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  • Straight from the source - April 2021

    My grandmother, Nonna Giovanna, was the matriarch of the family.

    Nonna set the tone and culture of the family: showing how things were done and maintaining relationships. The family governance changed when my grandparents migrated to Australia in the early 1960s. Nonna continued her role leading the family, steadfast, with purpose and integrity. But her environment had changed and so she needed to adapt.

    Nonna Giovanna, like many of her generation, had the foresight to recognise the importance of a trajectory adapted to its environment. Unconsciously, my Nonna influenced the family’s achievements, its risk posture, growth and sustainability. Dinner was religiously served at 5pm every night and everyone knew their role in the house. Family gatherings on festive occasions were compulsory and strategic; a time to reflect and influence required changes.

    The fundamentals of good governance have always shone through whether it be in families or businesses.

    If you google ‘governance’ you are confronted with thousands of definitions, frameworks and principles which can make it difficult to decipher what’s relevant and important.

    In the ATO, tax governance has always been an important part of tax risk management. We have expanded our emphasis and published guidance on what we consider better practice for tax risk management and governance frameworks for companies to follow. This is where we look at the taxpayer’s systems and controls holistically to obtain an overall view of how the taxpayer approaches and manages their tax issues and obligations. But good governance is not just about tax risk management.

    The ACNC Governance StandardsExternal Link provides a set of core, minimum standards that deal with how a charity is run, including its processes, activities and relationships. Collectively these standards represent a charity’s governance.

    The Standards require a charity to remain charitable, operate lawfully, and be run in an accountable and responsible way. They help maintain public trust in charities and, in turn, help charities continue to do their charitable work.

    The Australian Institute of Company Directors (AICD) is also committed to supporting not-for-profits and their boards to achieve good governance. In 2019, AICD published The Not-for-profit Governance PrinciplesExternal Link outlining ten principles that a not-for-profit board should have regard to. The principles include purpose and strategy, board composition, effectiveness and transparency of decision making, risk management, performance, culture, behaviour and compliance.

    My examples highlight a few of the governance frameworks you can refer to. There is a plethora of information available for not-for-profits to consider; so where should you start?

    You will recall that in my March column I reinforced the importance of organisational purpose and regular review. This is very much the starting point for good governance. At the most basic level a good governance framework:

    • is documented and understood
    • provides confidence in your controls and processes, and
    • is regularly reviewed.

    For tax purposes the governance framework you select should be reporting the right numbers and providing the appropriate evidence that your not-for-profit is operating for purpose and meeting all its tax and super obligations.

    The not-for-profit sector prides itself on its good compliance and a conservative approach to risky positions. Indeed, this behaviour was demonstrated at the height of the pandemic during which we managed hundreds of enquiries from not-for-profits who were seeking certainty and compliance with the law. A robust governance framework, that is fit for purpose, lived and effective is essential to demonstrating good compliance behaviour and risk posture.

    Furthermore, the benefits of a good governance framework, that includes a self-review mechanism, has a multi-faceted impact in that it:

    • maintains community trust
    • prevents misconduct, particularly against the most vulnerable, and
    • provides a high level of confidence your organisation is operating for purpose and meeting all its obligations.

    From a tax perspective, this sets a solid foundation and as such it can give us increased confidence in our interactions with you, thereby reducing the risk of unexpected compliance activities.

    Foundations are important. My Nonna taught me that.

    Like Nonna Giovanna did with her family, set the tone and culture for your not-for-profit. Outline how things will be done and who has accountability. Be strategic about the relationships you nurture and run your not-for-profit steadfastly, with purpose and integrity. Select the governance principles you will measure your not-for-profit against and implement better practices.

    We have made it easier for you to regularly check how well your not-for-profit organisation manages its tax and super. Worksheets to help review your entitlements to DGR endorsement, income-tax exemption and other tax concessions are now available on one page.

    Like the ATO, my Nonna was always there ready to provide support and guidance. At the ripe age of 94 years, I asked my Nonna about her life regrets. Nonna answered thoughtfully in her beautiful Sicilian dialect “Well, I have had a wonderful life in Australia, but one thing is disappointing……after 50 years of living here, the Australians did not learn to speak Italian.”

    Jennifer

    Last modified: 06 Apr 2021QC 65221