There is a common misconception held by many NFPs that being a NFP, they are exempt from paying income tax. From 1 July 2023, the Self-Assessing NFP measures will change and those organisations who have incorrectly self-assessed as being income tax exempt may potentially expose themselves to retrospective penalties and interest charges.

The income tax exemption categories and requirements have changed several times over the years and because of this, many NFPs may have misunderstood their eligibility for being tax exempt. For many of the exempt entity types, your organisation must be ‘not-for-profit’ and also meet the following conditions:

1 pass one of three tests

2 comply with all the substantive requirements in its governing rules

3 apply its income and assets solely for the purpose for which it is established.

The reforms announced by the Federal Government will apply for those NFPs with an active ABN and are eligible Self-Assessing NFPs. The intention of the reforms is to enhance trust and confidence in the sector by ensuring only eligible NFPs access income tax exemptions, and that NFP and for-profit entities operate on a level playing field.

What will change

Not-for-profit entities who currently self-assess as income tax exempt will be required to take extra measures to confirm eligibility for that entitlement. From 1 July 2023, Self-Assessing NFPs must submit an online annual self-review form with the ATO outlining the information they ordinarily use to self-assess their eligibility for an income tax exemption.

The steps you should take

1 Review and reassess your eligibility position

2 If historical errors identified, making a voluntary disclosure at the earliest time will be favoured by the ATO.

3 Keep your board and relevant stakeholders informed

4 Make changes to the way you set budgets and manage cashflow.

We’re ready to help. Contact your Accounting Services Director or Manager on +61 3 9820 6400.

Read About Eligibility
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