1. The policy is a carry-over from the previous government that has evolved beyond its original purpose to impose a major burden on the NFP sector

The policy of requiring self-assessed income tax exempt organisations to provide an annual return was never meant to make small local NFPs update and use the Australian Business Register, do all the MyGov ID level 2 security process, and then complete a newly imposed assessment process. 

The measure, as CCA has been informed, was always framed around risk, that is, risk of lost government revenue.  

The risk of lost revenue from 140,000+ NFPs with an active ABN is negligible.  Less than 20% of these organisations register for GST, less than 10% pay payroll tax, and 80% currently use no professional services in relation to tax. What we know about these groups suggests the vast majority are volunteer run, and turnover less than $50,000.

We are mostly talking about micro-organisations. 

No evidence has been produced to indicate a pattern of tax avoidance amongst these organisations.  If there was, the amount of tax avoided, in most cases, would be minimal.

Groups, including CCA, have supported the measure, but only with an appropriate threshold so that it’s commensurate with the level of risk – i.e. a threshold of around $1 million or even $5 million that justifies all the resources and effort required within the ATO and across our communities to pursue any possible tax avoidance.

2. The Australian Charities and Not-for-profit Commission (ACNC) is the appropriate vehicle to collect information from charities and NFPs

The ACNC has for over ten years collected annual returns from all charities achieving a world leading level of voluntary compliance from charities across Australia.  The ACNC has the skills, expertise, the appropriate portals and data management, and is clearly the appropriate vehicle to collect annual returns from NFPs.  Part of the ACNC’s core business is to positively engage with a very diverse NFP sector.

The last independent review of the ACNC in 2018 recommended that the ACNC commence collecting annual returns from all self-assessed income tax exempt NFPs with a turnover above $5 million, and then in a second stage, collect returns from NFPs with turnover above $1 million.

From a policy and structural level it makes no sense for the ATO to be the organisation seeking to collect self-assessed information from thousands of small voluntary organisations with minimal income streams and low turnovers.  The ACNC is the entity that has specialist capacity in this area.

While the ATO may strive to offer appropriate levels of support and engagement with NFPs, the task they are being asked to complete is so distant from its core business that it presents real challenges.  It’s the wrong organisation to be trying to positively engage with thousands of small NFPs across Australia that have no ongoing relationship with the ATO.  It’s the wrong organisation to be collecting and analysing information about the purpose of these organisations, their activities, and their role in the community. 

It’s not surprising that the ATO have struggled to effectively implement strategies targeting NFPs, as we have seen.  

3. The process for completing the returns is unnecessarily complex and demanding

CCA has tried completing an annual return for a small tennis club.  The first problem is that the person completing the return must be the nominated responsible person on the Australian Business Register. 

Given that the Australian Business Register (ABR) has no active outreach to promote updating of their records, there is a very good chance that well before the organisation is able to complete the required return, they will have to step through a separate process to update the ABR.  This is not always a straight-forward process.

Assuming the ABR is appropriately updated, the nominated responsible person must then log in to access the return through the MyGov website.  This second process, like the first, is often not straight forward.  It is made more complex because the nominated person must obtain a level 2 security through their MyGov ID.   Again, this is a barrier to completing the form, and can be time consuming finding and loading the appropriate documentation.

Finally, having jumped through two hoops already, the person completing the form needs to access the form and complete the required questions.  For most organisations, this last step will be the easiest to complete, but for some, it isn’t always clear exactly how to classify their purpose and activities.

Specialist lawyers and accountants have raised various issues of legal interpretation where the required form requires considered clarification, and in some cases, cross referencing to the ACNC website.

There may be serious implications in relation to the status of the organisation.  Are they potentially really a charity?  CCA has had representations from some NFPs, including community radio stations, that have received conflicting legal advice about whether they are charities, how they can accurately complete the return if they choose not to pursue charitable status, what changes might be needed to their constitution.

There may also be flow on implications in relation to tax liabilities, including potentially a level of retrospective tax liabilities going back several years.

4. Costs to government of this measure have not been adequately addressed

CCA understands that around 10% of the ATO’s own data about NFPs in Australia is out of date or inaccurate.

It’s expected that approximately 10% of NFPs will choose to register as charities for a range of reasons, including that it seems to be easier to complete an annual return to the ACNC than to the ATO.

Limited provisions have been made to support the ACNC in addressing increased new charity registration applications resulting in a blow-out of wait times for new charity registrations as well as other implications across the ACNC of having more of their resources directed to the additional initial assessment work requirements.

Thousands of calls have already been received by the ATO help lines for this issue, and thousands of additional applications for charitable status have been made to the ACNC, yet no additional allocations were made in the Federal Budget. 

This suggests to CCA that the ATO might have thought the additional costs involved in this measure would be met through additional taxation revenue collected as a consequence of forcing all self-assessed income tax exempt organisations to complete the return.  If so, CCA would like to know how much the anticipated additional taxation is and how was that calculated?  If not, why were there no additional provisions allocated to implementing this measure?

5. The impact of this measure will be increased costs for NFPs, less volunteers, and less services in the community

Many NFPs feel uncomfortable completing an annual return to the ATO without getting professional advice.  This measure has driven an identified increase in the number of NFPs seeking assistance from both accountants and lawyers.  Given the relatively small budgets of most NFPs across Australia, the only way the costs of these additional professional services can be met is through increased income raising activities or reduced services to the community.

People involved in small community NFPs are invariably volunteers.  Finding people to take responsibility for administering these organisations is not always easy.  This measure, requiring volunteer administrators to engage with the ATO to complete an annual return, makes volunteering for roles in community organisations less attractive.

The worrying aspect of the increased administrative burden on many NFPs across Australia and the flow-on reliance on professional services is that it’s not a one-off cost, but an ongoing imposition.