Legal Updates

The Australian Charities and Not-for-Profits Commission (ACNC) plans to revoke the charity status of 400 organisations it believes are no longer operating.The ACNC says that these charities are being removed from the ACNC Charity Register as they have not been in contact with the ACNC since its establishment on 3 December 2012, have not responded to multiple letters and calls, and have not completed their 2013 Annual Information Statement. The ACNC was also not able to find evidence to suggest these charities are still operating, despite an exhaustive search.If any one of these charities is still operating it is required to contact the ACNC by 14 October 2014 if it wishes to maintain its charity registration.Charities that have their charity status revoked by the ACNC will be unable to access Commonwealth charity tax concessions.An additional 3 200 charities may be progressively removed from the Charity Register over the coming months. Charities are advised to complete their 2013 Annual Information Statement to ensure they maintain their charity status, and do not incur penalties.The full list of charities marked for revocation, and information on how charities can contact the ACNC is available at acnc.gov.au/whereareyou

On 13 June 2014 the Full Federal Court confirmed that a fundraising organisation, The Hunger Project Australia (HPA), can be endorsed as a public benevolent institution (PBI) even though it not directly provide benevolent relief.The HPA decision confirms that fundraising is "activity" within the meaning of an "institution", and is different to merely administering a trust or a fund. This affirms the High Court's approach in Word Investments, where an organisation that fundraised through commercial activity was found to be an "institution" for PBI purposes.In HPA (at paragraph 67) the Court found that:

"The ordinary contemporary meaning or understanding of a public benevolent institution is broad enough to encompass an institution, like HPA, which raises funds for provision to associated entities for use in programs for the relief of hunger in the developing world. The fact that such an institution does not itself directly give or provide that relief, but does so via related or associated entities, is no bar to it being a public benevolent institution. Such an institution is capable of being considered to be an institution organised or conducted for the relief of poverty, sickness, destitution and helplessness." (emphasis added)

Assuming the Government does not seek to change the tax legislation to reverse the Court's decision, new charities that engage in fundraising to support benevolent relief could apply (and organisations that previously applied and were rejected as PBIs could re-apply) to be endorsed as PBIs. Subject to endorsement, these organisations would then be able to access various tax concessions and exemptions including income tax exemption, fringe benefits tax exemption (vs the FBT rebate) and gift deductibility.The Commissioner of Taxation previously took a narrow view that an entity who merely engaged in fundraising activities and did not materially perform charitable works directly for the benefit of the public is not a PBI. However, the Australian Taxation Office has confirmed it will not appeal the Full Court's decision the HPA case.Please contact us if you would like more information about endorsement as a PBI or how to your charitable organisation can access tax concessions, endorsements or gift deductibility.

The Federal Government has announced the dates and locations for the consultation forums to discuss the as yet unreleased replacement arrangements for the Australian Charities and Not-for-profits Commission. The Department of Social Services said an Options Paper, set to be released early July, would explain the ACNC replacement arrangements and provide options on how key functions will be transitioned to the Australian Taxation Office and Australian Securities and Investments Commission. The Department said the consultations would run in addition to written submissions. A submission template will be release in early July.To register for a consultation session, visit the Department's website.

As discussed in our Legal Update of 20 March 2014, the Australian Charities and Not-for-profit Commission (Repeal) (No.1) Bill 2014 (Repeal Bill) was introduced into the House of Representatives on March 19. The Repeal Bill would, if passed, abolish the ACNC. However, the repeal would only take place with the passage through the Parliament of the No.2 bill, which has not been introduced.

Senate committee report

On March 27 the Repeal Bill was referred to the Senate Economics Legislation Committee (Committee) for inquiry and report.The Committee received 155 submissions plus additional information. On 16 June 2014, the Committee tabled its report recommending the Bill be passed by the Senate. Labor and Greens senators tabled dissenting minority reports calling for the ACNC to continue as Australia’s national charity regulator.The Repeal Bill will now return to the Senate for a vote, however at this stage there is no timetable for when that may happen. There is currently only one more week in the Parliamentary sitting calendar before the winter break.The ACNC Commissioner has stated that the ACNC will continue to regulate the sector and perform its legislative functions until future arrangements are known.

Public consultation on how to replace the ACNC

The Department of Social Services has stated that an Options Paper will explain the ACNC replacement arrangements and provide options on how key functions would be transitioned to the ATO and ASIC. The paper will be available on the Department’s website and stakeholders will be invited to provide written submissions, up until four weeks after the last open forum is held.The Department has confirmed that it will conduct open consultations during July and August 2014 on arrangements for replacing the ACNC as national charity regulator. The Department has said that dates and locations would be advertised on the Department’s website before the end of June 2014.

