On 5 December 2017, the Commonwealth Government announced a package of reforms to improve the oversight of organisations with deductible gift recipient (DGR) status.  These reforms included bringing Departmental register DGRs such as environmental funds and overseas aid funds under the supervision of the Australian Charities and Not-for-profits Commission (ACNC).  The majority of the reforms were to commence on 1 July 2019. However, implementation has been delayed.

At the same time, the Government provided $5.7 million for the ACNC and the Australian Taxation Office (ATO) to “boost integrity of the deductible gift recipient (DGR) framework”.

Review Process

Approximately 500 charities will be reviewed by the ACNC per year to assess if they are still eligible to be registered with the ACNC as a charity and subtype of charity and for DGR status. The initial focus will be on public benevolent institutions (PBIs).

The reviews have begun and at the present time consist of desk review of materials filed with the ACNC. Organisations will not know that they have been reviewed and only contacted if there are concerns requiring investigation (probably after March 2021)

Review Selection

PBIs will be identified for review based on a risk profile, which will include that they:

  • Were registered as a charity and PBI prior to 3 December 2012.

The ACNC is anticipating that there is an increased risk of non-compliance of older organisations prior to the establishment of the ACNC that may not have updated their governing documents, allowed mission drift so their activities no longer align with their stated PBI purpose and may not be functioning any more as a charity. There have also been changes in the law that organisations may not have appreciated.

  • Are not regulated by ORIC

ORIC stands for Office of the Registrar of Indigenous Corporations and was not brought into the ACNC fold on its creation.

  • Have no, or only one Responsible Person listed or no governing document.

The ACNC is anticipating that PBIs that have not filed their records or are not up to date indicate a greater risk of default generally. Closely held organisations with just one member or family dominated governance structure can also be a flag for tax abusive behaviour. There are quite legitimate reasons for a sole member where it is a creature of a large group of organisations.

Revision of the ACNC Commissioner’s Statement on PBIs

There is an ACNC Commissioner’s Statement (CIS) on PBIs[1] that provides guidance on the ACNC’s view on the meaning of PBI. There have been a number of Court cases that require the CIS to be updated and the ACNC is in the process of completing this task.  However, the ACNC has indicated that it will not be finalised until several months into next year i.e. after the PBI review has finished.

This is not the usual process for charity and other regulators. Regulators will usually revise their guidance with wide stakeholder consultations, embark upon an education program and finally move to an audit phase.  This has proved to have the maximum regulatory impact for the regulatory dollar as the consultations flush out the blurred areas of confusions to be settled prior to judicial intervention and organisations can move to regularise their affairs ahead of any audits rather than being ambushed.

Some comfort may be had from the Commissioner’s stated regulatory approach and,

We will ensure that organisations that rely on these Interpretation Statements are treated fairly, consistent with our objects and regulatory approach. If the law or an Interpretation Statement changes, we will apply the new position from the date of the change, not retrospectively in a way that could disadvantage your charity. In most cases, we will also allow a period of time for charities to respond to any change.”[2]

Do you need to do anything?

The ACNC recommends that PBIs use their self-assessment tool[3] to identify any issues that might require attention before the audit.

In any case, taxation obligations will require a self-assessment exercise to be undertaken annually to ensure PBI status.

The ACNC appears to consult an organisation’s Websites and Facebook pages to discern the purposes of an entity and may come to conclusions that an informed holistic inquiry of all the relevant documents and circumstances would not. The New Zealand High Court recently observed that “the information about Greenpeace NZ’s activities in the earlier proceedings was primarily sourced by the Commission from Greenpeace’s websites” may not accurately disclose the activities of the organisation. In order to avoid misunderstandings, social media posts need to be monitored and where possible placed within the wider context of the purposes of the organisation.

We can assist in the completion of self-assessment reviews if required and particularly where complex issues are involved.

[1] https://www.acnc.gov.au/tools/guidance/commissioners-interpretation-statements/public-benevolent-institutions

[2] https://www.acnc.gov.au/tools/guidance/commissioners-interpretation-statements

[3] https://www.acnc.gov.au/for-charities/charity-tax-concessions/deductible-gift-recipients-dgrs-and-acnc/deductible-gift