Message from David Bradbury
Assistant Treasurer and Minister Assisting for Deregulation
Welcome to Treasury's update on the not-for-profit reform agenda. I am very pleased to have a role in reforms that will strengthen and support this important sector in the Australian community.
The Gillard Government is listening to the NFP sector and has already announced extended start dates for some elements of the reform agenda. The Australian Charities and Not-for-profits Commission (ACNC) will now start from 1 October 2012 and the Better Targeting tax concessions measure will apply from 1 July 2012 for new unrelated commercial activities after the Budget night announcement.
The Government has also decided on a two-staged approach to the introduction of the ACNC and the regulatory framework that it will administer.
I announced on 17 May 2012 that charities will not be required to comply with the governance standards and financial reporting framework until 1 July 2013. This means that the first financial reports for medium and large registered entities will now begin to fall due after 1 July 2014.
The Gillard Government has announced the most ambitious reform agenda for Australia's not-for-profit sector in history, including by developing a new national approach to fundraising laws, introducing a statutory definition of charity and introducing a new regulator for the sector.
Effective engagement and consultation with the not-for-profit sector is critical to the shaping of these reforms.
Charities and other not-for-profits deliver vital assistance to some of the most vulnerable members of the Australian community and I would like to thank them for the important work they do and their partnership with the Government in implementing this reform agenda.
ACNC - two-staged approach
The Government has extended the start date for the ACNC from 1 July 2012 to 1 October 2012 and also announced a two-staged approach to the introduction of the regulatory framework.
The ACNC will be established and automatically register tax endorsed charities from 1 October 2012. However, the governance standards and financial reporting framework will be introduced through statutory instruments after further consultation with the NFP sector.
The Government proposes to refer the draft ACNC legislation to the House of Representatives Standing Committee on Economics for an inquiry over the Winter Parliamentary recess. The Government will then consider any recommendations the Committee makes before introducing the legislation later this year.
The two-staged approach means that governance standards for registered charities will not come into effect until 1 July 2013 and registered charities will not have to start financial reporting to the ACNC until after the financial year ending 30 June 2014.
The extended start dates will give charities more time to transition to the new regulatory framework and for the ACNC to provide guidance materials to help in the transition.
The Australian Charities and Not-for-profits public information portal and the statutory definition of 'charity' will be ready by 1 July 2013, as planned.
Better targeting tax measure start date extended
On 30 March 2012, the Assistant Treasurer and the Minister for Social Inclusion announced the Government's decision to extend the start date for the 2011-12 Budget measure to better target NFP tax concessions from 1 July 2011 to 1 July 2012.
This extension will allow additional consultation time and reduce uncertainty for those who commenced commercial activities after the 2011-12 Budget. Targeted consultation will continue and public consultation on the exposure draft legislation and explanatory materials is expected in the coming months.
The 1 July 2012 start date will apply only to new unrelated commercial activities that commenced after 7:30 pm (AEST) on 10 May 2011. Existing unrelated commercial activities that commenced prior to that date will continue to be covered by transitional arrangements as announced in the 2011-12 Budget.
The 2011-12 Budget measure to better target NFP tax concessions is about ensuring that valuable tax concessions are utilised to directly further the purposes for which they were provided, rather than support unrelated commercial activities operated by NFP entities. Further information about this measure is available on the 'Not-for-profit reform' section of the Treasury website.
Governance standards and extended start date
The Government announced in the 2011-12 Budget a review of governance obligations for NFP entities.
On 8 December 2011, the Government released a discussion paper on core organisational governance principles for registered NFPs. Treasury received over 150 submissions.
Overall, submissions supported principles-based governance standards. Concerns included the possibility of prescriptive principles and increased compliance costs with governance requirements that add to those the States and Territories already require.
Core governance standards facilitate a 'charities passport' and minimise compliance across the sector. The ACNC will regulate many entity structures and a single set of core principles will make it easier for NFP entities to comply.
A principles-based approach expresses high level outcomes rather than itemising outcomes for every conceivable case. This allows entities to choose how they wish to implement their governance rules.
Core governance standards provide flexibility so requirements are proportional. For instance, what a large NFP must implement to satisfy the requirements will be different from what a small NFP must do.
