Establishment of the Australian Charities and Not-for-profits Commission
The Government will provide $53.6 million over four years to establish a one-stop-shop for the support and regulation of the NFP sector.
This is a reform that has been sought for many years by the sector, and recommended in reports dating as far back as the Report of the Inquiry into the Definition of Charities and Related Organisations in 2001.
The Australian Charities and Not-for-profits Commission (ACNC) will commence operations from 1 July 2012. It 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 Commission will also implement a 'report-once use-often' reporting framework for charities, provide education and support to the sector on technical matters, and establish a public information portal by 1 July 2013. A Commissioner will be appointed to drive all the changes, who will be fully independent and report directly to Parliament via the Assistant Treasurer.
Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, said "the NFP sector provides vital services to many of our most disadvantaged and vulnerable citizens, but the ability of the sector to undertake this work has been impaired by complex regulatory arrangements and unnecessary red tape for far too long."
Minister for Human Services and Social Inclusion, Tanya Plibersek, said "I am delighted that the Gillard Government is delivering on this key reform for the sector, which has laboured under overly complex, duplicating regulatory requirements for too long."
"We will continue our negotiations with the states and territories on national regulation for the charitable sector, recognising that the greatest reduction in red tape can only be achieved with national coordination. But it is important for the Commonwealth to lead the way and get its own house in order."
The Government will set up an Implementation Taskforce from 1 July 2011. It 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.
Better targeting of not-for-profit tax concessions
The Government will also reform the use of tax concessions by businesses run by NFP entities.
"The Government strongly supports the provision of welfare, education, sports, arts, worship, culture and community services provided by NFPs through access to significant tax concessions," Minister Shorten said.
"But the Government believes it is important that charities use their tax concessions only to assist disadvantaged people and not for unrelated commercial activities.
"The Government's reforms will encourage charities to direct profits generated by unrelated commercial activities back to their charity's altruistic purposes."
NFP entities will pay income tax on profits from their unrelated commercial activities that are not directed back to their altruistic purpose, that is, the earnings they retain in their commercial undertaking.
NFP entities will not be able to use input tax concessions, such as FBT and GST concessions, for their unrelated commercial activities.
These 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. Examples of this type of related commercial activity include not-for-profit hospitals, op-shops that sell second-hand household items and clothing at discounted prices to those in charitable need, NFP child care centres, and businesses whose purpose is to provide meaningful employment to disabled persons.
The reforms also won't affect NFP entities carrying on small-scale and low-risk activities, such as lamington drive fundraisers, school fetes and leasing out of church halls.
These new arrangements will commence on 1 July 2011 and will initially affect only new unrelated commercial activities that commence after 7.30pm (AEST) on 10 May 2011.
NFP entities with existing unrelated commercial activities will initially be able to continue to use their tax concessions to support these activities. The Government will consult on transitional arrangements for these existing activities, with the intention of phasing these out over time.
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.
Likewise, the 50,000 National Rental Affordability Scheme allocations will be unaffected by the tax changes.
Introducing a statutory definition of 'charity'
The Government will also introduce a statutory definition of 'charity' applicable across all Commonwealth agencies from 1 July 2013.
"The adoption of a consistent definition of charity and single determination of charitable status will greatly assist the sector," Minister Shorten said.
"The current definition of charity is based on over 400 years of common law and is complex, inconsistent between Australian jurisdictions, outdated and creates considerable uncertainty for the sector."
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.
"This package of reforms marks a significant step forward in the future of Australia's NFP sector," Mr Shorten said.
Further details on the NFP sector reforms are provided in the Attachment.
CANBERRA
10 MAY 2011
ATTACHMENT
Further details on NFP SECTOR REFORMS
Establishment of the Australian Charities and Not-for-profits Commission
The Government will begin negotiations with the states and territories (states) on national regulation and a new national regulator for the sector, as the greatest reduction in red tape can only be achieved with national coordination. The Government will also seek to implement 'report-once use-often' reporting for reporting to the states. To progress these reforms, the Government will ask the Council of Australian Governments to establish a NFP working group reporting to the Standing Council for Federal Financial Relations.
However, the Government is concerned to ensure that reform for the sector is not delayed. The Government will therefore act to improve accountability and transparency for the sector while removing reporting overlap for general reporting requirements at the Commonwealth level.
The Government will therefore establish a new statutory agency — the Australian Charities and Not-for-profits Commission (ACNC) —by 1 July 2012. The Australian Charities and Not-for-profits Commissioner will report directly to Parliament via the Assistant Treasurer. The Australian Taxation Office will provide corporate support for the ACNC, including human resources and IT support to utilise scale efficiencies.
From 1 July 2012, the ACNC will initially be responsible for determining charitable, public benevolent institution, and other NFP status for all Commonwealth purposes; providing education and support to the sector; implementing a 'report-once use-often' general reporting framework for charities; and establishing a public information portal by 1 July 2013.
An Advisory Board of legal and accounting and NFP sector experts will be set up to provide advice to the ACNC.
The Commissioner of Taxation will retain responsibility for administering tax concessions for the NFP sector. This seeks to address sector concerns regarding a perceived conflict of interest between determining charitable status and the role of administering tax concessions. Starting immediately, the Australian Taxation Office will begin to structurally separate its role of determining charitable status from its role of administering tax concessions in preparation for the ACNC.
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 Taskforce will be responsible for preparations to ensure the ACNC is ready for operation by 1 July 2012. It will also commence consultation with the public, the sector, and Australian and state government agencies on general reporting and public information portal requirements.
The Government will provide $53.6 million over four years to support the new arrangements.
The Government 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.
Better targeting of not-for-profit tax concessions
The Government will consult to determine the most appropriate model for implementing these reforms. Possible models include those adopted by Canada, the United States, the United Kingdom, Ireland and South Africa.
The Government will also commence discussions with the states and territories with the aim of ensuring a coordinated approach to resolving these issues is adopted. Further, any change to the GST base will also require the unanimous support of the state and territory governments.
These reforms will not affect the principle of mutuality and, therefore, the tax treatment of clubs.
Introducing a statutory definition of 'charity'
The Government will consult with the states and territories with the aim of introducing a definition that could be adopted by all jurisdictions.
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.
