The Not for Profit Reform Journey Begins

The Federal Budget contained big changes to the way charitable organisations can operate, and now all eyes are on Bill Shorten as the Not for Profit sector begins a new journey, writes Community Council of Australia CEO David Crosbie. 

When the Assistant Treasurer Bill Shorten addresses the National Press Club on Friday, it will be a very unusual event. The crowd will be dominated by CEOs from Not for Profit organisations across Australia along with accountancy and legal firms all eager to hear exactly what was meant by a series of ground breaking policy announcements in the recent Federal Budget.

The most significant announcements in decades about the future of Australia’s Not for Profit sector attracted minimal coverage.

It is not surprising that important budget announcements impacting on the Not for Profit sector are often overlooked in the budget wash up. The reality is that the limited number of high profile Not for Profit organisations that are included as part of Federal budget commentary are rightly focused on their area of interest, not the well-being of an entire sector. World Vision will comment on overseas aid, ACOSS will comment on measures to address economic disadvantage, health groups will talk about health, arts groups will focus on arts, the RSPCA will focus on animal welfare, etc.

It is this diversity of interest that has indirectly allowed the Not for Profit sector to be bypassed by many fundamental reforms that other sectors of the economy have enjoyed in recent decades. 

Productivity Commission figures tell us the Not for Profit sector employs nearly 900,000 workers or 8% of the total Australian workforce. It contributes a minimum of $43 billion to the economy making it bigger than the communications industry, agriculture or tourism.

The story behind these figures is that despite the important contribution of the sector, both economically and in terms of community well-being and resilience, many Not for Profit organisations feel trapped by mind boggling levels of red tape, bureaucracy, duplication, and micro management from people with no real understanding of their work or their communities. The case for reform of the Not for Profit sector has been repeatedly identified, acknowledged and reported, but until now, the response has been almost non-existent.

The Assistant Treasurer and Minister Plibersek were behind the announcement in this budget that there will be a new statutory body to be called the Australian Charities and Not-for-profit Commission (ACNC). This ground breaking organisation will not only become the main regulator for the sector, but also create a ‘one stop shop portal’ for not-for-profits.

Not for Profit organisations find the notion of report once and use often almost inconceivable. Most operate within compliance frameworks that involve reporting often and expecting their reports to be largely ignored. Every transaction with a regulatory body or government department is like a completely new transaction where the Not for Profit organisation has to enter their details and establish who they are over and over again. There are 19 separate bodies involved in administering over 170 pieces of legislation that relate to status as a Not for Profit organisation, and that is before commencing the work associated with receiving funding from multiple government sources.

As part of the long overdue reforms in the budget, the government announced it is going to revisit the definition of charities, to codify the regulations so the sector is not so reliant on case law to know what is or isn’t considered a charitable purpose.

There was also an important announcement that the unrelated commercial activities of Not for Profit organisations may not be eligible for tax concessions if significant money is being raised and not being used for a charitable purpose.

This last point may seem obvious, but it has been an area of some contention and several court cases. Almost every active Not for Profit organisation engages in some commercial activity whether it is selling lamingtons, running a weekend car wash, or hosting a sausage sizzle – these are all commercial activities. So is the coffee shop or plant farm set up as a supported employment program, the chain of opportunity shops or veterinary clinic run by the RSPCA. And then there are the bigger commercial groups that are linked to churches like Sanitarium or those that claim charitable status because a proportion of their profit goes back to the community.

The government has indicated it is seeking to close off tax concessions for large commercial entities that may enter a market to make money and that have very limited connection to any charitable purpose. The government does not see this new tax as generating additional government income. It has been developed more as a deterrent to prevent new entrants into business using a Not for Profit shell company to gain taxation advantages. It is also not meant to impact on the growing social enterprise and income generation of legitimate charities. 

These changes are all positive for the sector at a policy level, but there are already some in the legal profession who are issuing warnings to their not-for-profit clients. There is the danger that if these new policies are poorly implemented they could add to existing complexity and compliance costs. But if they are implemented well, or even partially effectively, they will free up hundreds of millions of dollars of waste within Not for Profits and within government. Perhaps just as importantly these reforms have the potential to allow not-for-profits to concentrate more on what they do best – responding to the needs of their communities.

As news of the reforms has been circulated across the Not for Profit sector there has been considerable speculation – some wildly inaccurate and ill informed. 

The budget announcements mean that a major part of Australia’s economy and an important part of Australian community life is now on the road to reform. It will be an interesting journey, which is why Friday’s address by Bill Shorten will be very closely watched. 

*This article first appeared in the Canberra Times, and is re-produced here with the author's permission.  View the original article here : http://www.canberratimes.com.au/news/opinion/editorial/general/all-eyes-on-shorten-as-notforprofits-begin-new-journey/2174375.aspx