As the end of the financial year approaches, it is crucial for not-for-profit organisations (NFPs) to stay informed about the latest changes in reporting requirements. These updates, introduced by the Australian Taxation Office (ATO), aim to enhance transparency, ensure fair access to tax exemptions and concessions, and uphold system integrity. In this article, we will explore the key modifications and their implications for NFPs.

New reporting regime for NFPs

Effective from the 2023-2024 financial year, NFP entities with an active Australian Business Number (ABN) are now obligated to submit an annual NFP self-review return to the ATO. This self-review return serves as a tool for NFPs to assess their eligibility for income tax exemption accurately. The forms will contain information that NFPs typically use to self-assess their eligibility, thereby ensuring the correct access to income tax exemption.

Confirmation and lodgement

For the following years, NFPs are required to carefully review the information provided in the pre-filled self-review returns from the ATO and make necessary confirmations or amendments. It is crucial to submit the annual self-review forms between 1 July and 31 October each year, starting in 2024. Failure to lodge the return can result in the loss of income tax exemption status and may lead to penalties under the ATO’s penalty guidelines.

Who needs to self-assess?

When it comes to self-assessment, it is important to understand which NFPs are required to evaluate their income tax status. Unlike registered charities, NFPs that do not fall into the category of charities must undertake the self-assessment process to determine whether they are tax-exempt or taxable entities. This means that non-charity NFPs have the responsibility to assess their eligibility for income tax exemption without seeking a separate endorsement from the ATO. Conversely, charities must obtain ATO endorsement to obtain tax-exempt status and are exempt from the self-assessment requirement.

Self-assessing income tax exemption

To self-assess income tax exemption, NFPs need to determine if they fit within the categories of exempt entities such as community service, cultural, educational, employment, health, resource development, scientific, and sporting organisations. Each entity type has specific requirements that must be met. Completing the relevant worksheet, as provided by the ATO, can serve as a record of the annual review. Sporting organisations can utilise the self-review worksheet in the ATO guide “Income tax exemption and sporting club,” while other not-for-profit organisations can use the “Income tax status review worksheet for self-assessing non-profit organisations.”

Exempt vs Not-Exempt

Once the self-assessment process is completed, NFPs will fall into one of two categories: exempt or not-exempt.

• Exempt:
  • Income tax exemption granted.
  • No need to pay income tax or lodge income tax returns, unless requested by the ATO.
  • No requirement to obtain confirmation of exemption from the ATO.
  • Yearly review recommended to ensure continued exemption status.

• Not-Exempt:
  • The organisation is considered taxable and may be required to file income tax returns and fulfill tax payment obligations.
  • Specific regulations and guidelines may apply when determining taxable income, submitting tax returns, and applying applicable tax rates.

Conclusion

In light of the recent updates in reporting requirements for not-for-profit organisations (NFPs), it is crucial for these entities to stay informed and compliant with the newly introduced self-review return process. By understanding their obligations and adhering to the guidelines provided by the Australian Taxation Office (ATO), NFPs can maintain their income tax exemption status and avoid penalties.

For further guidance, assistance, and to ensure a smooth transition in meeting the reporting requirements, we encourage NFPs to contact Regency Partners. Our team of experts is ready to provide tailored solutions and expert advice to help NFPs navigate the complexities of the changing regulatory landscape. Together, we can ensure your organisation’s success in fulfilling its mission while meeting the necessary reporting obligations.