The Federal Government's response to the ACNC Review – what can charities expect?

By Kerry Hicks - March 25, 2020

In March 2020 the Federal Government issued its long-awaited response to the ACNC’s Legislative Review. The related review report was tabled in Parliament in August 2018 and made 30 recommendations.

As outlined in the Pitcher Partners submission to the ACNC Legislative Review panel dated 28 February 2018, we are supportive of the ACNC and its future existence, noting that it has improved oversight and governance in the sector leading to improved public confidence by sector participants.

Outlined in this newsletter is some of the key recommendations and the Government's response relating to the areas of reporting, governance, ACNC powers and a national legislative approach. We consider these areas to have the most direct impact on and interest to charities. Some of the government proposed responses can be implemented simply, others will require further consultation and/or legislative change. Notably, half of the 30 recommendations have not been supported.

The most disappointing of the recommendations not supported was that relating to fundraising. Whilst we acknowledge the constitutional challenges of aligning fundraising requirements, the current arrangements create inefficiency and confusion in the sector. Further, we would have preferred to see more targeted support provided regarding the interaction between ACNC and ASIC. Particularly, to address duplication of data and inconsistent maintenance of organisational data. 

On the positive side, the acceptance of the Government to increase reporting and audit/review thresholds is welcomed, along with increased disclosures on related parties and remuneration. We encourage the Government to move quickly on these legislative and regulation changes, which will reduce the overall reporting burden for charities while still retaining appropriate transparency to stakeholders.

Recent events of fires, floods and the coronavirus are having an enormous impact on the social fabric of society, and therefore on the charities that support these communities. Therefore, it is important that Governments prioritise the reduction of the regulatory burden on charities, including addressing the inefficiency in the current fundraising regulations. 

Background

In December 2017 the Federal Government commissioned an independent panel to conduct the 5-year review of the Australian Charities and Not-for-Profit Commission (ACNC) that was mandated by the Australian Charities and Not-for-Profits Commission Act 2012 (ACNC Act).

The review panel received 107 submissions and met with 215 stakeholders in formulating its report.

In May 2018 the review panel Report was received by Government.

On 22 August 2018 the review panel Report Strengthening for Purpose: Australian Charities and Not-for-Profits Commission Legislative Review 2018 was tabled in Parliament.

On 6 March 2020 the Government response to the Australian Charities and Not-for-Profits Commissions Legislation Review 2018 was issued.

Key recommendations and government responses

Recommendations related to reporting matters

1. Reporting thresholds: Supported

The Government response supports the recommendation relating to the increase in reporting and audit/review thresholds. ‘Small’ will increase from less than $250,000 to under $1 million, medium will increase to $1 million to under $5 million and large will be $5 million or higher. All thresholds are based on annual revenue calculated based on the Australian Accounting Standards. However, to ‘avoid any unintended consequences’ the Government has indicated that it will consult with the States and Territories before proceeding with legislative change.

2. Simplified Annual Information Statement reporting for small charities: Supported

The Government supports small charities providing a ‘statement of resources’ as an option instead of reporting balance sheet information as part of the completion of the Annual Information Statement. It is envisaged that a ‘statement of resources’ which focuses on assets used by the entity will be less burdensome for small charities to compile.

3. Related party disclosures: Supported

The Government supports all registered entities being required to disclose related party transactions, although noting that for small entities simplified disclosures should be sufficient. The change will be implemented by changes to regulations and will be linked to the timing of the changes to the reporting thresholds. This will not impact entities already preparing general purpose financial statements, as should already be providing related party disclosures in their annual financial report.

4. Remuneration disclosures: Supported

The Government supports the recommendation for large registered entities to disclose remuneration paid to responsible persons and senior executives on an aggregated basis, but only if there are two or more key management personnel. The start date will align with the changes to the reporting thresholds. This will not impact entities already preparing general purpose financial statements, as should already be providing this disclosure in their annual financial report.

5. Basic religious charity exemption: Not supported

The review report recommended the review of the necessity for the basic religious charity exemptions from financial reporting, but also potentially for all exemptions. The Government indicated in its response that it has no plans to review these exemptions.

