Many schools are charities registered with and regulated by the Australian Charities and Not-for-profits Commission (ACNC). Under the terms of the ACNC Act a review of the legislation was to be conducted after five years to
inquire into, and make recommendations on appropriate reforms to ensure that the regulatory environment established by the ACNC Acts continues to remain contemporary, that the ACNC Acts deliver on their policy objectives and that the ACNC Acts do not impair the work of the ACNC Commissioner to deliver against the objects of the principal Act.
A panel commissioned by the Federal Government prepared a report entitled Strengthening for Purpose: Australian Charities and Not-for-profits Commission Legislative Review 2018, which was tabled on 22 August 2018 and which contained 30 recommendations.
The Federal Government’s formal response to the panel’s recommendations was released on 6 March 2020.
While the ACNC is generally considered to be working well, this was seen as an opportunity to further reduce red tape and clear up ambiguities. The great hope of the sector had been that fundraising laws would be harmonised and brought under the ACNC. As we noted in a previous article (State and Territory Charitable Fundraising Laws — Recommended Harmonisation) the panel’s final report stated that the Commonwealth Government “has an opportunity to reduce red tape for the sector by taking a leadership role in working with State and Territory governments to harmonise fundraising laws.”
Commenting on the overall regulation of the sector, the panel observed:
Australia currently has eight separate jurisdictions whose regulatory regimes impact upon registered entities, with Commonwealth regulatory requirements through the ACNC Acts overlaying each of these regimes. …
Charities and not-for-profits, as with entities in other sectors, are required to report to one body with respect to their incorporation, and others for matters such as fundraising, taxes and tax concessions, consumer law and fair trading, raffles and gaming and financial reporting. While it may not be appropriate to seek to combine all of these functions into one agency, the sheer number of regulators that charities or not-for-profits operating nationally may have to contend with clearly creates unnecessary burden.
The Government Response
The Federal Government’s response took more than 18 months to produce and consists of many statements of support for the way the ACNC legislation is currently operating. The Federal Government also agreed to some relatively small amendments to strengthen the powers of the ACNC. While the review and the legislation itself were designed to remove red tape, the Government did not take up any of the suggestions to amend the legislation to harmonise or clarify areas of conflicting legislation between states and territories and the Commonwealth, or in between Commonwealth Government agencies and regulators. Some recommendations were referred for further consultation.
ACNC Harmonisation and Red Tape
The Government rejected any legislative attempt to force harmonisation of the regulation of charities. This is of particular concern where a charity is an incorporated association regulated under state/territory legislation but is also subject to the ACNC. The Government was satisfied that this was being achieved by the ACNC working with other regulatory bodies, and pointed out that it had already been achieved in New South Wales, Victoria, South Australia, the Australian Capital Territory, the Northern Territory, and was in process in Queensland.
No legislative changes were accepted by the Government to reduce red tape between government agencies, relying again on the persuasive abilities of the ACNC.
Greater Transparency to Build Trust
In the Government's formal response to the panel’s recommendations, it nominates “strengthening trust” in the charity sector and the regulator as one of the principles underpinning their response. In a long overdue move, the Government agreed with the recommendation to change the ACNC Act to allow the Commissioner to release information about ACNC regulatory activities where this is in the public interest. Currently the ACNC can inform the public that a certain charity has been deregistered but is unable to provide any information to explain the decision. The Government conceded that such a move would “strengthen public trust and confidence in both the sector and the regulator.”
The panel believed that greater disclosure of related party transactions and remuneration practices is required to improve public trust and confidence in the sector. The Government supported the panel’s recommendation that all registered entities should report related party transactions and will implement it by changes to regulations. To minimise the compliance burden on small charities, the Government will require small registered entities to make a simplified disclosure involving a brief description of a related party transaction.
The Government supported the recommendation that large registered entities be required to disclose remuneration paid to responsible persons and senior executives on an aggregated basis. This disclosure will only be required from entities with two or more key management personnel to accommodate privacy concerns.
Responsible Persons under the ACNC Acts
In its responses to the panel report, the Government was consistent in rejecting recommendations that would diminish the powers of the ACNC, including the recommendation to take away the Commissioner’s power to remove a responsible person. In what appears to be a somewhat contradictory recommendation, the panel had also proposed that the ACNC legislation be amended to widen the grounds on which the ACNC can disqualify a responsible person to include individuals who had convictions for, among other things, terrorism financing, fraud, importation or distribution of illicit drugs or a child sexual offence. The Government agreed to this, as well as supporting the recommendation that the ACNC should be able to request details on the criminal records of responsible persons to allow it to detect unlawful behaviour.
To balance these extended powers, the Government indicated that it would amend the legislation to include additional criteria for the Commissioner to take into consideration when making a decision to remove or replace a responsible person. The ability of charities and the individuals to appeal the ACNC decision will also be broadened.
In relation to panel recommendations seeking to simplify and clarify the current confusing mix of ACNC and Corporations Act requirements for directors’ duties, the Government agreed to undertake further consultation with the charity sector.
Reporting and Compliance Thresholds for Small, Medium and Large Charities
The panel recommended that the current revenue thresholds that determine a charity’s level of compliance and reporting are too low, and that they should be replaced. The Government agreed with the concept but will be consulting states and territories on the appropriate level of revenue thresholds before proceeding with legislative change.
The Government supported the panel’s recommendation to allow smaller charities to provide a simplified form of financial reporting in their Annual Information Statement.
The Government rejected the recommendations to harmonise charitable fundraising laws and to develop a single national scheme for charities and not-for-profits. It will continue to support efforts by the states and territories to harmonise state and territory fundraising laws and seek to replace 45 existing definitions of a charity by developing a common statutory definition across jurisdictions.
- prepare for requirements regarding the disclosure of related party transactions and remuneration practices
- await the outcomes of the Commonwealth Government’s consultation with the states and territories regarding new thresholds for reporting and compliance obligations
- await the Government’s consultation paper to the sector regarding the director’s duties under the Corporations Act.