Federal Budget 2021-22: increased regulation of not-for-profits self-assessing as income tax exempt

From 1 July 2023, not-for-profits (NFPs) with an active Australian Business Number that self-assess as income tax exempt will be required to lodge an annual self-review form, along with the supporting documentation that would ordinarily be used in the self-assessment, in order to claim an exemption.
NFPs that fail to lodge a return may become ineligible for an income tax exemption and subject to penalties.

The measure was announced in the recent Federal Budget and is designed to enhance transparency in the NFP sector and ensure only eligible NFPs are accessing income tax exemptions.

Currently, NFPs that are not registered as charities with the Australian Charities and Not-for-Profits Commission (ACNC) but self-asses their eligibility for an income tax exemption are required to review and document the basis on which they self-assess. However, they have no obligation to report the outcome of such assessment to the ATO or ACNC.

The reforms will impact NFP entities such as sporting, tourism and resources organisations. While the reforms will add a level of compliance to such organisations, they may also provide certainty as to their eligibility for an income tax exemption.

The reforms also serve as a reminder to new and existing NFPs to ensure they regularly review their entitlement to the exemptions they are claiming and keep their records, including financial records, up to date and in order.