Australia: ACNC Bill and Special Conditions for NFP Concessions Bill Introduced into Parliament

Last Updated: 4 September 2012
Article by Joe Shannon, Stephen O'Flynn and Katrina Daly

On 23 August 2012, the Government introduced the Australian Charities and Not-for-profit ("NFP") Commission ("ACNC") Bill and associated legislation into the House of Representatives.

ACNC Establishment Bills

Following the recommendations of the recent House of Representatives Economics Committee Inquiry the Bills intended to establish the ACNC contain a number of changes from the second Exposure Draft. These include:

  • Adding a new clause to the Objects in the legislation to make clear that the ACNC's role includes promoting a reduction in the regulatory burden on the NFP sector;
  • Additional procedural fairness requirements where the ACNC Commissioner exercises particular powers under the legislation;
  • Adding a statutory review provision to provide for a review of the legislation after it has been in operation for 5 years;
  • A new power to make regulations to protect the privacy of private donors such as those who maintain a private ancillary fund;
  • A substantial redrafting of provisions relating to directors' liability; and
  • A 3 year transitional arrangement allowing the Commissioner to accept statements and financial reports lodged with other Government agencies as meeting the reporting requirements of the ACNC.

While these changes are welcome and address a number of issues raised by us and others to the Inquiry significant concerns remain particularly the lack of clarity on many aspects and the continued risk of excessive regulation and duplication of reporting requirements for many charities. Click here and here for our recent updates on these matters.

Given the ongoing consideration of these Bills by Parliament including their referral to further Parliamentary Committees for review and the contentious nature of the reforms within the context of the alternative approach proposed by the Coalition and others it is likely that we will see further changes before these Bills become legislation.

The current intention of the Government is still to have these Bills passed into law in the September sitting of Parliament to enable the ACNC to commence on 1 October as planned. With their contentious nature and the short timeframe the ability of the Government to achieve this is far from certain. Once we see greater certainty we will provide a further update. We are also then planning for a series of free seminars to advise you on the important matters that you need to know.

"In Australia" Special Conditions

In addition the Tax Laws Amendment (Special Conditions for NFP Concessions) Bill 2012 was introduced into parliament on 23 August 2012. This bill has been much anticipated since the previous 2 exposure draft bills on this topic have caused considerable concern for NFPs that carry out activities overseas in their own right or have controlled entities that carry out activities overseas.

Please refer to Exposure Draft 1 and Exposure Draft 2 for details and our submission on Exposure Draft 2.

Surprisingly, the Government has only made minor changes to the Exposure Draft Bill and has not addressed a number of concerns raised by the NFP industry. In particular, it is disappointing that if anything, the examples provided in the Explanatory Memorandum ("EM") provide less guidance than the previous exposure draft EM.

Changes of interest are:

There has been a technical change to clarify that a fund, authority or institution does not fail the operates solely in Australia or pursues its purposes solely in Australia test where its activities outside Australia are:

  • Merely incidental to its operations and pursuit of purposes (previously this stated Activities) in Australia
  • Are minor in extent and importance when considered with reference to its operations and pursuit of purposes (previously this stated Activities) in Australia

"Scholarship funds that comply with section 30-37" now only need to be established in Australia. They do not have to operate solely in Australia or pursue its purposes solely in Australia.

Parent entities can disregard the activities of other entities, that they operate, when determining if they operate and pursue purposes solely in Australia where the other entities are "overseas aid funds" or certain "overseas environmental organisations".

Medical Research Institutions that were Deductible Gift Recipients ("DGRs") prior to these changes will retain their DGR status provided they were established in Australia. A review will be undertaken within three years to examine options for the development of a permanent DGR category for medical research institutions that undertake a significant part of their activities overseas.

The examples of minor and incidental activities provided in the EM were quite basic and not very helpful for more complex situations. Interestingly the Sydney Dance Company and the Australian Chamber Orchestra Pty Ltd have also been added as specific international affairs recipients

Issues that have still not been resolved:

  • Definition of NFP entity still restricts distributions to members that are NFP entities that have similar purposes. We do not see why distributions are required to be restricted to NFP entities that have a similar purpose. Distributions should be allowed to be made to any NFP.
  • A tax exempt entity is still required to use its assets solely to pursue the purposes for which it was established. There is no leeway for minor breaches.
  • The EM indicates that the tracing burden is no greater than under the current rules. However, the examples provided are quite simplistic and it is difficult to determine the level of tracing required.

The main carve out to the "solely in Australia" test is the minor and incidental activities exemption. Whilst the example provided in the EM is more favourable that the draft EM they are quite basic and not very helpful for more complex situations. For example, the draft EM stated that DGR funds will not be able to be used to cover the flights of orchestra members... while the orchestra is touring overseas, as these costs are not considered incidental to the orchestra's activities in Australia. The updated EM was slightly more helpful as it stated that if there were 100 concerts in Australia attended by over 200,000 people and 10 concerts overseas attended by 18,000 people the overseas tour would be considered incidental. However, we would have expected a lot better examples in this area considering the submissions made on this issue.

Further Parliamentary Considerations

The Bills need to pass through both Houses of Parliament and the bills have already been jointly referred to the House of Representatives Parliamentary Joint Committee on Corporations and Financial Services and a Senate Subcommittee for inquiry and report.

You are invited to make a submission to one or both inquiries by 30 August and their reporting date is 12 September 2012.

The next sitting date for Parliament is 10 September and the bills may progress through Parliament over the subsequent two weeks. It remains to be seen how smoothly this process will occur.

Our Legal and Accounting Seminar - deferred

To ensure that we conduct a valuable seminar that provides you with the information you need, we have decided to defer our proposed September seminars until after the legislation has been passed. We would expect it to be held in October / November 2012.

This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2011 Moore Stephens Australia Pty Limited. All rights reserved.

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