Charities Consultative Committee minutes - 22 November 2011

Meeting details

Venue:	Canberra - Kembery building Room N6.06 Kembery Conference Room 21 Genge Street Canberra
Date:	22 November 2011
Start:	10.00am	Finish:	3.00pm
Chair:	Michael Hardy
Contact and Secretariat:	Richard Gates	Contact phone:	0438 275 265

Attendees

Glenn Mowbray	Australian Catholic Bishops Conference
John McIntosh	Salvation Army
Peter Kell	Anglicare
Myles McGregor-Lowndes	Centre of Philanthropy and Nonprofit Studies Qld University of Technology
David Thompson	Australian Council of Social Services, ACOSS
Joe Zabar	UnitingCare Australia
Amanda Power	St John Ambulance Australia
Carol Croce	Community Housing
Ken Baker	National Disability Services
Barry Wallett	Independent Schools Council
David Pigott	Mission Australia
Chris Leggett	Treasury
Tamara Hartwich	Treasury
Liz Swaine	Treasury
Susan Pascoe AM	ACNC Treasury
David Locke	ACNC Treasury
Bernadette Smith	ACNC Treasury
Michael Hardy	ATO
Albert Beric	ATO
Amy Land-Pejoska	ATO
Richard Gates	ATO

Apologies

Greg Smith	National Disability Services
Tim Morris-Smith	Mission Australia
Eddy Bourke	Community Housing
Tom Lo	ATO
Martyn Lyons	ATO
Jason Aitchison	ATO

The Charities Consultative Committee's (CCC) agendas, minutes and related papers are not binding on the Australian Taxation Office (ATO) or any of the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.

1. Welcome, apologies and introductions

Michael Hardy opened the meeting welcoming all attendees. David Locke introduced himself and his role in the Australian Charities and Not-for-profits Commission (the ACNC) Taskforce.

2. Consideration of the minutes from the previous meeting

The minutes from the previous meeting, held on 20 September 2011 in Canberra were accepted pending the de-attribution of members' comments.

Update on action items from 20 September 2011

Action item	1
Description	Receipting issues on fundraising
Responsibility	Jason Aitchison - members to respond to Richard to indicate willingness to form small receipting issues committee. Update - a phone hook-up was held on Monday 21 November with interested parties including the Attorney-General's Department which provided information about money laundering and terrorism financing risks in the charitable sector, the Fundraising Institute of Australia and Dr Ted Flack of St Vincent de Paul Queensland. Issues were clarified and a fact sheet may be created to detail receipting rules.
Due date	Completed

Action item	2
Description	Clarify how communication and coordination occurs between Minister Plibersek and Minister Shorten and indicate this on the 'mud map'. Update - the mud map was updated to reflect communication co-ordination.
Responsibility	Ms Susan Pascoe
Due date	Completed

One member also challenged the fact that members advised the lag time for the NP news service was much better now in the previous meeting.

There is a continued focus to improve this service.

Summary of action items arising from this meeting

Action item	1
Description	Query about whether a private ruling had been published as an ATO ID
Responsibility	Michael Hardy
Due date	As soon as possible

Response to action item 1

All ATO private rulings are published in a way that does not identify the recipient as either an ATO ID or as an Edited Version (EV). The process of removing identifying information may also remove other information which can sometimes make the EV's seem disjointed. Sometimes reading an EV in conjunction with a relevant public ruling or other reference material can assist in understanding the EV.

In relation to a private ruling which one member was interested in, the ATO has followed up with the member to provide a reference to the relevant draft public ruling that was current at the time the EV was prepared and this has assisted in better understanding of the issue.

