Senate to probe impact of ATO tax changes on NFPs

The inquiry follows a motion by Senator Dean Smith, Opposition charities spokesperson, which calls for a public hearing into the ATO's requirement for non-charitable NFPs to lodge a self-review return.

The motion was unopposed.

Senator Smith described the decision as a significant win for NFPs, many of which have raised concerns about the complexity and poor communication of the new regulations.

“This motion is the result of growing concerns raised with me by anxious, sometimes angry, not-for-profits across Australia,” he said.

“The Coalition recognises how flawed Labor’s implementation of these reporting requirements has been – and how it is sapping the energy and motivation of organisations whose communities rely on them.”

The inquiry by the Senate Economics References Committee is due to report on its findings by 31 October.

Under the new tax rules, NFPs must lodge returns with the ATO or risk losing their eligibility to claim income tax exemptions.

The introduction of the changes last year sparked a dramatic spike in the number of NFPs seeking to be registered as charities with the Australian Charities and Not-for-profits Commission, in a bid to keep their tax-exempt status.

Senator Smith said many of the NFPs affected by the ATO changes were small organisations such as sporting clubs or community groups focused on delivering services and supporting their local communities, with limited capacity to deal with regulatory burdens.

He said many of these groups have described a chaotic rollout process, characterised by vagueness and poor communication.

“Running a not-for-profit should be encouraged by ensuring administrative obligations are straightforward and well managed by government – and this is currently having the opposite effect,” said Senator Smith.

He said the inquiry would provide a forum for NFPs to share their experiences and hear from representatives of the ATO and other government agencies.

“I look forward to working with colleagues and stakeholders to explore how to deliver better outcomes for the not-for-profits sector.”

Community Council for Australia (CCA) CEO David Crosbie welcomed the inquiry into a regulatory change that was proving to be onerous for small NPS.

“This measure was never meant to make every small local NFP do all the MyGov ID level two security access process, then ensure the person nominated when the organisation first got their ABN was the person completing the MyGov ID, and the return, and then apply an assessment process that doesn’t always make sense,” he said.

Mr Crosbie said the new reporting requirements were presented to the CCA and others as having a risk focus, partly to prevent tax avoidance by some groups.

While CCA supported the changes, Mr Crosbie said this was always on the basis it was aligned to a threshold commensurate with the level of risk.

“A threshold of around $1 million for example might justify all the resources and effort required from the ATO, community groups and others to pursue any possible tax avoidance,” said Mr Crosbie.

“(But) the risk of lost revenue from the more than 100,000 very small (under $50,000 turnover) volunteer run NFPs is negligible.”

Mr Crosbie said the ACNC already collected annual returns from all charities and it - rather than the ATO - was the appropriate vehicle to collect annual returns from NFPs.

This aligned with a proposal from an independent review of the ACNC in 2018 that the charities regulator collect annual returns from all self-assessed income tax exempt NFPs with a turnover above $1 million.

“Why is the ATO collecting annual returns from every small NFP in the country?” said Mr Crosbie.

“No-one wants people to be able to avoid their taxation obligations by claiming to be an income tax exempt NFP, but this measure is creating a lot of extra work and raising concerns for many while providing very limited if any tangible benefit.

“Surely we can do it better than this?”

ATO Assistant Commissioner Jennifer Moltisanti has consistently defended the changes and the way they have been communicated to the NFP sector.

She acknowledged that not all sector organisations hold the same view but said these “rumblings of ‘pockets of confusion’ were exacerbated by misunderstandings.”

More information

Opposition pushes for Senate inquiry into NFP tax changes

Tax office rules out simplifying new self-reporting rules

NFP tax shift under the microscope

Tax changes for NFPs causing confusion