In the 2011-2012 Budget, the Federal Government announced reforms to the regulation and governance of charities and not-for-profit (NFP) organisations. The reforms are aimed at rectifying inadequacies in the current framework by simplifying how the NFP sector is regulated. The effect will be the reduction of red tape, in addition to improving public trust and support of the NFP sector by increasing transparency and accountability and ensuring tax concessions are correctly utilised.
The three broad categories of reform as stated by the Office for the Not-for-Profit Sector are as follows:
- Establishing a national ‘one-stop-shop’ regulator for the not-for-profit sector (being the Australian Charities and Not-for-profits Commission (ACNC)) to remove the complex regulatory arrangements currently in place and streamline reporting arrangements;
- Greater harmonisation and simplification between Commonwealth, State and Territory Governments on not-for-profit issues, including regulation; and
- Reducing red-tape for government funded not-for-profit organisations, including streamlining contracting and funding arrangements
The key reforms are:
- As mentioned above, the establishment of the ACNC as an independent national regulator for charities, which commenced operation on 3 December 2012;
- A statutory definition of “charity” to replace the court-made definition, which is expected to be finalised by 1 July 2013;
- Implementation of special conditions for NFP tax concessions so that NFP organisations receiving such concessions must generally operate ‘in Australia’ as a not-for-profit and can no longer apply those concessions to income from unrelated commercial activities; and
- Working towards a nationally consistent approach to fundraising regulation to reduce inconsistencies and avoid duplication amongst state and territory laws.
There are also proposed reforms to be implemented further in the future, including changes to the Corporations Act to ease the compliance burden of companies limited by guarantee.
During the Federal Government’s staggered implementation of the reforms, it is important the NFP sector keeps a close eye on when each reform becomes operational in order to correctly fulfil its new obligations. Updates can be found at the Office for the Not-for-Profit Sector website, the Treasury website and the PilchConnect website.
Statutory definition of ‘charity’
The ACNC began operation on 3 December 2012 as the new independent national regulator for charities. However, not all NFP organisations are considered to be charities. The term ‘charity’ has a specific legal meaning quite separate from that of ‘not-for-profit’.
A ‘not-for-profit’ is an organisation that cannot be run for profit, gain or benefit (direct or indirect); meaning all income and assets owned by the organisation must remain with the organisation and be used to fulfil the purpose of the organisation. Members are not entitled to profits made by the organisation. Any profit made must be used to further the organisations purposes.
A ‘charity’ is a not-for-profit organisation that is set up for a purpose the law regards as charitable. Under the current common law definition, a charity is established for the purposes of assistance to the aged, the sick and the infirm, for the relief of poverty, advancement of religion, advancement of education or for other purposes beneficial to the community.
From 1 July 2013, the Australian Government will implement a statutory definition of ‘charity’ in an attempt to rectify confusion surrounding the common law definition and in order to clarify the following:
- how much charities can carry out activities which don’t have an exclusively charitable purpose;
- the charitable status of peak bodies;
- when family ties should disqualify people who benefit from a charitable trust;
- the meaning of ‘public benefit’; and
- the charitable status of advocacy organisations.
The ACNC and other Commonwealth agencies will use the statutory definition to determine whether an organisation can be registered as a charity.
Australian Charities and Not-for-profit Commission (ACNC)
The ACNC was established under the Australian Charities and Not-for-profits Commission Act 2012 (Cth) and Australian Charities and Not-for-profits Commission (Consequential and Transitional) Act 2012 (Cth). The ACNC regulates charities only (including public benevolent institutions and health charities); however, its regulatory power is expected to expand to encompass the registration and regulation of all NFP entities in the future (but not before 1 July 2014).
From 3 December 2012, charities are able to register with the ACNC. Registration with the ACNC is free. While registration is voluntary, charities must be registered with the ACNC in order to receive charitable tax concessions from the Australian Taxation Office (ATO) and other Commonwealth benefits. Charities already registered with the ATO were automatically registered with the ACNC on 3 December 2012 by way of a transfer of information from the ATO to the ACNC.
The ACNC is now responsible for determining an organisations ‘charity’ status; however, the ATO will retain responsibility for determining the eligibility of charities to access Commonwealth charitable tax concessions such as income tax exemption and deductible gift recipient status. If your organisation does not want access to charitable tax concessions, there is no need to register with the ACNC.
Once a charity is registered with the ACNC it has the following ongoing obligations:
Notification of certain changes
Registered charities need to inform the ACNC if their legal name, address for service, governing body members or governing rules change. A “small charity” (annual revenue less than $25,000) must notify the ACNC of any such changes within 60 days of becoming aware of the change. A “medium charity” (annual revenue is between $250,000 and $1,000,000) or a “large charity” (annual revenue of $1,000,000 or more) must notify the ACNC of any such changes within 28 days of becoming aware of the change.
Registered charities must keep financial records and operational records from 3 December 2012. Financial records explain the charity’s financial transactions, position and performance and allow financial reports to be prepared and audited. Operational records are any other document concerning the charity’s operations e.g. meeting minutes, reports or details of charity’s activities, programs or services. Charities are not required to provide these records to the ACNC unless asked.
Registered charities must lodge annual reports (financial and non-financial). NOTE: At the moment, these reports are in addition to any other reporting requirements charities may have.
