Navigating Income Tax Exemption: A Guide for Not-for-Profit Entities in Australia

New reporting requirements

Managing your not-for-profit’s (NFP) income tax exemption is crucial for sustaining your organisation’s mission-driven initiatives. If your NFP holds an active Australian Business Number (ABN), understanding the intricacies of the new NFP self-review return is essential to maintain your tax-exempt status.

The NFP Self-Review Return

Commencing from the 2023–24 income year, NFPs with an active ABN must lodge a self-review return to remain entitled to access income tax exemption. The self-review return will require the organisation’s governing body to evaluate the entity’s purpose and activities against specific requirements outlined by the Australian Taxation Office (ATO). If you don’t complete the review, the ATO may require you to lodge an income tax return and crucially, pay income tax on any profits!

Who Needs to Lodge?

The self-review return is obligatory for NFPs seeking income tax exemption. However, it’s important to note that only taxable not-for-profits will be liable to pay taxes on their income. To determine your eligibility and self-assess accordingly, the NFP self-review return acts as a comprehensive guide. This process facilitates compliance and transparency in reporting to the ATO.

Exemptions and Non-Reporting Entities

Government entities and charities registered with the Australian Charities and Not-for-profits Commission (ACNC) are exempt from the NFP self-review return requirement. Charities already submit an annual information statement to the ACNC, fulfilling their reporting obligations.

Similarly, taxable not-for-profits are not mandated to lodge the self-review return, as they already submit an income tax return or notify the ATO of a non-necessary return each year.

Preparing for Annual Reporting

To facilitate a smooth lodgement process, NFPs should prepare in advance by ensuring their governing board reviews and updates the organisation’s contact details, including ABN registration information. Additionally, a comprehensive review of the organisation’s main purpose and governing documents will be essential to be able to complete the annual review.

Warning: You may be inappropriately registered!

If you haven’t assessed your organisation’s eligibility to self-assess as for income tax exempt before now, you should start familiarising yourself with the eligibility criteria.

Additionally, if your organisation meets the criteria to be a charity registered with the ACNC, it must register to maintain its income tax exemption. In essence, if your not-for-profit has a charitable purpose, registering with the ACNC is likely necessary. A charitable purpose is the reason a charity has been set up, and what its activities work towards achieving and includes:

• advancing health
• advancing education
• advancing social or public welfare
• advancing religion
• advancing culture
• promoting reconciliation, mutual respect and tolerance between groups of individuals in Australia
• promoting or protecting human rights
• advancing the security or safety of Australia or the Australian public
• preventing or relieving the suffering of animals
• advancing the natural environment
• other similar purposes ‘beneficial to the general public (a general category)
• promoting or opposing a change to any matter established by law, policy or practice.

Advancing includes protecting, maintaining, supporting, researching and improving.

Timeline

Organisations can lodge the NFP self-review return for the 2023–24 financial year anytime between July 1 and October 31, 2024. This provides a four-month window for submission, ensuring ample time for meticulous review and accurate reporting.

Lodgement Methods

The return will need to be submitted online through the ATO’s Online Services for Business. Alternatively, organisations can engage a registered tax agent to lodge on their behalf, streamlining the lodgement process.

Setting up myGovID

Setting up a myGovID with either Standard or Strong identity strength is a prerequisite for online submission. Linking myGovID to the NFP’s ABN in the Relationship Authorization Manager (RAM) enables seamless access to Online Services for Business.

Some more information here myGovID to replace AUSkeys | WLF Accounting & Advisory

Need help or assistance?

If you have any questions or concerns, contact your WLF advisor for more information.