When the next financial year begins, entities registered with the new Australian Charities and Not-For-Profit Commission (ACNC) will be subject to six proposed governance standards and new reporting obligations in three categories depending on their annual revenue. If your organisation is going to be affected by the new regime, you can let Treasury know your thoughts by way of a written submission, applications for which close on the 15th of February.

The six new governance topics include a constitutional commitment to a charitable purpose that must be made publically available, a commitment to operating in a transparent manner and to being accountable to the organisation’s members. The organisation must, also, comply with Australian law and responsibly manage its financial affairs, while office holders responsible for the organisation must not be disqualified from the management of corporations.  

In contrast to these obligations, associations are not subject to these governance standards, but will have to work their way through two transitional provisions regarding their tax exempt status. All other charities endorsed by the ATO when the ACNC opened its doors were automatically registered. Those religious organisations endorsed by the Tax office can notify the ACNC that they are in business for the advancement of religion and those that self assess for tax exemption can opt for registration with the ACNC. There are detailed rules as to what constitutes a basic religious charity.  

And, in both cases, a specific process applies. Religious institutions that were not endorsed income tax exempt, as a charity, on December 2, 2012, but were self-assessing their entitlement, will not be automatically registered with the ACNC and are now at risk of losing their tax concessions. Such organisations that lodge for registration with the ACNC by 3 December 2012 will be treated as if registered on that day to allow the institution to maintain its access to tax concessions. Separate transitional arrangements were also in place for Public Benevolent Institutions and Health Promotion Charities to the extent that, essentially, they were automatically registered if they were endorsed by the ATO for fringe benefits tax or as PBIs or as deductable gift recipients.  

For the purpose of the new financial reporting requirements charities will be divided into categories based on their annual revenues and referred to as small (less than $250,000), Medium (from $250,000 up to $999,999) and large ($1 million and over).

All charities must provide annual information statements (AIS) but large and medium charities must submit annual information reports, which are to be more detailed than information statements. In both cases, the records will allow the ATO to check a charity’s compliance with taxation law and for the ACNC to check the organisation’s registration. They will also be publically accessible on the ACNC’s information portal. Basic religious entities are not obliged to comply with these reporting requirements.

Reporting in this way will be known as a ‘recognised assessment activity’ so that, even though the Charity may not be required to audit its accounts, the organisation must keep accounts in such a way that would allow an audit to occur. Similarly, records that explain the operations of the Charity should be kept together and will include documents such as the Constitution, policies and procedures, annual reports (if prepared), minutes of meetings and so on.  

While medium entities do not have to automatically audit their accounts (but may be asked to do so by the ACNC), large entities must have financial reports audited. The ACNC has stipulated timeframes within which reports must be lodged and the Commissioner has the power to request additional reports.

The ACNC has considerable power (checked by guidelines relating to procedural fairness) and may, ultimately, revoke a charities registration. Before things get to such a dire stage, however, the ACNC would be expected to issue warnings and directions to take actions including the ability to seek written undertakings to address non-compliance, but it can also seek court injunctions and suspend or remove responsible persons. The ACNC must be notified if the organisation changes its name, any of its directors, its governing rules or if there is a significant contravention of the ACNC Act or non-compliance with governance standards or external conduct standards. The timeframe for notification will differ depending on the size of the charity with smaller charities having a longer period to notify.

It is important to note that the ACNC can also issue penalties and each offence sets out the maximum penalty in terms of ‘penalty units’ with one unit currently set at $170. There are rights to review for any penalties imposed and their application differs if the organisation is an unincorporated association, where each of the directors is liable and the commission of offences is taken to be committed by each of the directors at the time the offence was committed. If the organisation is a trust liabilities are imposed on each of the trustees. And, for registered charities that are bodies corporate, a liability imposed on the body corporate is also imposed on each of the directors at the time, but only if their actions were deliberate, involved dishonesty, gross negligence or recklessness.  Again, all directors are equally liable.