Senate Inquiry into matters relating to Not-For-Profit Entities Tax Assessments

The AICD’s submission focuses on the impact arising from the ATO NFP reporting requirement, that have been brought to our attention by concerned members. The ATO has described this requirement as the biggest change to the sector since the ACNC was established.

The AICD’s key points were:

• We support the policy intent of increasing transparency and enhancing trust and confidence in the sector by ensuring only eligible NFPs access income tax exemptions. However, we share concerns raised by some stakeholders on the impact on NFPs, especially smaller organisations heavily reliant on volunteers. To our knowledge, neither a regulatory impact statement nor cost-benefit analysis has been published on the estimated administrative costs for NFPs in meeting the requirement. 
• Based on feedback from members and other NFP sector experts, we note significant confusion on the application of the NFP reporting requirement. Our members have observed that this confusion can be attributed to incomplete and inconsistent communications and advice being provided to NFPs from the ATO and ACNC. 
• The absence of clear, consistent and comprehensive guidance from the ATO, the ACNC and relevant state regulators has led to NFPs seeking additional legal advice and incurring extra costs (including volunteer time), that would have otherwise been directed towards the NFP’s core purpose. Smaller NFPs should be able to complete the self-review return without needing to draw on specialised expertise, either in accounting or tax.

We support the policy intent of the non-charitable NFP reporting requirement as increasing transparency and trust in the NFP sector. However, we are of the view that the implementation should be risk-based, staggered, and harmonised with other thresholds and regulations to reduce the impact on NFPs. We made several recommendations:

• Tiered reporting thresholds - The ATO should consider developing reporting thresholds based on a proportionate and risk-based approach, such as the ACNC's based on revenue. We have previously called for further harmonisation of thresholds and regulations for charities, incorporated associations and NFPs.
• Transition period – The ATO should extend the transitional support period beyond 31 March 2025 for self-assessing income tax exempt NFPs to meet lodgement obligations without penalties. Combined with tiered reporting thresholds, this would assist the ACNC to process the backlog of charity registration applications.
• Joint guidance - The ATO, ACNC, and relevant state regulators should develop better joint guidance and ramp up staff training on this guidance to ensure correct and consistent information to assist NFPs to confidently comply. An easily accessible single source of truth is needed to ensure advice is fit-for-purpose for the range of different NFPs. For example, given the size of the NFP reporting cohort, the ATO should consider developing a public ruling as binding guidance.