Charities Consultative Committee minutes - 22 November 2011

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

Sections within Agenda items

• 1. Welcome, apologies and introductions
• 2. Consideration of the minutes from the previous meeting
• 3. Compliance program 2012 - Religious organisations
• 4. ACNC Treasury Taskforce update
• 5. ACNC ATO taskforce update
• 6. Not-for-profit reforms
• 7. Other business