Message from Bill Shorten
Assistant Treasurer and Minister for Financial Services and Superannuation
Following the overwhelmingly positive response to the first edition I am very pleased to present toyou to the secondissue of Treasury’sNotforprofit Reform Newsletter.
Thank you to all who provided us with feedback and queries. I continue to encourage the notforprofit (NFP) sector to continue to be actively involved in the ongoing reform process.
On 28 October2011 I releaseda Consultation Paper on a definition of ‘charity’.The current definition of charity is based largely on over 400 years of common law. It is complex, inconsistent between Australian jurisdictions, outdated, and creates considerable uncertainty for the sector.
Charities are a key part of our society, and providing them with a definition of charity that meets Australia’s needs will help reduce their current compliance burden and provide greater clarity on their status. I therefore encourage the sector and interested parties to make submissions to the paper. The due date for these is 9December 2011.
I have also appointed Senator Ursula Stephens as a specialist adviser to assist me with the consultation process on the definition of charity. As many of you would be aware, Senator Stephens has held a long term interest in the charitable and not-for-profit sector. Senator Stephens will be working both with me and consulting directly with the sector to help ensure that any definition of charity adopted by the Government is best suited to the needs and challenges of the sector in the future.
What’s in this issue?Improving transparency – the information portal
Tax concessions for charities and NFPs
Consultation of the legislation for the ACNC
Release of the ACNC Taskforce Website
What happened in the last month?
What’s coming up in the next 12 months?
Improving transparency – the information portal
The ACNC will be responsible for regulating the charitable and NFP sector, and implementing a 'report-once use-often' reporting framework for charities. It will alsoprovide education and support to the sector on technical matters. Another part of its responsibilities will be establishing a public information portal by 1July2013.
The public information portal was recommended in the Final Report: Scoping Study for a National Not-for-profit Regulator (Final Report). A portal received considerable support during the consultation process on a new sector regulator, with respondents reasoning it would reassure people about the legitimacy of the sector.
The portal will in time contain information for NFP entities, web based training, and ‘how to’ guidance materials, providing educational resources and support to the sector to better assist them to carry out their vital services to the community.
Charities and NFPs are a key part of the fabric of our society, and we hold them in high regard. However, as the Reverend Tim Costello, CEO of WorldVision has said ‘charities are built upon a “sacred trust” in which donors expect their hard earned dollars to make a very real difference in the lives of those in need’ and hence ‘donors are right to expect greater transparency’.
Reverend Costello has also said that it is his ‘hope that the charitable sector embraces this new information portal and that it will help increase the public’s faith in reputable charities’.
It is the aims of greater transparency and increasing the public’s faith in charities that the information portal will be supporting.
There is currently no single source of public information on the activities of charities and other concessionally taxed NFP entities.Some information is currently publicly available, for example, in relation to tax concessions on the Australian Business Register, financial reports from the Australian Securities and Investments Commission and from state and territory agencies in relation to incorporated associations.However, fees generally apply for access to this information, which in practice limits the actual transparency of operations and knowledge about charities.
Other jurisdictions have utilised public information portals to improve transparency and accountability in their respective charitable sectors.While difficult to measure, anecdotal evidence suggests these portals have increased public engagement with the sector and have built more connections within the sector.
The ACNC Implementation Taskforce is working with the Australian Taxation Office (ATO) to develop the portal, and will consult with the public, the sector and government as to what should be included on it. The Final Report suggested the type of information to be displayed about entities could include such things as the sphere of operation, income and expenditure, financial history, contact details of individuals managing the entity,governing documents, annual reports, trustees’ reports, and summary information returns.
In time the portal is intended to become a place where both the public and NFP entities cango to find out information about NFPs. The portal is also intended to, in time, become a way for the sector to centrally report to government, thereby reducing the reporting burden on the sector.
Tax concessions for charities and NFPs
The NFP sector contributes $43billion to Australia’s gross domestic product and employs eightper cent of Australia’s workforce.
Recognising this,Australian governments, both at the Commonwealth and state and territory level, providesignificant support for the sector through the provision of tax concessions. Depending on an entity’s purpose and activities, it may be able to access an income tax exemption, refundable franking credits, deductible gift recipient status (DGR - allowing an entity to collect tax deductible donations), fringe benefits tax (FBT) concessions, and goods and services tax (GST) concessions at the Commonwealth level.
