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How to manage governance and compliance with the new NFP regime

Anne RobinsonSolicitor Director

Prolegis Lawyers, Sydney

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Outline

1. Introduction2. Reform Timeline3. ACNC role and impact4. Governance Standards5. Definition of Charity6. Tax Concession Charity (TCC)7. Deductible Gift Recipient (DGR)8. Compliance …

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1. Introduction

The whole landscape for charities/NFPs is changing. What are the implications for you:•governance•compliance

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Scope of reforms

Objects of reform

• Accountability• Transparency• Integrity• Reducing Red-tape• Protecting the sector• Codifying the

definition of charity

Effects

• Income tax exemption

• GST & FBT concession

• Land tax & payroll tax• Council rates• Stamp duty• Fundraising authority

ACNC

• Cornerstone of reform process

• ACNC Bill passed on 1 November 2012

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2. Reform Timeline

A. Changes already made

Subject Effective Date End of Transitional Period

(1) Private Ancillary Funds (PAFs) 1 October 2009 31 October 2012

(2) Public Ancillary Funds (PuAFs) 1 January 2012 1 July 2015

B. Imminent changesSubject Start Date

(3) Establishment of Australian Charities & Not-for-profits Commission (ACNC)

Legislation passed.

Start date for ACNC:4 December 2012.

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What are the relevant changes?

C. Further proposed, likely or possible changes

Subject Proposed Start Date Current progress

(4) “not-for-profit entity” December 2012 (likely), but... Before Parliament

(5) “in Australia” special conditions

1 July 2013 (likely). Before Parliament

(6) Unrelated Business Income Tax (UBIT)

10 May 2011 then 1 July 2012. No Exposure Draft, let alone Bill, yet. But ...

(7) statutory definition of charity

1 July 2013. No Exposure Draft, let alone Bill, yet. But...

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What are the relevant changes?

C. Further proposed, likely or possible changesSubject Proposed Start Date Current progress

(8) Changes to FBT and other tax concessions

Unknown, but... Discussion Paper of Not-for-profit Sector Tax Concession Working Group just released

(9) Charity Passport Progressive adoption... See ACNC website for details and guidance

(10) Possible transitioning of all other NFPs to the ACNC?

Not immediate, but probably from 2014

Legislation amendments will be drafted

(11) Winding back of new ACNC? ? Proposed by any new Liberal/National party Coalition government

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What are the relevant changes?

C. Further proposed, likely or possible changes

Subject Proposed Start Date Current progress

(12) New Public Ruling on School Building Funds

February 2013 Draft Taxation Ruling TR 2011/D5, released on 5 December 2011. Ruling is due to be finalised in near future.

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3. New ACNC and related changes: structure of ACNC

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New ACNC: roles of ACNC?

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New ACNC: who will be affected?• All charities:

• Eventually, all NFPs

Educational

* Direct relief of poverty, sickness, destitution or helplessness.# Provision of child care services.## “Another purpose which is beneficial to the community”.

#

*

##

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New ACNC: Day 1 impact on you and your board?

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New ACNC: Reporting and other ongoing requirements?

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New ACNC: Reporting and other ongoing requirements?

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New ACNC: Extensive new compliance, enforcement and related powers

Compliance pyramid

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New ACNC: Extensive new compliance, enforcement and related powersCompliance pyramid

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4. Governance standards

• ACNC Act framework for principle-based minimum standards to apply to all registered entities

• Effect of the standards is to enable trigger for sanction regime

• Consultation still on ‘turning off’ of Corporations Act provisions ss.180-183 etc

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Personal liability re management of registered entities

• ‘registered entity’= charity registered with ACNC (initially)

• ‘responsible entity’ = individual directors/trustees/trustee corporation responsible for decision-making/management/compliance

• Different regimes and standards for:– bodies corporate,– trusts, and– unincorporated associations.

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Personal liability re management of registered entities

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5. Definition of Charity

• Four heads of charity:– The relief of poverty– The advancement of education– The advancement of religion– Other purposes beneficial to the community

• Statutory definition– Bill & Explanatory Memorandum to be

released in February 2013

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What hasn’t changed…

• Requirement to self-assess entitlement to endorsements for TCC, ITEF and DGR

What has changed?• Further transparency with ACNC public

portal• Annual Information Statement (AIS)

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6. Tax Concession Charity (TCC)

• Requirements for TCC endorsement:– Established and maintained for charitable

purposes– Not-for-profit– Satisfy ‘in-Australia’ test

• What changes are coming?– Statutory definition of charity– Change of the ‘in-Australia’ test– Applications to be lodged with ACNC

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Tax Concession Charity (TCC): charitable fund and ITEF

• The fund must be applied for the purposes for which it is established.

• Additional 3 tests for a charitable fund:– Australian purpose test; or– DGR test; or– Distribution test

• Other requirements for ITEF– Not provide for, or establish ancillary funds; and– Established solely for establishing DGRs or for the

purpose of providing money, property or benefits to income tax exempt DGRs.

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7. Deductible Gift Recipient (DGR): basics

• Donations to a DGR is tax deductible.• More than 40 different categories of DGR

set out in the Income Tax Assessment Act (Cth) 1997.

• Requirements for endorsement as a DGR differ depending on which DGR category you are applying (e.g. taxation rulings, guidelines, ministerial approval).

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8. Compliance how to…

• Develop and maintain a compliance manual for recording self-reviews

• Report to the board annually on compliance outcomes

• Maintain checklist of governance standards compliance for on-going reference

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How to manage governance and compliance with the new NFP regime

Anne RobinsonProlegis Lawyers, Sydney