Not-for-profit centre
General update
The Australian Taxation Office (ATO) has dedicated teams working on deductible gift recipient (DGR) reforms and the Enhancing the transparency of income tax exemption measure.
The ATO has an initial report on GST reporting compliance in government and the not-for-profit (NFP) sector and will provide updates once further analysis is conducted.
Key updates on the Enhancing the transparency of income tax exemption measure include:
- The self-assessing population has dropped from approximately 157,000 to 155,000 as some not-for-profits (NFPs) are taxable, charitable, or no longer operating.
- A webinar on New reporting requirements for not-for-profitsExternal Link is now available on ATOtvExternal Link under the NFP channel. The webinar covers how to update Australian business number (ABN) registration details, registering for Online services for business, and how to lodge the NFP self-review return.
- Additional webinars are scheduled on the following topics:
- what to do if your entity is charitable
- taxable status following the NFP self-review return
- Indigenous organisations.
- The first tranche of letters regarding the NFP self-review return will be sent to approximately 150,000 non-charitable NFPs by the end of the month.
Issues and compliance
The growing debt profile of certain NFP entities is concerning, but even more concerning are their responses to this debt and inability to their meet tax and super obligations. The failure to engage early with the ATO or tax advisers can result in more complex situations.
Passion for the cause can result in some directors, boards and committees not focusing on their liabilities such as withholding tax or super because they want to continue to operate for the sake of members.
Ultimately these issues don’t resolve themselves. NFPs should consider their financial position as part of their annual general meeting (AGM) and, where necessary, engage with the ATO or consult a tax adviser. Early intervention can provide NFPs with options to allow them to continue to operate.
Directors who fail to act in accordance with their responsibilities can be held accountable for debts and associated penalties.
Member comments included:
- NFPs across the sector are facing financial challenges. As a result, many are looking at new ways of raising income, and dipping into reserves due to funding pressures.
- When NFPs have a debt, sometimes directors are the last to find out. If directors are informed early, they can help address debt issues. Directors should ensure they are aware of their NFP's financial position and discuss it at each AGM.
- Commercial risks are emerging in the sector, with NFPs potentially engaging in commercial dealings without being aware of the GST risks. This needs to be considered as more NFPs try different ways to produce income, often unaware of the GST consequences.
Advice and endorsements team
The ATO provides tailored advice to NFP administrators through a dedicated NFP Premium Advice Service, phone 1300 130 248. So far in 2023–24, the team has handled over 4,400 calls across a range of topics including entitlement to DGR endorsement and initial steps to establish an NFP. Call numbers are trending upward, which is expected with the income tax and DGR measures underway.
In the 2023–24 financial year, 2,000 applications for DGR endorsement and tax concession charity endorsement have been completed. The team is working through a backlog of applications, prioritising those received from other government departments under the transitional provisions. A significant improvement is expected by the end of May.
DGR Registers Reform
New DGR endorsement measures came into effect on 1 January 2024. The ATO has published guidance, see Deductible Gift Recipient Registers Reform Transitional Provisions, and has issued communications to affected entities.
Members observed that, although the transitional provisions do not require changes to governing documents for already endorsed entities, many are seeking to make changes due to the new law.
Integrity and governance
Work is continuing on the addendum to Taxation Ruling TR 2013/2 Income tax: school or college building funds to reflect the expanded definition of 'schools' following decision in The Buddhist Society of Western Australia Inc v Commissioner of Taxation (No 2). The ATO will undertake consultation once a draft is ready.
Work is underway on several important updates to guidance on ato.gov.au, including:
- expanding information on income tax exempt organisations to include examples of what is and what isn’t an exempt organisation under each category
- guidance for taxable NFPs to help classify mutual and non-mutual receipts
- NFP refund of franking credit web content to address gaps regarding eligibility.
The ATO is also currently working on the following public advice and guidance products:
- Taxation 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 be updated with current legislative references and examples.
- Taxation Ruling TR 2000/10 Income tax: public libraries, public museums and public art galleries will be reviewed to include contemporary scenarios such as virtual museums and galleries.
- Practical Compliance Guideline PCG 2022/12 GST and Residential Colleges will be reviewed post-implementation.
DGR-specific listing reviews are progressing with completion expected in July or August 2024.
Treasury
The Blueprint Expert Reference Group continues work on the NFP Blueprint (Blueprint). They have been meeting on a monthly basis with minutes available at The Blueprint Expert Reference GroupExternal Link.
