Tax Office issues warning about dodgy NFP tax avoidance schemes

The regulator is calling on tax agents and individuals to report any unlawful tax schemes that exploit NFP structures that they come across, with the ATO seeing a re-emergence in these types of schemes.

In a recent update, the Tax Office said that while the vast majority of not-for-profit organisations operated with integrity and served the public good, some taxpayers were exploiting these structures to avoid tax.

"Recently we've seen a resurgence in the promotion of, and participation in, tax schemes that involve entities exploiting NFP structures to avoid taxes," it said.

"We have evidence of these schemes being promoted online and on social media, that results in participants setting up a foundation that they claim is an NFP and exempt from taxes."

Unlike genuine NFPs, the ATO said participants funneled their untaxed employment, contractor, or business income through these ‘foundations’ to avoid paying tax on this income.

The ATO said it originally issued a warning against these schemes in 2016 when it issued Taxpayer Alert TA 2026/5 Purported tax-exempt non-profit 'foundations' used to evade or avoid taxation obligations.

"We're also taking steps to raise awareness about the danger of schemes with the broader community," it said.

Anyone who becomes aware of these arrangements should help the ATO to identify individuals or entities that are promoting them or who are involved in them, the regulator said.

"These schemes deprive the Australian community of crucial funding for essential services and undermine public trust in legitimate NFPs. With your help, we can identify more of these ‘foundations’ and stop their activity," the ATO said.

The ATO cautioned that it took unlawful schemes such as these seriously and participants could face heavy penalties.

"We also take targeted action against promoters of unlawful tax schemes, including the application of penalties under the promoter penalty laws."