When completing the ATO’s new self-review return, not-for-profit (NFP) organisations must answer a series of questions. Answering them may not be as straight forward as they appear.

NFP Self-Review Return – Completing the Form

NFP organsiations with an active Australian Business Number (ABN) and which are not registered charities are required to lodge an annual self-review return. The first return is for the year ended 30 June 2024 and the due date has been extended to 31 March 2025. In completing the return, the NFP must answer a series of questions.

Question 1: Organisation’s Details

Question 1 requires the NFP to disclose its annual gross revenue for the period 1 July 2023 to 30 June 2024. You cannot use a different year end just because you are doing so for accounting purposes. You can only use a different 12 month period if you have actually applied to the ATO for a substituted accounting period and received approval.

Question 2: Organisation’s Purpose

Under question 2, you must choose the category that best reflects the main purpose of the organisation. To do this, you should look at your governing document. This might be a constitution, set of Rules or a trust deed.

The NFP could also consider its current activities, how it uses its funds and its history. If the members do not think the governing document accurately reflects the current purpose of the organisation, it might need to be updated with the consent of the members.

Having determined what is the purpose of your NFP, you can then select the category that best fits. However, it is important to understand that this does not mean your organisation is tax exempt. There are other factors to consider:

1.  Your governing document must prevent distributions to members.
2.  Some categories require your NFP to meet an “in Australia” test.
3.  If your purposes are also charitable purposes, you cannot self-assess your income tax exemption.
4.  Some categories are much more specific than their title might suggest. For example, the resource development category only covers certain types of resources.   The sporting category does not cover clubs whose purpose is more social or recreational in nature than just promoting a sport.

Question 3: Prohibiting Distributions to Members

The NFP must have clauses that prohibit the distribution of income or assets to members while operating and on winding up. If the NFP does not have these clauses you can answer ‘No’ to question 3 and still be tax exempt, provided the NFP has never distributed amounts to members and it updates its governing documents to include these clauses by 30 June 2025.

Question 4: Existing, Operating and Incurring Expenditure in Australia

If you do not operate entirely in Australia and have selected certain self-assessment categories, you will need to complete question 4.1 about the “in Australia” test. Under this test, the NFP must have a physical presence in Australia and, to that extent, incur its expenditure and pursue its objectives principally in Australia. Principally means more than 50%.

In working out whether the test is met, the NFP can ignore how the following amounts are used.

• Gifts, including gifts from a deceased estate
• Proceeds from fundraising, such as raffles, dinners and auctions
• Government grants

It is assumed that amounts spent offshore come firstly from these amounts, thus making it easier to pass the test. Note this does not apply to government grants that are required to be spent in Australia.

In nearly all lodgements, sub-questions 4.2 and 4.3 will be answered ‘No’.  A NFP that is a deductible gift recipient (DGR) should be registered as a charity with the Australian Charities and Not-for-profit Commission (ACNC) and should not need to complete this form. There are only a very small number of prescribed organisations and they are also likely to be registered charities.

Question 5: Charitable Purposes

Question 5 requires you to answer if you have any charitable purposes. If you answer ‘Yes’ to this question, you should consider whether your NFP has only charitable purposes. If it does, you cannot self-assess your income tax exemption. You must register with the ACNC to be income tax exempt. If your NFP falls within the categories of community service, cultural, education or science,it is likely it is a charity.

Summary

Having completed the form, you will receive a summary that says either the organisation has self-assessed its income tax exemption or it is taxable. This does not mean the ATO has approved the organisation’s tax exempt status. It is anticipated that many NFPs will ultimately find that they are not eligible and should either be a registered charity or are taxable.

If the summary shows the NFP is taxable, it is required to lodge an income tax return. It is likely it can use the principle of mutuality to determine what income is taxable and what expenses are deductible. (see Not-For-Profit Entities and the Principle of Mutuality – Saward Dawson).

How we can assist

If you are concerned your NFP is taxable or is a charity, please contact us. We can provide a review of your organisation to determine its tax status. If your NFP is a charity, we can assist with the ACNC charity application. If the organisation is taxable, we can prepare your NFPs tax return, using the principle of mutuality if applicable.