The New Year will see some significant changes to the administration of many nonprofit organisations and deductible gift recipient (DGR) charities.
Annual self-assessments for income tax exempt nonprofits
New reporting requirements will impact 157,000 nonprofits who self-assess as income tax exempt for the 2023/24 income year. All nonprofits with an active Australian Business Number (ABN) – and who are not registered as a charity – will be required to lodge an annual self-review to access income tax exemptions.
The Australian Tax Office (ATO) says it has now finalised the questions in the self-review return and these will be published on their website in the near future.
Deductible gift recipient reform
From 1 January 2024, the administration of four DGR categories will transfer from government departments to the ATO. From this date the Tax Office will administer:
- environmental organisations
- harm prevention charities
- cultural organisations
- overseas aid organisations.
The reform will remove red tape for charities applying for registration and reporting annually to bureaucracies. Importantly, it allows charities operating in those DGR categories to maintain a gift fund, rather than a public fund. A public fund is more restrictive, requiring oversight of a committee comprising a majority of ‘responsible’ persons and a seperate bank account.
Other changes include the removal of restrictions governing the transfer of surplus assets on winding up and the assessment of overseas aid organisations as DGRs. DGR charities in the above categories should seek legal advice on the changes.
The ATO says ‘machinery of government’ (administrative) changes have been finalised for the transition. It will soon publish guidance on the ATO website outlining transitional and ongoing requirements.
DGRs listed in tax laws ‘under review’
In December, the ATO says it will review the DGR status of 234 organisations listed in tax law. The legislated list is intended to recognise organisations by exception who do not fit into the existing DGR categories because of their unique characteristics and broad public benefit.
The ATO says its review will focus on “proof of activity, purpose and use of donations” and will initially target:
- DGR organisations not registered with the Australian Charities and Not-for-profits Commission (ACNC), and
- ACNC registered charities that have not reported donations
On the basis of a quick review, many of the charities listed under tax law are registered with the ACNC, report donations and easily fit under current DGR categories. The list includes Amnesty International, the RSPCA (and its state bodies), the Australian Conservation Foundation, World Wide Fund for Nature, the Australian Sports Foundation, Girl Guides Australia etc.
Legislative listing arguably provides an additional level protection from political interference …
For example, the Coalition Government in 2017 attempted to gag environmental charities and cap their right to advocate. The recommendations of an Inquiry into environmental charities were recently buried quietly when the Australian Government published its response.
The Government (rightly) rejected the Inquiry’s controversial recommendation to regulate activities, rather than charitable purpose. Other proposals to sanction unlawful behaviour, self-assess DGR eligibility and prohibit “conduit” donations were noted (as they are already covered by existing regulation).
Some Inquiry recommendations are already being implemented, including the transfer of regulatory oversight from departments to the ATO (see above). Interestingly, however, the recommendation to remove the tax law listings of “exceptional” DGR entities was rejected.
So the list is here to stay – for now – but the ATO has a remit to do some housekeeping.