6. Broadening the Act to include large NFPs and not just charities: Not supported

The review report recommended that the ACNC Act should be amended to provide certain NFPs with annual revenue of $5 million or more to be registered under the ACNC Act to be exempt from income tax and access Commonwealth tax concessions. The Government did not support the recommendation.

7. Interaction between ASIC and ACNC: Not supported

Our submission to the ACNC review panel strongly encouraged improvement in the interactions between the ACNC and ASIC, on the basis that duplication of data and inconsistent maintenance of organisational data undermine the “report once, use often” aspiration expressed by the ACNC. The review report contained a recommendation for the incorporation and all aspects of the regulation of companies which are registered entities to be transferred from ASIC to the ACNC, except for criminal offences. Such a proposal would eliminate the need for charities to deal with dual regulators. However, the Government did not support the recommendation. Instead, the Government supports the ACNC working with ASIC through the modernising business registers program to reduce the practical and administrative challenges for registered entities dealing with both regulators. The modernising business registers program has been several years in development and is still subject to parliamentary processes. We note that the unification of the ASIC registers with the ACNC register is not part of its scope at this stage.

Recommendations related to governance matters

8. Governance standards: Not supported

The review report considered the ACNC governance standard 3 (on complying with all applicable laws) should be repealed and ACNC governance standard 5 (covering the duties of responsible persons) should be amended to remove the word ‘perceived’ regarding conflicts of interest. The Government did not support the recommendation.

9. Directors duties enforcement: Noted and will be consulted on

The Government noted the recommendation regarding legislative change to amend the Corporations Act to ‘turn on’ the duties and other provisions relating to directors which were previously ‘turned off’. The current position was seen to create ambiguity about whether directors’ duties for charitable companies applied and therefore whether such duties can be enforced. The Government agreed to release a consultation paper on this topic seeking the views of the sector.

10. Responsible person disqualifying criteria: Supported

The Government supports the recommendation to disqualify a person from being a responsible person if they have a conviction for terrorism, terrorism financing, money laundering, fraud, importation or distribution of illicit drugs or a child sexual offence under Commonwealth, state or territory law. The impact of this legislative reform will be that charities will need to conduct background checks on their directors/responsible persons prior to appointment.

Recommendations related to ACNC Powers

11. ACNC Secrecy provisions: Supported

The secrecy provisions of the ACNC Act prevent the Commissioner from making information public about the ACNC regulatory activities except to respond to or clarify issues that have already been raised in the public domain. The Government supports the recommendation to provide the Commissioner with discretion to disclose information about regulatory activities (including investigations) when it is necessary to protect public trust and confidence in the sector. This new discretion will be consulted on, including the triggers for and bounds of the discretion.

12. Replacement of a responsible person: Not supported

The review report considered the ACNC Commissioner’s powers in relation to the removal of responsible persons to be too broad and should be removed. The Government did not support this recommendation but agreed to consult on changes to introduce additional safeguards and appeal rights in relation to this power.

Recommendations related to a national legislative approach

13. National scheme for charities: Not supported

The Government noted the recommendation to develop a single, national scheme for charities and Not-for-Profits. This recommendation was based on the inconsistencies and complexities that exist in Commonwealth, state and territory regulation, thereby imposing regulatory burden on charities. With charities increasingly operating across multiple jurisdictions it was determined a single national scheme would alleviate regulatory burden and thereby improving sector outcomes. The Government indicate that a national scheme would require a referral of powers by the states and given this hurdle, the Government will continue to work with the states and territories in streamlining and harmonising charities regulation. The areas of continued focus will be reporting requirements, fundraising and a common statutory definition of a charity

14. Fundraising: Not supported

The Government did not support the recommendation to amend the Australian Consumer Law to clarify its application to charitable and NFP fundraising and the development of a mandatory Code of Conduct for fundraising. This recommendation was an attempt to have Commonwealth law applicable to fundraising thereby alleviating the need for state or territory laws, which have substantial inconsistences. The Government expressed its intention to work closely with the states and territories on harmonising fundraising laws.


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