Welcome and introduction
Deputy Commissioner Tim Dyce farewelled the group, noting:
- Not-for-profit Stewardship Group (NFPSG) is one of the most productive consultation groups within the ATO due to a high degree of mutual respect and trust to discuss sensitive issues in a practical way and progress where possible
- the rapport and honesty of members has often enabled us to tease out some of the trickier issues for the sector. The NFPSG is often the platform to hear about issues that the ATO would otherwise not become aware of.
- the importance for members to continue engaging with the ATO on behalf of the sector. Visibility is crucial in identifying consequences to prioritise improvements in the taxation and superannuation system.
- many thanks to everyone for making the role of co-chair a very enjoyable one; in particular, thanks to co-chair John McIntosh and the previous co-chair Joe Zabar, for outstanding contributions; also to Assistant Commissioner Jennifer Moltisanti and team for hard work and passionate dedication to making the system work better
- Louise Clarke will step into the Deputy Commissioner Private Wealth role.
Members acknowledged and thanked Deputy Commissioner Tim Dyce for:
- enthusiasm demonstrated for the NFP sector and genuinely working with the sector to understand issues and enabling members to participate without fear of reprisal.
- an openness and ability to be available and accessible in order to deal with issues when they happen. There is no better example than the approach taken through the pandemic, with a genuine desire to look for solutions to help the sector.
- a willingness to genuinely work with members and have a conversation. We have made a significant cultural shift with many more opportunities for two-way conversations.
Treasury update
Governance Standard3 – Compliance with Australian Laws
Refinements to Australian Charities and Not-for-profits Commission (ACNC) regulations, that will amend governance standards for registered charities, are being considered by the Federal Executive Council.
There are three substantial changes being considered:
- The scope of summary offences – five elements (serious unlawful activities of trespass, vandalism, theft, assault, and threating harm) will be captured regardless of being an indictable or summary offence under Australian Laws.
- The requirement to take reasonable steps and maintain reasonable control – if a charity has existing control procedures and governance procedures, there should not be a need to make changes.
- The threshold for a deliberate unlawful activity – a charity actively promoting or making a deliberate act to undertake an unlawful activity.
The amendments to the regulation will provide that registered entities must not engage in conduct that may be dealt with as a relevant kind of summary offence, and the requirement for registered entities to maintain reasonable internal control procedures in relation to its resources.
Once the amendments are approved by the Federal Executive Council and Governor-General, the regulation will be registered on the federal registrar of legislationExternal Link, expected by end-June. Members can contact Treasury to discuss.
The amended regulations are expected to be tabled during the Spring Parliamentary Sitting, August 2021, and will be subject to a 15-day tabling period.
Disclosure of political expenditure for registered charities
Regulations were registered on the federal register on 30 April 2021.
From 31 July 2021, the ACNC will provide a link from the Charity Register to the Australian Electoral Commission’s Transparency Register, which discloses details of political donations and electoral expenditure made by registered charities.
This provides easier access to information that is already available. It does not impose additional reporting on registered charities.
Deductible gift recipients required to register as charities
The Treasury Laws Amendment (2021 Measures No.2) Bill 2021 was introduced to parliament in March, however it has not progressed.
It is expected to be tabled for debate during the Spring Parliamentary Sitting in August.
The requirement for deductible gift recipients (DGRs) to register as a charity with the ACNC, will come into effect three months after receiving royal assent.
A 12-month transitional period is proposed for existing DGRs to take the necessary steps to become registered as a charity.
Treasury is drafting the Legislative Instrument (LI) that prescribes the criteria that the ATO Commissioner will need to consider when assessing an application for a three-year extended transition period. Members will be notified prior to opening the public consultation on the LI, which will run for four weeks.
Action item |
NFPSG 03-21 |
Due date |
15 July 2021 |
Responsibility |
Treasury and Jennifer Moltisanti |
Description |
Treasury will provide members with a hyperlink to the registration of Governance Standard 3 on the federal registrar of legislationExternal Link once available. |
ACNC update
Work is underway to build in the Australian Electoral Commission (AEC) Transparency Register link from the ACNC Charity Register.
New information is on the ACNC websiteExternal Link providing information about registered charities, including the number of registered charities, broken down over states and territories, this is updated on a weekly basis. The interactive information will provide information on charities, data sets and link to data.gov.au.
