The Government has released for public comment exposure draft legislation, the Australian Charities and Not-for-Profits Commission Bill 2012, to establish the Australian Charities and Not-or-Profits Commission (ACNC) as a statutory authority to commence operations on 1 July 2012. The exposure draft legislation, explanatory memorandum and accompanying fact sheets can be found under the Not-for-profit Reform section. Comments on the exposure draft (ED) legislation are due on 20 January 2012.
The ACNC Taskforce has simultaneously released a Consultation Paper seeking feedback on the design and implementation of the new reporting framework to be administered by the ACNC. The Consultation Paper, mock up registration form for entities seeking registration with the ACNC and mock up annual information statements to be provided to the ACNC by registered entities, can be accessed on the website of the Australian Charities and Not-for-Profits Commission (ACNC) Taskforce. Comments on these are due by 27 February 2012.
The objects and functions of the ACNC
The functions and objects of the ACNC will be to:
- register NFP entities – initially focusing on determining the charitable (including public benevolent institution (PBI)) status of entities for all Commonwealth purposes;
- provide education and support to the NFP sector and to maintain the NFP register;
- administer a regulatory and reporting framework – the ACNC will have significant monitoring, investigation and enforcement powers over registered entities;
- promote good governance, accountability and transparency among NFPs; and
- promote public trust and confidence in NFPs through the ACNC's actions.
Registration with the ACNC will be voluntary and the administrative and regulatory powers of the ACNC will be limited to registered entities and initially for Commonwealth purposes only. However, entities wishing to access or maintain federal tax concessions and other government support will have no choice but to register with the ACNC as a first step in accessing these.
The initial responsibility of the ACNC will be to determine the legal status of entities seeking charitable and PBI status. Over time, it is expected that the ACNC's functions will expand to include responsibility for the regulation of all NFP entities seeking to access tax concessions or other Australian government benefits regardless of their form (including companies limited by guarantee, trusts, and other incorporated entities).
New Regulatory Framework
The ED legislation sets out:
- who is entitled to become registered with the ACNC;
- how to become registered; and
- the circumstances in which registration may be revoked.
NFP entities will be able to register according to NFP type and sub-type. The category of registration will determine what government assistance (including exemptions and concessions) can be accessed by the registered entity. The requirements for entitlement to registration under the ED legislation significantly draw upon existing requirements for entities seeking endorsement for income tax exemption and deductible gift recipient status under the income tax legislation with some additions (for example, meeting governance requirements under the ED legislation).
The ED legislation also sets out the reporting, record-keeping and auditing obligations for registered NFP entities including requirements to provide the ACNC with annual information statements and financial reports. The reporting obligations significantly pick up existing obligations for companies limited by guarantee under the corporations law.
NFP entities structured as companies limited by guarantee may not experience much change in regard to their reporting requirements upon registration with the ACNC. However, other types of entities may initially experience a greater compliance burden where their reporting obligations to the ACNC will be additional to reporting obligations to relevant State and Territory authorities.
The enforcement powers given to the ACNC over registered entities are extensive. They include the powers to:
- issue enforceable directions;
- suspend or remove responsible individuals associated with registered entities;
- apply to the courts for injunctions;
- enter into enforceable undertakings; and
- revoke registration with the ACNC.
What role will the Australian Taxation Office (ATO) and Australian Securities and Investment Commission (ASIC) have in regard to registered entities?
The ATO will continue to administer federal tax concessions but will accept the ACNC's determination of an entity's charitable status where that status is a condition of accessing such concessions. However, the ATO will continue to determine whether any additional conditions in the tax law are satisfied.
From 1 July 2013 the ACNC will take over from ASIC administration of the reporting arrangements of NFPs established as companies limited by guarantee.
What is next?
The ED legislation is incomplete. Sections yet to be drafted include the reviews and appeals provisions; transitional provisions; penalties provisions and consequential amendments to other laws. A separate consultation process is also underway in relation to establishing the governance framework for registered entities.