08/07/2020

The Australian Charities and Not-for-Profits Commission’s (ACNC) 5 year review was completed and published in August 2018, with the ACNC Review Panel (Review Panel) making recommendations about how the ACNC operates and the related underlying laws and regulations.

The Federal Government released its long-awaited response to this review in March 2020 and intends to support a number of the Review Panel’s recommendations.

It is important for those working for and with registered charities to be aware of the proposed changes as they may affect the way an organisation is governed, and the obligations owed to the ACNC.

We set out below a summary of the key changes you should be aware of, but note that because many of the changes require legislative amendment, it is difficult to predict when those changes may be progressed in light of the Government’s more urgent legislative priorities. We will continue to keep you informed as developments occur.

Likely Changes

Responsible ‘Persons’

As part of Recommendation 4, the Review Panel found that the misalignment of the ACNC’s use of the term ‘responsible person’ as compared to the legislation using the term ‘responsible entity’ could create confusion and should be amended. However, the Government has no plans to change the terminology as this may create legal uncertainty given the term ‘responsible person’ is already used in tax law and has a different meaning to the term ‘responsible entity’ in the ACNC legislation.

However, some changes to who can be a responsible ‘person’ and how they can be removed are likely.

Collection of personal information: The Government supports Recommendation 18 that the ACNC should be authorised to collect the personal details of responsible people with criminal records, as this is likely to assist the ACNC with detection of breaches of the governance standards and external conduct standards.   

Disqualification: Recommendation 23 proposed that additional disqualifying criteria as to who can hold office as a responsible person should be inserted into the ACNC legislation. In response, the Government intends to implement further restrictions on who can (or cannot) be a responsible person. A person who has been convicted of the following offences will no longer be able to hold office as a responsible person:

  • terrorism;
  • terrorism financing;
  • money laundering;
  • fraud;
  • importation or distribution of illicit drugs; or
  • child sexual offences.

We recommend that all charities implement (or update, as appropriate) their policies to require that all current and future responsible persons undergo a criminal check and working with children check as part of the recruitment and on-boarding process. You may even wish to consider updating your organisation’s constitution to enshrine certain elements of these potential changes as a requirement for director eligibility within your organisation.

Removal and replacement: The Panel recommended removing the ACNC Commissioner’s (Commissioner) existing powers to remove or replace a responsible person because the Commissioner is subject to less scrutiny than comparable regulators. However, the Government does not intend to support this recommendation and has instead proposed to undertake consultation on limiting those powers. It is anticipated that the Commissioner will have to consider additional criteria before removing or replacing a responsible person (although there is currently no guidance on what these additional criteria might be). It is also anticipated that the right of appeal for the removal or replacement of a responsible person may be expanded so that both the registered charity and the responsible person can appeal a decision.

ACNC Powers

Changes to reporting

The Government’s response signals that several reporting changes may be imminent. Below is a summary of the changes and whether your charity, depending on its size, is likely to be affected.

Change

Small entities

Medium entities

Large entities

  1. Annual information statements

X

 

 

  1. Revenue reporting thresholds

X

X

X

  1. Related party disclosures

X

X

X

  1. Remuneration disclosure

 

 

X


Annual information statements: If you’re a small registered charity, Recommendation 13 proposes that the ACNC will permit a ‘statement of resources’ to describe your assets instead of balance sheet reporting. So, if you’re one of the 18,000 charities using cash accounting, this is great news for you as it will reduce your regulatory burden. While there is no confirmed date for this change, the Government’s response has confirmed that it supports the change but that it will not be implemented this year.

Revenue reporting thresholds: Recommendation 12 asserted that the current thresholds for determining a charity’s size are too low. The Government has supported this recommendation and confirmed that States and Territories are being consulted for changes to increase the revenue reporting thresholds for registered charities. The Review Panel recommended new thresholds of under $1 million for a small entity, $1 - $5 million for a medium entity and over $5 million for a large entity based on rolling three year revenue. However, we will have to wait and see whether these suggested thresholds are adopted.

