1. Checkup – Leaders Connect NFP Sector Developments 18 September 2014

2. Roadmap Current position with ACNC Merger in the NFP sector Hunger Projects case – implications for PBIs Sneaky Tax Act changes – TR2014/D5

3. Current position of the ACNC ACNC commenced 3 December 2012 At 25 August 2014 there were 61,000 charities registered Charities being registered at rate of 100 new charities per month Composition of charities registered with ACNC is:  17% - large (revenue >$1m)  16% - medium (revenue between $250K and $1m)  70% - small (revenue <$250K)

4. Current position of the ACNC contd Composition of charities:  education – 34%  religion – 32%  PBI/community services – 16% NFP sector was worth:  $22 billion in 2006/7  $55 billion in 2012/13 I.E. a growth rate of 7.8% per annum since 2006 Turnover is $107 billion per annum which is double that in 2000 in real terms

5. Current position of the ACNC contd Repealed bill tabled in parliament on 19 March 2014 – first of two bills Is thought the second bill likely to be tabled by end of October 2014 Government has released discussion paper on alternatives; date for submissions closed 20 August 2014, with results still to be released But the sector does not want to see ACNC go Pro Bono Australia’s online survey found 82% want ACNC to stay

6. Merger Merger is being driven by:  business complexity  need to pay directors fees  reduced government funding  need for capital  contestability  competition from for-profit corporates

7. Merger contd Outcome of merger needs to be:  simplicity  ability to centralise services  risk and compliance  asset protection restructure i.e. separating management operations from asset owning vehicle  watch legislative constraints though e.g. Affordable Housing and Aged Care Act  but mission has to be maintained

8. Merger contd Governance considerations in merger Right balance between strategic and operational issues Appropriate skill mix of board members Appropriate succession planning Performance review Educational opportunities for board and senior management Appropriate framework for accountability to stakeholders Get the constitution right

9. Merger contd Merger alternatives are:  asset transfer

10. Merger contd Merger alternatives are (contd):  A and B establishing wholly owned subsidiary

11. Merger contd Merger alternatives are (contd):  constitutional merger – wholly owned subsidiary

12. Merger contd Complications can arise when trying to merge trusts from a trust law perspective Also consider any embedded trusts

13. Merger contd Will merger impact bequests? Overall –v- Family Voice Australia Inc case Consider the lapse rule Implications of the case are:  ensure that objects remain unaltered during the merger process  ensure that any charitable bequest is expressed to have a general charitable intent  be able to demonstrate merged entity is a successor organisation

14. Merger contd Implications of the case are (contd):  this is done by ensuring a paper trail, perhaps appropriate information on website with link to the original entity for search engine purposes  ensure all resolutions are documented

15. Hunger Projects Court has said that there is no requirement for:  direct relief for a PBI  gives broader scope to PBI alternatives, although not for overseas entities because for DGR endorsement there is still a requirement for operations to be exclusively in Australia

16. TR2014/D5 Deals with special conditions amendment to Tax Act Charity must:  comply with all substantive requirements in governing rules  apply income and assets solely for the purposes for which the entity is established Draft ruling requires an analysis of:  what are the governing rules  what are the substantive requirements  has the entity complied with substantive requirements

17. TR2014/D5 It would seem substantive requirements are:  objects  not-for-profit status  winding up provisions  obligation to keep financial records? Ruling distinguishes between requirements for charitable institutions and charitable funds Income and assets condition a potential concern as a backdoor means of circumventing Word Investments The relevant example is benign and unhelpful

18. Any questions?

19. Paul Paxton-Hall Director Level 10, 15 Adelaide Street, Brisbane Qld 4000 Telephone:07 3007 9200 Email:paul.paxton-hall@foxthomas.com.au