Reform at Last: Budget Establishes One-Stop NFP Regulator

The Federal Budget includes significant reforms for the Not for Profit sector, including the establishment of a national, one-stop regulator, a tax crackdown on the commercial operation of NFPs, and the introduction of a statutory definition of charity.

The Budget provides $53.6 million over four years to establish a ‘one-stop-shop’ regulator for the support and regulation of the NFP sector.

Such a regulator has long been sought by the Not for Profit sector battling under a regulatory and compliance burden that is estimated to cost the sector $500 million per year. Numerous government reports and reviews have recommended the move, including the major 2010 Productivity Commission Report into the sector.

The new regulator, to be called the Australian Charities and Not-for-profits Commission (ACNC) will commence operations from July 1st, 2012, and will initially be responsible for determining the legal status of groups seeking charitable, public benevolent institution, and other NFP benefits on behalf of all Commonwealth agencies.

The government says the Commission will also implement a 'report-once use-often' reporting framework for NFPs, provide education and support to the sector on technical matters, and establish a public information portal by 1 July 2013.

Minister for Human Services and Social Inclusion, Tanya Plibersek, says the government will continue their negotiations with the states and territories on national regulation for the charitable sector.

Plibersek says the government recognises that the greatest reduction in red tape can only be achieved with national coordination, however it is also important for the Commonwealth to lead the way and get its own house in order.

A Commissioner will be appointed to drive all the changes, who the government says will be fully independent and report directly to Parliament via the Assistant Treasurer. An Advisory Board of legal and accounting and NFP sector experts will be set up to provide advice to the ACNC.

Announcing the ACNC, Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, says the ability of the NFP sector to undertake this work has been impaired by complex regulatory arrangements and unnecessary red tape for far too long.

The Government will set up an Implementation Taskforce from 1 July 2011, which will be responsible for ensuring the ACNC is ready for operation by 1 July 2012, and will also consult with the public, the NFP sector and government agencies on a new general reporting framework and public information portal.

Crackdown on Tax Exemptions for Unrelated Commercial Activities

Minister Shorten says the Government will also reform the use of tax concessions by businesses run by Not for Profit organisations.

Revenue generated by NFPs from their unrelated commercial activities that are not directed back to their altruistic purpose will be subject to income tax.

NFPs will also not be able to use input tax concessions – such as Fringe Benefit Tax and GST concessions – for their unrelated commercial activities.

Shorten says these reforms will encourage charities to direct profits generated by unrelated commercial activities back to their charity's altruistic purposes.

The government says the reforms will in no way affect the use of tax concessions to further a NFP entity's altruistic purpose, even where the charitable operation is conducted commercially.

The government lists Not for Profit hospitals, op-shops that sell second hand items at discounted prices to those in need, NFP child centres and businesses whose purpose is to provide employment to disabled persons as examples of commercial activities that will not be affected by the reforms.

Small-scale and low-risk activities are also safe according to the government, which says activities such as lamington drive fundraisers, school fetes and the leasing out of church halls also wont be affected.

The new laws will take affect on July 1st, 2011 and will initially only affect new unrelated commercial activities that commence after 7:30pm (AEST) on May 10th, 2011.

Not for Profit organisations with existing unrelated commercial activities will at first be able to continue to use their tax concessions, however the Government says it will establish transitional arrangements with the intention of phasing these out.

NFP entities that have entered into a government service delivery contract as at 7.30pm (AEST) on 10 May 2011 will be allowed to use their tax concessions in support of that contract.

Definition of Charity to be Introduced

The government has also announced if will introduce a statutory definition of ‘charity’ applicable across all Commonwealth agencies from July 1st, 2013.

Shorten says this will provide a single determination of charitable status and will greatly assist the sector.

He says the current definition is based on over 400 years of common law and is complex and outdated, creating uncertainty in the sector.

The government says the definition will be used for all Commonwealth laws, and will be based on the 2001 Report of the Inquiry into the Definition of Charities and Related Organisations, taking account of the findings of recent judicial decisions, such as Aid/Watch Incorporated v Commissioner of Taxation which extended the definition of charity to include further types of advocacy-based organisations.

The Government will provide $2.9 million over four years to the ACNC to develop new guidance for the sector, implement system changes, and re-assess the charitable status of entities on the basis of the new statutory definition.

To prepare for the launch of the new statutory agency, the Government will set up an Implementation Taskforce from 1 July 2011. The head of the Taskforce is expected to become the Australian Charities and Not-for-profits Commissioner on its commencement.

The government says it will also undertake further reviews of aspects of the regulation of the NFP sector, including reviews of the company limited by guarantee entity, NFP fundraising, and the governance obligations appropriate for NFP entities. The need for these reviews was identified through the scoping study for a national NFP regulator.

Further details on the NFP sector reforms are provided here http://assistant.treasurer.gov.au/displaydocs.aspx?doc=pressreleases/2011/077.htm&pageID=003&min=brs&Year=&DocType=0