Strengthening For Purpose: ACNC 2018 Report Summary

STRENGTHENING FOR PURPOSE: AUSTRALIAN CHARITIES AND NOT-FOR-PROFITS COMMISSION LEGISLATION REVIEW 2018

The Report following a review of the Australian Charities and Not-for-Profits Commission (ACNC) legislation was released on 22 August 2018 after much industry consultation. While the review is focused on the Act and operations of the ACNC, it makes a number of recommendations which will impact on how charities, and possibly more broadly not-for-profits, operate on a day to day basis.

What we do know is that the ACNC will be resourced to pursue test case litigation, in other words, funds to pursue litigation for the purpose of testing the law, and we also know that the then Assistant Minister to the Treasurer The Hon Michael Sukkar has also said he will push for harmonisation of fundraising laws for charities. Beyond that, we await the new Liberal’s Government response to the Review.

Practical Recommendations from the Report

The table below sets out some practical recommendations from the Report.

Recommendation/ConclusionsReasoning
Small entities are redefined as entities with revenue of less than $1 million (currently less than $250,000) and only be required to provide an Annual Information Statement (AIS). Medium entities with revenue up to $5 million would provide an AIS and Financial Statement, while Large entities would also have to provide audited financial reports annually.Recommendation is based on the costs of unnecessary red tape compliance and risk analysis.
Loosen secrecy provisions in the Act to allow:
1) Information about regulatory activities when necessary to protect public trust and confidence in the sector
2) Collect personal information of those involved in unlawful activities
Currently the Act is “overly restrictive”. The ACNC cannot currently disclose information about regulatory activities and investigations. The rationale behind this recommendation is that by giving the Commission this power, there will be an ability to enhance public trust and confidence in the sector – one of the objects of the Act. There is also a view that if the Commission can share information with Government Agencies it can assist with red tape removal for registered entities.
ACNC is under-resourced to pursue the objects set out in section 15-5 of its Act.This a common theme in the report with a focus on the object of maintaining trust and confidence in the sector. Many comments are made to the effect that without more funding, the Commission cannot meet its objectives.
Resource ACNC to enable the law to be tested around the limits of the advocacy role of charities.This is about seeking to clarify when advocacy becomes a disqualifying purpose. Currently, the law acknowledges that political advocacy in pursuit of a charitable purpose is lawful. However, there is an acknowledgement around the uncertainty as to the threshold before advocacy goes beyond achieving a purpose to becoming a political purpose and therefore a disqualifying purpose.
Harmonise fundraising laws – using the Australian Consumer Law – and a mandatory code of conduct be developed.There are currently 7 different fundraising regimes in Australia creating an unnecessary burden on registered entities. The view is that the Australian Consumer Law applies across Australia, is easily understood and has mechanisms in place to allow for industry codes of practice.
A single national scheme for charities and not for profits be developed.A national scheme is the aim here. The idea is to replace the 8 separate jurisdictions with a one stop shop for both charities and not-for-profits.
Departments and Agencies mandated to use Charity Passport.Again, a red tape reduction measure. The Charity Passport was designed to stop government agencies collecting information that has already been collected by another government agency. Currently, only 4 of 18 Commonwealth departments use the Charity Passport – hence the need for the mandate.
Registered entities required to disclose related party transactions in AIS. Additional disclosure requirements in financial reports for medium and large registered entities.This recommendation is made on the basis that it may enhance public trust and confidence in the sector. The Commission can ask more questions once disclosed.
Large registered entities required to disclose remuneration paid to responsible persons and senior executives.This is a compromise limiting disclosure to large registered entities. Concerns were noted in relation to the cost and complexity of remuneration disclosure requirements while acknowledging that in the interests of transparency and good practice, registered entities should be disclosing remuneration.
Repeal Governance Standard 3 which is around compliance with Australian laws.ACNC is not funded to pursue or make enquiries into alleged breaches of law unrelated to regulatory obligations.
Amend Governance Standard 5 by removing the word “perceived”.The law on “perceived” conflict of interest isn’t settled, and is capable of various meanings. A duty to avoid actual conflicts of interest will remain if this recommendation is adopted.
Amend the Corporations Act 2001 (Cth) to “turn back on” directors duties.Resolve ambiguity around the applicability of directors duties under the Corporations Act given directors still subject to common law and equitable duties by switching Corporations Act duties “back on.”
Amend the Act so that a registered entity is presumed to comply with Governance Standards if it already complies with other comparable governance requirements.The concern here is that complying with differing governing standards is difficult for registered entities – the confusion with directors duties is a good example. It is suggested that where a registered entity complies with another set of governance standards, such as directors duties under the Corporations Act, they are assumed to meet the Governance Standards.
ACNC to take over registration and regulation of companies which are registered entities (except for criminal offences).A step on the way to a one-stop-shop. Concern that the Australian Securities and Investments Commission does not prioritise updating its records. Concern with duplication for registered entities in having to update both the ACNC and State and Territory registration authorities.
Not-for-profits with an annual revenue of $5 million or more to be registered under ACNC in order to be exempt from income tax or access Commonwealth tax concessions.The beginning of a gradual transition of not-for-profits to the ACNC.

We have not set out or discussed the recommendations around religious charities. This is an area subject to much debate, with many forgetting the protections in the Constitution around religious freedom which will hamstring any attempt at reform.  We will discuss these issues another day.

If you have any questions on the Report, or current charity and not-for-profit law, please contact us.

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