ATO Announces Not for Profit 'Targets' for 2010-11

The Tax Man is planning to crack down on incorrect GST treatment and the misuse of tax concessions by Not for Profit organisations in the ATO Compliance Program for 2010-11

Tax Commissioner Michael D'Ascenzo released the Compliance program 2010-11 unveiling the key priorities and activities that the ATO will be investigating in the Not for Profit sector.

The Tax Office says some charitable institutions and gift-deductible entities are applying the incorrect GST treatment to supplies made for nominal consideration.

It says some organisations are incorrectly treating supplies as GST free on the basis that they are made for nominal consideration when they should be taxable or input taxed.

Alternatively, the ATO says some are treating supplies as taxable or input taxed when they should be GST free.

It says the risk particularly applies to supplies of accommodation, including social and community housing.

Recent government initiatives such as the National Rental Affordability Scheme and transfers of social and community housing from the government to the charitable sector have increased the supply of accommodation being made by charitable institutions.

The ATO says it will work with charitable institutions and gift deductible entities, particularly those providing accommodation, through a range of help and education products, such as tailored mail outs and publications.

In 2008-09 the ATO completed around 2,100 GST compliance interventions resulting in over $19 million of revisions, in addition to around 1,000 internal reviews.

Also in 2010-11 the ATO will also focus on those NFPs engaging in deliberate misuse of tax concessions, activities not consistent with any special exemption and any activities not consistent with a charitable purpose. Most organisations self assess their entitlement to tax concessions.

However, the ATO says some such as charities and most deductible gift recipients must be endorsed to access tax concessions. Since the endorsement regime was introduced in 2000, the ATO has processed approximately 104,000 applications. This year it expects to receive and check around 6,000 endorsement applications.

The ATO says having good governance practices helps organisations identify risks to their reputation and tax compliance and Not for Profit organisations should regularly monitor their activities and decide if their purpose remains consistent with the legal requirements.

The ATO will be contact a sample of organisations to review their governance processes as well as consulting with the sector about tools or products that will help support their governance approach.

In 2010, the ATO will be undertaking reviews of Clubs that did not take up the offer to self-correct past errors in the calculation of mutual income, particularly income from Club Keno, and the non-lodgement of income tax returns. This year the ATO expects to undertake at least 125 Club reviews. It will work with external stakeholders to provide a range of assistance products to help clubs identify, classify and record transactions to lodge correct activity statements.

Following on from the High Court decision on Word Investments Limited -which found a commercial business with exclusively charitable objects that directed its profits to charities was eligible for endorsement as a charitable institution- the ATO will monitor the sector to identify whether organisations are modifying their structure or activities to take advantage of this decision.

In 2009 the ATO reviewed entitlement to tax concessions of 200 Not for Profit organisations. This resulted in liabilities raised of almost $2 million and revoking the charitable tax concession or deductible gift recipient status of 16 entities.

The ATO advised a further three organisations that they were not exempt and requested them to lodge assessments. Some 13 organisations were required to undertake corrective action to maintain their concessional status.

The ATO says another 4,100 applications for refunds of franking credits with 125 applications were reduced, protecting over $11 million in revenue. It checked almost 5,300 applications for endorsement as a charity or deductible gift recipient, with over 700 disallowed.

In the area of Superannuation the ATO investigated over 230 NFP employer cases relating to unpaid superannuation guarantee, raising almost $5 million in superannuation guarantee charge liabilities.