Draft Regulations for NPO Self-Review Assessment Return Released

We have previously written in bulletins about the forthcoming self-assessment tax review for non-profit profit organisations which have an Australian Business Number (ABN) but are not registered as charities with the ACNC – Be alert to being alarmed on viewing your club or society annual report this year and self-assessment by tax-exempt.

The background is that as part of the 2021-22 federal budget, the government announced that it had provided funding for the Australian Taxation Office (ATO) to build an online system to enhance the transparency of income tax exemptions claimed by exempt not-for-profit entities.

The reasons given were:

• Currently non-charitable NFPs can self-assess their eligibility for income tax exemptions, without an obligation to report to the ATO. From 1 July 2023, the ATO will require income tax exempt NFPs with an active ABN to submit online annual self-review forms with the information they ordinarily use to self-assess their eligibility for the exemption.  This measure will ensure that only eligible NFPs are accessing income tax exemptions.
• This announcement appears to be related to one of the recommendations of the Australian Charities and Not-for-Profits Commission (ACNC) Review, which recommended that large non-profit organisations (not charities) with a revenue of over $5 million be required to register with the ACNC to access tax concessions.
• At the time, the ATO advised the ACNC Review that of the 130,000 income tax-exempt not-for-profits on its records, approximately 580 had estimated revenue (GST turnover) of $5 million or more.

The Government did not accept the recommendation and instead would consider options for tightening the ATO’s existing regulatory framework for not-for-profits.

A draft regulation (Taxation Laws (Requirement to Lodge a Return for the 2024 Year) Instrument 2024) was published for public consultation on 12 March 2024 with a draft explanatory statement. Comments were due by 9 April 2024.

This regulation is similar to the annual ATO regulation, which empowers the Commissioner of Taxation to set the format and timing of various types of tax returns. However, this year includes the provision for the self-assessment review return.

The regulation states, “Every person must lodge a return if they were an entity whose income is exempt from income tax under Division 50 of the ITAA 1997 during the 2024 year”.

The provision exempts registered ACNC charities or those specifically named in Division 50, such as the British Phosphate Commissioners Banaba Contingency Fund or a wholly-owned subsidiary of International Cricket Council Limited, for certain amounts. A government body specified in the division is also excused from filing the return.  An Australian resident non-profit company with a taxable income of less than $416 for the year is also exempted.

The ATO has indicated that it will write to all non-profit organisations with ABNs on its records about the self-assessment review in the coming months and hold public webinars.