The new ACNC legislation - Mills Oakley

The new ACNC legislation Australian Charities and Not-for-profits Commission Bill 2012 and Australian Charities and Not-for-profits Commission (Consequential and Transitional) Bill 2012

We have summarised below the new ACNC legislation: A summary How entities become registered The responsibilities of registered entities Exemptions for religious charities How the ACNC will be structured The powers of the Commissioner The recent changes

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A summary What does the new legislation look like? Chapter 1 Part 1-1 Part 1-2

Introduction Preliminary Objects of this Act

Chapter 2 Part 2-1 Part 2-2

Registration of not-for-profit entities Registration Australian Charities and Not-for-profits Register

Chapter 3 Part 3-1 Part 3-2 Part 3-3

Responsibilities of registered entities Governance standards and external conduct standards Record keeping and reporting Duty to notify


Regulatory powers of the ACNC Commissioner Information gathering and monitoring powers Enforcement powers

Chapter 5 Part 5-1 Part 5-2 Part 5-3

The Australian Charities and Not-for-profits Commission The ACNC The Commissioner Finance and reporting requirements

Chapter 6 Part 6-1

The Advisory Board The Advisory Board

Chapter 7 Part 7-1 Part 7-2 Part 7-3 Part 7-4 Part 7-5 Part 7-6

Miscellaneous Secrecy Review and appeals Penalties Application of this Act to entities Constitutional matters Forms and regulations


Interpretation Core concepts Dictionary

The Australian Charities and Not-for-profits Commission Act 2012 establishes a regulatory system for not-for-profit entities and the Commissioner of the Australian Charities and Not-for-profits Commission (ACNC). The Commissioner of the ACNC: • is responsible for registering not-for-profit entities. Registration will be a pre-requisite for certain tax concessions and other benefits. • will work with other government agencies towards a simplified and streamlined regulatory framework for not-for-profit entities. • will provide the public with information which will: • help the public understand the work of the not-for-profit sector; and • support the transparency and accountability of the sector.

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How entities become registered The first step for a new Charity is to become registered: First: Entities must satisfy the following conditions: • Be a not-for-profit entity. • Have an ABN. • Not be proclaimed by the government to be engaging in or supporting criminal or terrorist activity. • Comply with the prescribed governance standards and external conduct standards. ACNC Bill 2-1

The registration process: • Applications must be in the approved form. • The Commissioner can ask for more information. • The Commissioner must register an entity if the entity applies in the approved form, is entitled to registration and has given the Commissioner all necessary information and documents.

See page 5 of this guide for Governance Standards and External Conduct Standards

Approved forms will be approved in writing by the Commissioner. Approved forms must be completed and submitted in the way prescribed by subdivision 190-B of the ACNC Act.

Registration: Entities are then registered as falling into certain entity category and sub-entity category:

Item Type of entity 1 2 3 4 5

Charity

Corresponding subtype of entity Entity with a purpose that is the relief of poverty, sickness or the needs of the aged Entity with a purpose that is the advancement of education Entity with a purpose that is the advancement of religion Entity with another purpose that is beneficial to the community Institution whose principle activity is to promote the prevention or the control of diseases in human beings

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Public Benevolent institution

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Entity with a charitable purpose described in section 4 of the Extension of Charitable Purpose Act 2004 (provision of child care services)

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The Register Information submitted to the ACNC by charities will be published online and used by regulators, funding agencies and the ATO.

The Australian Charities and Not-for-profits Register • – – – – – – – – – – •

The Register will include the following information about each registered entity: name; contact details (incl. address for service); ABN; type and subtype of entity; date of effect of registration; governing rules; certain information statements; financial reports and any audit or review reports; any warnings or injunctions made against the entity; and any other information specified in the regulations. Entities responsible for registered entities will also have their name and position held in relation to the registered entity recorded.

Is any information excluded? The Commissioner may decline to include information in prescribed circumstances where, for example, the information is commercially sensitive, offensive or could endanger public safety after considering what is in the public interest.

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What are the responsibilities of registered entities? Comply with Governance Standards Regulations will specify governance standards with which entities must comply. The standards may, for example, require the entity to achieve certain outcomes based on certain principles, or establish certain processes. The standards may specify principles reflecting the size of the entity, the amount and nature of contributions to the entity, and the nature of activities undertaken in pursuit of its purpose. The governance standards may: require the entity to ensure that its governing rules provide for a specified matter; or require the entity to achieve specified outcomes and: • not specify how the entity is to achieve those outcomes; or • specify principles as to how the entity is to achieve those outcomes; or require the entity to establish and maintain processes for the purpose of ensuring specified matters. ACNC Bill 45-10 The application of the standards is limited for basic religious charities and political advocacy entities. Governance standards in the Regulations do not commence until approved by both Houses of Parliament. The Commission implementation taskforce has explained that the ACNC will consult with the sector soon after its launch on its regulatory approach statements before they are finalised. More information about this consultation will be available on the ACNC website after it commences.

