NFPs: Get ready for annual reporting of self-assessment of income tax exemption eligibility

In the June 2021 Tax Update (click here) we covered an announcement in the 2021-22 Federal Budget that will have widespread application across the not-for-profit sector. The issue is summarised below.

2021–22 Federal Budget announcement

As part of the 2021–22 Federal Budget, the Government has announced that it will enhance the transparency of income tax exemptions claimed by NFPs. It will do this by providing $1.9 million in capital funding to the ATO in the 2022–23 income year to build an online system to enhance the transparency of income tax exemptions claimed by NFPs.

From 1 July 2023, income tax exempt NFPs with an active ABN will be required to submit online annual self-review forms reporting information they ordinarily use to self-assess their eligibility for the exemption.

So what should an NFP be doing now?

With the 2021 financial year ended we recommend that NFPs that will be impacted by the changes ( e.g. sports bodies, community groups etc) should consider implementing more formal self assessment reviews of ongoing eligibility to income tax exemption.

Whilst the exact requirements of the new ATO requirement to submit online annual self -review forms are not yet known a great place to start (and particularly as a way of identifying any issues that may exist) is to complete existing ATO self-assessment forms.

The current ATO self assessment process is a great way for NFP’s to start preparing for this upcoming change.

Hopefully completing the process doesn’t throw up any unexpected issues but if it does it gives the NFP a chance to work through the issues before the formal reporting obligation begins.

Click here to access the ATO self-assessment process.

This article provides a general summary of the subject covered and cannot be relied upon in relation to any specific instance. It is not intended to be, nor should it be relied upon as, a substitute for professional advice. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use.