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Common Questions for ATO self-review Tax changes: September 2023 update

Why do we have to submit an annual self-review?

The requirement to annually review entitlement to an income tax exemption hasn't changed; but notifying the ATO of the outcome has. While we acknowledge many NFPs might not be compliant with this requirement, it remains important for all NFPs to meet their obligations given the important role they play in the community. There's a common misconception all NFPs are automatically exempt from income tax. This isn't the case as NFPs are only entitled to an income tax exemption if they satisfy Division 50 of the ITAA 1997.

Until 1 July 2023, certain types of NFPs were able to self-assess income tax exemption on the basis they were reviewing entitlement to the exemption annually, and that they were operating on a not-for-profit basis.

On 11 May 2021, the government announced changes to the administration of NFP entities that self-assess as income tax exempt. The changes require non-charitable NFPs with an active Australian business number (ABN) to lodge an annual self-review return, to self-assess as eligible for income tax exemption. While the annual reporting requirement came into effect from 1 July, the first return doesn't have to be lodged until next tax time, between 1 July and 31 October 2024.

Has the tax law changed for NFPs?

No. Each year the Commissioner of Taxation makes a legislative instrument, setting out the requirements to lodge returns under various provisions of the income tax, tax administration and superannuation acts. The requirement for self-assessing income tax exempt entities with an ABN to lodge a return will be established by this instrument.While we understand the change in reporting is monumental for some NFPs, the annual reporting requirement is an important feature designed to enhance transparency and integrity by ensuring only eligible NFPs access income tax exemption.

We are a charity; do we have to lodge the new reporting return?

No. Registered charities don't have to submit the annual self-review return to the ATO.Since the establishment of the Australian Charities and Not-for-Profits Commission (ACNC) in 2012, ACNC-registered charities must be endorsed by the ATO to access tax concessions. They also need to submit an annual information statement to the ACNC.NFPs with only charitable purposes that meet the legal definition of a charity must be registered with the ACNC and endorsed by the ATO to be income tax exempt. Charitable NFPs that don't register as a charity or take the necessary steps to meet ACNC requirements, aren't eligible to self-assess as income tax exempt. They're taxable and may be required to lodge an annual income tax return.

As a new treasurer, what do I lodge? What tax do we have to pay?

If your organisation has an active ABN and is an eligible income tax exempt entity, you need to lodge a self-review return for the 2023–24 year and each year after that. You aren't required to pay tax on your income.Not all NFPs are exempt from paying income tax. NFPs that aren't an eligible income tax exempt entity are taxable and may have to lodge tax returns and pay income tax. Understanding mutuality and taxable income is important as it affects lodgment and what you pay tax on.If your organisation is taxable you need to lodge a tax return if your taxable income is more than $416 a year.

Can I notify of a 'return not necessary' (RNN) for my organisation?

If you’ve worked out your organisation isn’t an income tax exempt entity because it doesn’t satisfy one of the 8 categories, you need to either:

  • lodge a tax return if your taxable income is more than $416 a year, or

  • notify the ATO of a return not necessary if your taxable income is $416 or less.

Our organisation has ceased operating; what do we need to do?

You must notify us and cancel your ABN to remove any ongoing obligations associated with holding an ABN.For more information, see what you need to know before you end your organisation.

I’ve read your guidance but what should I do first?

Review the main purpose of your organisation and its governing documents. To work out your organisation's main purpose, look at its rules, activities, use of funds and history. It may be helpful to take each aim or purpose set out in your rules and see if it aligns with one of the 8 eligible types of income tax exempt entity requirements.Any other purpose of the organisation must be incidental, ancillary or secondary to the main purpose of your organisation.If you determine you meet the main purpose requirement, keep a record of how you came to this decision. On the other hand, if after reviewing your organisation's main purpose you conclude it doesn't meet eligibility requirements, your next step is to check the lodgment obligations for taxable not for profits.

Three things all NFPs should do this tax time

  1. Review your organisation’s purpose, governance and obligations. Check that the purpose in your governing documents reflects what you do and make informed decisions with your board to prepare for annual general meetings.

  2. Update your contact details so you can get digital ready. Remember to include important office bearer changes in your annual general meeting minutes and use our handover checklist to record key information.

  3. Get digital ready and set up myGovID so you can access Online services for business.

Taken from the Australian Taxation Office Media Release on 12 September 2023. 

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