2013 saw the legislative and regulatory environment for charities significantly changed. 2014 looks like being a repeat, but in the opposite direction. The government has confirmed its intention to abolish the Australian Charities and Not-for-profit Commission (ACNC) and to return to the common law definition of charity of the purposes of Commonwealth laws.

Current framework continues for the time being

Readers should note that the ACNC remains in place and continues to have a major regulatory and compliance oversight of the charities and not for profit sector. Charities registered with the ACNC continue to have important compliance and reporting obligations under the ACNC framework. Charities are required to be registered with the ACNC to maintain their tax exemptions and DGR status. While unlikely to be of material consequence for most charities, it is also important that all charities review their constitutions, functions and activities to ensure that they come within the statutory definition of “charity” for the purposes of Commonwealth law. This is because the new Charities Act 2013 (Cth)(Charities Act) commenced on 1 January 2014. It appears unlikely that the government will be able to amend or repeal this legislation for some time.

Commonwealth statutory definition of ‘charity’

Under the Charities Act, a statutory definition of charity now applies for the purposes of Commonwealth law. To meet the definition, charities must:

  • be a not for profit entity;
  • have all of its purposes charitable or incidental or ancillary to or in furtherance or in aid of charitable purposes;
  • have no ‘disqualifying purposes’; and
  • not be an individual, political party or government entity.

Charity under common law

The government’s intention is to return to the common law approach to determining a charity. This approach dates back to 1601 (1). Common law has established four principal categories – relief of poverty, advancement of education, advancement of religion and ‘other purposes’ beneficial to the community. This approach has been endorsed by Australian courts and in ATO rulings.

What has the government announced?

On 19 March 2014, the Federal Minister for Social Services, Kevin Andrews, introduced a Bill into Parliament to abolish the ACNC. The Australian Charities and Not-for-profits Commission (Repeal) (No. 1)Bill 2014 will not take effect until a later Bill is passed by Parliament and establishes a successor Agency. As outlined in the Minister’s speech to the Australian Institute of Company Directors on 29 January 2014 (2), the Government intends to return the ACNC’s regulatory and compliance functions to the ATO, ASIC and other bodies (as was the case prior to the establishment of the ACNC in December 2012). The Minister also confirmed the intention to establish a “National Centre for Excellence” early in the next financial year to provide collaborative education, training and development support to charities. The Centre for Excellence will have a broader ambit extending to clubs and associations with a social welfare role and entities in the arts, environment, medical research, animal welfare and education sectors. The Minister summarised the functions of the proposed Centre as:

  • provide educational and support services to registered charities;
  • provide assistance with the registration process of new charities and not-for-profit organisations;
  • provide a ‘one-stop-shop’ for information on the sector; 
  • advocate on behalf of the sector by representing its interests to government;
  • facilitate communication and interactions between the sector and government;
  • undertake research on issues of concern to the sector; and
  • foster innovation.

What are the key messages?

Substantial changes in the regulatory and compliance framework for charities and not for profit organisations with tax exemptions are likely to occur in 2014/15, with the exact nature of the changes unclear ahead of the new Senate composition in July 2014. Boards, senior management and auditors should have plans in place to keep informed on mooted changes, maintain an up to date reporting and compliance calendar and ensure effective compliance and risk management is in place.Entities required to be registered with the ACNC must still provide reports to the ACNC. Charities using the standard 1 July to 30 June financial reporting year must have submitted their 2013 Annual Information Statement by 31 March 2014, and charities operating on a calendar year must submit the statement by 30 June 2014.