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Straight from the source – April 2022

In the last week of March, we welcomed staff back to the office in most of our sites across Australia. It is wonderful chatting with colleagues, some of whom I haven’t seen for almost 2 years. As I walked the floor checking in with staff, I noted that most people were transitioning well, eager to embrace new opportunities and get on with their jobs.

Straight from the source – April 2022
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There is, however, an underlying sense of fatigue that lingers in the air; I have felt it; and others around me have also acknowledged it. This fatigue relates to the all too frequent natural disasters we have lived through, the impacts of the global pandemic, the war in Ukraine and all the consequential issues that continue to test our resolve.

Addressing fatigue is important in all sectors and especially in the not-for-profit sector which has experienced many challenges in delivering important services during the pandemic.


Key current issues for not-for-profits

At our first Not-for-profit Stewardship Group meeting for 2022, members spoke about the diversity of the sector and the issues confronting not-for-profit organisations including: impacts of disasters, especially in regional areas; lack of skilled staff; ongoing integration and upskilling of new staff since COVID restrictions have lifted; and general sector weariness.

Members also noted that many not-for-profits invested in their organisation and their personnel during the pandemic, making shifts to their operating practices to continue providing valuable services to our most vulnerable communities.

Our stewardship groups are our key consultation forums in the ATO, and we rely on members to help us shape the tax and super systems. We recently refreshed the Not-for-profit Stewardship Group, welcoming 7 new members and farewelling 5 who stepped down to join our broader not-for-profit network.


Reform to reporting for self-assessed income tax exempt not-for-profits

In our first meeting for 2022, we heard that many in the sector are asking questions about how we intend to implement the government reform pertaining to self-assessed income tax exempt not-for-profits. I’ve also responded to enquiries about the approach we will take to designing and implementing the new reporting requirement.

Given the level of interest, I’d like to dedicate this blog to all self-assessing income tax exempt not-for-profits and provide our commitment that we will work with you to understand your needs and design an effective solution for the new reporting requirement.

Having worked with many not-for-profits over the years and having served as a board director, I understand that some organisations may be nervous. Indeed, some may even fear engaging with the ATO, although we’re really not that scary.

The best way of addressing these concerns is calling out the facts and addressing the myths, through 5 key points.


When are self-review returns due?

Firstly, the Federal Government reform comes into effect from 1 July 2023 and will require not-for-profits with an active ABN who self-assess as income tax exempt to submit a self-review return each year. The first return will need to be lodged for the 2023–24 income year. The 2023–24 year ends on 30 June 2024 which means the earliest anyone will be able to submit a return to us is 1 July 2024. This means we have time; just over 2 years. And, remember, the reform only applies to those not-for-profits with an active ABN.


Is a self-review return the same as an income tax return?

The second point is that the self-review return is not an income tax return and will not look like an income tax return. In lay terms, the return will be a form, building on the current worksheet, that will most likely comprise several questions. These will be based on information that self-assessing income tax exempt organisations should be familiar with, given they should already be regularly reviewing their entitlement to income tax exemption under the existing tax law.

While we know many organisations may not have reviewed their entitlement to income tax exemption as diligently as they should, we don't intend to take a retrospective approach to implementation. Rather, we're focused on organisations getting it right going forward. This means that if after reviewing eligibility, you find you are charitable, we will transition you to register with the Australian Charities and Not-for-Profits Commission (ACNC); the charity regulator. Conversely if you find you are taxable, we won't direct our compliance resources to looking at history. Instead, we will engage with you to ensure future behaviour complies with reporting requirements. Of course, the ATO reserves the right to conduct compliance where it has reason to believe deliberate tax evasion or fraudulent behaviour has occurred.


How time consuming will it be to complete a self-review return?

The third point I'd like to highlight is that we will streamline the reporting requirement. This means that while organisations will be required to submit the return every year, we'll use the information provided in your first return to pre-fill subsequent returns for you to confirm or amend.

We’ve heard that some organisations are nervous about what a new reporting obligation will mean for them and that there's concern the process will be hard to follow, complex or time intensive – taking them away from their true purpose of serving the community. To address these concerns, we're working closely with the sector to design the self-review system. We opened consultation in March; inviting self-assessing not-for-profits, tax and legal professionals and peak associations to talk to us about the reform. The key focus is to understand:

  • how not-for-profits currently self-assess eligibility for income tax exemption under the existing tax law
  • the type of guidance and support we can develop with the sector, to create easy-to-follow guidelines that will help not-for-profits meet the new reporting requirement
  • how we can streamline the form to minimise ongoing reporting requirements.

We'll continue to invite organisations to talk with us as we design the self-review system. Between now and 2024, some of our engagements may include attending peak association events and regional information sessions to walk you through and test the self-review return.


How can my organisation influence this change?

On this basis, my fourth point is that we will work with all affected organisations to address your needs. You have an opportunity to influence the design if you want to work with us.


Should my organisation be concerned about what this change means?

My fifth and final point is really to reassure the sector that there's nothing to fear. The reform was announced by the government to instil confidence that only eligible not-for-profits access income tax exemptions. It provides transparency over the largest part of the not-for-profit sector providing confidence organisations are operating for purpose and using concessions appropriately. This is important because it justifies the trust placed in them by the Australian community.

I know it’s a big change, but we have time, and we're working with the sector to make reporting as easy as possible. I’m confident that together we can make your experience with the new self-review system a positive one.

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