Clubs and associations claiming income tax exemption: be aware ATO reporting update
The ATO is going full steam ahead with its proposal to require not- for-profit entities which self- assess as income tax exempt (sporting clubs, community service organisations, industrial, agricultural, scientific associations and similar), to lodge an annual review report as from 1 July 2024.
In Straight from the source – August 2023 | Australian Taxation Office (ato.gov.au), Assistant Commissioner, Jennifer Moltisanti says about the proposal:
Income tax exemption, however, is not automatic. The law provides conditions and requirements that must be satisfied for not-for-profits to be entitled. From a tax perspective, the new reporting requirements, that came into effect on 1 July 2023, requiring non-charitable not-for-profits to lodge an annual review return, are aimed at ensuring only eligible not-for-profits access income tax exemption. This is important because trust and confidence underpin our administration of an effective tax system. While the community expects government policy to support the not-for-profit sector, it also expects the ATO to ensure only eligible not-for-profits access tax concessions; and that we deal effectively with those seeking to undermine the sector.
On the information provided by an NFP in this report, the ATO will assess whether an NFP entity is (and has been) entitled to claim income tax exemption.
This will include an assessment by the ATO of whether the NFP is:
- compliant with the NFP requirements,
- compliant with its substantive rules, and
- applies its income and assets solely for the purpose for which the entity was established.
If the ATO identifies that an NFP should not be claiming income tax exemption, significant adverse outcomes would include the requirement to lodge a tax return, an assessment of income tax payable including for past periods, and in some cases the imposition of penalties and prosecutions.
For more information about the proposal also see Enhancing the Transparency and integrity of Not-for-Profits on the ATO website.