New tax task for Not-for-Profits

By John Corker, a local lawyer who holds a NSW pro bono practising certificate

For the first time this year, all Not-for-Profits (NFPs) with an active Australian Business Number (ABN) must lodge a self-assessment of their eligibility for income tax exemption.

For organisations with an income year ending 30 June, the self-review return is due by 31 October 2024. This change is “designed to enhance transparency and integrity in the system, by ensuring only eligible NFPs access income tax exemption”. This applies whether or not the organisation is incorporated.

Many small organisations in the Illawarra may be required to do this, particularly those whose main purpose is community service, cultural, educational, scientific, or sporting. The obligation to lodge this return is additional to the annual return to the NSW Department of Fair Trading that many local organisations now lodge.

Check whether your organisation is a NFP by looking at its governing documents and if it is, they will prohibit it from making any distributions (money, property or otherwise) to its members. You can also do an ABN check at ABN Lookup to see if your organisation has an active ABN.

Some organisations are exempt from having to lodge this return, particularly those registered as charities with the Australian Charities and Not-for-Profits Commission (ACNC).

The return must provide an estimate only of gross revenue as a small, medium or large organisation and self-assess whether the organisation falls within one of the income tax-exempt categories.

Lodging the return can be done through the ATO online services portal but that requires the organisation to set up its own MyGovID and Relationship Authorisation Manager (RAM). This in turn requires a strong identity strength for the individual doing it. Alternatively, you can lodge the return using a self-help phone service if you can’t access ATO online services. This arrangement is only available for this first 2023-24 income year.  The ATO asks that organisations ensure that their ABN details are up to date so they can send a letter to the person and address associated with the ABN.

Concern has been expressed that many small organisations will find these new tasks difficult to undertake. It will be interesting to see what level of compliance is achieved. The provisions do provide for a penalty to be imposed for failure to lodge in time, but extensions of time can be sought. Find details on the ATO website by searching ‘How to prepare an NFP self-review return.’