The Australian Taxation Office (ATO) is reminding "missing" charities that they risk losing access to their charity tax concessions unless they confirm to the Australian Charities and Not-for-profits Commission (ACNC) that they are still operating by 30 June 2014.Some charities which were automatically registered with the ACNC need to confirm they are still operating by 30 June 2014 because correspondence sent to them has been returned unopened. It could be that these charities are no longer operating, or simply that their details are out of date. Charities need to:

1. check that they are not on the ACNC’s list of missing charities
2. inform the ACNC if they are no longer operating
3. provide up-to-date contact details, if they are still operating.

If the ACNC does not hear from these charities by 30 June 2014, it will start a process of revoking their registration as charities. If a charity is not registered with the ACNC, the charity will no longer be entitled to access their charity tax concessions. The ATO will revoke their charity endorsement, and remove their endorsement as a charity from the Australian Business Register. For further assistance please do not hesitate to contact us.

From 1 July 2014, income tax exempt funds (ITEFs) will be listed on the ACNC Register, unless the ACNC is advised otherwise. The Charities Act 2013 provided that these funds be registered with the ACNC as charities from 1 January 2014. This change means that these entities are registered with the ACNC, and will now be endorsed by the ATO to access tax concessions as a registered charity, rather than as an income tax exempt fund. The ACNC is delaying publishing information about ITEFs on the Register until after 30 June to enable these funds time to request information about their organisation or responsible persons to be withheld. If you wish to apply for information to be withheld from the ACNC Register details are obtained at http://www.acnc.gov.au/ACNC/FindCharity/About_Register/Withheld_info/ACNC/Reg/With_info.aspx. For further assistance please do not hesitate to contact us.

ASIC has released information to help directors and audit committees develop robust standards as part of its commitment to improve audit quality.

Information Sheet 196 Audit quality: The role of directors and audit committees explains:

• why audit quality is important
• the responsibilities of the auditor
• the roles of directors and audit committees
• the responsibilities of directors for auditor independence
• who should manage the appointment of auditors
• what matters should be considered in setting audit fees, and
• what directors and audit committees can do to promote audit quality.

How this can help your NFP?

• The quality of the independent audit process supports confidence in the quality of financial reports.
• Audit is important to NFP companies, so they can obtain funding and conduct business, and so that stakeholders (such as donors, Government and corporate partners) are confident and informed.
• The quality of audits is also important to a wider group of stakeholders, such as creditors.

INFO 196 suggests directors and audit committees consider:

• non-executive directors recommending auditor appointments and setting audit fees
• assessing the commitment of the auditors to audit quality
• reviewing the resources devoted to the audit, including the amount of partner time and the use of experts
• accountability within the audit firm for quality
• support by company management for the audit process
• two-way communication with the auditor on concerns and risk areas
• ensuring independence of the auditor, and
• reviewing audit firm responses to findings from ASIC audit inspections

A copy of INFO 196 can be found at : http://www.asic.gov.au/asic/asic.nsf/byheadline/Audit-quality--The-role-of-directors-and-audit-committees+?openDocument

The Australian Law Reform Commission (ALRC) recently released a Discussion Paper on a proposed statutory cause of action (i.e. the right to seek judicial redress) for serious invasions of privacy.The paper seeks feedback on some 47 proposals for privacy related reforms. Among these are that new Commonwealth legislation be introduced to provide for a statutory cause of action for serious invasions of privacy, and a new Australian Privacy Principle (APP) should provide a “right to have personal information deleted”.Statutory cause of action – Serious invasion of privacyThe scope of the proposed statutory cause of action for serious invasions of privacy is broad and could substantially change the privacy obligations for organisations across a range of sectors, including the not-for-profit sector. Of significance to the NFP sector is that the ALRC proposes the tort (i.e. the civil wrong) should be available for (among other things) a disclosure of private information to one person (ie not publicly) where this is a serious interference with privacy. For example, if an organisation publishes sensitive health information about an individual to their allied health professional without consent. In this context, the tort will be relevant to all NFP organisations that hold personal information about individuals, including their clients, staff and volunteers. The paper proposes that if a tort of privacy is not introduced:

• legislation should be changed to allow plaintiffs to recover damages for emotional distress in cases where breach of confidence involves a serious invasion of privacy; and
• a new Commonwealth statute should be enacted to provide for a statutory tort of harassment and harmonises existing criminal offences across the States and Territories.

Right to be deletedThe paper also proposes a new Australian Privacy Principle (APP) for deletion of personal information. The proposed APP would require organisations to provide individuals with a simple mechanism to request that personal information which they provided to the organisation be destroyed or de-identified; and require the organisation to take reasonable steps (subject to suitable exceptions) to comply with such a request in a reasonable time or provide the individual with reasons for not doing so.The ALRC is seeking submissions on the discussion paper from interested organisations and community members. The closing date is Monday 12 May 2014.  NFP Lawyers is reviewing the discussion paper. Feedback is welcome by email to joanne.redburn@nfplawyers.com.au by COB 29 April 2014.

