Before explaining Annie’s and Bev’s situations and how the reforms affect their work, here’s a recap of the main changes on the Federal Government’s program and the latest developments in the sector.
The big picture
The Government is establishing a regulatory framework that should result in long-term standardisation and simplification for the not-for-profit sector. This project is substantial and covers regulatory accountability, governance and transparency, fundraising and taxation. Given the stated objectives, including to promote public trust and confidence in the not-for-profit sector, the proposals are broader than those normally associated with companies.
The project proposes transfers of powers and regulation from the state level to the Federal Government. While it aims to address more than 600,000 not-for-profit entities in the long term, the immediate focus is on the group of around 60,000 entities registered with the ATO as charitable entities, including those that are
Deductible Gift Recipients and Public Benevolent Funds.
Much information is available from the website of the Australian Charities and Not-for-profits Commission (ACNC) Implementation Taskforce. This identifies the exposure draft of the Australian Charities and Not-for-profits Commission Bill 2012 and the various related projects underway.
These developments include:
- a new definition of ‘charity’ – the proposal requires an ‘exclusively’ rather than ‘dominant’ charitable purpose in order to retain tax concessions
- a ‘report once, use often’ information portal that will give a single lodgement point for NFP entities in their dealings across government agencies and reduce the amount of information provided through standardisation of government requirements (the portal will also provide the public with access to information about NFPs and those running them)
- a three-tiered reporting framework for lodgement of an annual information statement and, for larger entities, reviewed or audited financial statements
- a scaleable governance framework aimed at protecting the NFPs and the public from mismanagement.
What will happen when?
The table below shows the timeline for implementation of the reforms. Considerable work is being done to establish a framework that will be sufficiently robust to absorb more entity types at later dates without significant further change. There have been some timetable slippages, so the ACNC is commencing operations on 1 October 2012, three months later than initially planned. From that date, new and existing charitable entities will deal with the ACNC under existing law.
From the target date of 1 July 2013 for commencement of the new definition of ‘charity’, the ACNC will review the eligibility of all registered charities over approximately the next five-year period. Charities have already been urged to update their contact and other registered details, ready for the transfer to the ACNC and publication of details on the new publicly accessible information portal.
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Tax amendments
Changes in tax laws have been prompted partly by the Word Investments case (Federal Commissioner of Taxation v Word Investments Ltd (2008)) and are an integral part of the NFP reforms. The commencement date for changed laws applying tax to the unrelated commercial activities of charities has been delayed due to difficulties in identifying boundaries.
The rules intend to remove tax concessions when profits are made and are not applied to the charitable purpose.
A separate review of the meaning of the words ‘in Australia’ is also underway and will address eligibility for tax concessions.
