These bureaucrats are way too taxing for not-for-profits

Posted on 03 Dec 2024

By Denis Moriarty

Bureaucrats

Our tax overlords need to learn that one size doesn't fit all when it comes to working with the not-for-profit sector, says group managing director of Our Community, Denis Moriarty.

One of the reasons Donald Trump got elected is that he was able to persuade half of the US that the government wasn’t working in their interests.

In Australia, I can fight against that belief in one of two ways: I can try and persuade you that the government is working in your interests, or I can kick the government up the arse till it is.

Case in point. The Australian Taxation Office (ATO) has made a change to the way it deals with not-for-profit organisations (NFPs), basically demanding that most organisations lodge a special self-review to show that they are indeed exempt from paying income tax.

You don’t really need to know the details of the change, not here; just accept that the scheme was originally intended to apply only to the bigger organisations and was somehow expanded to apply to the whole lot, and after that there was enough pushback to bring on a Senate inquiry.

The sector responded with a flood of complaints including the lack of communication from the ATO, the complexity of the self-review process, the additional stress for small volunteer-run organisations, and the increased costs to NFPs forced to seek expert legal advice.

The ATO responded and stonewalled (as all good bullies do) that no, the changes were simple to execute, had been well communicated, had been introduced after widespread consultation, and were designed to ensure transparency and integrity, not to raise revenue.

He said, she said, right? Except for the numbers. The ATO thinks 155,000 NFPs are affected. How many of them have in fact followed the new rules? 11,000. All of the large organisations, basically, and virtually none of the small ones.

The ATO has flatly no idea of how the volunteer sector works. They can get a handle on the ones that have government contracts, but beyond that they can’t get their finely trained economics minds around the plight of a country dancing club secretary staring helplessly at an online form trying to decide whether the club should come under ‘Ballet’ or ‘Other’.

If you held a school sports carnival and only one in 13 of the kids made it to the finish line, you’d say the hurdles were too damn high. And if the sports coordinator argued with that, you’d say they had absolutely no idea about how their students operated, and absolutely no idea of what the point of the exercise was, and they should probably throw in their career and go and join the ATO.

And why should you care? Because this debacle says a lot about how the public service works, or doesn’t, and how ministers are being white-anted and deluded by the bureaucrats.

The public service tries to standardise everything with the same set of rules, because it’s deeply afraid of the consequences of anything – anything – going wrong. I know this because I’ve been the deputy secretary of a government agency as well as a commissioner. The difference is that that was 30 years ago, when ministers were in charge and told bureaucrats what to do. Times have changed.

"Forcing groups with different needs, different interests and different capacities into the same grid simply serves to convince people that the system is designed to serve its own interests, not ours."

Governments believe that people don’t care about policies, they care about scandals, and every time there is a scandal they add another rule to the rulebook. They dislike, above all things, risk – any risk. And if you’re against risk you’re against innovation, and experiment, and variation, and everything that the NFP sector is good at, and you’re in favour of legal opinions, and chartered accountants, and forms, and all the things that give small volunteer groups collective panic attacks.

Our Community group managing director Denis Moriarty.

The new policy isn’t going to bring in more money; small NFPs don’t have any. It’ll cost money – the ATO has already added 25 new staff, who have, one imagines, quite a lot of time on their hands waiting for those other 144,000 NFPs to check in.

The ATO knew this would happen, because a review of Australian Charities and Not-for-profits Commission (ACNC) legislation in 2017 recommended a $1 million threshold to filter out the minnows, and they ignored it, probably because the review also recommended that the responsibility for the scheme be shifted from the ATO to the ACNC, where it should be. (The bloody ATO recently cut the not-for-profit section from its website home page and hid it behind all its other guff.)

Taking a decision based on first principles rather than looking for the minimum possible change goes against everything the public service has been trained for, which is why the NFP sector is such a rubbish tip of outmoded legal definitions and unworkable governance structures.

The poet William Blake said, ‘The same law for the lion and the ox is tyranny.’ Forcing groups with different needs, different interests and different capacities into the same grid simply serves to convince people that the system is designed to serve its own interests, not ours.

The bottom line is that we have something like 155,000 of these NFP groups, AND WE WANT MORE. A vibrant civil sector is a good thing. That’s what we’re aiming for. The more we turn the screws procedurally, the more volunteers are going to drop out. And the fact that the ATO and the minister and the government can’t focus on that is a sign that something’s very wrong with our institutions.

Dean Smith, the Opposition charities spokesperson, knows what should be done. Maybe we do need a Trumpian reform agenda to stop all the nonsense and purge the useless bureaucrats. ATO – your time is up.

Denis Moriarty is group managing director of OurCommunity.com.au, a social enterprise that helps the country's 600,000 not-for-profits.

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