Happy New Year and welcome to 2024!
As a new year begins, I’m filled with thoughts of everything I’d like to accomplish. Important things… but often urgent trumps important, so my important things go back down the line. However, this year is different. Important has become urgent, so some firm actions for my household are: we’ll mend the roof, re-house the possums, paint the walls and fill our garden with colour.
The purpose of a house is generally to provide shelter for humans. Over time, a house becomes a home and its purpose changes. We either outgrow it, extend it, or knock it down and start again. These decisions are not taken lightly and will usually depend on the purpose. Purpose is central to many aspects of our lives and it changes constantly, sometimes in nuanced ways. When I’m asked to articulate my purpose, it changes every time depending on context. Having reflected hard on this truly existential question, I’ve come to realise that the common thread in all my roles as public administrator, student, mother, daughter, sister and friend has been to inspire humanity and encourage connection and diversity.
Similarly, organisations have multiple purposes. Some are driven to maximise profits, others to drive innovation. Increasingly, many organisations want to help the community and give something back. Not-for-profits (NFPs) are unique in that they operate for the purpose for which they’re established and not for the direct or indirect gain of individual members. This is an important distinction and the ATO will only accept an organisation as an NFP if its governing documents prevent it from distributing profits or assets for the benefit of specific people, both while in operation and upon wind up.
If you’ve been reading my blogs for a while now, you’ll be familiar with the types of NFPs that operate in Australia. I’ve mentioned previously that only one third of the ABN registered population are charities, with most NFPs self-assessing as income tax exempt. This is not new; the tax law outlines 8 categories of not-for-profits that can self-assess as income tax exempt. What’s new however, are the reporting requirements for these NFPs. Starting this tax time, they’ll be required to lodge an annual self-review return indicating which category their not-for-profit falls into to be entitled to an income tax exemption.
In December, we published the guide to completing the new NFP self-review return. I also mentioned that our focus in 2024 will be to reach as many NFPs as we can, ensuring they understand the new reporting requirements and are prepared to lodge their first annual return.
Last week, I spoke with the many clubs that form part of the Student Experience NetworkExternal Link. It was a great turnout with lots of questions and answers covered. During the session, it became clear that many smaller NFPs, such as clubs, would benefit from the answers provided. For this reason, we’d like to share some frequently asked questions with you.
Do I need an ABN? Should I cancel my ABN?
The new reporting requirement only applies to non-charitable NFPs with an active Australian business number (ABN) that are eligible to self-assess their income tax exemption. The following types of NFPs are not required to lodge an annual self-review return:
- NFPs with a charitable purpose that are either registered or required to be registered with the ACNC
- certain types of government entities
- taxable NFPs.
Before you rush to cancel your organisation’s ABN to avoid the requirement to lodge a self-review return, you need to consider if there are other implications.
Your organisation will need an ABN if it has to register for other tax obligations such as GST or pay as you go (PAYG) withholding.
You may also need an ABN if you interact with other businesses or receive grant funding and aren’t eligible to claim an exemption from quoting an ABN.
Many banks also require an ABN when you set up a business account for your organisation.
Does the size or legal structure of my organisation matter?
It’s your purpose that’s important, not the legal structure or size of your organisation.
It is always your purpose that will determine what type of NFP you are. It doesn’t matter if you’re a small unincorporated group or a larger, more organised incorporated association. It also doesn’t matter if you have an ABN or not.
You need to ask – what is our purpose and how do we it fit into the 3 types of NFPs?
- NFPs with a charitable purpose must be registered with the ACNC and endorsed by the ATO to be income tax exempt.
- Non-charitable NFPs can self-assess income tax exemption if their purpose aligns with the exempt categories in the tax law. If you have an ABN, you will need to complete an annual self-review return.
- NFPs that aren't charitable and not eligible to self-assess are taxable.
Taxable NFPs may need to lodge a tax return whether they have an ABN or not.
What if I’ve just realised our organisation is taxable? How do I calculate my taxable income?
If you’ve just realised, after many years, that you’re a taxable NFP, don’t panic!
Taxable NFPs only need to lodge a tax return if they have taxable income of $416 or more. If your income is less than $416 in any given year, you can let us know you’re not required to lodge.
An important thing to know is that any income you receive from your members, such as membership fees and from services provided to members, is subject to the principle of mutuality and not included in taxable income. You will, however, need to include other income, such as income from investments or from non-members.
Our mutuality and taxable income for not-for-profits guide provides detailed information about calculating taxable income.
It’s always important to lodge and pay on time. We encourage you to reach out sooner rather than later if you need help, as we have support options available to help you manage your lodgment due dates.
Sneak peek
We’ve also been addressing multiple calls about the difficulty NFPs are having in updating their ABN registration details, especially authorised contacts. Shortly, we’ll be making the Change of Registration Detail form available for you to download online to help you in preparation for the new reporting requirements. We’ll also provide updated guidance when changes are required for authorised contacts, especially where these haven’t been done in a while. More on these updates soon.
In the meantime, I hope you’re all ready for what’s shaping up to be a dynamic year for NFPs. Remember, if you’re a NFP that self-assesses as income tax exempt, you can conduct an early review of your eligibility using the newly published guide. It will help you get your answers ready in preparation for tax time 2024.
So don’t put off the important stuff until it becomes urgent. Act now.
It’s great seeing networks, clubs and other organisations thinking early about the new reporting requirements for ABN registered non-charitable NFPs. This month there are 3 key takeaways I’d like to highlight for all NFPs:
1. Update your ABN details now and make sure your authorised contacts are current.
2. Review your purpose and governing documents to understand what type of NFP you are.
3. Know where your revenue is coming from and what this means for your tax obligations.
I look forward to meeting with many of you as the year progresses, either virtually or in person.
Stay safe.
Jennifer