There is a significant level of support provided to the sector. The Commonwealth tax concessions provided to the sector alone come at a significant cost to the budget, with a lot of the cost unquantifiable. The quantifiable tax expenditure on these tax concessions in the 201011 year is $3,290million. And this does not take into account the additional support received by both the charitable and NFP sector through Commonwealth government grants and contracts, the unquantifiable concessions received, and the assistance given to NFPs by the States and Territories.
State governments provide generous concessions to charities. Across Australia charitable entities are exempted from payroll tax, and are generally exempted from land tax and stamp duty taxes, among other concessions. These concessions also come at a significant cost to states and territories. For example, Victoria’s tax expenditures in 20092010 to the NFP sector were estimated to be in the magnitude of $759 million. The PC Report also noted that, of the four states that report an estimated cost, the payroll tax benefit alone was estimated to be at least $766million in 2008-09.
Support to the sector has evolved during a period where governments have devolved much responsibility for the delivery of social and community services to the NFP sector.However, the provision of support has developed in ways that can sometimes be inequitable and complex.
The Productivity Commission in its 2010 Report of the Contribution of the Notforprofit Sector(PC Report) made a number of findingsabout the tax concessions available to the sector, regarding the distribution and accessibility of these concessions and the level of distortion that these concessions create.
The PC Report found that the DGR system distorts philanthropic giving to those entities with DGR status. For instance, those entities working to directly relieve poverty in our community are able to access DGR status, while entities working for the prevention of poverty are not.
Likewise, the PC Report found that the FBT concessions may lead to significant distortions, and can violate principles of competitive neutrality.
Further, the system of concessions, which has been introduced over the last century, is complex. For instance, there are currently over 50 separate DGR categories that entities can seek endorsement under, yet less than half of all charities are eligible for DGR status.
The Review into Australia’s Future Tax System came to similar conclusions.
Given the magnitude of state and Federal quantifiable and unquantifiable tax concessions, provided to the NFP sector, it is very important to ensure the concessions are achieving their intended outcome— for altruistic purposes.
Outcomes of the Tax Forum
At the 2011 Tax Forum, during the discussionson fringe benefits tax concluded that taxation and funding support could be delivered more effectively.In response to these discussions the Deputy Prime Minister and Treasurer,in his closing remarks to theforum, announced that a working group would be set up to look at how the Government canstrengthen the effectiveness and fairness of support it provides to the sector.
The Special NFP Sector Tax Forum Working Groupwill work to identify, examine and recommend reform measures to the Government. The Working Group will be looking at the next stage of possible reforms for the sector, and will not reconsider the Government’s existing NFP reform measures.
The Government is expected to shortly release the terms of reference and membership of the group.
Consultation on the legislation for the ACNC
Prior to the Government’s commitment to establish the ACNC, a number of reviews identified the need for, and possible functions of, a regulator for the NFP sector. The NFP sector widely contributed to these reviews and supported the proposal of a regulator.
The Government consulted as part of the Scoping Study for a National Notforprofit Regulator on the scope, goals, form and function of a regulator. Over 160 submissions were received during the consultation process and were taken into consideration in the Final Report, which was released on 4July2011 and set out the way forward for the Government to implement a NFP Regulator.
Since the announcement to establish the ACNC in the 201112 Budget the Government has continued to consult informally on the scope, form and function of the ACNC once it starts operation on 1July2012, including withthe Notforprofit Sector Reform Council and the ATO’s Charities Consultative Committee.
The Government recognises its reforms for the NFP sector are ambitious, being the largest reforms the sector has seen in Australian history. There is still a long way to go and a lot of work involved. However, the Government encourages the sector to continue engaging with Treasury throughout the reform process.
In order to have the ACNC in place and up and running by 1July 2012, legislation for the ACNC will have to be ready to be introduced into Parliament in the first quarter of 2012. This means that the Government needs to consult on the exposure draft legislation and Explanatory Memorandum for the ACNC in December 2011 and early January2012, to allow time to take account of any comments from the sector, prior to introduction into the Parliament. As a principled governance framework that is flexible and appropriate for the sector requires additional consultation, the Government also expects to release a special consultation on this issue shortly.
The Treasury and the Government recognise the end of the year is not an ideal time to undertake a consultation process and we recognise that many in the sector will be on holidays.Treasury will therefore conduct several discussion forums in midDecember with various members of the NFP sector to ensure the fullest engagementpossible. We also encourage the sector to continue where possible to engage with Treasury in the final stretch of work needed to establish the ACNC.
