Who will the ACNC regulate?
Certain Not-for-Profit (NPF) entities currently endorsed to receive tax concessions are now automatically registered with the ACNC. Other NFPs may not automatically transition, but are eligible to register with the ACNC as a “charity”. Still other NFPs that are not “charities” will not be regulated by the ACNC at this time.
The entities transitioned to registration with the ACNC are:
- Charitable institutions, certain funds established for public charitable purposes, and testamentary trusts that have been endorsed by the ATO as income tax exempt
- Organisations that are endorsed by the ATO as FBT exempt or have DGR status as a “health promotion charity” (charitable institution whose principal activity is to promote the prevention or the control of diseases in human beings)
- Organisations that are endorsed by the ATO as FBT exempt or have DGR status as a “public benevolent institution”
- A religious institution that has been endorsed by the ATO as income tax exempt.
These entities will be classified “charities” under the ACNC legislation, but must also be registered as a subtype of charity under one of the seven categories set out in the legislation (an NFP may be registered as more than one subtype):
- An entity with a purpose that is the relief of poverty, sickness or the needs of the aged.
- An entity with a purpose that is the advancement of education.
- An entity with a purpose that is the advancement of religion.
- An entity with another purpose that is beneficial to the community.
- An institution whose principal activity is to promote the prevention or the control of diseases in human beings.
- Apublic benevolent institution.
- An entity with a charitable purpose described in section 4 of the of Extension of Charitable Purposes Act 2004 (being provision of childcare services).
For some NFPs, their subtype is prescribed in the transitional provisions and correlates with their existing status. For example, a health promotion charity will automatically be registered under subtype (5) listed above. For other NFPs, their subtype may not be clear and they will need to apply to the ACNC to be listed as a particular subtype.
We recommend that NFPs who think they have been automatically registered with the ACNC seek advice from the ACNC as to their status under the new legislation, what “subtype” they are registered as, and whether there is any potential impact on the NFP’s eligibility for tax concessions.
Non-transitioning but eligible to register NFPs
An NFP entity that does not hold any tax concessions but falls within one of the seven subtypes of “charity” may apply for registration with the ACNC. Indeed, if the NFP wants to be endorsed for tax concessions in the future it will need to do so.
In determining which entities are eligible to register, the ACNC have stated they will apply judge-made law on the legal meaning of charity as well as its meaning in other existing laws. The ACNC may also take into account what was previously considered by the ATO to be a charity.
Entities considering registration with the ACNC should seek specific advice in relation to their classification as a “charity” and possible subtype registrations(s), as their subtype registration may affect their eligibility (and the eligibility of any funds they operate) for tax concessions.
Some NFP entities may not be classified as charities but currently hold tax concessions, for example, employee associations that are income tax exempt. At this stage, these entitles do not fall under the ACNC legislation so do not need to take any action. These entities’ tax concessions will not be affected at this stage.
NFP entities that are not classified as a “charity” and do not hold any tax concessions, for example, sports clubs, are also unaffected by the ACNC legislation at this stage, so do not need to take any action.
Although it is envisaged that the ACNC will regulate all NFPs in the future, this is not expected to be before 2014.
The Federal Government has stated that it intends to enact a new definition of “charity” to apply from 1 July 2013. This may mean that entities not regulated by the ACNC will become subject to regulation from that date, but there is also a risk that other entities may lose their status as a “charity” and therefore their endorsement for tax concessions. Once the new definition is known, NFPs should seek advice on how this will impact them.
At this stage, tax concessions for charities will continue to be regulated by the ATO, however, the ATO will accept the ACNC’s determination of an entity as a type and subtype of “charity” in assessing eligibility for tax concessions.
What are the implications of being registered with the ACNC?
Entry on the register
Certain information in relation to registered entities will be publicly available on a register maintained by the ACNC. This will contain information such as:
- the entity’s name and contact details
- the entity’s governing rules
- annual information statements and financial reports submitted the entity
- details of action taken by the Commissioner against the entity and the resolution (if any)
- names of the directors, trustees or other “responsible entity” (defined in the ACNC legislation).
Registered entities must report to the ACNC about changes to their details.
All registered entities are required to keep written, readily accessible financial records which may be assessed by the ACNC and Tax Commissioner in relation to the entity’s registration and compliance with the ACNC legislation and tax laws.
From the 2012–13 financial year, all registered entities will be expected to report basic (non-financial) information about their operations in an annual information statement to the ACNC, no later than the 31 December in the following financial year. The content of the statement is yet to be finalised.
From the 2013–14 financial year, medium or large registered entities will be required to lodge annual financial reports with the ACNC. The requirements for the financial reports have not yet been finalised but will be prescribed by regulation. Large registered entities must audit their financial reports every year. Medium registered entities may choose to have their financial reports either audited or reviewed every year.
An entity will be:
- A small registered charity if its revenue is less than $250,000 for the financial year.
- A medium registered charity if its revenue is more than $250,000 but less than $1m for the financial year.
- A large registered charity if its revenue is more than $1m for the financial year.
To attempt to reduce duplication in reporting requirements, the ACNC has the power to accept statements, reports and other documents given to other government agencies (including State and Territory authorities) for the purposes of the ACNC legislation (for example, information statements and financial reports).
Governance and external conduct standards
Registered entities must also comply with governance standards and external conduct standards (relating to funds sent outside Australia and foreign activities) as a condition of registration. These standards are to be prescribed by regulation after public consultation has been undertaken by the sector, and are expected to apply from 1 July 2013.
The governance and external conduct standards may require an entity to:
- ensure that its governing rules provide for a specified matter
- require the entity to achieve specified outcomes and specify principles as to how the entity may achieve such outcomes, or
- require to establish and maintain processes for specified matters.
NFPs should monitor developments in this area and participate in the consultative process. Once the governance and external conduct standards are known, entities should review their rules or constitutions against the applicable standards for their sized entity, as the standards may not apply equally to all entities.
Liability for directors, trustees and committees of management
Directors, committee members and trustees should be aware that they may be personally liable for certain obligations and liabilities of the entity under the ACNC legislation.
If a registered entity is incorporated, its directors may be liable for amounts owed by the entity under the ACNC legislation, but only if the amount is payable because of a deliberate act or omission of the director involving dishonesty, gross negligence or recklessness.
If a registered entity is a trust, the individual trustee (or directors of any trustee company), may be liable for amounts owed by the entity under the ACNC legislation, but only if the amount is payable because of a deliberate act or omission of the director involving dishonesty, gross negligence and recklessness.
Compliance with other legislation
The ACNC legislation currently applies in addition to other legislation regulating the not-for-profit sector, including the Corporations Act 2001 and State and Territory legislation. However, for charities that are companies limited by guarantee, certain requirements to notify ASIC of events under the Corporations Act will no longer apply now the charity is registered with the ACNC. Other obligations under the Corporations Act, for example certain directors duties, will no longer apply from 1 July 2013.