While June marks the beginning of winter for us in the southern hemisphere, for many of my cousins living in Italy, June marks the emergence of summer.
Summer in Europe is a remarkable time. It’s not just the weather, the array of delicious food or the Mediterranean Sea, which is warm and salty on the skin. It’s the vibe of things to come.
June brings the sun and an abundance of tourists, who converge throughout July and explode into August. Summer brings lots of opportunities to celebrate with the many festivities of the season.
Alas, in Australia, we commence tax time. Equally as important, memorable, and a part of our psyche.
Tax Time 2024 is particularly important for the vast majority of not-for-profits (NFPs) who self-assess as income tax exempt. This is because they now need to report their eligibility for this tax concession to us for the very first time.
NFPs have always been able to self-assess as income tax exempt if they met one of 8 categories outlined in Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997). While the eligibility requirements haven’t changed, what's changed is the need to report annually. Every year, the obligation to lodge an income tax return is established through the registration of a legislative instrument on the Federal Register of Legislation. This new reporting obligation forms part of that instrument, which was registered on 17 May.
A new annual reporting obligation
From 1 July, non-charitable NFPs with an ABN are required to lodge an NFP self-review return to notify us of their eligibility to self-assess as income tax exempt. The following points summarise the impacts of the new requirements and what this means for NFPs:
- The self-review return is an annual obligation for the 2023–24 income year onwards.
- Questions on the return are not financial in nature and relatively straightforward to complete.
- NFPs are asked to confirm details that they should already be complying with if they're self-assessing correctly.
- Only non-charitable NFPs registered with an ABN, and who meet one of the 8 categories in Division 50 of the ITAA 1997, are required to lodge the NFP self–review return.
Who doesn't need to lodge
There are 4 types of NFPs that don't need to lodge the NFP self-review return:
- NFPs with only charitable purposes that are registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC) – charities registered with the ACNC are required to submit an annual information statement to the ACNC each year.
- Taxable NFPs – they're required to lodge an income tax return or notify us of a return not necessary each year.
- Non-profit sub-entities for GST purposes only – under Division 63 of the GST Act 1999, these entities aren't required to lodge a NFP self-review return as their parent entity is the entity recognised for income tax purposes.
- Government entities and State and Territory bodies that meet the definition for income tax exemption in tax law.
Update your details regularly
NFPs are unique in that they're operated by both employed and voluntary staff. They can vary in size from large, sophisticated organisations to small member-based organisations. Many NFPs appoint new office holders each year, at their annual general meeting.
Irrespective of size, all NFPs with an active ABN have a legal obligation to keep their registration details up to date. This includes ensuring all addresses, associates and authorised contacts are current in the Australian Business Register (ABR).
This ensures that the right people are listed on our records so they:
- have permission to act on behalf of your NFP
- can lodge returns for your organisation
- receive important information about your NFP’s tax affairs and status.
If you haven’t already, notify us of any changes to your NFP by downloading the fillable Change of registration details form now and send it to us. We’ll let you know when your details have been updated.
If you're a newly appointed associate or contact, you can complete the form. We ask that you attach evidence of your appointment. Evidence of your appointment can include the minutes from a meeting or the annual general meeting.
You can rely on our public advice and guidance
Since the announcement of the new reporting obligation in the 2021–22 Budget, we've progressively updated our public advice and guidance.
Over the coming weeks, we’ll be refreshing our website to include additional practical examples of who is and isn't eligible for income tax exemption under the 8 specific categories. Updates to our Community Services Organisations page are live now!
Be sure to check back later in June, as examples for other categories will be made available at Eligible types of income tax exempt organisations.
Additionally, if you missed our live webinar on 'What to do if you're a charitable NFP', you can now view a recording on ATOtvExternal Link.
For the vast majority of NFPs, our updated guidance should answer your questions, saving you from accessing other sources for assistance. You can rely on our public advice and guidance to give you the certainty you need to meet your obligations.
