ATO Warns on Annual Review of Endorsed Charities

The Australian Tax Office has reminded endorsed charities of the need to undertake
regular self-reviews of their endorsement status and to keep a record of their reviews.

This follows the findings from a recent ATO sample review of endorsed charities to make sure that charities are aware of their obligations especially as some charities will experience a change of office bearers.

In a recent exercise, the ATO contacted a sample of endorsed charities to make sure they were aware of their ongoing obligation to self-review and they were also asked to advise the ATO of the steps they had taken to meet this obligation.

Charities were also asked to explain in writing if they were no longer entitled to be endorsed.

Findings from the exercise included:
• approximately 10% of organisations contacted had ceased to operate or were otherwise un-contactable and are presumed to have ceased operation – the ATO will be taking steps to remove the endorsed status for these dormant entities

• approximately 30% of organisations contacted conducted a self-review of their status at least annually, kept a record of that review, and had a person in a position of authority conduct the review, and

• approximately 24% of organisations contacted advised that either their address or their authorised contact details were incorrect.

The ATO says endorsed organisations should undertake regular self-reviews for the following reasons:

• To avoid tax problems through good governance. A common misconception is that income tax exemption is permanent. This is not the case. For example, changes to an organisation’s purpose and operations, and its structure, can affect its eligibility for endorsement and, therefore, its entitlement to income tax exemption.

• There is a legal obligation for endorsed charities to advise us if they are no longer entitled to endorsement

• Each year the ATO reviews a number of endorsed organisations to verify whether they are still entitled to endorsement. It applies penalties to organisations that ignore their obligations or misuse their concessions.

What should an organisation do?

• Advise the ATO in writing if you stop being entitled to endorsement. This means you need to carry out regular reviews of your status. The tax law does not require any particular intervals between self-reviews, but the ATO recommends annual reviews. The ATO provides a worksheet in its guide Income tax guide for non-profit organisations (NAT 7967) and an online self-assessment tool to help work out if your organisation is still entitled to endorsement as an income tax exempt charity.

• Avoid tax problems through good governance. The ATO recommends you self-review each year and whenever there is a major change in your organisation’s structure or operations. It encourages organisations to keep a record of reviews and to have them approved by your organisation’s board, committee or trustee.

• Keep your authorised contact details up-to-date. The ATO can only discuss your organisation’s tax affairs with the authorised contact person for your organisation. If your authorised contact details need updating, the fact sheet How do I ensure the Tax Office can speak to my organisation’s representative? (NAT 7605) explains how to do this.

You can discuss your endorsement status by phone on 1300 130 248 between 8.00am and 6.00pm, Monday to Friday.