Self-assessment by tax exempt non-profit organisations

Currently, non-charitable NFPs can self-assess their eligibility for income tax exemptions without an obligation to report to the ATO.

The tax legislation lists 32 classes of entities under five categories that are exempt from income tax, being:

• charity, education and science;^[1]
• community service;^[2]
• health;^[3]
• primary and secondary resources and tourism;^[4] and
• sports, culture and recreation.^[5]

The largest categories by number are sporting organisations and community service organisations. Community organisations are usually traditional service clubs, child care and playgroup organisations, and senior citizens’ associations.  Although some of the categories overlap with what would be regarded as charitable purposes, any charity registered with the ACNC cannot claim an exemption under these overlapping categories.

These exempt organisations are not required to file income tax returns and the ATO currently advises that these organisations should perform a self-assessment check annual to ensure that they still fall within the tax exempt category.

However, it is proposed that from 1 July 2024 for the 2023-24 tax year, the ATO will require income tax-exempt organisations with an active Australian Business Number (ABN) to submit online annual self-review forms with the information they ordinarily use to self-assess their eligibility for the

This was announced as part of the 2021-22 federal budget, where the government announced that it had provided $1.9 million for the ATO to build an online system to enhance the transparency of income tax exemptions claimed by exempt nonprofit entities.

The primary reason was that the measure would ensure that only eligible organisations are accessing income tax exemptions.

If organisations are found not to be tax-exempt, then after passing the income threshold of $416 they will be assessed for income tax and required to file an income tax return.

The ATO is currently engaging with stakeholders such as professional bodies and sector peak associations to design the process of self-assessment and filing of these documents.^[6]

Exempt organisations should ensure that their self-assessment documents are in order and will pass ATO scrutiny in the future.

[1] Div 50 items 1.1–1.7 ITAA 1997.

[2] Ibid item 2.1.

[3] Ibid items 6.1–6.3.

[4] Ibid items 8.1–8.4.

[5] Ibid items 9.1–9.2.

[6] Refer The ATO Assistant Commissioner, Not for Profit Centre and Government in their monthly blog, Straight from the source – April 2022 – https://www.ato.gov.au/Non-profit/Newsroom/General/Straight-from-the-source—April-2022/

Article by:

Myles McGregor-Lowndes
Consultant
Email Myles