Not-for-profit Stewardship Group key messages 16 July 2020

Welcome and introduction

Members were welcomed and an acknowledgement of country was given.

Membership changes:

• Anthony Trimarchi – Manager, Policy and Government, Clubs Australia resigned and replaced by Simon Sawday – Manager, Policy and Government, Clubs Australia

Apologies included:

• John McIntosh, Co-chair – National Tax advisor Salvation Army
• Anne Robinson – Prolegis (proxy Jae Yang)

Other items:

• Jennifer Batrouney - Chair, Not-for-profit Legal Practice and Charities Group, Law Council of Australia received an AM in the Queen’s birthday honours list.
• Judy Sullivan – Judy Sullivan consulting, retired from PwC and has commenced her own business as a consultant.

No conflicts of interest were declared.

Administration

The meeting minutes from 26 March 2020 were accepted, with one change under Communication and available support, to change last dot point from Philanthropy Australia to Justice Connect. All the action items from that meeting have been completed. Action items from meeting held on 26 June 2020 has three outstanding items:

• NFPSG 13-20 Not-for-profit COVID-19 sector statistics – waiting on data being made available
• NFPSG 14-20 Reconciliation of software solutions in regard to JobKeeper – John McIntosh has emailed Jennifer Moltisanti. Jennifer to follow up and will provide response.
• NFPSG 16-20 Commissioners discretion for Ancillary funds – Not-for-profit (NFP) Centre Director Melinda Knight is following up and will provide details to members.

Members were advised that with the current changes to membership and updated charter would be distributed by the secretariat after today’s meeting.

Treasury update

Jacky Rowbotham provided the Treasury update.

Community Sheds

The Treasury Laws Amendment (2020 Measures No. 2) BillExternal Link was introduced to parliament on 13 May 2020. While it was read in both houses, as the senate proposed amendments to different measures that were in the Bill, the law has not been passed. The next sitting is scheduled for 4 August 2020 however the schedule is not confirmed. Community Sheds will only be able to apply for the new Deductible Gift Recipient category once the Bill has passed and received Royal Assent.

Members' comments

• There was some misinformation reported in the media incorrectly stating that legislation had been passed. The media outlet was contacted, and a retracted article was published with correct messaging.
• The ATO has also worked with the relevant peak bodies to ensure the correct messaging has been issued.

Disaster relief funds for COVID-19

COVID-19 has been declared a disaster. This declaration allows Australian Disaster Relief Funds that are established for the relief of people affected by the COVID-19 pandemic to receive tax-deductible donations. Donations will be tax-deductible when made within two years from 18 March 2020.

Members' comments

• A member raised whether the provision of fringe benefits to employees could be expanded to treat benefits purchased as a result of COVID-19 as exempt. For example, relocating people back home from overseas, providing accommodation and purchasing of working from home facilities.

Amended guidelines for ancillary funds

Ancillary funds that exceed their minimum annual distribution rate for the 2019–20 and 2020–21 financial years by a total of 5 percentage points or more, will be eligible for a lower minimum annual distribution rate in future years.

Rates will reduce to 4% and 3% respectively for private and public ancillary funds from 2021–22.

The number of years this reduced rate will apply for depends on how much the fund exceeds the minimum rate in the 2019–20 and 2020–21 financial years.

For example, a public ancillary fund that distributes 7% in 2019–20 and 6% in 2020–21, can reduce their minimum distribution to 3% in both 2021–22 and 2022–23.

Technical update

Sporting Clubs TR 97/22

Assistant Commissioner Jennifer Moltisanti and Assistant Commissioner Justin Dearness from the ATO provided an update.

Taxation Ruling TR 97/22 Income tax: exempt sporting clubs consultations were placed on hold in March – mindful of the COVID-19 issues impacting the sector and a redirection of ATO resources to COVID-19 stimulus measures.

The ATO remains committed to developing refreshed public advice and guidance that will make it easier for sporting clubs to apply the law.

Consultation with the sector is primarily driven through a working party of the NFP Stewardship Group. Several meetings have been held to date. We will work flexibly to time the consultations around COVID-19 factors impacting the sector, with a view to refresh the ruling by 2021.

GST on Grants GSTR 2012/2

Assistant Commissioner Len Hertzman, Donald Lobo from the ATO and Krystian Seibert provided an update.

The NFP Centre received feedback from both NFP and Government clients seeking clarity about the public advice and guidance available for GST on grants. This also included suggestions to review Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments.

The NFP Stewardship Group raised and progressed some of these issues in 2019, but this work is yet to proceed. There is continued uncertainty on the correct GST treatment on a grant.

Members' comments

• The parties involved in a transaction are not clear who holds the GST responsibility. In practice, the two parties work together to determine who holds the GST responsibility.
• There is a lack of clear guidance or consistent examples in the ruling to support both parties in reaching an agreement. The decision is often made by those involved, or their agents, leading to inconsistent treatment of GST.
• Enhanced practical examples, examining the whole circumstances of the scheme, would improve consistency in the ruling’s application.
• While existing examples cover common government scenarios, these could be broadened to cover private industry and philanthropic grants. The examples could also show how the transactions flow from the entity who is giving the grant, onto another entity who is receiving the grant.
• Consideration could also be given to aligning the guidance to the gifts ruling.