The Australian Charities Report – 7th EditionExternal Link has been released. It provides an analysis of the information charities submit in their Annual Information Statements (AIS) and serves as a benchmark for the following two years. The ACNC is mindful that the COVID-19 pandemic will have an impact on these results. Of note is:
- the 2019 information shows charity sizes have remained unchanged from the previous year
- 65% are small, less than $250,000 in revenue
- 16% are medium, $250,000 to $1,000,000 in revenue
- 19% are large, over $1,000,000 in revenue.
- the most common activities remain religious activities, and primary and secondary education
- data shows that more charities now report ‘general community’ as their main beneficiary group, followed by children, which is supported by education being among the most common activities.
There have been some changes to the 2020–21 AIS, including asking charities to report up to ten of their programs. This will allow the public to search the Charity Register by charity program (that is, by what charities do, by what interests the donor), or location. Information submitted in 2020 Annual Information Statements has already been added to the Charity Register.
The ACNC Regulators Day is scheduled for Friday 6 August; one day after the Charity Law Association of Australia and New Zealand conference. The ACNC has expanded attendance to a wider number of regulators this year. Invites have been issued to States and Territories regulators, as well as Commonwealth Grants hubs. Members who have not received an invite through other channels can contact the ACNC if they would like to attend.
Members' comments
Comment – A recent NFP study shows a decline in profitability and NFPs making a loss.
Response – The ACNC advised they welcome further conversation around the observations seen in the sector. Approximately 50% of funding is provided by government. Revenue shifts are likely to be seen for larger entities such as universities and non-government schools, reflecting COVID-19 impacts over the last 18 months.
Comment – It will be good to understand what historical data the ACNC has on the number of searches conducted by donors, whereby they request information on charity programs. The AIS is continually updated to require more and more information to be reported by charities.
Response – The ACNC advised that not all changes to the AIS are driven by the ACNC with some updates driven by the requirements of government, including streamlined arrangements with states and territories. They will investigate the availability of search data.
Comment – Is there any way we can look at the overlay of regulatory oversight for charities? Would the ACNC have data available that may provide a full picture?
Response – The ACNC noted that regulatory oversight is something charities need to navigate, including for grant funding. They will explore what information may be available.
Comment – Will there be any new proposed changes to the 2021–22 AIS? Are there any surprises?
Response – The ACNC advised that, at the current date, there should not be any unknown changes. There are some changes in classification taxonomy which may cause confusion, however the ACNC does not own taxonomy. Treasury noted that the new financial reporting thresholds will be announced by the Treasurer shortly, and this will have a consequential change to the AIS. However, given these thresholds were part of public consultation, it should not be a surprise to the sector.
NFP Centre update
NFP key messages
JobKeeper
Around 3.8 million individuals in total received support through the JobKeeper stimulus measure. Overall figures have not changed significantly since the last NFPSG meeting, in regard to NFPs receiving JobKeeper payments.
Of 19,000 NFPs, 12,000 were registered charities.
Of the 12,000 registered charities, 330,000 individual employees were supported between April and September 2020. This reduced to 125,000 between October and December 2020 and reduced again to 85,000 in the January to March 2021 period.
Taxation Rulings
Work to refresh the Draft Taxation Ruling TR 97/22 Income tax: exempt sporting clubs is now with the Tax Council Network. It is anticipated that it will be published around the end of July 2021 and will include a public consultation process. Thanks to sub-working group members who worked with us to develop examples that will make it easier for income tax exempt sporting clubs to understand their obligations.
Multiple working group meetings have been held to discuss the Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments. We are seeking input from members to provide clear real-world examples that will assist the sector. The intent is to evolve these examples into case studies, that may be published on ato.gov.au as supplementary guidance to the ruling. This work is continuing and further consultations with the working group will be held to work through examples.
DGR reform measures
The ATO continues to prepare for the enactment of DGR reform measures, which will require a smooth transition for DGRs that will need to register as charities when legislation is passed. We will work with key stakeholders such as the ACNC to ensure that what is put into place is tested, and that it makes sense. We want to eliminate red tape and streamline the process where it is possible.
2021–22 Budget – changes to administration of NFPs
The government announced changes in the 2021–22 Budget which will change administration of NFPs that self-assess as income tax exempt. From 1 July 2023, NFPs with an active ABN will submit an online annual self-review return with the information they ordinarily use to self-assess their eligibility for the exemption.
