Dr Matthew Turnour and Rachel Sloper (September 2013)
The Cabinet appointments and Administrative Arrangements Order (AAO) allocating Ministerial responsibility for particular portfolios have now been released. For NFPs, important appointments are that of the Hon. Kevin Andrews MP as Minister for Social Services and Arthur Sinodinos as Assistant Treasurer. The AAO shows that the ACNC will continue to be administered by Treasury, although Social Services will have general responsibility for the not-for-profit sector.
The Rudd and Gillard Labor governments began a large number of reforms directly affecting the charity and not-for-profit sector. Many are wondering what will happen to these reforms now that the government has changed.
While in Opposition, the Coalition Government made some definitive statements about its plans for the sector. The clearest guidance can be found in the speeches and writings of Kevin Andrews MP, then the Opposition spokesman on NFP and charity issues, who has led the Coalition approach. Many of the original speeches can be accessed on his webpage http://kevinandrews.com.au/
- General philosophy
- Statutory definition of charity
- ‘Gag’ clauses
- Fringe Benefits Tax
- Promises for family and community services agencies
- UBIT and ‘in Australia’
- More help
In an Address to the Centre for Independent Studies on 23 April this year, Kevin Andrews set out his framework for understanding the sector. Philosophically, he emphasised the independence of the sector. He clearly sees a more limited role for government in the regulation of the sector, saying that tax issues should not be used ‘as a Trojan Horse to impose a burdensome new regulatory system on the sector’.
He said that a Coalition government would ‘allow up to ten per cent of program funding to be used for innovative projects as determined by the agency’. This seems to indicate a willingness to give charities and NFPs greater freedom in the way they use their funding.
The Coalition position on the Australian Charities and Not-for-Profits Commission (ACNC) is that it is an intrusion into the operations of charities and adds rather than reduces red tape. It intends to abolish all regulatory functions of the ACNC and transfer them back to the Australian Taxation Office. A successor ‘Centre of Excellence’ body would be run by the sector for the sector, collating research and providing information and assistance to the public and to NFPs in negotiating the complex regulatory environment.
The Government has a stated intention to remove or replace the ACNC, but does not have control of the Senate. The Greens have affirmed their support for the ACNC in its current form. Senator Nick Xenophon has stated that he would support maintaining and also strengthening the monitoring role of the ACNC.
Does that mean we shouldn’t register?
A number of charities that are not yet registered with the ACNC have queried whether they should do so. Under the current law, charities which have historically self-assessed as income tax exempt must register with the ACNC by 2 December 2013. If they do not register, they will lose their tax exempt status as from 3 December 2012 and will only be considered exempt again when registered.
Registration is not necessarily in a charity’s best interests, notwithstanding the tax benefit implications. The governing body of each charity should consider the benefits and drawbacks as they apply in the charity’s unique circumstances. If you would like assistance with the process of making this decision, we are happy to help identify issues and implications.
Statutory definition of charity
The Coalition position is that the existing common law definition of charity is working well and does not need to be changed. During Parliamentary debate on the Charities Act 2013, Coalition MPs and Senators said that a Coalition government would repeal the Act entirely.
Does this mean we can ignore the Act?
The Act does not commence until 1 January 2014. The Parliamentary calendar for the remainder of the year is yet to be determined, and any repealing legislation must pass through both the House of Representatives and the Senate.
If the Act is repealed, it is possible that this might not happen until July next year, after the new Senators take office. The Act might then be in force for six or more months before being repealed. Charities and NFPs should prepare for this eventuality if the altered definition of charity created by the Act would affect their affairs or charitable status.
Kevin Andrews promised earlier this month that the Coalition would not re-introduce the ability to use ‘gag’ clauses in funding or other contracts with NFPs.
Fringe benefits tax
The Coalition has promised not to follow through with Labor’s changes to statutory deeming rules for motor vehicles provided as a fringe benefit. However, it is also planning a general tax review.
Significant promises for family and community services agencies
In the same press release, Mr Andrews also announced significant changes to how federal funding of family and community service agencies will be administered. Mr Andrews said the Coalition would:
- use a single contract with each agency, and require the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) to negotiate these contracts, rather than simply imposing standard terms;
- decrease the number of financial reports that agencies must submit;
- decrease the frequency of audits;
- introduce an assumption of appropriate governance where an agency is a company or incorporated association; and
- improve whistleblower protections.
UBIT and ‘in Australia’ changes
We are not currently aware of any definitive statement by the Coalition as to what it plans to do in relation to the proposed ‘Unrelated Business Income Tax’ (UBIT) and tightening of the conditions on how funds received on an income tax exempt or Deductible Gift Recipient (DGR) basis may be used outside Australia.
Kevin Andrews has stated that tax reform should be treated as separate from sector regulation.
DISCLAIMER: This update provides an overview only of the Coalition’s announced policy on NFP issues, and is not all inclusive. It should not be considered to be legal advice. Each charity needs to consider its response to possible changes to the law and government policy in the context of its individual circumstances. You should obtain legal advice for your specific circumstances before relying on general information.