As Tax Time 2023 draws to a close, I’m reminded that next tax time is going to be a busy one for my team as well as the vast majority of not-for-profits that currently self-assess as income tax exempt.
If you’re just tuning in, not-for-profit organisations with an active Australian business number (ABN) are now required to lodge an annual self-review return to access an income tax exemption, with the first lodgments starting in tax time 2024. Charities registered with the ACNC are not affected by this change as they already lodge an annual information statement. Similarly, taxable not-for-profits aren't affected by this new reporting as they may need to lodge an income tax return or notify us of a return not necessary.
As of next tax time, about 157,000 not-for-profits will need to turn their mind to the basis upon which they self-assess as income tax exempt, and report this to the ATO. This will enable us to assure the community that only those entitled to concessions are accessing them and that not-for-profits are operating for purpose.
As we continue to prepare the sector for the new reporting requirements, I’m surprised by some of the feedback we receive. One stakeholder shared concern that the changes may deter volunteer support, a notion we’re very sensitive to. As a volunteer myself, I’ve reflected on my motivations, and I don’t think that appropriate obligations would deter me. As a board director I had to register with ASIC and if I was still active, I’d be required to obtain a director ID. Similarly, I needed a working with children card to volunteer at the local primary school. It seems reasonable to expect that appropriate levels of transparency are in place for organisations that access generous Commonwealth tax concessions such as income tax exemption.
Generally, not-for-profits want to do the right thing; however, they aren’t immune from making mistakes, nor are they immune from mischief. Our research indicates that most people assume not-for-profits are income tax exempt. As a result, we often see and hear about low levels of governance with cost cited as the main barrier to basic governance requirements. An organisation’s governance should be commensurate and appropriate to their operations. This means that a small not-for-profit isn't required to spend a lot of money; but it should be reviewing and updating ABN details and governing documents regularly, or when significant changes occur.
The annual self-review return will need to be lodged digitally; therefore, it will be important for not-for-profits to set up a my GovID and link to online services. Alternatively, a not-for-profit’s tax agent can lodge the annual return. In the next few weeks, we’re hoping to publish the questions on the new return so you can start preparing. We’ll also provide information sessions with peak bodies, dedicated webinars and public advice and guidance.
The return has been developed with feedback from our key consultative forums that represent the sector. We’ve also recently tested it in focus groups with not-for-profits and intermediaries. This includes 3 focus group sessions on 8 and 9 August, to:
- test return questions and seek feedback on comprehension and language
- understand usability and overall experience
- identify areas of the return design that could be improved.
Here’s what focus group participants had to say and what we're doing in response:
Estimated time to complete the form
One participant said: 'If I had all the documentation ready, it would take 15 minutes to complete the return', another advised 'It could take anywhere from 15 minutes to 4 hours to complete the return'.
The key takeaway is to review your entitlement to the income tax exemption when we publish the questions and further guidance in the coming weeks.
Need for comprehensive communication
All participants agreed on the need for ongoing communication, saying:
- 'Over communicate rather than under communicate of the change.'
- 'Notify us about the change via myGov inbox, email, and white mail to registered address.'
- “Send a reminder email 60 and 30 days before, remind us of what we need to do and how we need to go about it.'
We’ll continue to reinforce key messages and guidance leading up to and during next tax time.
Participants noted the following on usability:
Generally, participants rated usability of the form well; some suggested further guidance would be helpful:
- 'This screen is familiar and I'm comfortable to complete it.'
- 'The ATO is ensuring the screen is user friendly and accessible for NFPs.'
- 'Make it easier for people to use myGovID. ATO should remind people that when there is a change of contacts in the organisation, they will need to get a new myGovID for the contact and link it to the ABN.'
Actionable insights are already being incorporated into the new return design and associated guidance, including:
- adjustments to the return’s help text and messages to improve understanding
- a focus on distributing education messages through a range of channels and media, raising awareness about the new reporting obligation
- developing specialised reference material for front-line staff who will be supporting NFPs to understand how they can meet the new obligation.
Tax agents noted their role in help and support and education
Intermediaries play an important role in the tax system and many provide ongoing support for not-for-profit organisations.
- 'We’ve done a lot of pro-bono work with these NFPs over the years and maybe this is an opportunity to improve governance and practices. The ATO needs to support and educate.'
- 'Provide some sort of a slide pack that we as tax agents can use for client seminars. We can run seminars to educate NFPs.'
- 'I think this is going to be a big education piece to help NFPs understand if they have charitable purpose.'
We’ll be leveraging our strong relationships with intermediaries to continue to support not-for-profits impacted by this change so they can get it right from the start. This week I’ll be presenting at the Association Leaders Forum in Penrith, and I’ll also be delivering a webinar presentation for CAANZ members. So, stay tuned, and follow me on social media for the latest.
It's worth reiterating, my team’s role is to support all not-for-profits and assure the community only those entitled to concessions are accessing them. Our compliance activity has a preventative rather than a corrective focus and as such, data integrity and transparency are critical so we can identify mischief swiftly and deal with it appropriately.
Help me maintain the integrity of the not-for-profit sector. Do your bit and get ready. If you’re a volunteer, get informed by visiting NFP tax exemption.
Take care and stay safe.
Jennifer
Assistant Commissioner Jennifer Moltisanti discusses the new reporting requirements and how we're incorporating feedback.