2 How to manage governance and compliance with the new NFP regime Anne Robinson Solicitor Director Prolegis Lawyers, Sydney

3 Outline 1.Introduction 2.Reform Timeline 3.ACNC role and impact 4.Governance Standards 5.Definition of Charity 6.Tax Concession Charity (TCC) 7.Deductible Gift Recipient (DGR) 8.Compliance …

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

5 Scope of reforms

6 2.Reform Timeline A.Changes already made SubjectEffective DateEnd of Transitional Period (1)Private Ancillary Funds (PAFs)1 October October 2012 (2)Public Ancillary Funds (PuAFs)1 January July 2015 B.Imminent changes SubjectStart Date (3)Establishment of Australian Charities & Not-for-profits Commission (ACNC) Legislation passed. Start date for ACNC: 4 December 2012.

7 What are the relevant changes? C.Further proposed, likely or possible changes SubjectProposed Start DateCurrent 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...

8 What are the relevant changes? C.Further proposed, likely or possible changes SubjectProposed Start DateCurrent 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 PassportProgressive 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

9 What are the relevant changes? C.Further proposed, likely or possible changes SubjectProposed Start DateCurrent progress (12)New Public Ruling on School Building Funds February 2013Draft Taxation Ruling TR 2011/D5, released on 5 December Ruling is due to be finalised in near future.

10 3.New ACNC and related changes: structure of ACNC ACNC Model: UK/NZ ATO structu re Melbour ne 95 People Adviso ry Board Shared Service s

11 New ACNC: roles of ACNC? Establish new Register. Determining legal (including tax) status of charities, including their particular subtype (eg PBI), including under proposed new statutory definition to apply from 1 July Note: ACNC determination will apply for all Australian Government purposes. Thus, will bind ATO. Registration Provide guidance and education to the NFP sector. Administer regulatory framework and powers Work with the States and Territories to co-ordinate and harmonise the administration of the national regulatory arrangements Education/ Compliance “report once, use often” tiered general reporting framework, the So – called “Charity Passport”. Public Information Portal (similar to the UK and NZ) from 1 July Reporting

12 New ACNC: who will be affected? All charities: Eventually, all NFPs

13 New ACNC: Day 1 impact on you and your board? Future impact New registration process for new charities ATO retains determination of other tax requirements Right of objection Notification to ACNC of changes Day 1: Transition to ACNC Register Minimal ImpactOpt-Out: Voluntary but compulsory

14 New ACNC: Reporting and other ongoing requirements? Tiered financial reporting starting for YE 30/6/14, based primarily on the annual revenue of the entity = Company limited by guarantee thresholds): Small (covers 78% of charities) < $250K pa None Medium (covers 11% of charities) $250K-$1m + Review Large (covers 11% of charities): $1m+ + Audit

15 New ACNC: Reporting and other ongoing requirements? Reporting Moving up and down tiers Regulatory guidance Reporting SAPs Joint reporting Collective reporting Exemption: ‘Basic Religious Charities’ Governance Standards External Conduct Standards

16 New ACNC: Extensive new compliance, enforcement and related powers Compliance pyramid Active Enforcement Monitoring Information and document gathering Information statements and financial reports

17 New ACNC: Extensive new compliance, enforcement and related powers Compliance pyramid ‘Federally Regulated Entity’ ‘Loopholes’ Effect and practical impact Capacity Factors relevant to enforcement powers

18 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 etc

19 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.

20 Personal liability re management of registered entities Bodies Corporate Personal liability of Individual directors in certain limited cases. Trusts If trustee is not a corporate trustee: personal liability of each trustee. If a corporate trustee: personal liability of each director (in limited circumstances), as well as the corporate trustee itself. Unincorporated associations Members of Management Committee (MC) are personally liable but only in limited circumstances.

21 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

22 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)

23 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

24 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.

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

26 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

27 How to manage governance and compliance with the new NFP regime Anne Robinson Prolegis Lawyers, Sydney