If you help run a not-for-profit (NFP) organisation, it’s important to understand your key obligations. If your NFP is eligible for income tax exemption, there are specific conditions you must meet. You also need to complete a new ATO reporting requirement to keep that tax-exempt status.

Annual NFP self-review return

Starting from FY2024, non-charitable NFPs need an active ABN. They must lodge an annual NFP self-review return with the ATO. This return tells the ATO whether the organisation qualifies for self-assessed income tax exemption.

The return has three sections:

• Organisation details: Standard information of the NFP organisation.
• Income tax self-assessment: Confirms income tax exempt status.
• Summary and declaration: Acknowledges the information provided.

The NFP must answer one key question. 

Does the organisation have and follow clauses in its governing documents that prohibit distributing income or assets to members during operation and winding up?

Answering ‘yes’ is necessary. This allows the NFP to self-assess as tax exempt.

Some NFPs lack these clauses now. They can still self-assess as tax exempt for 2024. This applies only if no income or assets went to members. The ATO offers a transitional arrangement. These NFPs have until 30 June 2025 to update their governing documents. Missing this deadline has consequences. The organisation cannot self-assess as tax exempt from 1 July 2024 for the 2025 year. This means it becomes a taxable entity. It might then need to lodge a tax return.

Mandatory clauses in governing documents

Governing documents are formal. They state the organisation’s purpose and character. They also contain rules for decision-making, operations, and duration.

As noted, NFPs need specific clauses to self-assess as tax exempt. These clauses must:

• Prohibit distributing income or assets to members during operation and on winding up.
• Ensure surplus assets go to another similar NFP upon dissolution.

NFPs also need sufficient controls that prevent members from receiving organisational income, property, or assets. Exceptions exist. Members can receive proper remuneration or expense reimbursements.

Review NFP governing documents on a yearly basis. Also review them after major structural or activity changes. An annual general meeting is a suitable time for this review.

A proactive approach certainly helps. It identifies issues early on and shows your organisation’s commitment to good governance.

For any questions related to tax laws and governance around NFPs, please do not hesitate to contact Bates Cosgrave.