Action item	2
Description	ATO to provide an awareness article for Treasury newsletter about reviewing and updating contact details that includes the best way to do this.
Responsibility	Michael Hardy
Due date	As soon as possible

Action item	3
Description	Charities tip sheet cover note and presentation from meeting to be sent to members.
Responsibility	Richard Gates
Due date	As soon as possible

Action item	4
Description	Members to provide feedback on Charities tip sheet (compliance issues) and cover note. Email charitiesconsultativecommittee
Responsibility	CCC members
Due date	End of calendar year - 2011

Action item	5
Description	Produce a fact sheet for ato.gov.au for all members to access, containing clear answers/definitions to receipting issues.
Responsibility	Michael Hardy
Due date	As soon as possible

3. Compliance program 2012 - Religious organisations

Albert Beric presented Compliance program 2011-12 - An overview of educational activity directed at religious entities.

Below are some of the points coming out of the presentation.

In the Compliance program 2011-12 we identified that some religious organisations continue to encounter difficulties with compliance. We advised that we would work with the broader religious community to deliver our key compliance messages to ensure they are using tax concessions appropriately for the benefit of the community.
The purpose of today's presentation is to explain the background for the focus on religious organisations, highlight the risks identified, explain the engagement strategy proposed to address the issues identified, and offer CCC members an opportunity to raise any issues with us regarding the proposed program.
The ATO undertakes risk assessments of issues associated with particular legislative requirements and also engages in monitoring of media and other third party sources to identify any issues which may be of concern. We also receive Intel from staff engaged in processing endorsement applications and from those undertaking active compliance activities.
These assessments are used to better understand emerging and existing compliance risks. Risk assessments or scans are often accompanied by scoping reviews where our audit teams undertake more comprehensive reviews of a segment to gather further intelligence on issues emerging in the sector.
In undertaking these assessments and monitoring activities the ATO focused on various tax charity concessions and deductible gift recipients categories and we reviewed our procedural processes to ascertain whether there were any issues with our forms for example, and whether schedules introduced to ease the DGR application process had been effective. Also we reviewed certain international transfers of funds on and offshore.
What emerged from these assessments is that we identified compliance risks that may arise for religious organisations and the non-profit sector more generally.
When we take a look at some statistics of endorsed entities, 23% of charities advised on their endorsement application forms that their main purpose was the advancement of religion. Also, where entities indicated their main purpose was education, health or advancement of social and community welfare, are likely to have connections to religious organisations.
The common tax compliance risk areas we have identified or where misunderstandings can arise are around

income tax status
deductible gift recipient endorsement requirements
tax governance practices
school building funds.

Some of the concerns we identified include:

Entities not applying for endorsement and treating themselves incorrectly as exempt entities under self-assessment. If a religious organisation is a charity, then it must apply for endorsement by the ATO.
Funds not revoked despite no longer used or operating - for example, analysis of activity statements lodgments indicate some entities may have ceased to operate.
Tax deductible donations applied to the wrong fund.
Ancillary funds incorrectly distributing to other ancillary funds or directly to individuals.
Tax governance - at handover, the new incumbent may not made fully aware of their tax and super obligations. Also, funds are banked to the wrong accounts or misapplied, and contact details are not maintained up to date for changes in office bearers. The ATO encourages regular review and updating of contact details ensuring good governance practices. With the establishment of the ACNC on 1 July 2012, having accurate contact details is even more critical.
25% of endorsement applications failed last year when they first applied for endorsement. In response to this, the ATO drafted new schedules for Public Benevolent Institutions to facilitate more detailed information up front to help with the processing of the application. Also a review of denied applications identified there was a high failure rate relating to DGR endorsement as a charitable services institution by religious entities. Many of these entities did not meet the criteria and were denied.
School building funds - we are currently in the process of finalising a revised school building fund ruling. The draft ruling is expected to issue in early December 2011. In developing the draft ruling, the ATO has engaged in targeted consultation from various schools bodies.
Aggressive tax planning behaviour - some isolated cases identified, but few in number.

The ATO has developed a tip sheet and will finalise a cover note for peak bodies to distribute to their members. The tip sheet will provide practical guidance to make it easier for religious to meet their tax obligations and avoid compliance risks. The tip sheet and cover note will be distributed to CCC members with a request for members to provide feedback on it by the end of the year. Also, a suggestion from a member to increase wider circulation was to send the tip sheet direct to individual entities as well as peak bodies as information didn't always filter through.

