ATO cracks down on NFP misconduct

A minority of NFPs are dodging their tax obligations, and the ATO has them in its sights.

The ATO has warned not for profits to take their tax obligations seriously, after an increase in two methods of tax avoidance.

In a blog piece, Jennifer Moltisanti, assistant commissioner of the ATO’s Not For Profit Centre, said the organisation had recently noticed “some behaviours that aren’t consistent with our expectations”.

According to the assistant commissioner, the ATO has “received intelligence about the promotion of ‘private’ not-for-profit foundations created to avoid or evade tax”.

Typically, in this situation a so-called ‘private foundation’ is set up claiming to be exempt from taxes, with participants told by an advisor or promoter that they can opt out of paying tax by operating their business through the foundation.

“Unlike genuine NFP foundations, participants stream their untaxed employment, contractor, or business income through the sham foundation, where they pay no tax on the income and use the funds for their own benefit,” Moltisanti wrote.

Investigations of potential promoters have already commenced, she added.

The ATO is also aware of not for profits operating registered public benevolent institutions (PBIs), which are eligible for fringe benefits tax (FBT) exemption.

“We are concerned with arrangements where employees of PBIs are used to undertake charitable or commercial activities of other entities that are not benevolent in nature,” Moltisanti said.

“We will review arrangements that have the sole and dominant purpose of avoiding or reducing FBT.”

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CPA Australia spokeswoman Dr Jane Rennie told Pro Bono News the majority of not for profits do the right thing.

 “A small minority of NFPs… get it wrong sometimes,” she said.

“Our members tell us NFPs and charities can occasionally run into trouble due to a lack of expertise, complex and excessive regulatory requirements, and a shortage of resources. In some cases they can accidentally fall afoul of the rules.”

She said CPA Australia had called for the federal government to provide more support to the NFP sector, to help those who accidentally fall foul of the rules.

“We want streamlined regulation for the NFP sector to make it easier for them to operate and comply with their obligations. We want extra resources provided to encourage NFPs to seek professional advice, including from accountants.”

In the case of intentional misconduct, Rennie said CPA Australia supported the ATO’s “crackdown”.

“Next year, the ATO is intending to get all 207,000 NFPs registered with the tax office to self-assess whether they still meet the test for being an NFP. We expect some will fall off the list,” she said.

She added “simple, efficient and effective reporting systems” would “build trust and transparency in the sector”.

“The AASB is creating fit for purpose reporting standards for NFPs. We support this step towards simplifying reporting obligations. This is a promising move forward for good governance and better visibility for regulators,” she said.

In her blog, Moltisanti said the government supported not for profits.

“Generous policy settings reflect the value [the government places] on the important services not-for-profits provide. For this reason, it is critically important we remain vigilant to those who seek to undermine or take advantage of the available supports.

“Let’s work together as we continue to support and grow a vibrant sector that is valued by everyone.”

Anyone with information about misconduct can contact the ATO via the ATO Tipoff Form.