New Guidelines, Guidance and Legislation for NFPs

In this update:

1.  ACNC to release new application requirements for PBIs active overseas

2.  China Adopts New Legislation Regarding Overseas NGOs operating in China.

3.  ACNC publishes guidance statement on Charities, Elections and Advocacy.

4.  Updated PAF and PuAF Guidelines now released

5.  REO Report is in


1.  ACNC to release standard list of questions for PBI applicants active overseas

Many organisations previously ineligible for PBI status due to overseas activities are now considering applications to the ACNC and ATO to become PBIs. We have been informed by the ACNC at a recent conference that the ACNC is standardizing the questions it will ask organisations with overseas involvement which apply for PBI status. We expect these to be released sometime in July 2016.  Keep an eye out for our next update which will include further details about PBIs after the ACNC releases its finalised Commissioner’s Interpretation Statement on PBIs.

2.  Are you an NGO operating in China? Then new legislation could affect you

On 28 April 2016 the National Legislature adopted a new Law on the Management of Domestic Activities of Overseas Nongovernmental Organizations, clarifying that control of foreign NGOs (including universities, foundations and potentially business groups) will be located with the Ministry of Public Security. Previously, not-for-profits were notionally the responsibility of the Ministry of Civil Affairs. The law will come into effect on 1 January 2017.

A new law regulating foreign NGOs has been in the works for several years, but has only taken definite shape from December 2014 when a first draft was presented to the National People’s Congress. The law as passed is broadly similar to the public draft of April 2015.

A foreign organisation wanting to work in China, even temporarily:

-Must find a local partner organisation willing to take responsibility for your work in China. The local partner must have approval from the Ministry of Public Security

-Must then register and obtain your own authorisation from the Ministry of Public Security with evidence of the approved partner

-Once approved, must only conduct activities in approved categories (eg education) and within the approved geographic area

-Must report annually about planned activities and acquit previously reported planned activities which have now taken place

-Must not fundraise within China

-Must not ‘endanger China’s national unity, security [or] ethnic unity’, ‘harm national interests or the public interests’ or harm ‘lawful interests of legal persons and other organizations’.

There is some suggestion that those already registered with the Ministry of Civil Affairs may enjoy a ‘fast track’ through this process, but must still re-register with the Ministry of Public Security.

University and other research exchanges and joint projects may be exempt from the registration requirements, but the exact scope of the exemption is unclear.

If your organisation is operating in China and you are worried about how these changes might impact on you, please feel free to contact our office.

3.  Updated Private and Public Ancillary Fund Guidelines have now been released

The updated guidelines provide welcome clarity on a range of matters for both Public Ancillary Funds (‘PuAFs’) and Private Ancillary Funds (‘PAFs’), as well as aligning PAF Guidelines with many of the more flexible elements already enjoyed by PuAFs.

Portability for PuAFs curtailed

The PuAF guidelines on portability now resolve the previous inconsistency between requiring public solicitation of funds and allowing portability to PAFs by prohibiting transfers of assets contributed by the general public (including investment income from those funds, and taxpayer funds) to PAFs. There is no general ban on transferring PuAF capital to a PAF, but as most PuAF capital is publicly sourced the ability to transfer to a PAF will be reasonably limited.

Updates applicable to both PAFs and PuAFs

The new Guidelines now explicitly include any person who can witness a Commonwealth statutory declaration in the category of ‘individuals with a degree of responsibility to the community’.

ACNC regulated Funds no longer need to double-notify changes in governing rules or annual financial reporting.

Funds can now apply to the Commissioner for a one-off reduction in the mandatory distribution amount for a financial year. In making a decision the Commissioner can take various factors into account.

The update also makes it clear that ‘distributions’ to DGRs can take many forms, including loans at preferential rates (the difference between the commercial and preferential rate being the ‘distribution), guarantees of loans taken out by the DGR from a third party, payments of those guarantees upon a default by the DGR, and social impact bond investment. The updated Guidelines envisage possible future guidance on calculating an appropriate value for more innovative ‘distributions’.

Alignment of PAF Guidelines with PuAF Guidelines

A number of PAF guidelines are now aligned with the greater flexibility already enjoyed by PuAFs. PAFs with less than $1million revenue and assets in a financial year may elect to conduct a review rather than an audit, unless the Commissioner requires otherwise.

PAFs also now benefit from the clarification that repetitive regular investing is not ‘carrying on a business’ though it could be classified as such for tax purposes.

If a PAF needs to be closed, it now has the portability option of distributing its assets to another ancillary fund, upon obtaining the Commissioner’s permission. All the net assets must be transferred, and only after the fund makes a final distribution for its final financial year. Transfers by a recipient fund are suspended for two years, to avoid perpetual ‘recycling’ of ancillary fund capital. Assets received from an ancillary fund (whether from a PuAF or a PAF) cannot be transferred again to another ancillary fund until at least two financial years (with attendant mandatory distributions) have passed.

PAFs will also welcome the slightly more permissible rules around donations and payments to associates. A PAF may donate to a DGR 1 even if it is associated with the PAF’s founder, trustee, donors or other associates; a PAF may also use its assets to pay reasonable remuneration to founders, trustees, donors and other associates for services rendered to the PAF (including administrative work).

4.  The Standing Committee for the Environment has released its inquiry into the ‘Register of Environmental Organisations’ (REO)

The REO was introduced to improve transparency around environmental organisations accessing DGR status (previously specific listing was required and it resulted in a great deal of auspicing). The Committee found that the current process is flawed:

-It commonly takes a year for a listing application to be processed;

-There is no requirement to be ACNC-registered in order to be listed on the REO;

-Financial reporting by REO-listed organisations is to the Department of the Environment, and is never made public; and

-There is the potential for politicisation of the application process as it involves individual Ministers.

The Committee recommended that the REO be abolished and specific listings of environmental DGRs removed from the tax legislation, with all endorsements for DGR to be folded back into the ATO. Registration as an environmental charity with the ACNC would be a prerequisite for ATO endorsement. Those endorsed by the ATO under the new system would be required to report annually that they continued to be eligible for endorsement. The Committee also recommended a review of the Deductible Gift Recipient system as a whole.

The Liberal members of the Committee recommended requiring a minimum annual spend on ‘environmental remediation’, as compared with advocacy or other indirect environmental protection activity. That minimum would be 25% of the annual distribution from a charity’s endorsed public fund. They also recommended introducing sanctions for organisations which ‘encourage, support, promote or endorse’ illegal activities by their volunteers, members and employees or by third parties.

Jason Wood, a Liberal MP who has a record of interest in environmental issues and connections to Greenpeace, and the Labor members of the Committee, argued against imposing a direct activity requirement. This has never previously been required and the Labor members argued that it would be a restriction on environmental charities’ freedom to conduct advocacy which is not imposed on any other kind of charity. Mr Wood and the Labor members also argued that the practical difficulties of proving ‘encouragement’ of illegal activity without a specific Board-level approval meant that any new sanctions would prove ineffectual.