The Government is committed to ensuring the sector has the chance to contribute their views and input into all of the important reforms being undertaken.
Release of the ACNC Taskforce Website
On 24 October 2011, the ACNC Taskforce launched its website at
The website will allow individuals and organisations to keep up–to–date on the taskforce’s activities. The Head of the ACNC Implementation Taskforce, Susan Pascoe AM, said ‘It is important the sector and the community be kept informed of our activities regardless of where they are located geographically across Australia.’
The website provides links to the ACNC taskforce’s YouTube channel which includes videos explaining key aspects of the ACNC and the broader not-for-profit reform agenda.
There will be future opportunities for the community to contribute ideas and comments on the new regulatory framework through a discussion paper and face–to–face consultations.
Interested parties can keep up–to–date with developments by subscribing to the website and YouTube.
What happened in the last month?
Treasury
11 October: Teleconference with Notforprofit Sector Reform Council: Regulation Working Group.
18 October: Presentation to the Givewell forum– Perth.
20 October: Presentation to the Givewell forum – Adelaide.
28 October: Release of Consultation Paper:A Definition of Charity.
Ongoing consultations with various experts in the NFP sector.
9 November: Notforprofit Sector Reform Council meeting.
What’s coming up in the next 12 months?
Public consultations
•Review of NFP governance arrangements – expected late November/early December 2011
•Legislation to establish the ACNC:
exposure draft consultation— expected 9 December 2011to 13January 2012
•Second exposure draft of ‘In-Australia’ special conditions and definition of notforprofit:
expected –expectedlate 2011
•A national approach to fundraising regulation:
discussion paper — expected late 2011
•Better targeting of tax concessions:
exposure draft —expected January2012
•Review of corporations limited by guarantee early 2012
•Introducing a statutory definition of ‘charity’:
exposure draft legislation— first half of 2012
Treasury and ATO Consultation Forums
•21 November: Statutory Definition of charity – technical experts forum
•22 November: ATO’s Charities Consultative Committee meeting
•23 November: ATO’s Clubs Consultative Forum
•13 December: ACNC legislation and governance discussion with the Not-for-profit Sector Reform Council (Canberra)
•14 December: ACNC legislation and governance forum (Melbourne)
•15 December: ACNC legislation and governance forum (Canberra)
What is due in December 2011?
9 December: Submissions due on:A Definition of Charityconsultation paper.
ACNC Implementation Taskforce
24 October: Release of new ACNC Implementation Taskforce websiteso that individuals and organisations can keep up–to–date on the taskforce’s activities.
In early November the ACNC Implementation Taskforce has held roundtable consultations on education and advice, financial reporting, governance reporting and the public information portal.
The ACNC Implementation Taskforce expects to release consultation papers on education and advice, design and operation of the general reporting framework, public information portal and education shortly.
Frequently Asked Questions
In this section we answer some of the most commonly asked questions about NFP taxation and regulation reform. If you have a specific question, email us at .
What is the scope of NFP taxation and regulation reform, and what organisations will be affected?
The Final Report recommended a single regulator should be established for the purposes of governance, accountability and transparency of NFPs. In response the Government announced in the 201112 Budget the establishment of the ACNCto regulate the sector with a clear, coherent and consistent set of regulatory obligations.
Initially the ACNC will regulate charities and the charitable sector only. The Government’s intention is that overtime the ACNC will expand to regulate the broader NFP sector, and provide it with educational resources to help them better deliver their services to the community.
The regulation changes will in time cover all NFPs that access some sort of Government benefit, whether it is a grant, contract, tax concession or access to a statutory exemption.
The regulation and taxation reforms Treasury are undertaking are aimed at reducing the compliance burden on the sector. One aspect of this is working to reduce the reporting and regulation duplication that Commonwealth Government agencies often require from NFPs. To progress this Treasury has commenced discussions across government to look at how regulation duplication can be reduced.
The Government is also continuing to workwith 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.
Will government-like charities lose their DGR status as a result of the statutory definition of charity?
No. There will be no changes to access to DGR status for public hospitals, public ambulances, public research authorities, public museums, public art galleries and public libraries as a result of the statutory definition of charity.
If I have further questions on NFP taxation and regulation reform, how do I get them answered?
There is one email address for all Treasury NFP reform issues and questions. Please email your question to .
How do I get added to the NFP reform mailing list?
Email , with your name, phone number and, if applicable, your entity.
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