The proposed 1 October 2012 date for the commencement of the Australian Charities and Not-for–profits Commission (“ACNC”) has been delayed.
The legislation to establish the ACNC is now expected to be debated in the Senate over the sitting dates of 9, 10 and 11 October 2012.
The relevant legislation is the Australian Charities and Not-for-profits Commission Bill 2012 (“Bill”). If the Bill is passed in its current form, immediate action from Charities, Health Promotion Charities and Public Benevolent Institutions endorsed by the ATO will not be required.
The following Alert accurately reflects the Bill in its current form. An update to this Alert will be provided once the Bill is passed. Given the novelty and significance of this legislation to the not-for-profit sector, a thorough briefing is provided. For a simple overview of the immediate impact of the legislation, you may choose to focus on the paragraphs printed in bold below.
The Bill’s stated aim is to establish a national regulatory system that promotes good governance, accountability and transparency for not-for-profit entities and maintains, protects and enhances public trust and confidence in the not-for-profit sector. The Bill establishes the ACNC, ACNC Advisory Board, the ACNC Register, governance standards registered entities will be required to meet, conduct standards applicable to matters external to Australia and provides for the provision of information statements and financial reports.
The ACNC will be national regulator for charities, but at this stage no other not-for-profit entities. The Commissioner of the ACNC will be responsible for registering entities as not-for-profit entities according to their type and subtypes. Currently, charities are the only type of entity which may be registered by the ACNC. Accordingly, Not-for-profits which are not charities are not currently covered by the legislation.
The subtypes of charities are:
- Entity with a purpose that is for the relief of poverty, sickness or the needs of the aged;
- Entity with a purpose that is for the advancement of education;
- Entity with a purpose that is for the advancement of Religion;
- Entity with another purpose that is beneficial to the community;
- Health promotion charity
- Public benevolent institution
- Entity with a charitable purpose for the provision of child care services
Subtypes 1-4 describe entities that are covered by the 4 heads of charity traditionally recognised by the courts.
Registration with the ACNC is voluntary, but is a necessary precondition for access to certain Commonwealth tax concessions. To be entitled to registration, an entity must:
- Be not-for-profit;
- Comply with the governance standards or external conduct standards;
- Have an ABN; and
- Not engage in or support terrorist or other criminal activities.
The commissioner may revoke an entity’s registration, and therefore certain tax concessions if the entity:
- contravenes the legislation,
- contravenes a governance standard
- contravenes an external conduct standard or
- provided information that was false or misleading in its application for registration; or
- becomes bankrupt or insolvent
However, the Commissioner may give a show cause notice to the entity giving it 28 days to show why the registration should not be revoked before revoking the registration.
Charities, Health Promotion Charities and Public Benevolent Institutions endorsed by the ATO prior to the commencement of the ACNC are taken to be registered entities under the ACNC on commencement of the ACNC. These entities do not need to do anything else in order to become registered.
The Commissioner may be appointed for a period not exceeding 5 years. The Commissioner is required to assist registered entities in complying with and understanding the legislation by providing them with guidance and education. The Commissioner is also required to assist the public in understanding the work of the not-for-profit sector and improve the transparency and accountability of the sector. In performing these functions the Commissioner may be invited to attend Advisory Board Meetings and have regard to the advice and recommendations of the Advisory Board.
The Advisory Board will be comprised of officers appointed as determined by the Minister and least 2, but not more than 8 general members with expertise relating to not-for-profit entities or experience and qualifications in law, tax or accounting. The Minister may terminate the appointment of a general member at any time.
The Commissioner must maintain a register and make it available to the public on the internet including the following information about registered entities:
- Entity’s name
- Entity’s contact details
- Entity’s ABN
- Type of entity
- Subtype of entity
- Date of Registration
- Entity’s governing rules, as amended from time to time
- The directors of an entity which is a company
- The trustee of an entity which is a trust
- The directors of a trustee of an entity which is a trust
- Information statements
- Financial reports; and
- Details of any warnings, directions, undertakings, injunctions, suspensions or removals from the register made by or to the Commissioner.
