Tax Office Reviews Legitimacy of Not for Profit Set-Ups

The Australian Taxation Office (ATO) is reviewing arrangements by taxpayers in northern NSW and southern Queensland who may be incorrectly claiming to be a Not for Profit organisation in order to avoid paying tax.

Assistant Commissioner Scott Parkinson said that the ATO was currently reviewing instances where individuals and small business have set-up “private foundations” through which they stream their contractor or business income.

“In these cases the foundations and people who control them do not comply with their tax obligations such as income tax, superannuation and GST,” Parkinson said.

“We are currently engaging with a number of taxpayers who we believe are operating under similar structures to get a better understanding of the arrangements in place. The ATO will take compliance action where we identify taxpayers that have entered into this type of arrangement.”

Parkinson said that it was illegal to operate business activities through a Not for Profit organisation  for the sole purpose of avoiding income tax responsibilities.

“Significant financial and criminal penalties could apply to people that make false or misleading claims about their tax affairs, such as falsely claiming to be a Not for Profit organisation,” he said.

“Not for Profit organisations exist to help others, to promote cultural, religious, community and recreational activities, or to improve our society. They don’t exist to help people stay out of the tax system.”

He said individuals and businesses who have concerns about the way they have structured their affairs, can contact the ATO to make a voluntary disclosure to provide advice and correct past mistakes.

A spokesperson for the ATO told Pro Bono Australia News that the tax office had received several tip offs relating to foundation arrangements from members of the public who were concerned about the accuracy of what had been presented – both online and during business seminars.

“The ATO’s risk and intelligence team then undertook a significant amount of work to scope out the breadth of the issues and prepare an internal referral for action,” the spokesperson said.

“We are seeking to contain the spread of these arrangements by engaging directly with the promoters and a number of participants, having commenced a number of review and audits and by warning the public.”

The spokesperson said the ATO had been in contact with the charity regulator, the Australian Charities and Not-for-profits Commission (ACNC), about its concerns.

“However, none of the foundations have sought to register as charities, nor are they seeking funding from the general public. Accordingly, both agencies felt this issue was one in which the ATO should take the lead in resolving these issues of non-compliance with tax legislation,” the spokesperson said.