Not-for-profit Stewardship Group key messages 17 July 2024

Not-for-profit centre

General update

The Not-for-profit (NFP) centre presented its year in review, with highlights from 2023–24 and a sneak peek into 2024–25.

The NFP Stewardship Group (NFPSG), NFP directors and their teams were thanked for their contributions over the past year.

Member comments

Members asked about revocations by the Australian Charities and Not-for-profits Commission (ACNC) and the possibility of notifying NFPs early about the implications. The ATO is working with the ACNC to improve messaging about the tax implications of losing charity registration.

Members suggested the ATO should allow anonymous complaints, noting complaints are beneficial as they show the gaps in the sector help improve processes.

Deductible gift recipient reforms

DGR Registers

The ATO assumed administrative responsibility for 4 unique DGR categories from other government departments, with the changes taking effect from 1 January 2024. See Deductible Gift Recipient Registers Reform Transitional Provisions.

Web guidance has been updated to reflect the changes, see DGR categories. The ATO is now assessing DGR endorsement applications for these categories under normal business processes.

Taxation Ruling TR 95/2 Income tax: Overseas Aid Gift Deduction Scheme is now withdrawn and new category descriptions have been updated on Australian business number (ABN) look-up in line with the changes.

The ATO acknowledged the contribution of the other agencies to the success of the measure's implementation, including training and smooth data exchange.

Insights from DGR specific listing review

The ATO continues to provide tailored advice to NFP administrators through a dedicated NFP advice service, phone 1300 130 248. So far in 2023–24, the team has serviced over 4,400 calls, across a range of NFP topics including entitlement to DGR endorsement and getting started as an NFP.

Profiling has helped identify priorities and we have started action with those specific listings not registered with the ACNC. Following a streamline review has allowed quick engagement with a tailored approach, including interviews. Most of the specific listing DGRs had never engaged with the ATO, and most were highly responsive.

No significant concerns were noted in the review, which was an opportunity to provide education on good governance and the new NFP self-review requirements for those not registered as charities.

NFP advice and guidance

Changes to web content on the refund of franking credits (REFC) are underway. The ATO is consolidating all REFC web guidance pages and providing additional information on eligibility, substituted accounting periods and rules regarding qualified person test and integrity.

No further feedback was received on Taxation Ruling TR 2013/2 Income tax: school or college building funds which will now move to publishing.

Consultation on Tax Determination TD 93/190 Income tax: what is the scope of the exemption from income tax provided by subparagraph 23(g)(v) of the Income Tax Assessment Act 1936? will open in July 2024. The ATO will seek feedback from the NFPSG and will look at establishing a sub-working group.

Member comments

Members observed information about sending the ATO statements and the timeframes listed for REFCs is inconsistent. Members also noted that links to definitions for qualified persons would be helpful.

Issues and compliance

The group discussed the ATO’s privacy and secrecy powers, and emerging risks in the sector including:

• structuring and lack of transparency
• uncapped fringe benefits to religious organisations
• generous fringe benefits tax concessions for public benevolent institutions
• sovereign citizens who set up private NFP foundations and promoters.

Commercial activities were also identified as an emerging risk in the sector. NFPs could potentially enter commercial dealings unaware of their GST obligations. This needs to be considered as more NFPs are exploring alternative income streams such as the sale or development of land and may be unaware of the correct GST treatment of large one-off transactions. NFPs need to seek appropriate advice to ensure they are meeting their GST obligations and applying their income and assets to their purpose.

Entitlement to franking credits – wills and estates

Entitlement to franking credits is subject to certain rules and requirements. The ATO expects NFPs to be aware of these and how they may impact their eligibility when claiming a refund of franking credits. We have observed situations where NFPs have overlooked the rules and requirements when submitting a claim for a refund of franking credits.

Where an NFP is a beneficiary of a will and receives income from a trust estate, such as franked dividends from shares, its entitlement to franking credits depends on having a sufficient economic interest in the shares, thereby satisfying the ‘qualified person rule’. In this scenario, the NFP must have a fixed interest in the capital or corpus of the trust. This normally means having a vested and indefeasible interest in the shares that generate the income.

A beneficiary of a trust estate who is entitled to income only, and not the capital or corpus of the trust, is not entitled to franking credits as they are deemed not to have sufficient economic interest in the shares that generate the franked income. This means an NFP should:

• confirm their interest under the will and whether, for example, it includes an entitlement to income and to the capital or corpus of the trust estate
• obtain advice, where necessary, on the nature of their interest under the will and whether they are eligible to claim franking credits on the income from the trust estate.

Example: When an NFP is entitled to franking credits

Under the terms of a will, NFP A receives a percentage of the income from the trust estate, and the balance of the capital or corpus of the trust estate, including any assets held, on the death of the last of the individual beneficiaries.

In this example, NFP A is regarded as having a fixed interest in the income of the trust estate in the first instance, and in the capital or corpus of the trust on the death of the last of the individual beneficiaries.

NFP A is therefore entitled to the franking credits on the income from the trust.

Example: When an NFP is not entitled to franking credits

Under the terms of a will NFP A and NFP B receive a percentage of the income from the trust. On the death of the last individual beneficiaries, the balance of the capital or corpus of the trust, including any assets held, is paid to NFP B only.

In this example:

• NFP A is regarded as having a fixed interest in the income but not the capital or corpus of the trust and so is not entitled to franking credits on the income from the trust.
• NFP B is regarded as a fixed interest in the income and capital or corpus of the trust and so is entitled to franking credits on the income from the trust.