Some questions have been received from those in the sector already, in addition to several expressions of interest to be involved in the development of the high level design.
We will work closely with key stakeholders in the sector during design and implementation phases. A deep-dive workshop will be arranged, with preference for a face-to-face meeting should COVID-19 restrictions allow.
The intent is to take key stakeholders along the co-design journey with us, so that any issues are raised early and where possible we work together to minimise red-tape and leverage any opportunities to prefill.
The ATO has engaged an independent external consultant to provide a research report on the estimated 400,000 NFPs that operate in Australia and are not registered with an ABN. The intent is to deepen understanding of these NFPs and the type of support and guidance that may be required to meet their needs.
Tax time messages
Key tax time messages to note include:
- Ancillary fund guidelines were amended in June 2020, to encourage increased distributions to Item 1 DGRs as a result of the COVID-19 pandemic. Ancillary funds have until 30 June 2021 to increase their distributions in line with these amended guidelines, to be eligible for a lower minimum annual distribution rate in future years.
- Ancillary funds need to comply with the ancillary fund guidelines, and failure to do so may result in the imposition of penalties.
- Eligible organisations that applied for, and received, refund of franking credits in prior financial years will receive a personalised application package by mail. For organisations that need to apply for refund of franking credits but have not received the refund package, they can phone the NFP Premium Service Line to request a replacement form.
Residential Colleges GST Tool
The Residential Colleges GST Tool will be decommissioned at the end of the calendar year. As at 1 January 2022, residential colleges and universities will need to consider how they will determine the GST status of their supplies. The two options are to use the cost method or market value method.
An independent contractor reviewed the tool in 2020, which found it will not meet the requirements that assist residential colleges to determine the GST status of their supplies into the future.
We have invited NFPSG members and other key stakeholders to express interest in participating in consultations starting from July. We are seeking to understand any critical gaps or issues that may be experienced after the tool’s retirement and the type of support and guidance we may consider developing to assist the sector.
Advice received from the GST team is that this tool cannot be used to set prices for the 2022 calendar year.
Automation of franking credits pilot
The pilot for the automation of franking credit refunds was paused due to Covid-19. The NFP Centre is reviewing the process with a view to reset the project. We will take a holistic approach that considers learnings from the 2019 pilot and identify other opportunities to improve.
Action item |
NFPSG 04 -21 |
Due date |
15 July 2021 |
Responsibility |
NFP Centre |
Description |
NFP Centre to provide the most up to date JobKeeper figures. |
Director identification (director ID) work program
The government introduced a requirement for directors to prove their identity, with all directors verified and associated with companies. The director ID will be their personal number like a TFN.
This will make is easier for regulators and external administrators to trace a director’s relationship with a company over time.
This program is part of the Modernising Business Registers project. ATO is merging 31 business registers with those currently administered by Australian Securities and Investments Commission (ASIC).
A private beta is currently underway. Participants from the NFP sector will be invited to participate and test the application process.
Director ID only applies to corporate bodies registered under the Corporations Act, The Corporations (Aboriginal and Torres Strait Islander) Act and registered bodies. It will affect many directors in the NFP space.
ATO has identified there may be challenges in communicating the new requirements to the sector and is seeking insights and feedback from members to improve our reach and raise awareness.
Transitional arrangements are in place for current directors to obtain a director ID through to 30 November 2022. New directors from 1 November 2021 will need to apply for a director ID within 28 days.
Forty-nine participants have successfully applied for their director ID as part of the private beta phase 1. More than 500,000 directors have a myGovID.
There is availability to apply over the phone or via a paper process for those that do not have access to a smart device.
2.7 million directors need to apply, of which around 100,000 are NFP companies. A process is underway to assure this data and provide a complete population analysis.
Compliance will be applied in stages for those that do not obtain a director ID. This includes:
- individuals contacted to remind them about the requirement to obtain a director ID
- follow-up compliance notice issued to those individuals who do not obtain a director ID
- civil or criminal penalty powers imposed by ASIC if there is a continued failure to apply for director ID.
Director IDs will reduce the use of fictitious names as it validates identification of the individual. The program is looking into if regulators will be able to share information with government and bring together the company register and business register.
Members' comments
To overcome linguistic challenges, it would be beneficial to act on any opportunity to prefill using data from ABR, ACNC, and/or ASIC.
