Over the past three years significant reforms to the legislation regulating incorporated associations has been put in motion by Western Australia, New South Wales and South Australia. Tasmania has also initiated a reform process. As many non-government schools are incorporated associations, and often registered as charities as well, these reforms will be good news to schools as they aim to cut red tape - albeit in varying degrees depending on which state your school is in.
South Australia leads the way in implementing a more harmonised structure.
Incorporated associations are currently governed by their State and Territory legislation, depending on their location. For example, in Victoria incorporated associations are registered with Consumer Affairs Victoria under the Associations Incorporation Reform Act 2012.
Incorporated associations are not for profit entities and an association can also be a charity registered with the Australian Charities and Not-for-profits Commission (ACNC).
If an incorporated association is registered with the ACNC, it must comply with obligations under the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act). For example, the ACNC Act:
Most schools that are not for profit entities will be listed as a charity with the ACNC. If the school is also an incorporated association, it must comply with the ACNC requirements in addition to their obligations under the State/Territory legislation.
Importantly, if a charity registered with the ACNC fails to meet its reporting requirements over two years, the ACNC can revoke its registration, which removes tax benefits and which will lead to very serious financial ramifications.
Since its inception, the future of the ACNC has been uncertain and at the whim of changing Federal Governments. In March this year, the Federal Government finally confirmed that the ACNC will remain.
Consequently, State and Territory Governments have the opportunity to review the legislation governing incorporated associations in their jurisdiction to determine if amendments can be made to assist charities by removing red tape reporting requirements.
The results vary between jurisdictions.
In September 2014 legislation was introduced into the Western Australian Parliament to update the Associations Incorporation Act 1987 (WA). The new legislation focuses primarily on simplifying financial reporting and accountability to minimise the compliance burden on smaller associations, while ensuring that larger associations with significant resources should be appropriately accountable.
There are a number of new features in the Act, which is predicted to commence in full on 1 July 2016 by proclamation, including:
There are also new Model Rules to be adopted. The Act includes a lengthy three year transition period to allow associations time to amend their constitutions and rules to comply with the new provisions. Model rules, available for associations to adapt as ‘best practice’, will also be finalised in the coming months.
While the new Act will cut a decent amount of red tape for incorporated associations, dependent on their size, the Act fails to take any meaningful account of associations that are registered with the ACNC. This means that schools may be confronted with conflicting or compounding compliance obligations for associations which are also registered charities, as the ACNC imposes its own compliance obligations on charities. This is an issue that the South Australian Government has recently addressed.
Last week the South Australian Government passed the Statutes Amendment (Commonwealth Registered Entities) Act 2016 (SA) (SA Act). Under the SA Act, incorporated associations, who are also charities registered with the ACNC, will only need to report and comply with one set of standards - the ACNC requirements. The new SA Act effectively exempts charities registered with the ACNC from reporting separately to the South Australian Government ín addition to reporting to the ACNC - as is required under the existing Associations Incorporation Act 1985 (SA).
The amendments were first proposed in 2013 but due to the uncertain future of the ACNC under different Federal Governments, was put on hold.
Once the SA Act takes effect, if an incorporated association is required to report to the ACNC it will no longer have to also report to the South Australian Government - a commendable deletion of duplication and red tape for affected organisations.
It is anticipated that the SA Act will commence 1 January 2017 and it is a stellar example of a government thinking critically about reducing red tape and streamlining a regulatory framework – an approach surely welcomed by South Australian schools that are operated by an incorporated association which is also a charity.
Earlier this year, the New South Wales Parliament passed the Associations Incorporation Amendment (Review) Act 2016 (NSW) (NSW Act), to give effect to the recommendations following a statutory review of that Act. The amendments primarily relate to the duties and liabilities of association committee members.
Similar to the amendments made to South Australian and Western Australia legislation, the NSW amendments aim to enable the creation of a legal entity and governance structure that is easy to understand, low cost and fit for purpose. However the NSW amendments, unlike the South Australian legislation, fail to address the ‘doubling-up’ of governance and compliance obligations should an association be incorporated and registered as a charity with the ACNC. The full amendments to the NSW Act will commence in September this year.
In Tasmania the Associations Incorporation Amendment Bill 2016 (TAS) has been introduced to Parliament.
The Tasmanian Bill attempts to streamline the reporting requirements for incorporated associations in that State by removing the obligation to provide an annual report under the Associations Incorporation Act 1964, if it is registered with the ACNC.
A number of schools or their affiliated organisations are structured as bodies corporate, usually as companies limited by guarantee, proprietary companies limited by shares and registered Australian bodies. Such entities are regulated by the Corporations Act.
Traditionally, some charities have adopted the structure of an incorporated association to avoid the more stringent compliance obligations that exist for body corporates regulated by the Corporations Act.
However, recent changes mean that a charity that is structured as an incorporated association may reconsider its legal structure.
Earlier this year ASIC declared that a number of Corporations Act provisions no longer applied to charities registered with the ACNC. These included a number of corporate reporting provisions and director duties.
These provisions have effectively been ‘turned off’. Instead, in the case of directors duties, ACNC Governance Standard 5 replaces the Corporations Act requirements and is significantly less onerous.
The patch-work nature of charity legislation in Australia is ripe for harmonisation but in the meantime, schools need to be aware of the changes occurring in their State or Territory and also at a Federal level.
Changes to governance obligations, specifically relating to an association’s rules or constitution, and the duties and liabilities of committee management members need to be taken into consideration by schools whose governing bodies or proprietors are incorporated associations under their State or Territory legislation.
If a school is an incorporated association and a registered charity with the ACNC, your compliance obligations have increased, and not necessarily streamlined as was hoped with these amendments - unless you are governed by South Australian law.
While the simplicity and cost effective nature of being an incorporated association is appealing for a school’s governing body, in light of ASIC’s recent regulatory decision, a company registered as a charity may be the simpler governance option for schools.
The alternative, in Western Australia for example, is that an incorporated association needs to ensure that all management committee members, and those involved in the management of the association, even if they hold no formal or official position within the committee, must comply with the duties in the State's Associations Incorporation Act 2015. In WA the new Act mimics the stricter requirements in the Corporations Act. This could potentially extend ‘directors duties’ to religious figures or an extended group of senior members of staff within a school.
Is your school’s governance structure a compliance burden?