The ATO is reviewing specific listings with work expected to be completed by around mid–2024.
Members requested an update on the 2022 discussion paper on private and public ancillary funds. Treasury advised this is still in progress and noted there is some overlap with the Productivity Commission's work.
Members suggested more resources should be dedicated to the Blueprint to ensure a quality product and expressed their concern that it is not on track and progressing as it should be.
Australian Charities and Not-for-profits Commission (ACNC)
The ACNC has seen an increase in applications for charity registration in recent months, leading to a backlog. To address this, additional staff have been recruited to work on registrations. Additionally, a bulk registration is being developed to streamline applications from some peak organisations.
The ACNC will undertake analysis using data on related party transactionsExternal Link.
Enhancing the transparency of income tax exemption
Members were given a live demonstration of the NFP self-review return. Transitional lodgment arrangements are in development and there is a Self-help phone service for NFPs who cannot lodge using Online services for business. It is also now easier for NFPs to update their contact details, see Notifying us of changes to your not-for-profit.
The ATO will issue 2 letters to approximately 150,000 NFPs with an active ABN currently self-assessing as income tax exempt. The first letter will inform NFPs of their annual NFP self-review obligation and will be issued in 5 tranches from March 2024 to May 2024. The second letter will inform NFPs that the NFP self-review return is available for lodgment and will be issued after 1 July 2024.
Roundtable
Key points for consideration included:
- Member associations and professional organisations are self-assessing as income tax exempt and there needs to be clear messaging to these entities. The definition of an NFP needs to be clarified, especially regarding the differences between how the ACNC and the ATO determine this status. It's particularly important to address what happens if they are not a charity – are they self-assessing as NFPs or taxable NFPs?
- Clients have difficulty interpreting Taxation Ruling 2005/13 Income tax: tax deductible gifts – what is a gift. The Taxation Ruling is difficult to understand, and it would be beneficial to consider an article to get organisations thinking about what they can and can’t do.
- Member benefits is a topic that causes uncertainty and better messaging around this issue would be useful.
- There is significant focus on the Productivity Commission's report on philanthropic giving and the Blueprint and some frustration that these reviews don’t go far enough.
- Cost of living pressures have a twofold impact in terms of reduced donations and increased reliance on services of NFPs.
- Financial and staffing pressures on NFPs are forcing them to be more creative to develop new income streams which in turn can increase opportunities to stray from operating for purpose, make compliance errors or otherwise expose the NFP to additional financial risk. It can also see restructuring to access tax concessions for example, FBT exemption across multiple entities or related party transactions.
Attendees
|
Organisation |
Member or Attendee |
|---|---|
|
ATO |
Will Day (Co-chair), Small Business |
|
ATO |
Jennifer Moltisanti, Small Business |
|
Arnold Bloch Leibler |
Joey Borensztajn |
|
Australian Charities and Not-for-profits Commission |
Natasha Sekulic |
|
Australian Institute of Company Directors |
Phil Butler |
|
Charitas Law |
Jae Yang |
|
Charities and Not-for-profits Committee, Law Council of Australia |
Seak-King Huang |
|
Clubs Australia |
Simon Sawday |
|
Giuntabell |
Nunzio Giunta |
|
HWL Ebsworth |
Timothy Stokes (Co-chair) |
|
Justice Connect |
Geraldine Menere |
|
KPMG |
Kaylene Hubbard |
|
Philanthropy Australia |
Sam Rosevear |
|
The Dreaming Foundation |
Michael Manikas |
|
The Tax Institute |
Bridgid Cowling |
|
Treasury |
Rachael McCririck |
|
World Vision Australia |
Ben Scuteri |
Guest attendees
|
Organisation |
Attendee |
|---|---|
|
ATO |
Dora Jain, Small Business |
|
ATO |
Frances Gobel, Small Business |
|
ATO |
Joy Tillman, Small Business |
|
ATO |
Marisa Hewitt, Small Business |
|
ATO |
Nella DiBenedetto, Small Business |
|
ATO |
Richard Robinson, Small Business |
|
ATO |
Sourina Simmalavong, Small Business |
|
ATO |
Stella Lahanas, Enterprise Solutions and Technology |
Apologies list
|
Organisation |
Member |
|---|---|
|
Australian Council for International Development |
Jocelyn Condon |
|
Community Council for Australia |
David Crosbie |
|
The Dreaming Foundation |
Anthony Ward |