Form of Reporting for Self-Assessing Not-for-profits
As from 1 July 2023, Not-for-profit entities which do not pay income tax and are not registered as charities, but which are eligible for exemption from income tax assessment and self-assess on that basis will be required to file a report with the ATO.
The report is new but the exercise of assessing on an annual basis whether income tax eligibility is still relevant to all Not-for-profits is required under existing regulations.
The ATO has for some time been concerned that not only are many Not-for-profit entities failing to conduct an internal review annually, but in some cases are actually not eligible to retain income tax exemption.
The Income Tax Assessment Act 1997 (Cth) will not be modified to achieve this power, but a legislative instrument called self‑assessing reform tool will be enacted.
It is expected that among the group of Not-for-profits affected, some will be eligible to register as charities and hence retain income tax exemption.
Others, which are genuinely eligible under Division 5.1 of the Income Tax Assessment Act 1997 (Cth) (see link: http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s5.1.html) will have an added administrative task of completing the review form and filing it with the ATO.
The ATO will assess all the material filed and if necessary, will require an entity to obtain a tax file number and file an income tax return.
It is anticipated the operation of the regime will be prospective from 1 July 2023 and not retrospective unless during the course of investigations, the ATO unravel serious fraud or some other abuse that cannot be ignored.
The form with questions has not yet been finalised but we can always assist in its completion if your organisation is uncertain of how to answer various questions. In preparation for this exercise, we suggest an accurate balance sheet and profit and loss statement should be prepared and relevant access to sources of income and records of that income as well as expenditures should be available.
The principal of mutuality should also be factored into the form and therefore any income paid to a Not-for-profit organisation by its members will not be counted as income, only income being received from external third parties.