The compliance program contains a chapter on nonprofit organisations which discusses headline issues, the ATO’s general approach, help and education, recent announcements and developments in the law, specific compliance issues and a snapshot of the activities of the ATO for that year.
The compliance program is interesting as it sets out current statistics applying to the nonprofit sector, some of which are as follows:
- Research suggests that there are currently approximately 700,000 nonprofit organisations in Australia.
- Most of these not-for-profit organisations are not required to register with the ATO as their turnover is below the minimum threshold level or they are non-taxable.
- Approximately 190,000 nonprofit organisations are currently registered with the ATO.
- More than 10 per cent of people employed in Australia work for nonprofit organisations.
- What did the ATO do in 2007–08?
- The ATO completed 45 reviews of prescribed private fund endorsements, and this resulted in 21 cases receiving written advice to implement changes to ensure future compliance with tax obligations.
- The ATO checked 3,600 applications for refunds of franking credits. Of these, 161 applications were varied down, saving the Australian Government $3.9 million in revenue.
- The ATO reviewed the entitlements for 113 deductible gift recipients and tax concession charities. This resulted in 19 entitlements being revoked and 14 cases receiving written advice to implement changes to ensure future compliance with tax obligations. These measures resulted in $439,100 in tax and penalties.
- The ATO conducted a self-review project for 410 charities, which resulted in 21 entities having their status revoked.
- The ATO completed 15 reviews of non-member income in relation to taxable clubs and associations. This resulted in $34,000 in tax and penalties raised and $1.1 million in carried forward losses disallowed.
- The ATO checked approximately 4,900 applications for endorsement as a charity or deductible gift recipient, with 1,205 of these being disallowed.
- The ATO checked employers’ compliance with their PAYG withholding, superannuation guarantee and FBT obligations. It conducted 93 field audits, 29 outbound telephone reviews and just under 1,500 desk reviews of employers’ compliance with these obligations. This resulted in payments of $17.2 million.
- The ATO acted on 286 cases relating to employee complaints on employers’ superannuation guarantee obligations. An amount of $7.8 million was raised in superannuation guarantee liabilities.
What will the ATO be doing in 2008–09?
GST treatment of grants
The treatment of grants for GST purposes apparently continues to be a compliance issue, due to uncertainty among recipients about how grants (especially from the government) should be treated. The ATO is going to arrange for further education to be provided to the sector in this respect.
Applications for DGR status
The ATO expects in this financial year to receive and check approximately 5,000 endorsement applications for charitable or deductible gift recipient status.
FBT obligations
The ATO’s focus this year will be on raising awareness of the correct FBT treatments and obligations that flow from different types of endorsement.
Compliance with endorsements
To ensure organisations continue to be entitled to their endorsements after they have first been endorsed, the ATO’s post-endorsement compliance work in this year will focus on:
- Use of charities for private benefit;
- Charities involved in tax minimisation schemes; and
- Charities not meeting their ongoing requirements.
The ATO will also monitor compliance by undertaking risk profiling and analysing information from third party sources, including media reports. They will follow up discrepancies and may contact the organisation to verify its entitlement to endorsement.
Further, the ATO will look closely at the administrative and financial management processes of nonprofit organisations, particularly at the level of self-review. In 2008–09, the ATO expects to review 145 targeted cases to determine if the organisations remain eligible for tax concession and/or deductible gift recipient endorsement.
Prescribed Private Funds (PPFs)
With prescribed private funds, the ATO will be focusing in particular on funds that are not meeting their ongoing requirements after prescription and being used to obtain tax benefits for individuals or associated entities through arrangements such as offshore investments; inappropriate access to fund property, expenses and benefits by trustees or founders; and distributions to non-eligible recipients.
The ATO expects to review 50 prescribed private funds in this year.
Commercial activities
Clubs and other nonprofit organisations that conduct commercial activities to the extent it becomes their main purpose may incorrectly assess themselves as exempt from income tax. Further, taxable clubs sometimes understate their taxable income due to incorrectly classifying transactions as mutual dealings with members.
In 2008–09, the ATO will be looking closely at areas of potential noncompliance identified in its risk monitoring, such as mutual dealings and activities not consistent with any special exemption.
Franking credits
Finally, the ATO will check all franking credit refund claims, contacting the organisation for more information if required and, where necessary, undertaking a more detailed review.
Vera Visevic is a partner of Makinson & d’Apice.