My nephew recently proposed. He got a mortgage on a house, bought a ring, and got down on one knee in front of the ‘Sold’ sign he'd replaced with ‘Will you marry me?’ His partner said 'Yes!' And now start the preparations for the big day.
This made me think about commitment, expectations, and change.
Like marriage, running an organisation, however big or small, requires commitment. For not-for-profits the commitment is always to purpose. But no matter how committed you may be, expectations shift and the environment changes. In the past 4 years alone, we’ve seen a generational change in the way we work and an increased focus on integrity.
From 1 July 2023, non-charitable not-for-profits with an active ABN who self-assess as income tax exempt, will be required to lodge an annual self-review return to access an income tax exemption.
The commitment
Operating a not-for-profit requires a commitment, not only to purpose but to concession entitlements if applicable. Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997) outlines exempt entities. If you're a not-for-profit with an ABN, unless you satisfy the requirements for an income tax exemption you're taxable. A taxable not-for-profit is required to lodge a tax return if its assessable income is greater than $416 in the reporting year.
We’ve started receiving enquiries about the new reporting obligations which has prompted me to clarify requirements:
- If you don’t have an ABN, you’re not in scope for the new reporting requirements. Remember, not everyone is entitled to an ABNExternal Link.
- If you’re a registered charity with the ACNC you’re not captured by the new reporting requirements. If you're a tax concession charity, remember to meet your ongoing obligations to maintain your entitlement.
- If you think you have charitable purposes, before you contact the ACNC, view their checklistExternal Link which has information about what you need to have prepared before you make an enquiry.
- If you satisfy the requirements for an income tax exemption in one of the 8 categories listed in the tax law, you have time to prepare, as the first lodgment of the new return isn't due until 1 July 2024.
- If you don't satisfy the requirements for an income tax exemption and you're not charitable, you may be taxable. Don’t worry, you have time to prepare. We’re working through the support you may need to work out your assessable income so you can lodge a Return Not Necessary if you’re assessable income is under $416 or an Income Tax Return if you’re assessable income is greater than $416.
Having clarified who’s in and who’s out; let's work through the necessary preparations.
Preparing for change and engagement
The annual self-review return is required to be lodged from the 2023–24 financial year. It will be available for lodgment from 1 July 2024 using the existing Online Services platform. This means that not-for-profits can lodge through Online Services for Business and registered tax practitioners can lodge through Online Services for Agents.
The return is still in development; however, I can share that questions will guide clients to consider purpose and activities against the specific eligibility requirements of an income tax exempt entity. The questions are not financial in nature, and only one question will relate to estimating income range to indicate the size of your not-for-profit.
While there are almost 15 months before final lodgments are due, time will fly. Follow my suggested steps to prepare.
Steps |
Action |
Who |
Why |
When |
|---|---|---|---|---|
1 |
Update contact details with the ATO. Visit ato.gov and search for QC46370 for information about how you can notify us of changes. |
All not-for-profits Only an authorised contact can make changes using online services or over the phone. Organisations with out-of-date details may need to fill in a paper form. |
It’s an ABN registration requirement to keep contact details up to date. Clients will receive important information about tax and super obligations. ABN’s for not-for-profits that have ceased operating should be cancelled. |
Before Winter ends |
2 |
Review your tax status using our worksheets. Visit ato.gov and search for QC46359 |
Any member of a not-for-profit can download the worksheet and complete it. |
It’s good practice for office bearers or boards to consider the outcomes of the review. Keep completed worksheet with your records – it will show why and how you worked out income tax status and will help future office bearers. |
Do these now and during Spring |
3 |
Get digital ready - apply for a myGovID and set-up RAM authorisations in preparation to access Online services for business. |
Authorised contacts for all not-for-profits. |
Many not-for-profits have not previously needed to lodge with the ATO and are not digital ready to |
Before the Summer holidays |
4 |
Visit ato.gov and search for QC33591 - income tax exempt not-for-profits and taxable not-for profits. |
All not-for-profits should visit our website for the most up-to-date public advice and guidance. |
- |
Ongoing |
5 |
Stay informed and subscribe to our monthly newsletter at ato.gov.au/nfpnews |
All not-for-profit members should subscribe. |
- |
Ongoing |
6 |
Estimate your not-for-profit’s income range. |
Authorised contact with help from your board members. |
- |
In the new 2024 year |
7 |
Wait for Lodgments to open. |
Authorised contact. |
- |
1 July 2024 |
Planning leads to success
If you’ve followed my advice, before 2023 ends, your ABN details are up to date, and you’ve become digital ready by applying for a myGovID and setting up RAM authorisations in preparation to access Online services for business. You should have also assessed your entitlement to an income tax exemption using one of our worksheets.
If you meet one of the 8 income tax exemptions, you can be confident you’re almost ready. As I mentioned earlier, questions in the return are not financial in nature, and only one question will relate to estimating income range to indicate the size of your not-for-profit. You may want to consider estimating your not-for-profit’s income range in February to March 2024 as you await the 'big day'.
Not-for-profits who complete step 2 and realise they don’t satisfy the requirements for income tax exemption will need to make some decisions based on the purpose of their organisation.
If you think you’ve got charitable purposes, the ACNC website provides lots of information to help determine this. The Charities Act 2013 (Cth) states that to be recognised as a charity, a not-for-profit must:
- have only charitable purposes that are for the public benefit
- not have a disqualifying purpose
- not be an individual, political party or government entity.
Remember to view the ACNC checklistExternal Link, before you contact the ACNC. This will help expedite your enquiry.
Where you determine you don’t have charitable purposes or if you don’t want to become a registered charity, you will be a taxable not-for-profit. Not-for-profit organisations that are not exempt from income tax have always been required to lodge an income tax return.
If you’ve just 'had a moment', take a breath. We're currently drafting public advice and guidance to facilitate any changes taxable not-for-profits may need to make to either maintain income tax exemption where appropriate or calculate assessable income. This advice and guidance will include peak body presentations, recorded webinars and podcasts and of course our website information.
Transitional arrangements will also be put in place to support not-for-profits that require additional time to meet their obligations. These will be announced in the new year.
The big day will come and go. What remains if there is commitment, care and diligence is a long-lasting legacy for a vibrant and sustainable not-for-profit sector that contributes to the very fibre of our Australian community. Now that is something to be proud of.
Take care and stay safe.
Jennifer
This month, Assistant Commissioner Jennifer Moltisanti clarifies the new reporting requirements for not-for-profits.