Applying for a private ruling
With less than 30 days until tax time, many NFPs are actively reviewing their eligibility to self-assess as income tax exempt. Equally, many tax practitioners are advising NFP clients on their eligibility. As a result, we're experiencing an increase in the number of applications for private rulings from NFPs.
I know the vast majority of NFPs are eager to do the right thing, and private rulings are a useful way to obtain the ATO view about a complex set of circumstances or an unsettled area of tax law. Our tax laws can be hard to decipher and, in trying to do the right thing, some NFPs may consider applying for a private ruling to get greater certainty on their tax status.
However, I urge all NFPs and sector stakeholders to check if our publicly available guidance addresses your questions first! This is because seeking a private ruling may not necessarily be the most efficient way of obtaining the guidance you need. It can take a significant amount of time and be resource intensive, particularly if we need to request additional information from you so that we can form an ATO view of the NFPs circumstances.
What if your private ruling end date is approaching?
For NFPs who already have a private ruling, there is a common misconception that a time 'extension' must be requested if the end date is approaching. This isn't the case.
If your NFP’s circumstances have not materially changed from the circumstances outlined in your initial private ruling, you do not need to apply for an extension. It’s important to note:
- The life of a private ruling cannot be extended. Any new request is treated as a fresh application!
- If your NFP was eligible to self-assess as income tax exempt prior to the new reporting requirements, it will remain eligible. This is because the eligibility requirements to self-assess as income tax exempt have not changed – the reporting of eligibility has.
- However, if your NFP is dealing with new complex circumstances or unsettled areas of tax law, it remains your right to apply for a private ruling.
Don’t forget that my team who manage the dedicated NFP Advice Service are ready to assist if you have questions. You can phone us on 1300 130 248.
Concession endorsements and focus
NFPs enjoy a privilege in the tax system in recognition of the very important work they do and the contribution they make to the Australian community. A big part of our role in the NFP Centre is endorsing access to tax concessions and DGR applications. As administrators of the tax system, we're also required to provide assurance that:
- only eligible NFPs are accessing concessions
- NFPs operate for purpose and as intended.
The new reporting obligations provide a higher level of transparency and integrity for the sector and, as I mentioned in my last column, it's an opportunity for many NFPs to reset and get it right going forward. We won't be penalising NFPs who made an inadvertent mistake. Our compliance focus for the new reporting obligation is on the 2023-24 financial year onwards.
From a broader compliance perspective, we’ve been sharing what attracts our attention for some time, and we also highlight how NFPs can achieve higher levels of compliance.
Our expectations are that all NFPs operate for the purpose for which they’ve been established and meet their tax and super obligations. Key to achieving a higher level of assurance that you’re compliant with your obligations is:
- Good governance – which includes maintaining appropriate financial records and outcomes of decisions.
- Risk posture – which includes how you manage real and perceived risks relevant to your obligations.
We regularly encourage organisations to review their obligations and if you’ve made a mistake, there is no need to panic. Our compliance spectrum ranges from education and guidance to firmer compliance approaches which we only apply based on behaviours of concern.
If you’ve made a mistake and it wasn’t intentional, in that it wasn’t driven by evasion or fraud, you can expect us to support you in meeting your obligations in future.
Wrap up
This winter, I’ll be in Melbourne watching the new NFP self-review returns come in.
It may not be as exciting as a European summer. But I’m heartened by the fact that once tax time is over, we'll emerge into a beautiful spring followed by what I hope will be an amazing summer.
Remember:
- Come to the source – that’s why we’re here!
- Check out our guidance – you can rely on it.
- Watch our videos – they’re very informative.
- Update your details – it’s an ABR requirement.
- Get digital ready – it may be a chore to set-up, but once you have access to Online Services, you can use it to appoint a new associate when a role is handed over in the NFP. This will make the process a little more seamless.
Take care and stay safe.
Jennifer