In case you might have forgotten, following an announcement in the 2021 Federal Budget, organisations that used to have the option of self-assessing their income tax exemption status will soon be required to submit an annual self-review report (a return) to the ATO.
Impacted organisations will include non-charitable entities – those not endorsed by the Australian Charities and Not-for-profits Commission (ACNC) – that fall into the following eight categories:
- community services;
- scientific; and
- resource development (eg agricultural, horticultural, industrial, manufacturing, etc).
The new rules come into effect from the 2023–2024 income year. For June year-ends, the first year affected is therefore the year ending 30 June 2024. Typically, organisations with December year-ends are “early balancers” and therefore will first need to lodge a return for the year ending 31 December 2023. The return forms will become available from 1 July 2024 and will need to be lodged by 31 October 2024.
There is no change for not-for-profits that are subject to income tax, such as some membership organisations that mainly provide benefits to members, and are already required to lodge income tax returns.
Lodgment will be via an online form that can be completed by either the entity themselves, or their tax agent. Once an organisation has lodged its first return, the ATO will produce a pre-populated form for future years. In future, organisations will need to either simply lodge their pre-filled annual confirmation or update the return with any new information before lodging.
Where entities don’t lodge the required form, they face possible consequences, including being ineligible for income tax exemption, as well as financial penalties.
The ATO has indicated that the questions included in the return form will be designed to guide organisations in the consideration of their purpose and activities.
For many organisations, these requirements will be a minor extension of their regular self-review procedure, which they may already be conducting. For others, this may be very new, and perhaps an escalation in terms of the organisation’s governance practices.