Mutuality

Assistant Commissioner Len Hertzman from the ATO provided an update on the tax deductibility of JobKeeper payments received by taxable NFPs.

The ATO has been approached by several taxable not-for-profit clubs in regard to the application of the mutuality principle to JobKeeper income. The key points raised included:

• JobKeeper payments received from the Government are not mutual receipts, and as such classified as assessable income.
• Wages expenses are generally apportioned based on the percentage of member and non-member visitation to the venue. The close-down of many venues has resulted in visitation percentages being inappropriate.
• This has the potential to result in JobKeeper income being fully assessable, while the wages incurred being non-deductable. This outcome significantly disadvantages member-based organisations that are taxed under mutuality.

Members are encouraged to advise clients that the ATO is aware of the issue and is working to provide a practical resolution.

Australian Charities and Not-for-profits-Commission (ACNC) update

Assistant Commissioner Anna Longley, General Counsel, ACNC, mentioned the following points:

• Australian Charities Report 2018 – The ACNC tabled an update highlighting that the Australian Charities Report 2018 was published on 27 May 2020.
• data.gov.au ACNC data sets – ACNC data on data.gov.au is refreshed weekly. It lists all registered charities; details of past Annual Information Statements lodged and removes contact details for charities that have a revoked registration.
• Annual Information Statement (AIS) – The due date for 2019 Annual Information Statements has been deferred to 31 August 2020. Many AIS have already been lodged, which is a great result.

The ACNC is about to release the 2020 Annual Information Statement. The changes this year include an outline of the charity’s program(s), which will support future changes to the Charity Register to enable searches of charities by way of interest or location of where services are provided.

Reporting statistics for 2018

ACNC highlighted that a sampling of financial reports has indicated errors in reporting with the bulk of errors appearing to be genuine transposition errors.

The ACNC is looking into the errors with a view to providing further education and guidance to ensure correct reporting.

Members' comments

For medium to large entities in the sample, an auditor’s statement is required to assure the Annual Financial Reports for an NFP. This may mean there is a lack of understanding in the audit industry of the new reporting guidelines for NFPs. The ACNC is working with the Australian Accounting Standards Board regarding the new guidelines.

Members asked whether ACNC has considered prefilling of AIS. The ACNC noted that there are limitations to this, as prefilling relies on the availability of data held by third parties.

ACNC Advice Line and COVID-19 Resources

The ACNC reminded members of the advice line hours and a dedicated COVID-19 resource page.

NFP Centre update

Assistant Commissioner Jennifer Moltisanti walked the members through an NFP Centre update.

Assuring the integrity of not-for-profits

There are 10 areas of focus attracting the ATO’s attention in 2020-21. Two of these have been added this financial year, specifically disaster responses and new and emerging issues.

NFPs may focus on four key areas to achieve higher assurance, which include:

• keeping good records
• risks communicated to market
• significant transactions with a tax or superannuation impact
• accounting and tax results.

Transitioning not-for-profits from AUSkey to myGovID

Around 90% of NFPs that held an active AUSkey have successfully transitioned to myGovID and RAM. This is a great result. We will continue to support not-for-profits in bushfire affected postcodes that may need help to transition to myGovID, when they are ready to.

For those still needing to set up a myGovID to access ATO online services they can:

• visit mygovid.gov.au/help
• phone 1300 287 539 (select option 2 for myGovID enquiries) between 8.00am–6.00pm AEST, Monday to Friday
• visit ato.gov.au for more information by searching for Online Services for Not-for-profits.

Refund of franking credits

The refund of franking credits pilot was completed in 2019, which enabled more automated refunds to be delivered to not-for-profits. 147 not-for-profits were involved in the pilot. By the end of November 2019, 88% of refunds were paid out to clients on or prior to the date detailed in pilot invitation letters.

A review of the pilot identified broader improvements including:

• streamlining processes
• review of the claim threshold
• working with third party data to provide earlier collection of franking credit data.

The pilot has not been expanded in 2020–21, however smaller process improvements are being delivered through the existing Refund of franking credit process in 2020.

Expansion of automated franking credit refunds for not-for-profits will be considered for the future.

Self-assessing entities

The NFP Centre signalled a focus on the self-assessed tax-exempt population for 2020–21 and provided a preliminary analysis of the population undertaken in February 2020. A more detailed analysis to inform consultation with key stakeholders is in progress.

It was noted that ATO consultation will include deep dive activities with key stakeholders, including the NFP Stewardship Group, government agencies, peak bodies and ATO representatives.

Members' comments

Members noted the work undertaken and acknowledged the NFP Centre would be working collaboratively with them as the work further unfolds.

Top 2020–21 priorities

The ATO is committed to stabilising and renewing the platform for NFPs, as they resume a new way of operating once COVID-19 impacts lift and after recent natural disasters.

There will be a focus on:

• advice and guidance
• digital programs
• new measures
• integrity and assurance.

The ATO will focus on identified opportunities that strengthen tax administration of the NFP sector, improve their experience with tax and superannuation obligations, and build community confidence that NFPs are meeting their obligations.

This engagement will include:

• working with other agencies, including the ACNC and Treasury
• sustaining key relationships with the sector
• working with the Financial Action Task Force.

Working with international revenue agencies with a focus on emerging risks and international best practice

Meeting close

Deputy Commissioner Tim Dyce thanked the group for their input.

Action Items

Attendees

Apologies