Taxing time ahead for Australian not-for-profits with new tax exemption rules

Australian not-for-profits risk losing their eligibility for income tax exemption and face hefty penalties if they fail to comply with more stringent reporting obligations due later this year.

The Australian Taxation Office last year introduced changes requiring NFPs to complete an annual self-review return to continue their access to income tax exemptions. The first self-review return, which consists of between 10 to 15 questions, is due between July 1 and October 31.

The changes are aimed to enhance transparency, uphold system integrity and guarantee fair access to tax exemptions and concessions.

HLB Mann Judd says there are about 600,000 NFPs in Australia and only 60,000 registered charities will be exempt from the new requirements.

HLB Mann Judd tax consulting partner Gaurav Chitnis said the changes applied a broad brush approach in a push for increased transparency, which will impact grassroots community organisations such as sporting clubs, and cultural associations.

Under the updated system, the Commissioner of Taxation will be able to consider removing an NFP’s tax exemption or impose penalties for non-compliance with reporting.

“My concern is that these smaller NFPs are often run by volunteers and this imposes another responsibility on them that they may be either unaware of, relies on organisations to have the internal capability to self-report or the finances to seek external advice,” Mr Chitnis said.

“Rather than opt for targeting specific types of entities or putting in place reporting criteria based on income thresholds, these regulations are based on a catch-all model.”