From 1 July 2013, all charities must submit an annual information statement containing basic non-financial information about their operations during the 2012-2013 reporting period. The details to be contained in the annual information statement are currently being finalised by the ACNC, but will cover information concerning how the charity works towards its charitable purpose, the number of volunteers and paid staff, and the type of beneficiaries who benefit from the charity’s activities. If your reporting period is 1 July 2012 to 30 June 2013, your statement is due by 31 December 2013. If your reporting period is 1 January 2013 to 31 December 2013, your statement is due by 30 June 2014 (NOTE: if your charity wishes to report for a 12-month time period other than the financial year period, you must notify the ACNC by 2 June 2013).
From 1 July 2014, in addition to the annual information statement, all medium and large charities will need to submit a financial report for the 2013-2014 reporting period. For medium charities, a reviewed or audited annual financial report is required. For large charities, an audited financial report is required. Financial reports must be submitted within six months of the end of your reporting period. If your reporting period is 1 July 2013 to 30 June 2014, your financial statement is due by 31 December 2014. If your reporting period is 1 January 2014 to 31 December 2014, your financial statement is due by 30 June 2015.
Public information portal
The ACNC Register lists the name, ABN and state registration details of all registered charities. During 2013, the ACNC will make further information about registered charities available to the public. The ACNC public information portal will include information regarding the charitable purpose, registration date, responsible person contact details, governing rules and the annual reports of each registered charity.
From 1 July 2013, all registered charities will have to comply with governance standards and external conduct standards to be introduced by the Federal Government. Public consultation on the content of these standards closed on 15 February 2013. Both houses of parliament must approve the standards before they can be passed.
For more information and updates see the ACNC website.
For more information about what currently constitutes a ‘charity’ and the role of the ACNC, see Arts Law’s December 2012 ART+Law article What’s new for charities: The Australian Charities and Not-for-profit Commission.
Changes to conditions for Tax Concession Entities
The Federal Government is planning a number of changes to the Commonwealth tax concessions for all NFP organisations. These tax matters do not come within the power of the ACNC and will continue to be handled by the ATO.
Restating and standardising special conditions for tax concession entities
The Federal Government has moved forward in its plans to change the special conditions organisations will need to comply with in order to access income tax exemption and deductible gift recipient (DGR) status. The changes concern ensuring organisations with income tax exemption and/or DGR status are operating and pursuing their purposes ‘in Australia’ (unless an exception applies) and introducing a standard definition of ‘not-for-profit’ for Commonwealth tax laws.
After public consultation on draft legislation closed in May 2012, the Tax Laws Amendment (Special Conditions for Not-for-profit Concessions) Bill 2012 (Cth) (the Bill) was introduced into the House of Representatives on 23 August 2012. The aim of the legislation is to:
- restate the ‘in Australia’ special conditions for income tax exempt entities, ensuring that they generally must be operated principally in Australia and for the broad benefit of the Australian community;
- standardise the other special conditions entities must meet to be income tax exempt;
- standardise the term ‘not-for-profit’; and
- codify the ‘in Australia’ special conditions for deductible gift recipients ensuring that they must generally operate solely in Australia, and pursue their purposes solely in Australia (with some exceptions, such as overseas aid fund and some environmental organisations).
As at March 2013, parliamentary debate regarding the Bill remains suspended. However, once the laws are passed, NFP organisations will need to make sure they comply with these new special conditions and amend their constitutions or rules to suit.
The Bill and Explanatory Memoranda can be found on the Parliament of Australia website.
Better Targeting of Not-for-profit Tax Concessions
As stated in the Treasury’s May 2011 consultation paper ‘Better Targeting of Not-for-profit Tax Concessions’, the reform of the NFP sector tax concessions is aimed at ensuring tax concessions provided to NFP organisations, such as income tax exemption, fringe benefit tax and goods and services tax concessions, can only be used in relation to activities that directly further the purposes of the NFP organisation. These changes are focused on income that is made by a NFP organisation from unrelated commercial activities that is not then applied towards fulfilment of the organisations charitable or altruistic purposes.
The start date for the measure is 1 July 2014, but will only apply to a NFP organisation’s new unrelated commercial activities that commenced after 7:30pm on 10 May 2011, where the profits are not directed back to the organisations purposes and the activities are not small scale and low-risk.
It is important to note that:
- the measure will not impact tax concessions that were used for such unrelated commercial activities prior to 1 July 2014;
- unrelated commercial activities commencing prior to 7:30pm on 10 May 2011 will not become subject to the measure until 1 July 2015, and the measure will not impact on tax concessions used for those activities prior to 1 July 2015.
As at March 2013, no draft legislation for the measure has yet been released.
Nationally consistent approach to fundraising
Many NFP organisations operate across jurisdictional boundaries and are burdened by regulatory overlap between the Federal, State and Territory Governments in relation to fundraising. The Federal Government is working with states and territories, through the Council of Australian Government (COAG), towards agreeing on a nationally consistent approach to fundraising legislation.
As at March 2013, this process is still at the consultation stage and reform is not expected in the near future. For more information, see the COAG NFP Reform Working Group website.
 From the Office for the Not-for-Profit Sector website http://www.notforprofit.gov.au/about-us/not-profit-reform
 From the Parliament of Australia website http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r4872
 From the Assistant Treasurer website http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=pressreleases/2013/003.htm&pageID=003&min=djba&Year=&DocType=