To allow for further consultation and more time for charities to transition to the new regulatory framework, the Government has announced that the new governance standards element of the ACNC’s regulatory framework will not come into force until 1 July 2013 and will be implemented by way of statutory instruments.
New NFP Sector Tax Concession Working Group
On 12 February 2012 the Minister for Social Inclusion and the then Assistant Treasurer announced the membership and terms of reference of a working group to consider ideas to better deliver the support currently provided through tax concessions to the NFP sector.
Linda Lavarch, the chair of the NFP Sector Reform Council, is chair of the working group, which includes a diverse range of representatives from the NFP sector and technical experts.
The working group is a response to discussions at the 2011 Tax Forum about whether current support provided through tax concessions to the sector can be better delivered.
The working group is examining NFP tax concessions in terms of their fairness, simplicity and effectiveness. It is also examining previous inquiry recommendations and ideas presented at the Tax Forum.
The working group will release a discussion paper later in the year that will examine options for reform and offsetting savings. There will be opportunities for interested parties to provide input to the working group, and more information will be made available through this newsletter as the work progresses.
Restating and standardising the special conditions for tax concession entities
The Assistant Treasurer released for public consultation a revised exposure draft of legislation to restate and standardise the special conditions for tax concession entities (including the 'in Australia' special conditions). Consultation closed on 11 May 2012.
The draft legislation provides that income tax exempt entities generally must be operated principally in Australia and for the broad benefit of the Australian community. Deductible gift recipients (DGRs) generally must be operated solely in Australia with some limited exemptions for specific categories of entities, including overseas aid DGRs and some environmental organisations. It also standardises the term 'not-for-profit', replacing the defined and undefined uses of 'non-profit' throughout the tax laws.
The revised exposure draft includes changes allowing income tax exempt entities and deductible gift recipients to be able to give property or benefits to any entity to further their purposes. However, the spending of the entity's funds must be taken into account when determining whether or not that entity meets the relevant 'in Australia' special conditions.
Income tax exempt entities will also be allowed to disregard the spending of government grants and non-tax deductible donations when applying the 'in Australia' special conditions, but only in cases where the entity demonstrates adherence to some basic governance principles (to be set out in the regulations) about how they operate overseas.
Further changes and information about the measure can be found on the Treasury NFP webpage at www.treasury.gov.au
Introduction of the draft legislation into Parliament is expected later in 2012.
Reducing regulatory duplication
One outcome from the NFP reform agenda is reduced regulatory duplication and red tape. The Government announced in the 2011-12 Budget it would negotiate with States and Territories on national regulation and the new national regulator as national coordination can achieve the greatest reduction in red tape.
In November 2011, the Commonwealth, State and Territory Governments agreed to establish the Council of Australian Governments (COAG) NFP Reform Working Group. The Working Group aims to help jurisdictions work together to reduce the regulatory burden on the sector. Members include Treasury officials from each jurisdiction. Regular meetings facilitate consideration of options for reform and harmonisation of regulation.
On 13 April the Prime Minister, Assistant Treasurer and Minister for Social Inclusion announced that COAG has agreed to endorse the Terms of Reference and 2011-12 Work Plan of the COAG NFP Reform Working Group. At the Commonwealth level, a working group is reviewing current Commonwealth regulatory and reporting arrangements for NFPs and identifying overlapping and duplicated regulation.
Between the two working groups, the Australian Government is working towards reducing regulatory duplication and red tape at a national level.
Progress on statutory definition of charity
Treasury received over 200 submissions in response to the consultation paper A Definition of Charity. They presented a range of views which Treasury is analysing in preparing an exposure draft Bill.
Issues being considered include the definition of charity as having an 'only' or 'exclusively' charitable purpose, but with allowance for activities in aid of the charitable purpose; provision for peak bodies to be included as charities, familial ties not disqualifying beneficiaries in all cases; the need to clarify the meaning of public benefit and provision for a level of advocacy in the activities of a charity.
Improving consultation survey
The Government recognises and values the contribution of the NFP sector and the importance of working together to help develop and implement policy and programs that affect Australian communities.
To improve the way we work together, the NFP Sector Reform Council is leading the co-creation of a Consultation Code to guide how to consult. This will underpin the National Compact.
To help develop the code, the NFP Sector Reform Council has conducted a survey of NFPs on how they currently work with Government, barriers to engagement and suggestions for future consultations.
