On 6 July 2012, the Government referred the draft Australian Charities and Not-for-Profits Commission Bills (ACNC Bills) and the associated Explanatory Materials to the House of Representatives Standing Committee on Economics (Committee), for an inquiry over the Winter Parliamentary break. The ACNC Bills are subject to further public consultation and scrutiny by Parliament. Subject to receiving the Committee’s final recommendations, the Government intends to introduce the legislation in advance of its 1 October 2012 start date.
Australian Charities and Not-for-Profits Commission
The Australian Charities and Not-for-Profits Commission (ACNC) will be responsible for regulating charities from 1 October 2012.
The ACNC Bills provide the ACNC Commissioner with the power to register organisations as not-for-profit entities (NFPs) and the power to deregister NFPs in certain circumstances.
Initially, registration with the ACNC Commissioner will be limited to charities only. The Government is still considering at what stage other categories of NFPs will be brought under the regulatory scope of the ACNC. Registration is voluntary but if a charity does not register with the ACNC it will not be eligible to access a variety of Commonwealth exemptions, benefits and concessions (including tax concessions). The Government has announced that on 1 July 2013, a statutory definition of “charity” will apply. Prior to such statutory definition being enacted, the ACNC Commissioner will use the common law definition of “charity” (as affected by a number of statutory adjustments) to determine whether an entity is a charity and therefore eligible to be registered.
The Australian Taxation Office (ATO) will accept the ACNC Commissioner’s determination of whether an entity is a charity or not.
In order to access certain tax concessions and benefits the charity will also need to satisfy the ACNC Commissioner that it meets the description and common law definition of the relevant sub-type/s of charity (e.g. public benevolent institution, health promotion charity etc.) which are eligible to receive the particular concessions and benefits.
Additional criteria for registration include meeting the prescribed governance standards and external conduct standards which are set out in ACNC Bills.
The ACNC Bills also provide that the ACNC Commissioner will maintain the Australian Charities and Not-for-Profits Register (ACN Register) which will include specific information pertaining to all entities that are registered with the ACNC Commissioner. The ACNC Commissioner will maintain a transitional ACN Register for the period 1 October 2012 to 1 December 2013, which will contain limited information. Registered entities will be required to notify the ACNC of certain matters, including changes to the entity which may affect its entitlement to registration. Certain information on registered entities will be available to the public online through a searchable information portal, which it is hoped will introduce a high level of transparency and accountability to the sector and provide a single source of easily accessible public information about NFPs. The portal will be accessible via the new ACNC website from July 2013. A “charity passport” containing specific information pertaining to registered entities will be available electronically to authorised Commonwealth Government agencies through the ACNC information portal.
Governance and External Conduct Standards
All entities seeking to be registered will need to meet, and all registered entities will need to maintain, minimum governance and external conduct standards. These standards are expected to be principle-based, and will specify the outcome to be achieved rather than the method of achieving such an outcome.
The governance standards and external conduct standards will be set out in the regulations, which will be subject to further consultation.
All registered entities will be required to lodge an annual information statement with the ACNC. In addition, all medium and large entities will also need to lodge annual financial reports with the ACNC. In the case of large entities, the annual financial reports will be required to be audited.
The ACNC Bills use the concepts of small, medium and large entities to differentiate entities based on their revenue. The revenue thresholds are set out in the draft legislation. The detailed content requirements for financial reports will be set out in the regulations, which will be subject to further consultation.
The ACNC Bills introduce a “report once, use often” reporting framework for registered entities. All Commonwealth Government agencies will be able to access information on a specific charity from the ACNC rather than having to request such information directly from such charity.
The ACNC Bills provide the ACNC Commissioner with a range of enforcement powers which are available to it in order to maintain the public’s trust and confidence in the new regulatory framework including the authority to issue warning notices and directions, enter into enforceable undertakings, apply to the Courts for injunctions and suspend or remove responsible entities (namely individuals and other entities that are responsible for the decision-making and day to day management and compliance of a registered entity). The ACNC Commissioner may only exercise such enforcement powers over registered entities.
Under the new law, certain entities that are currently endorsed under Division 50 of the Income Tax Assessment Act 1997 (Cth) (ITAA 97) will have transitional registration arrangements applied to them, to enable them to be registered entities under the ACNC Bills.
On 1 October 2012, the following entity types will automatically be registered with the ACNC Commissioner and will not be required to take any further action:
- charities (i.e. entities that are endorsed by the ATO as charities under ITAA 97 on 1 October 2012 which includes charitable institutions, funds or trusts)
- health promotion charities that are endorsed as such by the ATO on 1 October 2012
- public benevolent institutions that are endorsed as such by the ATO on 1 October 2012, and
- religious institutions (which are not endorsed as any of the categories above but which self assess as income tax exempt under the ITAA 97 on 1 October 2012).
The ATO will remain responsible for determining the charitable status of entities until 30 September 2012, after which the ACNC will take over such responsibility. If an entity has applied to the ATO for endorsement as a charity prior to 1 October 2012 but the endorsement has not been finalised by that date, the ATO will be responsible for determining the charitable status of the entity in question.
From 1 October 2012, the ACNC will determine whether an entity is a charity and based on such determination, the ATO will assess a charity’s access to tax concessions. As set out above, registration is voluntary and as such, entities that are automatically registered on 1 October 2012 may opt-out of such registration. However upon opting out, an entity will no longer be able to access any Commonwealth tax concessions which it currently enjoys.
The ACNC will be responsible for regulating charities from 1 October 2012. The governance and external conduct standards will commence on 1 July 2013. Registered entities will need to prepare their first annual information statement in respect of the 2013 financial year and the statement will need to be lodged with the ACNC by 31 December 2013, unless a substituted accounting period applies.
The Government has announced that the financial reporting obligations and governance standards for registered charities which are set out in the ACNC Bills will only commence on 1 July 2013, giving charities more time to transition to the new regulatory framework. As a result of the staged introduction of the legislation, registered charities will have until 31 December 2014 to lodge their first financial reports with the ACNC, unless a substituted accounting period applies.