On 19 March 2014, the Social Services Minister Kevin Andrews took a step towards abolishing the Australian Charities and Not-for-profits Commission (ACNC) by introducing the Australian Charities and Not-for-profits Commission (Repeal) (No. 1) Bill 2014 (the Repeal Bill). This is the first of two bills that would implement the Government’s election commitment to abolish the ACNC.The Repeal Bill would repeal the Australian Charities and Not-for-profits Commission Act 2012 (Cth) (the ACNC Act), thereby abolishing the ACNC. However, the Repeal Bill would not take effect until a second bill, the Australian Charities and Not-for-profits Commission (Repeal) (No. 2) Bill 2014 (the Second Bill) is also enacted. The Second Bill will detail the replacement arrangements for the ACNC, and is expected to be introduced in the Winter 2014 sittings of Parliament.The Repeal Bill includes provisions that would:1. Abolish the ACNC by repealing the ACNC Act.2. Allow the Minister for Social Services to appoint (by legislative instrument) a successor agency for the ACNC. The successor agency must be an "agency" under the Financial Management and Accountability Act 1997 (Cth).The Government has previously indicated that it would return the responsibility for determining an organisation's charitable status to the Australian Tax Office (ATO). The ATO is a prescribed agency under that legislation.3. Transfer the records held by the ACNC, and any investigations by the Ombudsman into the decisions of the ACNC, to the successor agency.Minister Andrews has previously indicated that the Government would replace the ACNC with a National Centre for Excellence (NCE), which could be based on the United States' Charity Navigator. He has said that the NCE would promote collaborative education, training and development, and that it would ultimately be owned by the NFP sector itself.4. Protect the information that has been disclosed to the ACNC by registered charities and other not-for-profit organisations.5. Require the chief executive of the successor agency to prepare and submit a final report about the ACNC's operations during its final reporting period (which is anticipated to be the 2013-14 financial year).The Explanatory Memorandum to the Repeal Bill indicates that the Government will, before introducing the Second Bill, undertake consultation about the replacement arrangements for the ACNC, consider the potential impacts of those arrangements on the NFP sector, and provide strategies for addressing the impacts identified during the consultation.What does this mean for your organisation?For today, no change.In the future:

• The responsibility for determining an organisation's charitable status will likely return to the ATO. The ATO will continue to determine whether an organisation is entitled to access Commonwealth tax concessions and continues to comply with the applicable qualifying conditions.
• For charities that are companies limited by guarantee, the governance and reporting obligations previously undertaken by the ACNC will be returned to the Australian Securities and Investments Commission (ASIC).
• The ACNC's governance standards, disclosure and compliance requirements are unlikely to continue to be mandatory, but could become best practice under the NCE.

We will keep you updated on developments in relation to the abolition of the ACNC and impacts to the not-for-profit sector. You can also follow the progress of the Repeal Bill via the parliamentary bills page.If you would like further information on how these changes could impact on your organisation, please contact Dr Joanne Redburn or Steven Hunwicks.Please note that the Repeal Bill (and the Government's broader 2014 Autumn Repeal Day announcements) does not impact on the Charities Act 2013 (Cth) which commenced on 1 January 2014 and prescribes a statutory definition for "charity" and "charitable purpose".UPDATE: On 27 March 2014 the Repeal Bill was referred to the Senate Economics Legislation Committee. The Committee's report is due to the House on 16 June 2014.

On 12 March 2014 the Treasury published the exposure draft legislation, draft regulations and explanatory materials for restating and centralising the special conditions for tax concession entities.The Treasury has stated that these measures would:

• re-state the "in Australia" special conditions for income tax exempt entities, ensuring that they generally must be operated principally in Australia and for the broad benefit of the Australian community (with some exceptions);
• centralise and simplify the other special conditions entities must meet to be income tax exempt, such as complying with all the substantive requirements in their governing rules; and
• codify the 'in Australia' special conditions for deductible gift recipients ensuring that they must generally operate solely in Australia, and pursue their purposes solely in Australia (with some exceptions, such as overseas aid funds, some environmental organisations, some touring arts organisations and medical research institutes).

The previous Government announced in its 2009-10 budget that it would make changes to the special conditions for tax concession entities. It later introduced the Tax Laws Amendment (Special Conditions for Not-for-profit Concessions) Bill 2012, however the Bill did not proceed. In Dec 2013, the current Government announced that it would go forward with the measures and incorporate changes to address concerns raised by the not-for-profit sector about the 2012 Bill.The consultation materials are available on the Treasury website. The closing date for submissions on the Exposure Draft is Monday, 7 April 2014.