Related party disclosures: The Government’s response is supportive of Recommendation 8 which proposed requiring registered charities to disclose ‘related party transactions’ in order to increase transparency. This means that all charities will need to disclose whether any transaction has involved a related party (e.g. a family member of a responsible person, or a subsidiary of a charity). If you’re a small charity, this process is likely to involve a simplified disclosure. The Government’s response indicates that this change is likely to happen at the same time as any changes to revenue reporting thresholds.

Remuneration disclosure: Recommendation 15 proposed that large charities with two or more key management personnel should disclose how much they pay their responsible persons and senior executives on an aggregated basis. The Australian Accounting Standards Board defines key management personnel as ‘those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity’.  It is proposed that this change will also happen when changes to revenue reporting thresholds are implemented.

Disclosure for educative purposes

If a charity is subject to any compliance action by the ACNC, the Commissioner cannot currently release information on their regulatory activity (including investigations) or details about the reasons for their decisions unless the information is already in the public domain. This means that the ACNC cannot publish case studies or other educative materials that are likely to identify the charity involved. Recommendation 17 proposes that the ACNC’s secrecy provisions be loosened in order to allow the Commissioner to publish information about ACNC regulatory activities if that information is likely to strengthen public trust and confidence. The Government is supportive of this change but the extent of what information the Commissioner may be allowed to publish is currently unclear. Any change in this regard presents an excellent opportunity to learn from others and to better understand the ACNC’s ongoing compliance approach.

Information sharing between Government Agencies

In order to reduce the need for charities to provide the same information to government agencies multiple times, Recommendation 26 proposes that the ACNC continue to work with agencies to increase the use of the ‘charity passport’. However, the Government has not proposed to take any active steps to assist the ACNC in this regard.

Monitoring with ACIC and AUSTRAC  

In order to assist Australia with meeting its national and international obligations to reduce and manage criminal misconduct including anti-money laundering and counter-terrorism activities, the Government has supported Recommendations 21 and 22. This would see the ACNC further developing a relationship with the Australian Criminal Intelligence Commission (ACIC) and the Australian Transactions Reports and Analysis Centre (AUSTRAC) to monitor and detect non-compliance by accessing intelligence databases and would also see the ACNC better resourced in order to access criminal intelligence databases and information sharing with ACIC and other agencies.

No Changes

Religious charities

Despite Recommendation 16 proposing a review of the exemptions relating to basic religious charity (BRC) status, the Government has confirmed that it has no plans to review or amend the exemptions relating to BRC status.

Harmonisation of fundraising laws

Recommendation 25 proposes amending the Australian Consumer Law (ACL) in an attempt to harmonise charitable fundraising laws across Australia or introduce a code of conduct. Instead, the Government has stated within its response that it will ‘support the efforts’ of States and Territories to work together to harmonise fundraising laws but that it will not support an amendment to the ACL.

Keep a Watching Brief

Directors’ duties

With the Government supporting a number of the recommendations, there are still a couple of issues up in the air.

At Recommendation 11, the Review Panel noted that the ‘switching off’ of certain provisions of the Corporations Act 2001 (Cth) (Corporations Act)  relating to directors’ duties has created ambiguity and if they were reinstated, would strengthen the rights of members to take action against directors. The Government has commented that it will review the way that directors’ duties apply to responsible persons and consider ‘turning on’ those parts of the Corporations Act relating to directors’ duties that had been switched off by the ACNC Act.

National charities scheme

Recommendation 28 noted that inconsistencies in reporting owed to State and Territory regulators as well as the ACNC, fundraising legislation requirements and eligibility for tax concessions were causing unnecessary burdens on the sector. The Government intends to continue with its current plan of working with the States and Territories to harmonise regulation in these areas including consulting with the States and Territories on the development of a common statutory definition of ‘charity’ to replace the existing 45 definitions. However, the Government will not be requesting a referral of power from the States and Territories despite the likelihood of such referral producing a unified, national scheme.

We will wait to see what changes come of the proposed amendments and will continue to keep you updated with developments as they occur. 

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