Governance Standards

On 1 July 2013, the new Governance Standards applying to all charities registered with the Australian Charities and Not-for-profits Commission (ACNC) will come into effect. Transitional provisions will apply until 1 July 2017 in relation to registered charities which are prevented from complying with the Standards due to existing provisions in their constitutions. Such charities must comply with the Standards “as far as possible” without breaching their constitutions.

Given substantial lack of clarity in the governance standards, it would appear prudent for registered charities to ascertain the processes and lead time necessary to change their constituent documents, and then to wait and see how the Standards are interpreted over the next few years before initiating any amendments. We have prepared a detailed paper examining the legal implications of the new Standards and recommending suggested courses of action (click here).

The Governance Standards can be found here.

External conduct standards are also expected to be promulgated by the ACNC in due course. These standards will give effect to the “in Australia” requirements applying to tax exempt entities and entities which have deductible gift recipient (DGR) status (see below) from the perspective of ACNC enforcement.

Proposed tightening of ‘in Australia’ requirements

The Tax Laws Amendment (Special Conditions for Not-for-profit Concessions) Bill 2012 has still not been passed, and will have to be reintroduced. The ATO website nevertheless confidently states that the following changes to the requirements for income tax exemption and DGR status will apply from 1 July 2013:

  1. Requirement that activities be carried out in Australia will be strengthened – for tax exempt entities they must operate principally (i.e. more than 50%) in Australia (clause 38 of Sch 1 of the Amendment Bill); for DGR entities they must operate solely in Australia (but merely incidental and minor activities are allowed outside Australia – there is a transitional provision that allows previously qualified DGR medical research institutes to be grandfathered if they are prescribed by regulation)(see clauses 2 and 23 of Sch 1 of the Amendment Bill). We understand that the Treasury is consulting with the Department of Health & Ageing with regard to regulations to exempt MRIs active overseas. On its face, the legislation does not permit an entity that is both tax exempt and has DGR status to segregate its DGR activities. If an MRI is both tax exempt and has DGR status, it will need to comply with the more stringent requirement. It would be best to obtain grandfathering under the regulations. Accordingly, MRIs may need to consider creating a related entity to be the DGR. However, we do not suggest exploring this option until the grandfathering regulations and the external conduct standards have been released.
  2. The definition of “not-for-profit” entity has been re-stated (clause 44 of Sch 1 of the Amendment Bill) and draft legislation has recently been released to amend the general law definition of “charitable purposes” from 1 January 2014, however, we do not consider this should affect MRIs.