The National Compact website is at http://www.nationalcompact.gov.au/news/sector-survey-develop-consultation-code.
Update from the ACNC Implementation Taskforce
Community consultations
After visiting all Australian capital cities and Townsville, the ACNC Implementation Taskforce community consultation sessions concluded in Sydney on 13 February 2012. Attended by around 1,600 people, the sessions provided an opportunity for the taskforce to better understand the issues affecting the sector. Many attendees sought further clarity over aspects of the Government's wider not-for-profit reform agenda. A Treasury representative was at each meeting to answer these questions. Details of these sessions are at Community Consultations.
ACNC Taskforce discussion paper
In response to the ACNC Taskforce discussion paper a total of 122 written submissions were received from the NFP sector and the public. These submissions have been considered in the preparation of the Final Implementation Report.
ACNC Recruitment
Recruitment for the ACNC has been staggered. Successful candidates from the first phase started their new roles on 5 March 2012. As senior directors, these staff will play a critical role in establishing the ACNC and working to implement a one-stop shop for the benefit of the NFP sector. The new directors have been working with the recruitment agency to fill other roles within the ACNC organisation structure.
Further employment opportunities will be advertised on the ACNC Taskforce website and the Public Service Gazette.
Keep in touch with ACNC Implementation Taskforce news
The Head of the Taskforce's Column is a good source to remain informed on the establishment of the ACNC. The column is available on the Website. The sector can also join online conversations on the ACNC Facebook page.
Charities Maritime and Aviation Support Program discussion paper
Under the Charities Maritime and Aviation Support Program, charities providing maritime and aviation services to their community will receive rebates to cover any cost increase on fuels purchased for eligible activities. The Government released a discussion paper on the program and invited DGR endorsed charities operating maritime and aviation services to consider the proposed approach. Comments closed on 6 April 2012. The discussion paper is at http://www.climatechange.gov.au/government/submissions.aspx
Questions can be directed to the Department of Climate Change and Energy Efficiency at charitiesrebate@climatechange.gov.au or call the Department on 1800 463 008.
Frequently Asked Questions
We try to answer questions raised in consultations. If you have a specific question, please email us at NFPReform@treasury.gov.au
What will be the scope of the ACNC?
When it starts on 1 October 2012 the ACNC will only regulate charities. The ACNC's scope will expand to cover other NFP entities over time. Those timeframes are still to be determined but are not expected to start before 1 July 2014.
Existing charities endorsed by the Tax Office as having tax exemptions will move to the new regime and will not need to re-register to become a registered charity. Those charities that do not want to be transferred to the ACNC's administration can opt-out of the scheme.
Once the ACNC is operating, the Tax Office will accept the ACNC's registration of charitable status but retain responsibility for determining eligibility to access Commonwealth tax concessions which are subject to special conditions. The Tax Office is the Australian Government's principal revenue collection agency and it is appropriate it has responsibility for tax concessions.
Transitional arrangements will allow entities time to adjust for a smooth transition where they need to make changes under the new regulatory framework.
The ACNC Bill has been developed to establish a legislative framework that meets the long-term objectives of a single national regulator. It is drafted to apply to all entities, with qualifications for areas subject to state and territory agreement in the long term.
Treasury is working closely with the ACNC Implementation Taskforce, the Tax Office, other Government departments, the States and Territories, and, most importantly, the NFP sector itself, to ensure a smooth transition to the new regulator.
Other articles in this newsletter provide details on the Government's decision to implement the ACNC's regulatory framework in two stages, with governance standards and financial reporting now to be implemented by regulations after further consultation with the NFP sector.
Will the Commissioner of the ACNC be independent from the Commissioner of Taxation?
The Commissioner of the ACNC will be an independent statutory office holder. Staff of the ACNC will answer to the Commissioner of the ACNC, not to the Commissioner of Taxation, in relation to their work and responsibilities in the ACNC.
The Commissioner will be formally appointed by the Governor-General. The selection process will be run in accordance with the Government's merit-based selection policy. Details of the policy and the selection process are at: http://www.apsc.gov.au/publications-and-media/current-publications/merit-and-transparency.
Members of the Advisory Board will be appointed by the Assistant Treasurer and will have expertise on the NFP sector and/or appropriate qualifications on law, taxation or accounting.