The ACNC is not otherwise able to disclose protected information, being information obtained under the legislation that relates to the affairs of an entity and identifies or is reasonably capable of being used to identify the entity.
The commissioner will not have all the information required for the register in the first 15 months from the commencement of the ACNC. This is because registered entities are not required to provide information such as their first annual information statements and financial reports until sometime after the commencement of the ACNC and the information provided by the ATO to the ACNC may not be disclosed straight away. Accordingly, the transitional provisions allow the ACNC to maintain an incomplete ACNC Register in the first 15 months from the commencement of the ACNC.
The legislation anticipates the creation of minimum governance standards which are yet to be set out in the regulations. The standards are to be designed to promote effective and efficient use of charities’ resources and meet community expectations about managing their affairs and the use of public money, volunteer time and donations and minimise the risk of mismanagement and misappropriation.
External Conduct Standards
Similarly, the external conduct standards are yet to be set out in the Regulations. They will be designed to give the public confidence that funds sent outside Australia by registered entities are reaching legitimate beneficiaries, being used for legitimate purposes and not contributing to terrorist or other criminal activities.
All registered entities must provide the Commissioner with an annual information statement by 31 December in the next financial year. The statement must be in the in the prescribed form, which has not yet been released. However, the information sought by the prescribed form must relate to the Commissioner’s assessment of the entity’s entitlement to registration as a particular type and subtype of entity, compliance with the legislation and compliance with tax laws.
The first annual information statement will need to be prepared for the 2012/13 financial year and will need to be lodged with the ACNC by 31 December 2013 unless the registered entity uses a substitute accounting period.
Small registered entities with a revenue of less than $250,000 per annum do not need to lodge Financial Reports with the ACNC. However, medium registered entities with revenue of between $250,000 and $1,000,000 per annum need to lodge audited Financial Reports by 31 December in the following financial year, unless the Commissioner gives written notice that reviewed statements are sufficient. Large registered entities with a revenue exceeding $1,000,000 per annum need to lodge audited Financial Reports by 31 December in the following financial year.
The Financial report must comply with the requirements yet to be set out in the Regulations.
Small registered entities should be cautioned that although the are not required to lodge financial statements with the ACNC, they must keep financial records which correctly record and explain their transactions and financial position and performance for 7 years after the transactions, operations or acts covered by the records are completed.
Unlike the Annual Information Statement, financial reporting is not compulsory for the first financial year. The annual financial report requirements apply to the 2013/14 financial year and will be due by 31 December 2014 unless the registered entity has a substitute accounting period.
The ACNC has significant information gathering, monitoring and enforcement powers. Penalties may be imposed on registered entities which make misleading statements orally or in writing including electronically. Registered entities have an obligation to inform the commissioner if they discover that they have made a misleading statement. Penalties also apply for failing to lodge required documents on time.
The obligations of registered entities which are unincorporated associations are imposed individually upon their directors including a member of its committee of management or a member who performs that function.
The obligations of trusts which are registered entities are imposed upon the trustee and individually upon the directors of the trustee if the trustee is a company whether or not they are validly appointed or authorised to act in that position.
The obligations of companies are imposed upon the company and individually upon their directors whether or not they are validly appointed or authorised to act in that position.
Objections to decisions of the ACNC must be made within the period of 60 days after notice of the administrative decision has been served on the entity.
There is currently considerable uncertainty regarding reporting and conduct requirements. However, it is clear that the scope of the ACNC will extend from charities to other not-for-profits and that reporting and conduct requirements will be applied in due course. According, we recommend that all not-for-profits get their houses in order by ensuring that their internal systems promote effective and efficient use of their resources, funds sent outside of Australia are used for legitimate purposes and financial records are kept which correctly record and explain their transactions and financial position and performance for 7 years.
If you require any advice regarding the ACNC, please contact:
Partner, Responsible for Pro Bono
Phone: 61 2 9228 9209
and Nicola Arvidson.
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