Navigating new reporting requirements can be daunting for any business. For not-for-profit (NFP) organisations — which often rely on volunteers and operate with limited resources — regulation changes tend to have an even larger impact.
Earlier this year, we discussed the introduction of annual self-review returns for non-charitable NFPs, focusing on how these changes would enhance transparency and accountability across the sector.
But with the October reporting deadline looming, NFPs are now feeling the pressure to lodge their self-review return — or else risk losing their tax-exempt status.
With an extended deadline and further advice from the Australian Tax Office (ATO) in recent months, let’s unpack exactly what these changes mean for NFPs.
Does the October Deadline Still Matter?
As we covered in July, NFPs with an active Australian Business Number (ABN) must lodge an annual self-review return for the 2023-24 income year. These returns are critical for maintaining tax-exempt status and must be submitted before 31 October 2024. However, the ATO has extended the final lodgement window to 31 March 2025.
While this extension provides NFPs with much-needed breathing room, it’s important to avoid complacency. Delaying action could lead to unnecessary stress, especially as many NFPs still need to update key information, such as contact details and governing documents.
The Impact of Losing Tax-Exempt Status
Approximately 150,000 non-charitable NFPs are affected by this mandate, and for those that fail to submit their review on time, the consequence is simple: loss of tax-exempt status.
Losing tax exemption could be a major setback for many NFPs. Unlike for-profit companies, NFPs typically operate on tight budgets, often relying on donations, grants, and volunteer work to achieve their missions. Paying income tax can significantly strain their already limited financial resources, forcing them to redirect funds from essential services and programmes.
This could also mean increased administrative workloads, which may require hiring additional staff or outsourcing accounting services.
Ultimately, the loss of tax-exempt status could lead to higher operating costs, leaving NFPs with fewer resources to allocate toward their core missions — and in some cases, forcing them to raise prices for the services they offer or scale back their operations.
This can be especially problematic for organisations serving vulnerable communities, where even minor pricing changes or service availability could have widespread consequences.
Hypothetical example:
A small children’s sports club has provided affordable sports opportunities to local kids for over a decade. The club relies heavily on volunteers and local sponsorships to keep membership fees low, allowing kids from all financial backgrounds to participate.
Should the club lose its tax-exempt status, it would be required to pay income tax on any profits made, including fundraising income and local grants. Consequences of this include:
- Increased Financial Strain: To cover the additional costs of paying taxes, the club’s operating expenses rise, forcing them to raise membership fees for the upcoming season. For many families in the community, this increase is simply unaffordable, and participation drops by 20%.
- Reduced Social Opportunities: With fewer members, opportunities for children to make friends, stay active, and develop teamwork skills become limited.
- Volunteers Burnout: With fewer participants and reduced funding, volunteers are stretched thin trying to maintain the quality of the club’s programmes. Eventually, some volunteers step down due to burnout, further exacerbating the club’s difficulties.
A Nail in the Coffin for Smaller NFPs?
Many NFPs, particularly smaller organisations, are still grappling with outdated governance structures and rely heavily on volunteer support. A lack of administrative capacity makes it difficult for these organisations to implement the necessary changes, leading some to describe the situation as a “ticking time bomb” for the sector.
The ATO, however, has emphasised that their focus is on education and support, rather than enforcement during this initial period. Regardless, the clock is ticking for NFPs to take control.
Four Steps to Stay on Track
While the new requirements might feel daunting, following these simple steps can help your organisation navigate the changes:
- Update Contacts and Associates: The ATO has highlighted that one of the most important steps NFPs must take is to ensure associates and authorised contacts are up to date. This includes updating office bearers or board members in the Australian Business Register.
- Check Governing Documents: Review your organisation’s governing documents to ensure they meet the requirements for tax-exempt status. These documents must outline that the organisation’s profits or assets cannot be distributed to members.
- Prepare for Lodgement: While lodgement is technically allowed until 31 March 2025, NFPs should aim to complete their self-reviews as close to the October deadline as possible. This will ensure enough time to address any issues that arise without putting your tax-exempt status at risk.
- Engage Professional Help: Time is ticking to engage an accountant to help you meet the lodgement deadline. At AFP Accounting, we are ready to assist with every step of the process.
Why Delaying Action Could Be Risky
Delaying action might seem like a viable option given the extended deadline, but it’s important to remember that it takes time and close attention to ensure all documents are in order.
As the ATO continues to focus on education over enforcement, NFPs should take advantage of this window to act without fear of penalties. However, waiting until the last minute could mean rushing through critical steps, leaving room for mistakes that could affect your compliance status.
By understanding the new reporting requirements and acting quickly, NFPs can avoid unnecessary stress and ensure they maintain their tax-exempt status.
Remember, the upcoming October deadline isn’t just about lodging paperwork — it’s about safeguarding your organisation’s future and ensuring continued eligibility for tax exemption. Whether you need to update your contacts, review your governing documents, or simply seek guidance, now is the time to act.
AFP Accounting is here to help you navigate this process with confidence and clarity. With years of experience supporting not-for-profits, our accountants are well-equipped to assist your organisation in meeting these new reporting requirements.
By acting promptly, you can ensure that your NFP continues to focus on its mission without disruption. Don’t wait until it’s too late — contact us today to schedule an appointment and ensure your NFP is ready for the forthcoming deadlines.