Comply with External Conduct Standards Regulations will specify external conduct standards with which entities must comply. The external conduct standards may require the same things of an entity as the governance standards, but: Must only deal with matters external to Australia or matters that will have a significant impact on entities, things or matters external to Australia. External conduct standards in the Regulations do not commence until approved by both Houses of Parliament.

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Entities must keep records Registered entities must keep, for 7 years, operational and financial records which correctly explain the financial performance and enable true financial statements to be audited.

Entities must provide annual information statements A registered entity must give an information statement to the Commissioner in the approved form no later than 31 December in the following financial year. The transitional bill provides that information statements must be provided for the 2012-2013 financial year and later financial years. The ACNC implementation taskforce has said this will only be a two-page update and not an onerous obligation. ACNC Bill 60-5, Transitional Bill 8

Certain entities must provide financial reports

Definition: SMALL REGISTERED ENTITY

MEDIUM REGISTERED ENTITY

LARGE REGISTERED ENTITY

$250,000 revenue and $1,000,000 revenue*

* Or any other amount specified in the Regulations

The transitional bill provides that financial reports must be provided for the 2013-2014 financial year and later financial years, but may volunteer to provide a statement for the 2012-2013 financial year. Entities may apply to use an accounting period which ends on a date that is not 30 June. ACNC Bill 60-C, Transitional Bill 9

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Reporting - Auditing and review • • • •

The ACNC Bill prescribes who may undertake any audit or review, the standards which must be complied with and the contents of the auditor’s or reviewer’s report. The audit and review requirements generally do not relate to basic religious charities. The Commissioner can request further information or reports up to 6 years later. Entities must correct any errors they discover by submitting a corrected statement. ACNC Bill 60-C

Reporting – additional provisions • •

The Commissioner may approve different accounting periods. The Commissioner may allow 2 or more registered entities to prepare and lodge a single information statement and financial report. ACNC Bill 60-F

Reporting – an update from the ACNC implementation taskforce • •

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For the 2012-13 reporting period, all registered charities (small, medium and large) will need to report basic (non-financial) information about their operations (the annual information statement). For the 2013-14 reporting period onwards, registered charities will need to provide for: • small charities – annual information statements including basic information about their operations and finances; • medium and large charities – annual information statements including more detailed information about their operations and finances, as well as annual financial reports. As the details of the requirements are finalised, the ACNC will provide guidance about reporting obligations to help charities understand their obligations in a timely way.

Duty to notify A registered entity must notify the Commission if certain details change such as the entity’s name, address, governing rules or if it has contravened a provision in the Act. ACNC Bill 65

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Exemptions for Religious Charities Basic religious charities – exemptions Basic religious charities enjoy a number of exemptions over other charities:   

The application of governance standards is limited (ACNC Bill 45-10). The annual financial reporting requirements for medium and large entities do not apply (unless the basic religious charity provides a financial report for the year) (ACNC Bill 60-60). A responsible entity of a basic religious charity cannot be removed or suspended (ACNC Bill 100-5).

Definition - Basic religious charities A basic religious charity: IS an entity that is: – – –

registered with the ACNC; and registered as an entity with a purpose that is the advancement of religion; and not entitled to be registered as another subtype of entity.

IS NOT any of the following: – – – – – – –

a DGR (but there are 3 exemptions to this); or a body corporate under Corporations Act 2001; or an incorporated association under any of the association incorporations legislation in Australia; or a registered corporation under Corporations (Aboriginal and Torres Strait Islander) Act 2006; or a registered corporation under Companies Act 1985 (Norfolk Island) ; or an entity that has been allowed to provide collective/joint reporting; or an entity that has received more than $100,000 in grants from government agencies (excluding local government bodies) in a current or previous 2 financial years. ACNC Bill 205-35

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How will the ACNC be structured? The ACNC is:  

The Commissioner; and Any staff assisting the Commissioner. (Staff will be appointed under the Public Service Act 1999 and will be made available by the Commissioner of Taxation)

The Commissioner’s function is to assist registered entities in complying, and assist the public in understanding the sector. The Commissioner may have regard to the advice of the Advisory Board. The ACNC must operate a operate a Special Account for its expenses, and produce an annual report including an evaluation of the ACNC’s overall performance, including how it has promoted the object of reducing unnecessary regulatory obligations on the sector.

The Advisory Board:  

The Advisory Board will provide advice to the Commissioner in relation to its functions under the Act. The Advisory Board acts at the request of the Commissioner and cannot give any directions to the Commissioner.

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And what regulatory powers will the ACNC have? The Commissioner has powers which will enable it to give effect to the structure of the ACNC. For example: • The power to obtain information and documents. • The power to monitor compliance with the Act including entering premises. • The ability to exercise enforcement powers.

