestions to improve engagement with CALD communities, including working with trusted community leaders. The ATO will continue discussions on how learnings from engagement with Indigenous communities can be applied to improving engagement with CALD communities.

A member noted that many universities participate in Tax Clinic programs. This might be a good option for CALD community members seeking assistance with tax advice.

Treasury highlighted that GrantConnectExternal Link is a centralised publication of forecast and current Australian Government grant opportunities and grants awarded.

Roundtable

GST registration threshold

The group discussed a possible review of the NFP GST registration threshold, noting it hasn’t been reviewed for a significant period.

Public advice and guidance

The group discussed which products best suit sector-based advice with a level of certainty. This could be class rulings, practical compliance guides or general web-based guidance, and is often determined on a case-by-case basis. The ATO tailors the advice and guidance product to suit the scenario.

Most NFPs are run by volunteers who often self-serve when it comes to guidance. Members noted the NFP roadmap presents an opportunity to review guidance products holistically to ensure improved services to support CALD communities.

Members and the sector would welcome a deep dive and targeted guidance on FBT concessions, given uncertainty on this topic. Guidance on ancillary funds, including discounts and loans, would also be beneficial.

NFP self-review return and ABN registration

Members noted that aligning the ABN registration process with associate requirements for the various entity types can help with registry and reporting compliance.

The NFP population is an understudied cohort. We can learn more about small, medium and large entities, through the self-review return data.

Discussions regarding structures needs to continue. NFPs are looking to structure for sustainability. Additional guidance will result in better compliance.

Publishing the DGR category on ABN Lookup would make it easier for donors to understand what area the DGR operates in.

NFPs are operating in challenging times, the global environment is impacting the sector. It is a challenge to recruit capable staff. Even larger organisations have had to reduce staff and it is a competitive space in terms of contracts.

Attendees

Guest attendees

Apologies list