New Charity disclosure requirements for related party transactions


Charities often work with other organisations and individuals to help achieve their charitable purposes. These relationships, while important, can give rise to actual, potential or perceived conflicts of interests and therefore must be managed appropriately, transparently and in the best interest of the charity.
To help achieve this, the ACNC has introduced new obligations for all charities, except for Basic Religious Charities, to report on related party transactions in their Annual Information Statement, commencing this year.

These reporting obligations differ for small charities and medium and large charities. For a small charity, a related party is a person or organisation that is connected to the charity and has significant influence over the charity. It includes:
• Responsible People and their close family members;
• senior management and their close family members; and
• other people or organisations that can influence a charity’s decision-making.

Medium and large charities must also disclose related party transactions in their financial reports in accordance with the Australian Accounting Standards, and a related party also includes a member of the entity’s key management personnel (people with authority and responsibility for planning, directing and controlling the activities of the charity directly or indirectly) or a close member of their family.
Importantly, a related party transaction does not have to be a financial transaction to be disclosed, transactions that include a transfer of resources, services, or obligations between related parties may also need to be disclosed.

Related party transactions include:
• receiving goods and services
• leases
• transferring property
• loans
• providing employees or volunteers
• a Director or Responsible Person of a entity providing professional services at a discounted rate or for free.

However, not all transactions have to be disclosed, only those that are “material”. What is material often depends on the size, nature and circumstances of the transaction, and whether omitting it would impact how decisions are made.

Examples of related party transactions that are not material include:
• A bottle of wine given to board members to say thank you
• Reimbursement of reasonable expenses
• Donations received by the charity from a related party.

Examples of related party transactions that would be material include:
• the sale of assets to a board member
• a board member providing accountancy services to the Charity
• contract awarded to a close relative of a board member.

To make compliance easier, charities should:

  1. maintain a register of related party transactions
  2. have a policy and procedure in place which covers:
    • how decisions are made
    • criteria for approving related party transactions
  3. manage conflicts of interest
  4. Education of the executive and board
  5. talk to your lawyer and auditor.

Charities that are public companies are reminded that their boards and directors have additional obligations where a director has a material personal interest in a matter.

Griffin Legal can provide advice and practical policy development to assist your organisation in complying with these new requirements.

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