Warnings • •

The Commissioner may issue a formal warning if he or she believes the registered entity has, or is more likely than not to, contravene a provision of the Act. The Commissioner will then write to inform the registered entity of the circumstances of the contravention and warn the registered entity of the action that may be taken. ACNC Bill 80

Directions • •

The Commissioner may issue a direction if he or she believes the registered entity has, or is more likely than not to, contravene a governance standard or external conduct standard, or in the case of a federally regulated entity, it has contravened a provision of the Act. Directions may include things such as not entering into specified commercial transactions or making certain decisions. ACNC Bill 85

Enforceable undertakings • • •

The Commissioner has the power to accept enforceable undertakings which could later be enforced in a designated court. The Commissioner may accept undertakings from federally regulated entities that they will comply with a provision of the Act, a governance or external conduct standard or a provision of a legislative instrument made under the Act. The Commissioner may accept undertakings from registered entities relating to external conduct standards.

Definition: Federally regulated entities A Federally regulated entity is: • a constitutional corporation; or • a trust, all of the trustees of which are constitutional corporations; or • a body corporate that is taken to be registered in a Territory under section 119A of the Corporations Act 2001; or • a trust, if the proper law of the trust and the law of the trust’s administration are the law of a Territory; or • an entity, the core or routine activities of which are carried out in or in connection with a Territory. ACNC Bill 205-15

Injunctions • •

A designated court may grant an injunction if the injunction relates to: • A registered entity that is a federally regulated entity; or • A registered entity and it relates to an external conduct standard. Injunctions may be restraining injunctions, performance injunctions or consent injunctions and may be interim.

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Suspension and removal • •

The Bill provides detailed provisions on how a responsible entity may be suspended or removed where it considers such an action is necessary to address a contravention by that responsible entity, after considering policy matters. A responsible entity is an entity responsible for a registered entity, e.g. the director or trustee.

Definition – responsible entity •

A responsible entity is: • In the case of a registered entity that is a company – a director; • In the case of a registered entity that is a trust, a trustee or the director of a body corporate who is a trustee; • A person who is a trustee, receiver, administrator or liquidator of the registered entity or certain assets belonging to the registered entity in certain bankruptcy or administration scenarios. ACNC Bill 205-30

Penalties Penalties may be imposed on entities for the following:

Activity Making false or misleading statements to the Commissioners Failing to lodge documents on time

Penalty 20-60 penalty units* 1-5 penalty units* per 28 days late

* One penalty unit equates to $110

Liabilities and offences • • •

Directors of unincorporated entities are subject to liability or obligations for certain liabilities incurred or offences committed by that unincorporated entity. Trustees are responsible for amounts payable under the Act or offences committed by the Trust. Directors will have personal liability if they act dishonestly, with gross negligence or recklessly.

Objections • •

An entity can object to certain decisions by requiring the Commissioner to make an objection decision. If the entity is still dissatisfied, it could apply to the Administrative Appeals Tribunal for review of the objection decision or appeal against the objection decision to a designated court. ACNC Bill 160

What is the risk? • • • •

The Act will enable the Commissioner to revoke an entity’s registration. The Act will enable the Commissioner to suspend or remove a director of an entity. If that director continues to influence the entity, the director could face imprisonment for 1 year. Directors or trustees could be personally liable for offences or amounts payable under the Act. Despite the potential risks, the focus in the legislation is on educating rather than punishing.

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The Recent Changes The Bills passed the Senate on 31 October 2012 after the Senate made some finishing touches.

The following matters were clarified: 1. Governance Standards The governance standards will be focused on outcomes and will specify principles as to how the registered entity must achieve those outcomes, including proportional standards that recognise the size and nature of the registered entity. ACNC Bill 45-10 2. Parliamentary scrutiny The amendments provide mechanisms for additional parliamentary scrutiny in relation to the development of governance and external standards and various other measures. ACNC Bill 45-20, 50-20 3. Object of the reporting framework The intent and the purpose of the reporting framework is to introduce a proportional framework that reduces unnecessary regulatory obligations, alleviates the need for information to be provided to multiple government agencies, and promotes transparency and accountability of registered entities. ACNC Bill 60 – 3 4. Managing registered entities If the Commissioner decides to suspend or remove a responsible entity, the Commissioner must explain in writing the reason for the decision and warn the responsible entity of the strict liability offences that apply if the responsible entity continues to manage or instruct the registered entity. ACNC Bill 100-15 5. DGR religious charities The maximum annual revenue for a DGR fund operated by a basic religious charity was increased from $250,000 in line with changes to the thresholds for small registered entities. ACNC Bill 205-35 (3A(c)) 6. Information to be excluded The Commissioner may decline to include or remove the details of warnings from the register, where the release of the information may cause detriment, where the entity has acted in good faith and where the matter has been resolved. ACNC Bill 40-10 (2(da)) 7. Transitional provisions Where entities are operating a public benevolent institution or a health promotion charity and the whole of the entity is not such an institution, recent amendments will ensure that these entities transition appropriately to the ACNC and both the operated institution of the entity and the remainder of the entity keep the existing concessions that they currently have access to. Transitional Bill, Divisions 1 and 2

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The Mills Oakley Not-for-profit Team

Vera Visevic Partner

John Baxter Partner

T: +61 2 8289 5812 E: [email protected]


Ciara Lui Lawyer

Clementine Baker Lawyer



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