consequences for non compliance with tax legislation
A not- for- profit entity (NFP) is an entity that is operating for its purpose and not for the profit or gain (either direct or indirect) of its individual members whilst it operates or on its winding up.
An NFP may be take the legal form of a company, association or trust.
Not all not-for-profit entities are tax exempt.
NFP organisations fall within two broad categories:
- charities
- organisations that are not charities, for example, most sporting and recreational clubs, community service organisations, professional and business industry associations, trade unions, hospitals, primary and secondary resource associations, tourism industries and social organisations.
Charities must register with the Australian Charities and Not-for-profits Commission (ACNC) to be endorsed for tax concessions or apply for certain categories of deductible gift recipient (DGR) status.
Other NFP’s, which are not charities, may self-assess whether they are income tax exempt or taxable.
From 1 July 2023, it will be mandatory for all not-for-profits that self-assess as income tax exempt to lodge an annual self-review return with the ATO, as from the 2023–24 income year.
On the information reported, the ATO will be in a position to 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.
The ATO is still designing the return, so we do not know what an NFP will be required to report, however guidance can be obtained by looking at the existing form on the ATO website for a self- review (which is not required to be lodged) see the non profit self-review page on the ATO's website.
As the report will be required for the 23/34 year (which starts on 1 June 23), all NFPs who are self- assessing as tax exempt must now be collecting the data needed to complete the report.
The ATO has advised NFPs to ensure contact details on the ABN are current.
If you need assistance please contact Lesleigh.