Hundreds of thousands of not-for-profit (NFP) organisations in Australia are facing more stringent reporting obligations that could result in loss of tax-exempt status and carry potential penalties from the Australian Taxation Office (ATO) for non-compliance.

As of July 1, NFPs of all sizes will need to lodge an annual self-review return to the ATO to continue to access income tax exemptions.

There are up to an estimated 600,000 NFPs in Australia, and only 60,000 officially registered as charities (plus those already paying tax) will be exempt from the reporting requirements.

The changes apply a broad brush approach in a push for increased transparency which will impact grassroots community organisations such as sporting clubs and cultural associations covered by the new rules.

Under the updated system, the Commissioner of Taxation will be able to consider removing an NFP’s tax exemption or impose penalties for non-compliance with reporting.

These changes were first mooted in the 2021-22 Federal Budget but there has been limited discussion or information since and the self-review ‘return’ is still to be released.

Smaller NFPs are often run by volunteers, and there are concerns that these changes not only add further responsibility but also rely on organisations to have the internal capability to self-report or the finances to seek external advice.

Rather than opt for targeting specific types of entities or putting in place reporting criteria based on income thresholds, these regulations are based on a catch-all model.

NFPs should continue to monitor ATO updates on the changes or, if able, consider seeking professional advice on their obligations.