By Vera Visevic
The ATO’s new ‘self-review’ obligations are a major shift for NFPs in 2025. What practical steps should boards and legal advisers take to strengthen compliance frameworks and minimise the risk of misclassification or loss of tax concessions?
Boards should follow these practical steps each year to ensure their organisations remain eligible and compliant:
- Confirm your organisation type: understand whether your organisation fits one of the eligible types for income tax exemption under Division 50 of the Income Tax Assessment Act 1997 (Cth). Note that if you are a registered charity, you are not eligible to participate in the self-review.
- Use the ATO Self-Review Worksheet: the ATO provides a worksheet for non-charitable NFPs. Keep the completed worksheet on file each year.
- Review your governing document to ensure you maintain your NFP status: regularly review your documented purpose, permitted distributions and winding-up clauses.
- Review your activities: review your organisation’s activities to ensure they align with your documented NFP purpose and that you are not providing personal benefits to members.
- Stay within income thresholds: certain NFPs are exempt depending on their income from non-member sources. Check specific rules for your category.
- Monitor and record financial activity: keep financial records showing your organisation’s sources of income, where funds are spent and that no private benefits are being provided to members.
We’re seeing an increase in charity mergers and structural reforms. From your experience, what are the most common legal or governance pitfalls in these transactions, and how can due diligence processes protect the organisation’s mission?
The main risks associated with charity mergers and structural reforms, accompanied by mitigating actions which an organisation can employ during the due diligence process follow below:
- Risk: Mission drift
Merging two missions that are not truly aligned. This can lead to confused branding, loss of identity and weakened community support.
Solution: Analysis of governing documents, activities and contracts of the organisations to ensure a shared mission. It also becomes essential to reaffirm that shared mission in the merger documents.
- Risk: Regulatory and Tax Implications
Where two different types of charities (for example where one is a Deductible Gift Recipient (DGR) and the other is not), merge, there is a risk that the DGR may lose its status.
Solution: Engage with the ACNC during the due diligence phase to clearly understand the ACNC’s requirements for the merger, including potential re-registration. Engage with the ATO and State authorities if needed.
- Risk: Governance Conflicts
There is a risk of disputes between board members or unclear governance structures post-merger.
Solution: establish a clear governance structure, new constitution and appointment of board members based on merit, a shared vision for the future and an understanding of the organisations’ histories. Agree on board composition early on.
Director remuneration continues to attract regulatory scrutiny. How should charities and NFPs navigate the tension between attracting skilled board members and complying with ACNC governance standards and private benefit rules?
The following steps can help charities and NFPs balance the need for skilled board members with strict compliance standards:
- Develop clear and transparent processes for appointing board members, including setting out the process in your governing document, which align with the ACNC’s governance standards. Clarity at the outset helps manage expectations.
- Ensure continued education about the ACNC’s governance standards to clarify expectations of the role and expectations of private benefit.
- Remunerate board members in a way that complies with the ACNC’s governance standards. This includes that remuneration should be:
- permissible under the charity’s governing document;
- in furtherance of the charity’s purpose;
- properly authorised and records maintained; and
- financially responsible.
Volunteer, contractor, and employee arrangements are under closer ATO and Fair Work attention. What are the key legal and tax risks that practitioners should be alert to when advising NFP clients on workforce management?
There are legal and tax implications for engaging with volunteers and contractors in a way which represents them as employees. NFPs should be alert to the following:
- Volunteers may act inappropriately, especially if proper checks and training are not conducted;
- Volunteers may be injured during activities and not covered by workers’ compensation.
- Contractors may be misclassified as employees if they are treated as employees.
- mistakes in award classification or overtime for contractors can lead to back-pay claims, superannuation claims, or media scrutiny; and
- Volunteers and contractors may not be covered by your organisation’s insurance if they cause harm or loss.
As someone deeply involved in governance and social impact law, how do you see the balance evolving between regulatory enforcement and the sector’s need for flexibility to innovate and deliver on social purpose in 2025?
Charities and NFPs can navigate regulatory demands while embracing innovation by prioritising the following practices:
- Embed a strong governance framework which is supported by robust policies and guidelines for regulatory compliance. This foundation ensures legal obligations are met while allowing room to adapt;
- Provide ongoing training. From board members to management to volunteers, all levels should understand their compliance responsibilities. Regular training helps build accountability;
- Designate responsibility for keeping abreast of news, latest innovations and technologies, and emerging laws to an individual or committee (as appropriate) which reports to the board regularly; and
- Ensure governing documents and other contracts contain clauses which allow for flexibility and amendment to innovate and deliver on social purposes as they develop.
If you would like to hear more from Vera Visevic, please register for our upcoming seminar, where she will present: Not-For-Profits and Charities: Compliance, Governance and Structural Reform in 2025
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