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Fears not-for-profit organisations don't have time or expertise to adapt to new ATO tax rules


Thousands of not-for-profit organisations (NFPs) fear their financial futures are under threat from a tax change set to kick in next financial year. From July 1, such organisations must notify the tax office of their tax exemption status for the first time, or start paying income tax. But as the deadline looms, there are concerns many NFPs don't have the time or expertise to adapt.

"Lots of these people can't afford lawyers and accountants," says Jenni Lightowlers, executive dean of Deakin University's Faculty of Business and Law. 

"There are 160,000 not-for-profit organisations and every single one of them has a lot of people that depend on them.

"Then suddenly we find those organisations may no longer be compliant with income tax exempt requirements."

NFPs are not automatically exempt from paying income tax. However, they can be granted a tax exemption if they either register as a charity with the Australian Charities and Not-for-profits Commission (ACNC), or comply with certain conditions. In the past, NFPs have had to self-assess their entitlement, but there hasn't been a requirement to report it to the tax office. That's about to change.

"From 1 July 2024, non-charitable not-for-profits with an active ABN are required to lodge an annual return to notify of their eligibility to an income tax exemption," said an Australia Tax Office (ATO) spokesperson. Glenroy Neighbourhood House manager Bec Drake believes paying tax would mean closing down. "It would be crippling," she said.

"We run purely on funding so any more expenses just aren't going to make us viable. That would be devastating."

That's not the intention of the new requirements. According to the ATO, the aim is to enhance transparency and integrity in the tax system, ensuring organisations that should pay tax don't dodge their obligations. Eligible NFPs can maintain their tax-exempt status if they comply with conditions. But sector representatives say doing so can be complicated — especially for small, volunteer-run organisations.

'Cash-strapped, time poor and under-resourced'

One of the organisations impacted by the new rules is the Australian Neighbourhood Houses and Centres Association, a peak body that represents about 1,000 houses and centres around Australia. Each one is tailored to its local area and offers different services accordingly. Glenroy Community House, north-west of Melbourne, offers a "chatty cafe", tai chi classes, employment classes, and assists with a disability work experience program, among others. During the past year it has also introduced food relief, with dozens of people filling their trolleys for free each Thursday. Ms Drake estimates the program feeds around 400 people every week. The service is staffed by participants in the centre's disability work experience program, along with local volunteers, and is funded by grants and donations. Ms Drake has to make $10,000 stretch until October and isn't sure where the next grant will come from.

"We're all cash strapped, time poor and under resourced," she said.

The centre almost closed in 2022, but Ms Drake and her team worked tirelessly to keep the doors open. She said the legislative changes added another level of pressure. "It's something I'll have to take time to learn about what's happening in the sector, because you don't get time to just sit at your computer and brush up on the latest things that are happening," she said. "You just want a condensed version so you can be compliant and do the right thing, but in a very short amount of time."

That's where a new online tool comes in. A free tool helping NFPs navigate the changes. The free tax tool was created when Cameron MacRae, who is chief operating officer for both the national peak body and Neighbourhood Houses Victoria, learned about the tax changes while studying for his master's degree at Deakin University. Working with experts there, he helped create an online guide to help neighbourhood house managers know where to start when it comes to complying.

"We can pick where they would need to address in their legal framework to see what work they'd have to do to get up-to-date, to either become or remain eligible for charitable status," Mr MacRae said.

"Most of our members have written up their founding documents decades ago and haven't revisited them since.

"Almost all the documents we review do not meet the requirements set out under the new requirements, so we need to act fast."

The tool guides managers through each step needed to make the necessary changes. It can also be used on an ongoing basis, to ensure organisations keep complying into the future. Since launching, Deakin University has received interest from other NFPs aside from Neighbourhood Houses. Professor Lightowlers said the university hoped to expand it for use by other charities. There is also other assistance being offered to not-for-profits. The ACNC is working with the sector's peak bodies to complete bulk registration applications, helping organisations like neighbourhood houses register as charities en masse. It is estimated about 700 neighbourhood houses in Australia are eligible for tax exemptions. The ATO is focusing on education and support by sending letters and publishing guidance online. It will soon launch a webinar series, and waive some of the time frames where necessary.

"Transitional support arrangements will be available for NFPs who need more time to meet their obligations," an ATO spokesperson said.

 "We encourage impacted NFPs to reach out to us or their registered tax agent if they need help understanding and meeting their obligations."

Taken from ABC News on March 30, 2024

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