The ACNC will have full budgetary independence. This will be formalised through a memorandum of understanding between the Commissioner of the ACNC and the Commissioner of Taxation.
What is the role of the objects clause of the ACNC Bill?
During consultation on the ACNC exposure draft Bill stakeholders expressed interest in the objects clause.
An objects clause states how a Bill is intended to operate and helps show how detailed provisions of the law fit together. However, the objects clause alone cannot represent all the objects of the legislation. To gain a holistic view of how the ACNC will undertake its role, it is necessary to consider the whole of the Bill, the guidance material, explanatory material and the ACNC Taskforce's Implementation Design Discussion Paper.
Feedback from the consultation process on the draft legislation has informed changes to the objects clause and the guidance and explanatory material for the Bill.
Why is the ACNC starting up before the definition of charity is legislated?
The ACNC will start on 1 October this year while the statutory definition of charity will not take effect until 1 July 2013. This allows time for the ACNC to develop guidelines on the statutory definition and set up education arrangements prior to the new definition coming into force.
Before 1 July 2013, new charities will be registered under the existing arrangements and Tax Office endorsed charities with tax concessions will be automatically registered with the ACNC. Over time the ACNC will review the registered entities but charities will have time to adjust.
Will reports to the ACNC be general or special purpose financial statements?
In the consultation on the ACNC exposure draft, some charities sought clarity on whether entities would be 'reporting entities' and required to prepare general purpose financial statements.
The ACNC Implementation Taskforce, Treasury and the Australian Accounting Standards Board are working together on this issue to provide guidance to the sector on when special purpose financial statements will be accepted. The aim is to find the right balance between
minimising compliance costs and ensuring an appropriate level of accountability and transparency.
The start date for financial reporting requirements has been extended to 1 July 2013 to allow more time for consultation on the appropriate requirements, with the first financial reports only falling due after 1 July 2014.
How will substituted accounting periods be dealt with?
The ACNC will generally operate on the basis of a standard financial year which will assist with the development of the public information portal, including making information on the portal more useable for the public. However, the Government understands that certain groups of charities operate for other purposes on the basis of a different reporting period. For example, schools often operate on a calendar year.
The exposure draft has been revised to allow charities that operate on the basis of different reporting periods to continue on that basis unless the ACNC provides otherwise.
The ACNC will also take account of the reasons charities have for adopting a different reporting period when considering requests for substituted accounting periods.
What about joint reporting and registration?
In the consultation process, stakeholders raised the possibility of allowing entities to form reporting groups that would report along specific lines of activity, rather than on an entity-by-entity basis. The exposure draft has been revised to allow for this type of joint or collective reporting in some cases, although deductible gift recipients may still need to report separately.
However, it is unlikely joint registration could be accommodated within the proposed framework as the ACNC registration framework must interact with other Commonwealth laws. Registration is required, for example, to access tax concessions. Joint registration would require significant changes to other Commonwealth laws which may come at a considerable cost to revenue, undermine Government proposals to better target tax concessions and weaken other regulatory frameworks.
What has happened this year?
- Consultation on the 2011-12 Budget measure to better target NFP tax concessions -January
- Consultation on the exposure draft bill to establish the ACNC closed 27 January
- ACNC Implementation Taskforce consultations from 20 January to 13 February
- Face-to-face meeting of the COAG NFP Reform Working Group - February
- Position of Commissioner and Advisory Board members advertised on 2 February and closed 16 February.
- Charitable fundraising discussion paper released with submissions required by 5 April
- First meeting of the NFP Tax Concession Working Group on 14 March
- The Assistant Treasurer and the Minister for Social Inclusion attended the NFP Sector Reform Council Roundtable on 26 March
- Charities Consultative Committee and Clubs Forum meeting on 11 May.
- Treasurer's post-Budget briefing on 14 May for the community and NFP sector, hosted by ACOSS.
What is coming up in the next few months?
- Further targeted consultation on the ACNC Bill
- Public consultation on ACNC regulations.
- House of Representatives Standing Committee on Economics Committee inquiry into the ACNC legislation.
- Public consultation on the exposure draft for better targeting tax concessions.
- Consultation on the exposure draft of the Charities Bill in the second half of 2012.
Contact us: For all questions regarding Treasury NFP reform issues or to join the NFP mailing list please contact us at: NFPReform@treasury.gov.au