To qualify for an income tax exemption, not-for-profit entities with an active Australian Business Number (ABN) that self-assess as income tax exempt will, from 1 July 2023, need to file an annual self-review return.

On 11 May 2021, as part of the Federal Budget for 2021-2022, the Australian Government announced changes to the management of not-for-profit entities that self-assess as income tax exempt. The proposal aims to increase trust and confidence in the sector by guaranteeing that not-for-profit and for-profit companies compete on an even playing field and that only eligible not-for-profit entities can obtain income tax exemptions.

As of 1 July 2023, non-charitable income tax exempt not-for-profits with an active ABN will be required to submit an online self-review form to maintain an income tax exemption. Before this change, not-for-profit entities were exempt from submitting self-assessments to the Australia Tax Office (ATO) or requesting confirmation of their income tax status. Impacted not-for-profits will now have to submit their yearly self-review returns online in order to qualify for an income tax exemption. If an organisation does not submit a return, it may lose its income tax exemption and face penalties.

The changes will apply to all not-for-profit entities that self-assess as income tax exempt and are not registered as a charity with the Australian Charities and Not-for-Profits Commission. Impacted entities include community service, employment, resource development, tourism and sporting organisations.

The ATO has the right to review an organisation, and, if the ATO disagrees with an assessment that the organisation is eligible for an income tax exemption, the ATO may require the organisation to pay tax for the duration of the incorrect self-assessment. Interest and penalties may also be imposed. If you're unsure about your organisation's tax status, you may be able to ask the ATO for a private, binding ruling.

Not-for-profit entities that self-assess as income tax exempt should review their activities and the basis for their self-assessment and prepare for the new reporting requirement.

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