Another suggestion from a member was to create space on the ACNC website where to access this sort of information - a one stop shop.

A member noted that there needs to be clear communication about religious entities compliance and registration requirements with ACNC and to detail if the requirements will change or remain as they are.

Treasury offered space in their newsletter for an ATO article about entities regularly reviewing and updating contact details.

Action item	2
Description	ATO to provide an awareness article for Treasury newsletter about reviewing and updating contact details that includes the best way to do this.
Responsibility	Michael Hardy
Due date	As soon as possible

Action item	3
Description	Charities tip sheet cover note and presentation from meeting to be sent to members.
Responsibility	Richard Gates
Due date	As soon as possible

Action item	4
Description	Members to provide feedback on Charities tip sheet (compliance issues) and cover note. Email charitiesconsultativecommittee
Responsibility	CCC members
Due date	End of calendar year - 2011

4. ACNC Treasury Taskforce update

The ACNC Taskforce provided an update to implementation of arrangements to establish the new regulator.

General update

Since the last meeting the taskforce has been very busy with consolidation of early work, building relationships and operationalising as much as possible.

The taskforce has moved to new premises in MTAA House, Barton. This will enable co-location with others such as ATO staff working on ACNC implementation.

We have attended meetings with some of the states, advancing the idea of a 'one stop shop'. The response has been largely welcoming and open.

The idea of using the term 'passport' as a reference to reporting once, use often was proposed. The members' agreed that is was an appropriate description.

Some secondees were staying with the taskforce for longer than the three months that was originally announced by Ms Pascoe.

Currently taskforce members are meeting with professional or peak bodies around twice a week, including Pilch Connect, CPA and Our Community. Some recurring themes are emerging:

there is not a high level of awareness of ACNC
people have only very basic understanding of what is happening
primarily only simple questions are being asked
informed people are concerned that there will be an increase of red tape
there is also a recurring concern that the ACNC won't be independent.

On a positive note, the implementation of a regulator for the sector has been viewed as positive. We advised of our regulatory approach as:

assuming honesty unless proved otherwise
being a benign regulator except where there is deliberate wrongdoing
operating for the community.

There have also been many questions about the impact of ACNC in relation to small not for profits. The taskforce plans to meet with small NFPs as well as church groups to address these concerns.

In reference to church groups issues like the ones below need to be addressed:

what is the point of reporting?
will consolidation be accepted - at what level - diocese or parish? etc.
the differing structure within churches, as well as non christian churches.

Location

The ACNC head office has been announced as being in Melbourne, having secured a floor in 735 Collins Street. This will be a co-location with the ATO as the biggest tenant in the new building. The ACNC will have separate entrance and signage but many shared services and facilities.

We hope to move in on 1 May 2012. We have only til end of February 2012 in Barton so this may pose some problems.

The need for a presence in Canberra has been critically assessed. We are looking at keeping some people in Canberra - particularly liaison roles and the new commissioner, however it won't be a dedicated full time team. We have had discussions regarding renting space from another independent regulator.

Portal design

(Incorporating messages coming out of roundtables.)

It is clear that a portal is an important vehicle to get messages out but also to receive messages and transact with people.
We are keen to build a level of capability - one stop shop, passport etc.
We are impressed with the New Zealand capability in this space particularly around the open search function which provides various categories to use as search parameters.
The taskforce is taking a lead in working closely with the ATO to make this happen.
A supplier who has worked with non-profits previously has been chosen to help build this.
A big advantage of the system that has been chosen is its flexibility.
Functionality and content of the portal need to be signed off.

Recruitment

We have finalised a proposed organisational structure which sees two Assistant Commissioners sitting under the Commissioner. The structure is finalised subject to the sign-off from the Public Service Commissioner for the additional Assistant Commissioner role.
A copy of the structure was provided.
The communications team will be closely linked with the policy and education team.
All registrations will be directed to website with a phone support team staffed by ACNC personnel.
A recruitment agency has been employed to look after the recruitment needs with advertisements to appear by end of November, with interviews in January 2012.
The Commissioner will be appointed before the Assistant Commissioners are, due to approval timelines.

