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Self-review for income tax exemption will be straightforward, says the Tax Office.
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ATO will ease path into revised rules for NFPs
08 April 2022
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The ATO said it will take a measured approach to the implementation of self-assessed income tax-exempt reporting for not-for-profits (NFP).
The new reporting requirement comes into effect from 1 July 2023 and will require not-for-profits with an active ABN that self-assess as income tax exempt to submit a self-review return each year.
ATO assistant commissioner Jennifer Moltisanti said the self-review return is not an income tax return and will not look like one.
“In lay terms, the return will be a form, building on the current worksheet, that will most likely comprise several questions,” she said.
“These will be based on information that self-assessing income tax-exempt organisations should be familiar with, given they should already be regularly reviewing their entitlement to income tax exemption under the existing tax law.
“While we know many organisations may not have reviewed their entitlement to income tax exemption as diligently as they should, we don’t intend to take a retrospective approach to implementation.”
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Ms Moltisanti said the ATO was instead focused on making sure organisations get it right going forwards.
“This would mean that after reviewing eligibility, you find you are charitable, we will transition you to register with the Australian Charities and Not-for-Profits Commission (ACNC); the charity regulator,” she said.
“Conversely if you find you are taxable, we won’t direct our compliance resources to looking at history.
“Instead, we will engage with you to ensure future behaviour complies with reporting requirements. Of course, the ATO reserves the right to conduct compliance where it has reason to believe deliberate tax evasion or fraudulent behaviour has occurred.”
Ms Moltisanti said the ATO would also look to streamline the reporting requirement to address time concerns.
This means that while organisations would be required to submit the return every year, the ATO would use the information provided in the first return to pre-fill subsequent returns for the entity to confirm or amend.
“We’ve heard that some organisations are nervous about what a new reporting obligation will mean for them and that there’s concern the process will be hard to follow, complex or time intensive – taking them away from their true purpose of serving the community,” Ms Moltisanti said.
“To address these concerns, we’re working closely with the sector to design the self-review system.
“We opened consultation in March, inviting self-assessing not-for-profits, tax and legal professionals and peak associations to talk to us about the reform.”
The key focus was to understand how not-for-profits currently self-assess eligibility for income tax exemption under the existing tax law and the type of guidance and support the ATO could develop with the sector.
Ms Moltisanti said the ATO would continue to invite organisations to engage in the design process for the self-review system.
“Between now and 2024, some of our engagements may include attending peak association events and regional information sessions to walk you through and test the self-review return,” she said.
“We will work with all affected organisations to address your needs. You have an opportunity to influence the design if you want to work with us.”
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