Understanding the New Reporting Rules for Not-for-Profits in Australia

Starting from 1 July 2023, thousands of self-assessing not-for-profits (NFPs) entities in Australia must lodge annual self-reviews to maintain their tax-exempt status with the first report due to be lodged in the period from 1 July 2024 to 31 October 2024. These new reporting requirements are aimed at enhancing trust and confidence in the sector and ensure that only entities that are eligible for tax concessions are able to access them. Failure to comply with these rules by the 31 October deadline could result in losing their tax-exempt status.

A government entity or a charity registered with the Australian Charities and Not-for-profits Commission (ACNC) are not required to lodge an NFP self-review return. Charities already lodge an annual information statement to the ACNC each year.

The Australian Taxation Office (ATO) has recently emphasised the importance of not panicking and encourages organisations to seek guidance and support. Many NFPs have expressed concerns about their ability to meet the new requirements, especially those operated by volunteers with limited legal or accounting expertise.

To help you prepare for the changes, we have outlined opportunities for reassessment, what to expect, where to go for help and what you need to do now.

Opportunity for Reassessment of NFP Status

Organisations that previously considered themselves income tax-exempt but now find they have a different status should identify this change promptly to prepare for reporting. It is anticipated there may be two key groups for whom this reporting may flag a potential change in their status:

1. Entities with only Charitable Purposes:  Organisations that are currently self-assessing as income tax-exempt but whose purposes are purely charitable may need to seek endorsement from the Australian Charities and Not-for-profits Commission (ACNC). If their activities align with the statutory definition of charity and meet ACNC registration requirements, they should engage with the ACNC to obtain the appropriate classification.
2. Organisations with Multiple Purposes:  NFPs with multiple purposes, not all of which qualify for tax exemption, may need to reassess their classification. For example, a sports club engaging in substantial social or recreational activities beyond promoting the sport might not qualify. Similarly, organisations where members receive benefits could be disqualified from claiming an exemption. Entities not meeting the criteria for tax exemption must file income tax returns and pay taxes on any assessable income. For some, this may involve applying the principle of mutuality to determine the assessable income value. If an entity does not meet the criteria to self-assess but has no assessable income (e.g., a mutual organisation with only member income), an annual declaration stating no return is needed may suffice.

Critical Aspects of the New Reporting Requirements

• Annual Self-Review Lodgment: Self assessing NFPs must complete an annual self-review and submit it between 1 July and 31 October each year. This review assesses whether the organisation continues to meet the criteria for tax exemption.
• Affected Organisations: The changes target non-charitable NFPs with ABNs. This includes a wide range of organisations such as community groups, sports clubs, and social enterprises.

Where to Go for Help

The ATO is committed to being understanding and supportive, especially for those who engage honestly and proactively. To help support you they have ask for you to:

• Review the Guidance Materials: Comprehensive guidance materials are available on the ATO’s website.
• Engage with your advisor and ATO early: If you are struggling to meet the new obligations, we encourage you to speak to your advisor or the ATO directly.

Steps to Take Now
To ensure your NFP is ready for the new reporting rules, consider the following steps:

1. Update Contact Information: Ensure your ABN registration details are current.
2. Review Governing Documents: Ensure your governing documents are up to date and meet the criteria for tax exemption.
3. Review NFP Potential Change in Status, see below opportunities and or re-assessment of NFP status.
4. Set Up myGovID: Link your myGovID to the NFP’s ABN for online services access.
5. Prepare for Lodgment: Familiarise yourself with the NFP self-review return questions and prepare your responses.
6. Contact your advisor: Consult with your Morrows advisor or legal professionals if you need assistance with reviewing NFP status, the self-review process, lodgment and next steps to ensure compliance.

While the new reporting rules for NFPs may seem daunting, your organisation can navigate these changes successfully with the right preparation and support. For more detailed information and resources, visit the ATO’s website here.