A member asked what sort of information is required to operate the portal system and will it be able to send information electronically? The response was that these things are not yet finalised, but are being considered, confirming what fields and capability is needed. We want to ensure information is open and available because we need it not just because it is interesting.

A member added that the education system has gone through this and with information being easily accessed some parties have obtained it and presented it unfairly. This is an issue to look out for. How are you going to protect the data from this?

The response was - this situation is obviously present and needs to be considered but it will not stop our intention of being open and transparent. To mitigate this we need to educate everyone about how NFPs run, so it's transparent and there it is difficult to twist the data.

ACNC culture

ACNC has commissioned Val Braithwaite from the ANU to write a draft paper relating to the values and culture of the ACNC. Important values to be listed include independence, integrity, fairness, respect and accountability.

Relating to regulatory approach we will adopt:

mainstreaming accepted practice, for example, expect reasonable fiduciary and governance standards
use of the public as watchdogs and having open interactions with them
a benign approach to the sector, unbiased, however firm but fair.

A member added that the culture of an organisation is very much about the people in it, so the recruitment process is paramount.

Response - Charities should be formed to make a difference in the community and we see them like that. Whilst saying that, we need to be firm with deliberate wrongdoers.

A question from a member was asked - Community housing is about to receive new regulations. What level of regulation will be in place?

Treasury response - Treasury will work with FaHCSIA in setting policy, work with ACNC around governance and reporting requirements and service delivery with housing regulators. There will be a memorandum of understanding (MOU) between ACNC and community housing regulator.

Treasury - the government has stated that it wants to implement the 'report once, use often' principle. We are working toward this. Treasury are also looking into duplication of regulation through the interdepartmental committee.

In response to the question 'Are private ancillary funds required to report publicly now', the answer no was given.

A member asked if there has been consultation about an entity's size and reporting requirements. Treasury replied that it would be proportionate basing size on turnover. Everyone would incur some level of reporting.

MOU

ACNC have been in discussion with the ATO in relation to recruitment and human resource issues. To address perceptions of independence, a recruitment agency has been employed.

As a side issue, we would like to add that the ATO have been fantastic with their support to us and specifically now in organising a delegation so the ACNC Taskforce Commissioner can sign off on recruitment.

Discussion paper

There will be a discussion paper out shortly outlining where we are at and what considerations have been made and still need to be made to further implementation.

Roundtable topics

The summaries of issues from the roundtables will feed into the discussion paper due soon. The discussion paper will also cover issues related to other aspects of ACNC implementation.

Portal timing

Functionality and content for the portal is still to be signed off. There is a large section about these topics in the discussion paper.

Consultation

A timeline of planned consultation was provided to the group. The consultation is to complement the discussion paper.

There will be two sessions in most capital cities around the country. Discussion will be centred on the proposals contained in the discussion paper.

The ACNC website contains more information. Content on here is updated on a weekly basis.

We are promoting the consultations through the normal communication channels plus local media.

We are also conscious of the fact that there is a lot of consultation and feedback sought presently so timing is very important.

More content is being added to YouTube all the time which includes providing list of sector representatives and visiting international speakers.

In response to a question about who is the target for consultation, it was stated that the whole sector, public and anyone with an interest is welcome. There will be an online forum and face to face consultation.

5. ACNC ATO taskforce update

The implementation from an ATO perspective is currently on track.

The separation requirements have been decided upon.

The following activities are presently continuing:

the funding required for ACNC to build systems and conduct consultation is being delivered
assistance with recruitment processed and location issues is continuing
assistance with back office systems has also been given and continues.

6. Not-for-profit reforms

The second Treasury Not-for-profit newsletter was issued Monday 21 November and currently has 2,000 subscribers.

The senate passed the reforms to public ancillary funds yesterday.

