ACNC – First Look at the Governing Legislation for the NFP Regulator

Author: Lena Banoob, Senior Associate
21 December 2011

On 9 December 2011, the Federal Treasury released the Exposure Draft – Australian CharitOies and Not-for-profits Commission Bill 2011 (ACNC Bill).  This is the first official record of how the ACNC will operate and what its powers will be.

The ACNC bill was established with the object of “promoting public trust and confidence in charities and NFP entities that provide public benefits”.  The object of the ACNC Bill  is intended to be advanced through the administration of a process for registering and regulating charities and not-for-profit (NFP) entities by the ACNC.

How will the ACNC Bill affect your NFP?

The exposure draft provides the ACNC Commissioner (Commissioner) with the power to register NFP entities under their specific NFP type or subtype.  It outlines the registration processes and eligibility requirements for entities before they will be able to apply to be registered by the Commissioner. The exposure draft also sets out processes and grounds for the revocation of registration by the Commissioner.

Access to government support, as it is referred to in the ACNC Bill, will not be available to an NFP unless it is a registered entity under the ACNC Bill.

To be entitled to registration, your NFP must meet all of the following criteria:

• the entity is a not-for-profit entity, as defined in the Government’s measure to restate and standardise the special conditions for tax concession entities;
• the entity meets the governance requirements which will be set out in the governance section of the exposure draft;
• the entity has current a Australian Business Number (ABN);
• the entity has not previously been a registered entity;
• the entity is not a terrorist, criminal, outlaw or similar entity. The actual definition will be prescribed in the regulations to this Act; and
• the entity has any of the following purposes:
  • a charitable purpose as defined by the common law definition of charity;
  • promotion of Australian industry;
  • encouragement of community entertainment;
  • scientific purposes;
  • advance and further the interest of employees or employers; and
  • community service purposes (except political or lobbying purposes).

The Commissioner is tasked with the job of assessing whether the applicant meets the conditions to be entitled for registration, including whether the entity is a NFP.  Review rights are available in the event an application is rejected.  The Commissioner will also have the power to revoke registration in certain circumstances, including on the broad and general “public interest” grounds.

Meeting the Reporting Requirements

The ACNC Bill currently proposes two main aspects on obligations regarding records. One is record keeping and the second is in relation to financial reporting.

Registered entities will be required to keep records that correctly record and explain the financial position and performance of the entity. These records must be thorough enough to enable true and fair financial statements to be prepared, audited and reviewed. Registered entities must also keep records that correctly record and explain their operations and acts, and which would enable the Commissioner to assess the entity’s entitlement to be and to remain registered as an NFP. Such records must be kept for a period of 5 years.

On the other hand, financial reporting requirements will be based on a three-tiered system, similar to that administered by ASIC for companies.  Under this system, NFPs will be classed as small, medium or large entities.

A small registered entity is defined as an entity which has annual revenue of less than $250,000 and is not a deductible gift recipient (DGR) (at any time during the financial year). A medium registered entity is an entity with annual revenue of less than $1 million and is not a small registered entity. A large registered entity is an entity with annual revenue of $1 million or more.  Revenue must be calculated in accordance with the relevant accounting standards.

Medium and large registered entities will be required to prepare and lodge a financial report with the Commissioner annually. The financial report will be required to consist of the registered entity’s:

• financial statements for the year;
• the notes to the financial statements; and
• the responsible individual’s declaration about the statements and notes.

This means that the accounting standards will come into play for all NFPs, even if it just a case of determining with the registered entity falls within the revenue thresholds for financial reporting.

The Role of the Commissioner

The role of the ACNC, and therefore, its Commissioner will be as “regulator” of the sector.

The ACNC Bill intends to grant the Commissioner the following functions and powers:

• registering NFP entities;
• promoting good governance, accountability and transparency;
• providing educational information to the NFP sector;
• providing information about the NFP sector to the public and to governments;
• providing a central point of contact to simplify NFPs interactions with governments;
• monitoring and investigating registered entities to further the object of the Act; and
• enforcing the Act.

The Impact

While the Bill is not complete and the sector await the Government’s final determination on governance issues for NFPs, it is clear that there is going to be time commitment and increased costs for NFPs in coming in line with the requirements of the ACNC.  The hope is that this is a transitional issue only and in the long run, the process would become simpler and familiar.

To discuss how the ACNC Bill will affect your organisation or business, or if you have any other questions please do not hesitate to contact Jonathan Casson or Lena Banoob.

Jonathan Casson
Partner
T: +61 2 9390 8316
E: jonathan.casson@holmanwebb.com.au

Lena Banoob
Senior Associate
T: +61 2 9390 8308
E: lena.banoob@holmanwebb.com.au

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