What you need to know
- The ATO will receive funding in the 2022-23 income year to build an online system for non-for-profits (NFPs) to submit annual self-assessment forms to confirm their ongoing eligibility for income tax exemption. From 1 July 2023, not-for-profits will be required to complete an annual self-review to confirm their income tax exempt status.
- The Australian Charities and Not for profits Commission (ACNC) register will be updated to include links that disclose a registered charity's electoral expenditure.
What you need to do
- Income tax-exempt NFPs with an active ABN will be required to complete an annual self-review of their eligibility for the income tax exemption. NFPs will need to submit this review online through the ATO online portal.
- Registered charities should be aware of the greater visibility of their electoral activities.
Self-assessment and transparency of electoral activities for charities and NFPs are set to change as a result of the release of the Australian Federal Budget 2021-2022 and new regulation amendments under the ACNC legislation. In order to comply with their taxation obligations, income tax exempt NFPs will be required to complete a self-review of their eligibility for the income tax exemption from 1 July 2023. Additionally, the ACNC Commissioner will be required to update registrations on the ACNC register to include links which disclose the political electoral expenditure of charities.
Greater transparency around electoral expenditure
The Australian Charities and Not for profits Commission Amendment (Register Information) Regulations 2021 were registered on 30 April 2021 and will commence on 30 July 2021. These regulations amend the Australian Charities and Not-for-profits Commission Regulation 2013 (ACNC Regulations) and are intended to better inform the community about the political expenditure and activities of charities involved in the electoral process.
In particular, the regulations insert an additional item in the table at section 40.1 of the ACNC Regulations, requiring an electronic link to be included on the ACNC Register to the part of the Australian Electoral Commission's Transparency Register which relates to a registered charity. The Transparency Register includes the details of a charities' political donations used for electoral expenditure.
Broadly speaking, "electoral expenditure" is expenditure incurred for the dominant purpose of creating or communicating "electoral matter". "Electoral matter" is matter communicated for the dominant purpose of influencing the way electors vote in a federal election, including by promoting or opposing a political party or candidate or a member of the Commonwealth Parliament.
Charities engaging in electoral activities should be aware of the increased visibility of their political expenditure. This is particularly important as the promotion or opposition of a political party or candidate can disqualify an organisation from registration as a charity with the ACNC.
New income tax exemption self-assessment requirements
As part of the newly handed down Australian Federal Budget for 2021-2022, the Treasurer has introduced changes aimed at increasing transparency in respect of income tax exemptions granted to certain non-charitable not for profits.
Many non-charitable not for profits (eg community service, sporting, recreational or agricultural organisations) are able to self-assess their eligibility for an exemption from income tax. From 1 July 2023, the ATO will require income tax exempt not for profits with an active ABN to complete an annual self-review of their eligibility for the income tax exemption and submit this online. This measure is intended to ensure that only eligible NFPs are claiming the exemption.
Authors: Geoffrey Mann, Partner; Samantha Marsh, Lawyer; and Hayley Young, Graduate.
