Feds Release Replacement Options for Charity Regulator

The Federal Government has released an Options Paper detailing proposals for the replacement of the charity regulator, the Australian Charities and Not-for-profits Commission (ACNC) including self-reporting requirements and the role of the Australian Tax Office.

The Options Paper outlines the proposed replacement arrangements for the reporting obligations of charities that would follow the abolition of the charities regulator via the ACNC Repeal Act (No1) if it is passed by the new Senate.

Some of the new proposals in the Options Paper include:

1. Self-reporting requirements;

2. Returning determination of charitable status to the ATO;

3. A proportionate compliance framework;

4. And transitional arrangements.

In the 2013 election campaign, the Federal Government committed to abolish the ACNC and return certain regulatory functions to the Australian Taxation Office (ATO) and the Australian Securities and Investments Commission (ASIC).

Last week the Government announced the dates and places for consultation with the sector on these and other replacement arrangements.

The Options Paper says rather than reporting to a separate entity, the Government proposes that as part of replacement arrangements, charities will be required to maintain a publicly accessible website that features:

• Names of responsible persons;

• Details of all funding received from Government (Commonwealth State and Local); and

• Financial Reports.

“Self-reporting will allow organisations to make more information public if they so choose. This will provide members of the public with insight into how charities are spending public funds and a level of confidence when members of the public consider making donations,” the Paper says.

It says in order to ensure that reporting requirements are consistent with other organisations operating as companies-limited-by-guarantee or Australian registered bodies, charities also registered under the Corporations Act would see the reinstatement of their previous ASIC reporting obligations that were “switched off” when the ACNC was established.

These would include:

• The collection of directors’ and company secretaries’ details;

• The requirement to have a ‘physical’ registered office and place of business; and

• The reinstatement of the annual review fee.

The paper also proposes that charities currently exempt from providing financial reports would retain that exemption (i.e. small organisations, basic religious charities) under the new arrangements.

It says in keeping with the principle of reduced reporting for organisations, consideration will be given to an exemption from separate reporting requirements where organisations already make information publically available through another Commonwealth regulator.

It also proposes that a dedicated function be established within the ATO with responsibility for determination of charitable status and eligibility for related tax concessions.

It says a dedicated unit (or function) operating within an integrated framework would ensure staff with expertise in issues specific to the charitable sector would also carry responsibility of both determination of charitable status and determination of eligibility for related tax concession.

The Paper gives two options for the Not for Profit sector to consider on this issue:

Option One

Establish an independent panel made up of external experts who would provide advice on objections raised by charities that disagree with the initial ATO assessment on the determination of charitable status.

This panel would operate in a similar way to others that are maintained by the ATO, such as the General Anti-Avoidance Rules Panel. It would be made up of experts in charitable law as well as ATO staff and would provide an independent point of review for charities. Similar to other arrangements currently in place, the advisory panel would consider the case made by the organisation and make a recommendation on the dispute to the Commissioner of Taxation.

Should an organisation continue to dispute the decision, it is proposed that they would have a legislated right to appeal to the Administrative Appeals Tribunal.

The Paper says Option One provides a process for assessment and appeal of decisions impacting charities.

Option Two

Form a separate area within the ATO that would be responsible for determining outcomes for applicants who objected to findings on eligibility for charitable status and related tax concessions.

This option allows for independence of decision making within the ATO, ensuring that the decision to grant charitable status and grant tax concessions is subject to a right of review that sits outside of the administrative areas responsible for assessing charities. Officers would not have a dual role of Options Paper – Australia’s Charities and Not-for-profits assessing charities and providing a right of review, mitigating the potential bias. This will be detailed in administrative arrangements. Should an organisation continue to dispute the decision, it is proposed that they would have a legislated right to appeal to the Administrative Appeals Tribunal.

The Paper says it is proposed that ASIC, ATO and State and Territory Governments will rely on their current powers to provide an appropriate compliance framework.

Those director duties, obligations on charities and compliance measures that existed under the Corporations Act and were turned off by the ACNC legislation would be reinstated.

“When considering new compliance arrangements to support self-reporting, the Government believes that charities and Not for Profits should enjoy a rebuttable presumption of virtue. Compliance arrangements for self-reporting will take this approach by focusing on areas of high risk and not burdening organisations with gratuitous reporting requirements or invasive investigations. Thus, only cases of wilful non-compliance with reporting requirements will be investigated to ensure the self-reporting frame-work is maintained,” the Paper said.

The paper says that the new Legislation for the proposed changed arrangements, called the Australian Charities and Not-for-profits Commission (Repeal) (No.2) Bill is scheduled to be introduced into Parliament later this year and will come into effect upon receiving Royal Assent.

“While the new arrangements for regulators such as the ATO and ASIC will take effect straight away, charities will have until 1 July 2015 to update their website with the details outlined in this paper. Any assessments currently being undertaken by the ACNC to determine an organisation’s charitable status will be transferred to the ATO for completion,” it says.

“The legislation will make a provision for the information that is currently housed in the register to be archived, and where required, be available to other regulators, particularly the ATO and ASIC, to assist with the transition to the new arrangements. This information will be stored and used in a manner that is consistent with Australian Privacy Principles and other relevant legislation.”

However, the Federal Opposition says the release of the government’s options paper shows Social Services Minister Kevin Andrews is wilfully ignoring the views and advice of the sector’s leading voices.

“The government is arrogantly moving ahead with a flimsy consultation process on what should replace the Commission,” Shadow Assistant Treasurer Andrew Leigh said.

“The options paper released proposes returning responsibility for deciding charitable status and some regulatory functions to the Australian Taxation Office, while leaving it to charities to self-report on their financial operations.

“Neither measure will achieve the kind of effective, efficient regulation that the ACNC has delivered since its establishment by Labor in 2012.

“The release of the options paper is yet another example of this government arrogantly forging ahead with its own ideologically-driven agenda, despite what key experts and those on the ground say is needed.”

The Department of Social Services says it would publish a summary of written submissions on its website in September.

The Options Paper can be found HERE