NFPs and commerce
Given the changing landscape and difficulty many NFPs have in securing regular funding and donations, the ATO is seeing more of them undertake commercial activities to generate income.
While NFPs must not operate for the profit or gain of their members, they are permitted to generate profit by undertaking commercial activities. The activity, however, must be in line with the entity’s stated purposes.
The ATO reminds them to:
- Review governing documents to ensure activities and operations are consistent with the NFP’s purposes
- Understand the impacts commercial activities may have for the organisation. Specifically, consider whether the commercial activities will affect current tax concessions, including deductible-gift recipient status, FBT, and GST
- Work through employer obligations when hiring new staff, including pay-as-you-go withholding, superannuation, and single-touch payroll, and
- Ensure that appropriate records clearly separate member income from other income sources if accessing mutuality.
Increased leveraging of commercial activities is also driving changes in business models. The ATO has seen NFPs enter joint ventures, partnerships, and shared service arrangements. Additionally, some NFPs are big and have very complex structures.
Many of these self-assess as income-tax exempt and until now have not had to report to the ATO unless they’re lodging a BAS or have other
New reporting requirements for self-assessing NFPs begin on 1 July next year. They support a level playing field with similar (but not the same) regulatory requirements expected for non-charitable and charitable not-for-profits.
The ATO is working with the sector to design and test the form so that all income-tax exempt NFPs, big and small, can meet their obligations easily.