The draft guidelines will likely change slightly to reflect comments received during consultation. These guidelines need to be in place by end of calendar year for a 1 January 2012 start date.

COAG not-for-profit working group

Made up of all treasuries around Australia.
Had productive conversations at the meeting predominantly around reducing red tape.
Most state treasuries have set up a process to disseminate information to all relevant departments.
Planned work schedule will be agreed early next year.

Review into company guarantee

Considering the amount of consultations for the sector occurring at present, the review has been postponed til March 2012.

Fundraising review

The draft consultation paper is being finalised - it will be released shortly.

Better targeting of not-for-profit tax concessions

Finalised first round of consultation and developed a number of models for further consultation.
Exposure draft to be released for consultation early 2012.

In Australia

A revised exposure draft to incorporate concerns is being finalised. Major changes have been made to address concerns raised during consultation.

Next stages - second round of consultation will occur in two stages.

Consult with a select group including NFPSRC - (please contact us if you would like to be included).
A revised draft to issue for a second round of public consultation late 2012.

Outcomes of the tax forum

Government will be establishing a Special Tax Forum NFP Working Group to further NFP tax reform. They will feed into the second round of tax reforms.

The terms of reference are to issue shortly.

Review into government arrangements for not-for-profit sector

Discussion paper is being finalised.

The governance review is scheduled to be released by the end of November-early December and will feed into ACNC legislation.

ACNC legislation

The appointment processes - ACNC needs a commissioner and remaining advisory board members. Treasury will run this recruitment process in line with government guidelines.

ACNC legislation needs to be passed before appointments can be made.

Process and timing

The newsletter outlines planned implementation dates.
Legislation needs to receive royal assent by mid May 2012.
Things need to be finalised by the end of February so consultation over the Christmas period will be necessary.
There are three Treasury forums being run in mid December in various places. The forums will cover governance and legislation issues.
The ACNC Taskforce discussion paper deals with mainly administration issues - statements/forms etc which are complimentary but different issues to the proposed legislation. The paper is scheduled to be linked with the release of the ACNC legislation.
There will be gaps in the ACNC legislation with some amendments required to be made. Factsheets will accompany the legislation.
Explanatory material will be provided.

Definition of charity

Discussion paper out now - consultation closes 9 December.

Next step is draft is legislation - likely to be out mid 2012. We will be running public consultation for the draft legislation. It may go to senate committee before being introduced to parliament.

CCC member feedback about the paper included:

in paragraph 3 the definition of sufficient needs to be clearer
under 'Political Advocacy' the word 'cause' should be removed in the sentence 'advocating a political party or cause (paragraph a)'
AidWatch seemed to say that peak bodies are charitable as they support charities. Is this the case? Response - Treasury are still considering the grey areas of this proposal.

Treasury added that examples of charity advocacy are really helpful for guidance material - please provide them to us.

Treasury will also consider including a question and answer section about codification in its next newsletter.

Treasury are working with the states to close any gaps and attempting to align the charities law. There will be continued attempts to align the law through state consultation.

7. Other business

A 'receipting issues' hook-up was conducted on 21 November which clarified some outstanding queries including the need to use documentary evidence and date of receipt for donation records. Clear answers/definitions to receipting issues will be documented for everyone possibly with a fact sheet on www.ato.gov.au and an article in the Non-profit news service.

Action item	5
Description	Produce a fact sheet for www.ato.gov.au for all members to access, containing clear answers/definitions to receipting issues.
Responsibility	Michael Hardy
Due date	As soon as possible

Response to action item 5

The ATO hosted a phone conference with interested parties and worked through a number of scenarios. In most instances the advice about receipting is in ATO products, but probably not all grouped into one product geared to the NFP sector. The ATO will give consideration to a fact sheet or some similar product to group information, although the ATO priority is in assisting in the implementation of the ACNC at present.

A suggestion was made that Marty Lyons provide some specific information around GST guidance material at the next meeting.

Next meeting

22 March 2012, Sydney

Meeting closed 3.00pm.

Last Modified: Wednesday, 8 February 2012

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