New regulatory authority for charities and not-for-profit entities

Australia has a new regulatory authority for charities and the not-for-profit sector following the commencement of Commonwealth legislation establishing the Australian Charities and Not-for-profits Commission (ACNC) on 3 December 2012. The Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act) establishes a national regulatory system to promote good governance, accountability and transparency for not-for-profit entities.

Background

There was no official regulation of charities and the not-for-profit (NFP) sector before the ACNC Act. Entities that were companies or other registrable bodies under the Corporations Act 2001 were regulated by the Australian Securities and Investments Commission (ASIC) and the Australian Taxation Office (ATO) was responsible for assessing the charitable status of bodies for the purpose of tax concessions.

The ACNC Act streamlines the process for registration of charities and their entitlement to tax concessions. Charities now will have to apply to the ACNC to be registered and registration triggers eligibility for tax concessions. ASIC will still play a role in the regulation of charities that are incorporated under the Corporations Act 2001, but those charities now will be regulated primarily by the ACNC.

What is a charity?

Initially, the ACNC will only regulate charities, but other not-for-profit entities are proposed to be regulated in the future. A charity is just one type of not-for-profit entity that will be regulated under the ACNC Act.

A statutory definition of ‘charity’ has not yet been finalised so the common law rules still apply. A charity will include organisations for the relief of poverty, advancement of education, advancement of religion and other purposes beneficial to the community.

Tax concessions

The ATO will no longer be responsible for assessing charitable status because, once registered by the ACNC as a certain ‘sub-type’ of charity, entities will automatically be eligible for relevant tax concessions.

Charities will not be required to register with the ACNC but a failure to do so will mean the charity is not entitled to tax concessions offered by the Federal Government.

Governance

Registered charities must comply with specific standards of governance as prescribed by a regulation to be made under the ACNC. Those governance standards have not yet been set but a consultation draft has been released, with submissions due by 15 February 2013.

The six proposed governance standards are:

1. Purposes and NFP character of a charity – a charity must be a not-for-profit entity that pursues only charitable purposes.
2. Accountability to members – a charity must be open and accountable to its members (if any).
3. Compliance with Australian laws – a charity must comply with all Australian laws.
4. Responsible management of financial affairs – a charity must take reasonable steps to manage its financial affairs responsibly.
5. Suitability of responsible entities – a charity must take reasonable steps to ensure that its responsible entities are not disqualified from managing corporations.
6. Duties of responsible entities – the responsible entities of a charity must be honest and careful in all their dealings and always act in the charity’s best interests.

Reporting

Registered charities have additional reporting obligations under the ACNC Act. Reporting obligations are different
for each category of charity (small, medium or large), depending on their annual revenue. The initial 2012–2013
report only needs to contain basic information about the charity but subsequent annual reports will have to include
financial information.

These additional reporting obligations are, to some extent, offset by changes to the reporting requirements for
charities that are registered with ASIC. For example:

• charities that are public companies no longer need to notify ASIC of changes to their constitution
• charities no longer need to notify ASIC of changes to their address or directors
• annual statements and review fees are no longer required to be lodged with ASIC.

Charities may apply for approval to report to the ACNC jointly.

Transition for existing charities

The Australian Charities and Not-for-profits Commission (Consequential and Transitional) Act 2012 contains
transitional provisions that deal with the registration of existing charitable institutions with the ACNC.

Entities that were endorsed as charitable institutions (including public benevolent institutions) or charitable funds
for federal tax concession before the commencement of the ACNC Act have been automatically registered with
the ACNC. Charities have six months in which to ‘opt out’ of registration but doing so will result in the loss of
tax concessions.

Entities that were not previously endorsed as a charity by the ATO will have to apply for registration as a charity
with the ACNC.

What this means for your agency

Queensland Government departments and agencies often work closely with charities and the not-for-profit sector.
Some Government bodies are charities themselves, or administer charitable funds, and have now been registered
with the ACNC. It is crucial that government officers who are involved with charities and the not-for-profit sector
familiarise themselves with the new regulatory system.

^{The information in this publication is provided for general purposes only. It is not to be relied on as a substitute for legal advice. Crown Law and the Department of Justice and Attorney-General accept no liability for losses caused by reliance on the material in this publication. Formal legal advice should be obtained for particular matters.}