Sector vents frustration at ATO tax changes in Senate hearing

Today, the ATO told a Senate inquiry into the contentious changes that around 200 NFPs a week were lodging self-review returns, taking the total to more than 11,000.

Under questioning from Shadow Charities Minister Senator Dean Smith, ATO deputy commissioner (small business) Will Day, conceded that based on current projections, only 41,000 organisations – more than 100,000 fewer than required ­– would have submitted a return by next year’s deadline.

Day ruled out imposing fines on NFPs that fail to meet the deadline, which has already been extended once. He indicated that even with the predicted last-minute surge in lodgments, it would not be enough.

“I do not expect a 100% lodgment by 31 March,” he said.

The Senate inquiry into the tax changes was instigated by Senator Smith following widespread sector frustration at the implementation of the new rules, which were introduced in July.

Charities are exempt from the changes, which require NFPs with an Australian Business Number (ABN) to lodge an annual self-review return or risk losing their income tax exemption.

The change sparked a surge of applications by NFPs to be registered as charities with the Australian Charities and Not-for-profits Commission (ACNC).

The Senate Economic References Committee heard from several organisations including the Law Council of Australia, peak sector body the Community Council for Australia, Landcare Victoria, the Australian Multicultural Action Network, and Agricultural Shows of Australia.

Those groups lined up to lambast the tax changes for having a detrimental impact on the sector.

One of the most vociferous critics was Graham Stanley, president of the Stonnington Scottish Country Dancers Association.

“I think the whole process is a complete debacle and should be scrapped,” he said.

Sector complaints to the committee included the lack of communication from the ATO, the complexity of the self-review process, the additional impost and stress caused by the new regulatory requirements on small volunteer run organisations, and the increased costs for NFPs forced to seek expert legal advice.

Landcare Victoria CEO Claire Hetzel said the tax changes were having an impact on the already difficult task of attracting and retaining volunteers.

“No one wants to turn up to do administration,” she said.

Agricultural Shows of Australia (ASA) which represents 580 agricultural shows across the nation, said the ATO tax changes threatened to strangle a century-old rural tradition that attracts 50,000 volunteers and contributes more than $1 billion to the national economy.

“The compliance burden is too much. It’s actually threatening the very survival of agricultural shows,” said ASA executive officer Katie Stanley.

Several sector representatives, such as veteran NFP governance trainer, strategic advisor and multiple board chair Peter Fitzpatrick questioned the need for the new tax regulations at all.

“This ruling will devastate the sector,” he said.

“It will impact severely on employment, service delivery, volunteerism and is yet another example of government intrusion and control over what essentially are individual roles.”

“The intention seems to be to force not-for-profits into becoming charities even though the objects of many of those organisations don’t fit those rigorous requirements.”

Fitzpatrick questioned the motives driving the changes.

“I sometimes wonder what evil we’re trying to address here, and why we are going down this path of destruction of many invaluable services being provided to the community that soon the government will be unable to afford, if these organisations cut back or are forced to close their doors.”

Community Council for Australia CEO David Crosbie expressed frustration that sector concerns about the implementation of the changes had been ignored, despite widespread consultation with the ATO’s Will Day and assistant commissioner Jennifer Moltisanti.

“Unfortunately, listening is one thing, acting is another, and I think we are still facing a real mess as far as this measure goes.”

Crosbie argued the historical record confirmed the ATO, which previously regulated Australian charities, was the wrong body to administer the NFP sector. Instead, that work should sit with the ACNC.

“It’s very rare that a sector like the charities sector would ever argue to create a regulator for itself (in the form of the ACNC), but if you’ve been regulated by the ATO, it becomes a very desirable outcome.”

Crosbie said no-one was suggesting that not-for-profits should not keep administrative records and agreed that there was a valid argument for NFPs to provide an annual return.

“The question is, why is the ATO doing it?” he said.

However, the ATO pushed back on many of the concerns, arguing the changes were simple to execute, had been well communicated, were introduced after widespread consultation, and were designed to ensure transparency and integrity, not as revenue-raising measures.

The conflicting points of view from the sector and the tax office prompted an exasperated response from committee chair Senator Smith, directed at the ATO.

“Mr Day, the problem we have here is a complete misfit, between what the not-for-profit sector is telling us around implementation, stress on volunteers, regulatory overreach and what the ATO is doing,” he said.

“I don’t doubt the ATO is doing everything you say you are doing. What I am saying is that there is a big gap between the experience of not-for-profits and those people who are required to fill out the (tax) form and what the ATO is doing.

“And after the evidence today and what we have heard previously, I’m genuinely concerned about whether the ATO has actually been listening and acting on, the concerns that have been raised.”

The inquiry also heard from ACNC commissioner Sue Woodward and ATO assistant commissioner Jennifer Moltisanti.

Charities Minister Andrew Leigh said the new ATO reporting guidelines for NFPs were put in place by the Morrison government in the 2021-22 Federal Budget.

“The Albanese government is supporting charities and not for profits that are working to transition to the new reporting,” he said.

“We’ve ensured the ATO and ACNC have been responsive to the needs of small volunteer led organisations and we’ve provided additional staff to help manage the process.”

Mr Leigh said taking over the implementation of the process had highlighted how little thought the Coalition gave to making the changes work.

“We’ve recognised the sector’s need for support, and the government, ATO and ACNC have worked together and listened to the sector to ensure the Coalition’s lack of foresight does not undermine the important work of community organisations.”

The committee is due to deliver its report on October 31.