Not-For-Profit Tax and Regulatory Reform

The Reform Agenda - An Overview

In the 2011-12 Budget, the Government announced three reforms to ensure the sustainability of the NFP sector and improve its effectiveness:

• The better targeting of not-for-profit tax concessions;
• The Australian Charities and Not-for-profits Commission (ACNC); and
• The introduction of a statutory definition of ‘charity’.

 
In summary, there have been a lot of discussion forums, consultation papers issued, draft bills and explanatory material but nothing yet law. Before I expand into an overview of what the Government has provided so far, the one thing all charities and NFP entities do is make sure all their details are up to date, particularly their contact details. Reason as explained below in more detail, is that the ATO will move all the NFP entities details to the ACNC. Also attached is a checklist for charities and NFP to consider if their status as tax exempt or deductible-gift-recipients have changed.
 
Overview of Reform
 
From 1 July 2011: The better targeting of not-for-profit tax concessions
 
The aim of the measure is to protect the integrity of the NFP sector and the revenue base by ensuring that valuable tax concessions are utilised in direct furtherance of the purposes for which they were provided, rather than to support unrelated businesses operated for the purpose of raising money.
 
What does this mean? The ATO want to tax profits made by charities and NFP that have been generated by unrelated business operations.
 
Where is this at? The Government has brought out a consultation paper on 27 May 2011 and at this stage further consultation is expected for early 2012.
 
Proposed to start: after 10 May 2011, no legislation on this yet but ATO has issued a draft Tax Ruling TR 2011/D2 following the Word Investments decision.
 
From 1 July 2012: The Australian Charities and Not-for-profits Commission (ACNC)
 
The ACNC commences.
 
What does this mean? The ACNC would be responsible for determining the legal status of entities seeking charitable, public benevolent institution and NFP benefits on behalf of all Commonwealth agencies, and would be a ‘one-stop shop’ regulator for the section at the Commonwealth level. It will begin its operations by registering new charities from 1 July 2012, including public benevolent institutions. They will also be responsible for regulating governance requirements of registered entities.
 
Where is this at? Exposure draft legislation to establish the ACNC was released on the 9 December 2011 and consultation paper, waiting on submissions closing date 27 January 2011.
 
A consultation paper was released on the 8 December 2011 regarding governance arrangements, which are to be the responsibility of the ACNC.
 
Proposed to start: The ACNC will operate from 1 July 2012.
 
Note: existing charities, endorsed by the ATO as exempt from income tax, will be transitioned into the new regime and will not need to re-register. This is why as mentioned above, it is important for NFPs to make sure all their details are up to date.
 
From 1 July 2013: The introduction of a statutory definition of ‘charity’
 
The statutory definition of charity is proposed to come into effect and the ACNC will register based on the statutory definition. Charities will remain responsible for self-assessing their eligibility on an ongoing basis. The ACNC will review existing registrations over time. Under ACNC, NFP will be required to report to ACNC on an annual basis and the reporting requirements will depend on the size of the organisation. All ACNC will have to provide an information statement format yet to be finalised.
 
What does this mean? This means that ACNC will register based on the new statutory definition and NFP will have reporting requirements to the ACNC instead of the ATO. ACNC take over reporting arrangements of NFP companies limited by guarantee from ASIC. This means that the ATO will accept an ACNC determination of charity status.
 
Note:  The ATO will then apply the special tax specific conditions (such as the ‘in Australia’ conditions, which are still in draft) before endorsing a charity for access to the tax concessions.
 
Where is this at? Consultation paper issued October 2011 and exposure draft of proposed definition will be released for public consultation around mid 2012.
 
We are awaiting second exposure draft legislation on the ‘in Australia’ condition, to be released early 2012.
 
Proposed to start: 1 July 2013.
 
Other Matters
 
The Government announced in the 2011-12 Budget two other important matters:

• New national approach to fundraising, consultation paper to be released early 2012; and
• Review of the company limited by guarantee structure and its continuing appropriateness for NFP entities, consultation paper to be released early 2012.

Public Ancillary Fund reforms – guidelines take effect on 1 January 2012.
 
If you would like further advice or assistance with regard to the NFP tax and regulatory reform, please contact Mariana von-Lucken on 02 9020 4095 or by e-mail on mvonlucken@hlbnsw.com.au or alternatively, please contact your current HLB Mann Judd advisor.