CHARITIES ALERT: The latest update on ACNC developments for charities

8 February 2018

Publications

Below is a summary of various Australian Charities and Not-for-profits Commission (ACNC) developments which may be important for charities to consider.

1. Review of the Australian Charities and Not-for-profits Commission (ACNC) legislation  

On 20 December 2017 the Government released the terms of reference for the mandated review of the Australian Charities and Not-for-profits Commission Act 2012 and the Australian Charities and Not-for-profits Commission (Consequential and Transitional) Act 2012, collectively referred to as the ACNC legislation.

The ACNC legislation requires a review to be undertaken after five years of operation. A review panel has been appointed to conduct the review and will evaluate the suitability and effectiveness of the current regulatory framework and advise the government on any appropriate reforms that can be made.

The panel must present their final report on the review’s findings and recommendations to the Government by 31 May 2018.

Public submissions in response to the terms of reference are due by 28 February 2018.

Relevant information and Discussion Papers

  • To inform the scope of the review, the Government has released a terms of reference which provides that the review should:
    1. Examine the extent to which the objects of the ACNC Acts continue to be relevant;
    2. Assess the effectiveness of the provisions and the regulatory framework established by the ACNC Acts to achieve the objects;
    3. Consider whether the powers and the functions of the ACNC Commissioner are sufficient to enable these objects to be met; and
    4. Consider whether any amendments to the ACNC Acts are required to enable the achievement of the objects and to equip the ACNC Commissioner to respond to both known and emerging issues.

The full terms of reference can be accessed on the Treasury consultation website.

  • The Australian Accounting Standards Board (AASB) Discussion Paper Improving Financial Reporting for Australian Charities (November 2017) evaluates the key issues facing charities within the current financial reporting framework and recommends possible options for change. In particular, the report proposes an improved reporting framework that:
    1. Eliminates duplicate reporting requirements between State/Territories and the Commonwealth;
    2. Introduces transparent and objective reporting criteria;
    3. Specifies financial reporting requirements based on the needs of users matched with the level of public interest and external users; and
    4. Facilitates an appropriate level of assurance matched with the type of financial report.
  • The ACNC has recently published their written submission to the review panel which can be accessed on the ACNC website.

How to respond

Written submissions may be lodged electronically, by email or by post, with electronic lodgement being preferred.

Email Post
ACNCReview@treasury.gov.au Address written submissions to:
Principal Adviser
Individuals and Indirect Tax Division
The Treasury
Langton Crescent
PARKES ACT 2600

If you would like more information or assistance with preparing a written submission, visit the Treasury consultation website or please contact us.

2. Government Administrative Reform of Tax Deductible Gift Recipients 

The Hon Kelly O’Dwyer, Minister for Revenue and Financial Services, announced on 5 December 2017 that the government intends to not proceed with the 2009-10 Federal Budget measure ‘Philanthropy – reforming the ‘in Australia’ requirements that apply to tax exempt entities’ and will instead reform the administration and oversight of organisations with Deductible Gift Recipient (DGR) status.

The 2009-10 Federal Budget measure would have changed the ‘in Australia’ special conditions for DGRs ensuring that they must generally operate solely in Australia, and pursue their purposes solely in Australia. This could have prevented many DGRs from conducting legitimate activities outside Australia and would not have provided appropriate oversight of the overseas activities of exempted organisations. While this measure is not proceeding, there are still a variety of requirements that need to be compiled with to be granted and maintain DGR status.

The key changes to the administration and oversight of organisations with DGR status are listed below:

  • all non-government DGRs will be automatically registered as charities with the ACNC from 1 July 2019 with a 12 month transitional period to assist current non-charity DGRs with compliance. DGRs may be exempted from this requirement in certain circumstances. Public fund requirements will be abolished;
  • the DGR registers and Overseas Aid Gift Deduction Scheme will be integrated with the ACNC charity register and duplicative reporting requirements will be abolished. The ACNC will act as the central location for applications and reporting;
  • to strengthen oversight of overseas activities, the Government will issue External Conduct Standards to be enforced by the ACNC as recommended by the ACNC and AUSTRAC’s report of 28 August 2017: Australia’s non-profit organisation sector: money laundering and terrorism financing risk assessment report;
  • the ACNC will publish charities’ declarations of political expenditure to the Australian Electoral Commission and relevant criminal activities of charities’ staff or responsible persons in the Annual Information Sheet; and
  • the Register of Cultural Organisations (ROCO) eligibility criteria will be amended to enable organisations that promote Indigenous Languages to be endorsed as DGRs.

The Minister further stated that the government will consult on details of the DGR reforms.

The statement can be found here.

3. Revocation of Charity Status – What is a charity’s ‘principal activity’? – Waubra Foundation and Commissioner of Australian Charities and Not-for-profits Commissions [2017] AATA 2424

This case affirmed the ACNC’s decision to revoke the subtype 13 (health promotion charity) registration of the Waubra Foundation. The revocation as an item 13 subtype charity had the effect that the foundation lost its Deductible Gift Recipient (DGR) status. A health promotion charity is a charitable institution whose principal activity is to promote the prevention or the control of diseases in human beings.

The charity’s principal activity was deemed to be responding to requests for assistance. This activity occupied such a substantial proportion of the charity’s time and resources that it was not tenable to characterise any of the other activities, or any combination of those activities, as the principal activity. Consequently the Administrative Appeals Tribunal (AAT) found that the principal activity was not related to the purpose of the promotion of the prevention or the control of diseases in human beings.

In determining that the principal activity was responding to requests for assistance the AAT emphasised the following points:

  • a charity may conduct more than one activity but the principal activity is to be determined by reference to the charity’s main or predominant activity;
  • the principal activity is a question of fact, holistically determined from all the evidence bearing upon the nature of its activities and their purposes;
  • the institution’s own description of its activities and purposes, whether in its constitution or elsewhere, will be relevant but not conclusive;
  • the comparative amount of time, volume of activity or expense spent on each of its activities are factors indicating a charity’s principal activity; and
  • in some circumstances the balance of activities, or some combination of them, can jointly be characterised as the principal activity.

The AAT took guidance from the following statements contained in the ACNC’s Interpretation Statement 2015/01:

  • the principal activity is the main activity conducted by the charity, or the activity that it conducts more than any other activity;
  • the principal activity will most often take up the majority of the charity’s time or resources but there may be instances where this is not the case; and
  • if a charity has five activities, four of which take up 15% of its time and resources, and a fifth which takes up to 40% of its time and resources, it is the fifth which would be considered its ‘principal activity.’

Important implications from this decision are as follows:

  • health promotion charities should be careful that the activities they choose to conduct are consistent with the principal activity of the promotion of the prevention or control of diseases in human beings; and
  • health promotion charities should continuously monitor changes in activities to ensure that as time goes by the activities they conduct continue to be consistent with the principal activity of the promotion of the prevention or control of diseases in human beings.

The case can be found here.

Written by:

Lucinda Smith | Partner | +61 2 9020 5748 | lsmith@tglaw.com.au

Philip de Haan | Partner | +61 2 9020 5703 | pdehaan@tglaw.com.au

Matthew McHale | Summer Clerk