The ATO program highlights the need for not-for-profit organisations to have a strong governance and tax risk management framework.

Not-for-profit organisations should:

• Regularly review their activities with a view to ensuring their activities and purposes are consistent with the legal requirements attached to their endorsements; and
• Document their governance processes and ensure that all office bearers are well informed and educated about those processes.

Taking these steps will help not-for-profits stay on the right side of the ATO and is just good practice but many organisations fail to adopt good governance with the rigour and enthusiasm required. The start of the new financial year is a good time to review where your organisation stands and consider whether it has a strong governance framework that supports its activities and tax status.

It is also an opportunity to ensure the organisation is undertaking a regular review of its endorsements as required by the tax law.

The ATO has made it clear that it will monitor the sector and identify organisations that are modifying their activities or structures to take advantage of this decision beyond the circumstances it contemplates.

This coupled with the ATO's Decision Impact Statement on this case, means that organisations intending to diversify their activities as a means of funding their core charitable activities should consider their position very carefully. The ATO's position is that while the Word Investments case provides guidance, it does not have application across all organisations. Whether or not exemptions can be maintained will depend on an examination of the particular circumstances of the case and careful scrutiny of the organisation's objects and activities.

It is recommended that any organisation looking to taking advantage of the Word Investments decision should seek legal and tax advice before proceeding. Failing to do so could put existing endorsements at risk.

Joanne O'Brien
Carne Reidy Herd Lawyers