Australian Charities and Not-for-profit Commission, the New National Regulators

There are approximately 600,000 not-for-profit organisations in Australia. A not-for-profit organisation is one which does not operate for the profit, personal gain or other benefit of particular people such as its members or those who run the organisation. Not for profits(‘NFP’) can make a profit, but that profit must be applied for the organisations purpose – i.e. the furtherance of the objects of the organisation without any portion being distributed directly or indirectly to members of the organisation except as bona fide compensation for services rendered or expenses incurred on behalf of the organisation. A need has been identified for regulators to watch over the process.

On 3 December 2013 the new national regulators, the Australian Charities and Not-for-profits Commission (‘ACNC’) commenced operations. As the NFP sector receives a range of funding, including donations from members of the public and tax concessions, grants and other support from Australian Governments, it was considered important to have a national regulatory system that promotes good governance, accountability and transparency for NFP entities so as to maintain, protect and enhance public trust and confidence in the NFP sector.

At present the ACNC will only focus on charities and therefore there are no implications for clubs at the current time.

The ACNC is responsible for ensuring all charities comply with their obligations under the ACNC Act including enforcing governance and external conduct standards.

The new regulators are responsible for determining charity status for all federal tax purposes.

The ATO will however continue to be responsible for administering tax concessions relevant to charities, including income tax exemptions; FBT rebate or exemptions; GST charity concessions and deductible gift recipient (DGR) status.

Registration with the ACNC is voluntary but is now a prerequisite for charities to access charity tax concessions. Registration may also be a prerequisite for other exemptions, benefits and concessions.

You will not need to re-register your organisation if it was endorsed by the ATO as a charity to access tax concessions immediately before 3 December 2012 as your organisation will have automatically been registered with the ACNC. Religious organisations which previously self-assessed as ‘religious institutions’ for tax exemption purposes are not automatically registered with the ACNC.

The services offered by the ACNC includes charity registration, a searchable charity register listing registered Australian charities, education and guidance materials to help charities understand and meet their obligations.

The Register will be maintained electronically and includes specified information about each registered and each formerly registered organisation. The purpose of the register is to provide a single source of easily accessible public information on the NFP sector covered by the ACNC Act.

The Register builds on information that is currently permitted to be included on the register and includes the requirement to include information such as countries (other than Australia) in which the registered entity operates and other names by which the registered entity may be publicly known.

Once registered, an organisation will be required to keep written financial records explaining its transactions, financial position and performance. The records must enable true and fair financial statements to be prepared and to be audited. Records must also be kept that correctly record operations and enable assessment activity by the ACNC to be carried out, which assessment will include entitlement to registration as a type of entity, compliance with the ACNC Act and assessment by the ATO for compliance with taxation laws. These records must be maintained for 7 years.

Reporting Obligations

Each registered organisation must provide the ACNC with an annual information statement. Medium and large organisations must also provide a financial report for the financial year together with any auditor’s report or reviewer’s report required under the ACNC Act. Exemptions for annual financial reports apply for ‘basic religious charities’ (as defined); however, these organisations must submit annual information statements.

Access to the registered entity’s annual report for a financial year must be included on the register where it is voluntarily disclosed for the purpose of being included on the register.

Electronic links to an organisations website will be included where the organisation has voluntarily disclosed this to the ACNC for this purpose.

Registered organisations must notify the ACNC, in the approved form, of changes such as changes to an organisations name, address for service, ceasing to be a responsible or registered entity, changes to governing rules and contraventions of the ACNC Act, non-compliance with a governance standards or external conduct standards if these are significant.

On obligation that is imposed by the ACNC Act on an unincorporated association or body of persons is imposed on each individual who was a director of the association or body at the time the obligation arose, but may be discharged by any such individual.

Offences against the ACNC Act committed by an unincorporated association or body of persons is taken to have been committed by each individual who was a director of the body or association at the time the body or association committed the offence. The ACNC Act does however set out defences which include “illness” and where all reasonable steps have been taken by the director to ensure that the association or body did not commit the offence or that there were no such steps that the director could have taken.

Administrative penalties may apply for failures of contraventions under the ACNC Act. In respect of an unincorporated association or body of persons the amount payable is payable by each individual who was a director of the association or body at the time the amount becomes payable.

Governance Standards

The ACNC Act sets up a system of minimum governance standards that registered organisations are required to meet. Compliance with those governance standards is a condition of entitlement to registration.

Registered entities are required to take all reasonable steps to comply with the governance standards by 1 July 2013. The ACNC will enforce compliance with these standards. Basic religious charities are exempted.

The object of the standards is to provide a minimum level of confidence that registered entities will promote the effective and efficient use of resources, will meet community expectations about managing their affairs and use public money, volunteer time and donations, and will minimise the risk of mismanagement and misappropriation.

External conduct standards have also been enacted to give the public confidence that funds sent outside Australia by registered entities are reaching legitimate beneficiaries, are being used for legitimate purposes and are not contributing to terrorist or other criminal activities.

Obligations to other Regulators

Organisations may still be subject to other regulators such as the ATO, the Office of Registrar of Indigenous Corporations (‘ORIC’) and other government agencies. The ATO remains responsible for administering taxation laws including deciding eligibility for tax concessions, ORIC continues as corporate regulators.

ASIC will remain responsible for fundraising.

It is understood that the ACNC will, however, accept financial questionnaires provided by non-government schools to DEEWR as meeting the requirement to lodge financial reports under the ACNC Act.

The ACT Government has announced that charities incorporated as associations in the ACT will only need to report to the ACNC and not the ACT Office of Regulatory Services.

Contact us for more information.