The Australian Government has introduced new annual self-review return requirements for not-for-profit (NFP) organisations, aiming to enhance transparency and accountability within the sector.
This initiative marks a significant shift in regulatory expectations, underscoring the importance of compliance and accurate reporting for NFPs.
Charitable NFPs are only income tax exempt if they register as a charity with the
ACNC and are formally endorsed by the ATO.
At AFP Accounting, we understand the complexities of these new requirements and are committed to effectively guiding NFPs through this transition.
This article provides a comprehensive overview of the new requirements, their entailments, and how NFPs can ensure compliance.
Overview of New Annual Self-Review Requirements
If your not-for-profit (NFP) organisation has an active Australian business number (ABN), you must lodge an annual NFP self-review return starting with the 2023–24 income year.
You can lodge the NFP self-review return for the 2023–24 financial year anytime between 1 July and 31 October 2024. It can be submitted online through Online services for business, or a registered tax agent using Online services for agents if authorised to lodge on your behalf.
Don’t complete the return if you are an Australian Charities and Not-for-profits Commission (ACNC) type of entity, which we call a charity. Charities don’t generally include social clubs, sporting and recreational organisations or professional trade groups.
Furthermore, if your NFP is taxable, you are not required to lodge the NFP self-review return, as you will have already either:
- lodged an income tax return
- notified the ATO that a return is not necessary.
Purpose of the Requirements:
The new self-review mandates are designed to ensure that non-profits maintain continual compliance with regulatory standards and governance practices. By requiring annual reviews, the government seeks to encourage organisations to assess and improve their operational and financial practices regularly.
The ATO will only accept your organisation as an NFP if your governing documents prevent it from distributing profits or assets for the benefit of specific people – both while it operates and when it winds up.
Steps to Comply with the New Requirements
1. Understand the Scope of the Review:
NFPs should begin by thoroughly understanding the new self-review requirements. This includes familiarising themselves with the specific areas of operation and governance the review needs to cover.
2. Establish a Review Schedule:
To manage the review process effectively, it’s advisable to establish a clear schedule that outlines when each part of the review will be conducted and who will be responsible. This ensures that the review is comprehensive and that all necessary areas are covered before the reporting deadline.
3. Train Staff and Volunteers:
Since the review process may involve various aspects of the organisation, it is crucial to train staff and volunteers on what is required and how to conduct it. Proper training ensures that the review is conducted accurately and efficiently.
4. Document Findings and Actions:
All findings from the self-review should be thoroughly documented. Ensure your organisation’s governing documents contain an appropriate not-for-profit clause, dissolution clause and you are operating for your purpose. Maintain documents in an accessible format (either printed or electronic) to assist with your lodgment.
NFP must keep records that explain all transactions and other acts relevant to your organisation’s status as a deductible gift recipient. You must also show how these gifts and contributions have been used to further the principal purpose of that fund, authority or institution.
5. Prepare and Submit the Report:
Once the review is complete and all necessary actions have been taken, the final step is to prepare and submit the report to the relevant government body. The report should be clear and concise and include all required information to demonstrate compliance.
Best Practices for Annual Self-Reviews
- Engage Independent Auditors: While not always mandatory, involving independent auditors in the self-review process can provide an objective perspective and enhance the credibility of the review.
- Use Technology Efficiently: Implementing efficient software solutions for financial management and documentation can streamline the self-review process, making it easier to gather and analyse necessary information.
- Regular Updates: Keep governance and operational policies up to date with the latest laws and regulations to ensure compliance is maintained year-round.
Stay Compliant to Better Support the Cause
The new annual self-review reporting requirements represent a significant responsibility for not-for-profit organisations in Australia. By taking proactive steps to understand and implement these requirements, NFPs can not only ensure compliance but also enhance their operational effectiveness and public trust.
NFPs choosing to appoint a tax agent for the first time need to securely nominate
the agent through client-agent linking.
At AFP Accounting, we specialise in providing expert advice and support to non-profit organisations navigating regulatory changes.
Contact us today to learn how we can help your organisation prepare for and excel in its annual self-reviews, ensuring you meet both your legal obligations and your organisational goals.