Member comments

Members found the session informative and would like to continue to see such engagement.

More examples on ATO guidance will be helpful and the ATO will raise with Treasury the potential to redraft the REFC integrity rules.

ACNC

The updated charity registration form has been launched. There are some system issues with applications on the new form from double defaulters that are being resolved.

Charity applications continue to increase compared with last year. The ACNC is taking a proactive approach, including working with peak bodies, running a one-to-many webinar, and implementing a bulk registration application form.

The 2024 Annual Information Statement will be launched in September. Analysis of 2022 financial reporting now available on the ACNC website.

The ACNC learning platform is changing, with 12 governance modules are being updated. Additionally, a new interactive tool for charities will help them assess if they are doing the right thing. For those not yet registered, it will enable them to assess if they meet the requirements.

Enquiries regarding the self-assessment of income tax exemption have been low, indicating improved messaging.

Treasury

Ministerial Guidelines are being developed on the DGR community charity hybrid model. Treasury expects conduct a 4-week consultation, aiming for release by the end of 2024.

There have been 3 new DGR specific listings and 8 removed in the recent budget. They will be removed following the bill amendment.

Productivity Commission consultation resulted in 700 submissions. These must be tabled in Parliament by 21 August 2024 and will be published before that date.

Enhancing the transparency of income tax exemption

The ATO provided an update on the implementation of the measure and the progress of NFP self-review return lodgments. The ATO is continuing to engage with associations.

A pre-lodgment mail campaign commences on 29 July 2024, with information on Online services, the Self-help phone service, and transitional due date on 31 March 2025. Updates to Taxable NFP organisations web content includes information on how to notify the ATO of a non-lodgment advice.

The Tax Practitioners Board is still considering if BAS agents can lodge the NFP self-review return.

A webinar for Indigenous organisations was held on 22 August 2024 and is available online, see ATO and ORIC webinar – does your NFP need to lodgeExternal Link.

Tax time messages include:

• The NFP self-review is now live and can be lodged through online services or using the Self-help phone service.
• Get ready to lodge by setting up MyGov and linking to your NFP’s ABN in Online services for business in Relationship Authorisation Manager (RAM).
• Watch ATO webinars at Not-for-profit ATOtvExternal Link

Members received a live demonstration of how to lodge a NFP self-review return using the Self-help phone lodgment service. Members were also given an overview of non-lodgment advice and governance proof of concepts documents with the opportunity for feedback.

Roundtable

Key points discussed included:

• an aligned system approach for charities reporting to the ACNC, ATO and ASIC
• significant compliance and regulatory costs, including
  • the need to consider ways to reduce compliance burden and make compliance easy for NFPs
  • lack of understanding by FBT rebatable organisations resulting in potential non-compliance
• donations and government funding appear to be reducing, including
  • the need for additional guidance on what commercial activities NFPs can engage in and how to best structure donations from wealthy donors
  • pressure on revenue streams resulting in joint ventures occurring
  • the trend of organisations overcomplicating their structures
  • the need to keep the gift ruling refresh on track
• tight budgets, rapid staff turnover, leadership from outside of the sector and a reduction in volunteers putting pressure on NFPs
• the NFP roadmap focus on tax and super obligations, with members expressing interest in the inclusion of justified trusts and noting the need to clarify the definition of an NFP
• the complex environment clubs operate in, including
  • the gambling reform agenda
  • difficulty attracting directors and board members
  • lack of diversity.

Attendees

Attendees list

Organisation	Member
ATO	Will Day (Co-chair)
ATO	Jennifer Moltisanti, Small Business
Arnold Bloch Leibler	Joey Borensztajn
Australian Council for International Development	Jocelyn Condon
Charitas Law	Jae Yang
Charities and Not-for-profits Committee, Law Council of Australia	Seak-King Huang
Giuntabell	Nunzio Giunta
Community Council for Australia	David Crosbie
HWL Ebsworth	Timothy Stokes (Co-chair)
Justice Connect	Geraldine Menere
KPMG	Kaylene Hubbard
The Salvation Army Australia	John McIntosh
The Tax Institute	Morag Ingham
World Vision Australia	Ben Scuteri

Guest attendees

Guest attendees list

Organisation	Attendee
ATO	David Stuart, Enterprise Solutions and Technology
ATO	Frances Gobel, Small Business
ATO	Glenn Cooper, Private Wealth
ATO	Joy Tillman, Small Business
ATO	Marissa Hewitt, Small Business
ATO	Melinda Knight, Small Business
ATO	Nella DiBenedetto, Small Business
ATO	Richard Robinson, Small Business
ATO	Sourina Simmalavong, Small Business
Australian Charities and Not-for-profits Commission	Sallyanne Stonier
Clubs Australia	Alison Tehan
Philanthropy Australia	Krystian Seibert
The Dreaming Foundation	Michael Manikas
Treasury	Tianna Rehwinkel

Apologies list

Apologies list

Organisation	Member
Australian Institute of Company Directors	Phil Butler
Australian Charities and Not-for-profits Commission	Natasha Sekulic
Chartered Accountants Australia and New Zealand	Susan Franks
Clubs Australia	Simon Sawday
Philanthropy Australia	Sam Rosevear
The Dreaming Foundation	Anthony Ward
Treasury	Rachael McCririck