The definition of a director and who it applies to must be included in advice and guidance.
The benefits and any consequences for individuals and companies must be clearly explained in communications.
Several members are interested in being involved in the next beta.
Members thanked the ATO for the update, noting that the ATO approach of engaging with stakeholders is appreciated when delivering such initiatives.
Other business
CPA advised work has continued on the NFP definition within the reporting framework. A decision was made at the February board meeting that the current definition would remain.
ATO planning for 2021–22 has commenced, with a focus on reviewing public advice and guidance on the website and rulings. We welcome feedback from members and others in the sector, on rulings that may be considered for refresh. These will be considered when prioritising our focus areas and investment of resources.
Members raised two rulings for consideration – Taxation Ruling TR 95/27 Income tax: public funds due to recent DRG reforms and the age of the ruling and Taxation Ruling TR 2000/10 Income tax: public libraries, public museums and public art galleries due to recent moves to online.
Members will be contacted to attend working groups and are encouraged to forward suggestions to Assistant Commissioner Jennifer Moltisanti.
As part of our key priorities in 2021–22, the ATO is developing a strategic roadmap for NFPs. The intent is to work with key stakeholders to shape an efficient and effective tax and super system that supports NFPs to meet their obligations and builds community confidence in the sector.
The roadmap will lay out the specific projects and activities required to meet this objective.
At our July meeting, we will start a discussion with members around the vision for an efficient and effective administration in the future. We will look at what we know about current key issues, priorities, emerging gaps and opportunities for future tax administration of not-for-profits.
Action item |
NFPSG 05 -21 |
Due date |
31 July 2021 |
Responsibility |
NFP Centre and NFPSG members |
Description |
NFP Centre to seek feedback from members regarding the proposed rulings refresh, and interest in participating in the consultation process |
Member refresh
An expression of interest will be coordinated around August or September, to refresh part membership of the NFP Stewardship Group. We are looking at refreshing around four to five members. Please contact Jennifer with any feedback.
We are interested in members view on Indigenous groups and seeking representation for the NFP Stewardship group. Members are supportive of widening representation, noting that one representative will provide an additional perspective rather than be a spokesperson for the diverse Indigenous sector. Peak bodies need to be engaged, along with the Office of the Registrar of Indigenous Corporations, to widen engagement reach.
Attendees
Organisation |
Member |
|---|---|
ATO |
Tim Dyce (Co-chair), Private Wealth |
ATO |
Jennifer Moltisanti, Private Wealth |
Arnold Bloch Leibler |
Joey Borensztajn |
Australian Charities and Not-for-profits Commission |
Anna Longley |
Australian Council for International Development |
Joe Zabar |
Australian Institute of Company Directors |
Phil Butler |
Centre for Social Impact, Swinburne University of Technology |
Krystian Seibert |
Community Council for Australia |
David Crosbie |
CPA Australia |
Ram Subramanian |
Giuntabell |
Nunzio Giunta |
Judy Sullivan Consulting |
Judy Sullivan |
Justice Connect |
Sue Woodward |
Prolegis Lawyers |
Anne Robinson |
The Salvation Army Australia |
John McIntosh (Co-chair) |
Treasury |
Jacky Rowbotham |
Guest attendees
Organisation |
Attendee |
|---|---|
ATO |
Ashley Lock, Australian Business Registry Services |
ATO |
Fran Gobel, Private Wealth |
ATO |
Gary Issar, Private Wealth |
ATO |
John Churchill, Tax Counsel Network |
ATO |
Joy Tillman, Private Wealth |
ATO |
Kathrina Weinhonig, Enterprise Strategy and Design |
ATO |
Len Hertzman, Tax Counsel Network |
ATO |
Mandy Chivers, ATO Corporate |
ATO |
Martin Jacobs, Australian Business Registry Services |
ATO |
Melinda Knight, Private Wealth |
ATO |
Natalie Monro, ATO Corporate |
ATO |
Prescilla Moses (Secretariat), Private Wealth |
ATO |
Rowan Fox, Policy, Analysis and Legislation |
Australian Charities and Not-for-profits Commission |
Sallyann Stonier |
Charity Law Association of Australia and New Zealand |
Seak-King Huang |
The Tax Institute |
Julie Abdalla |
Apologies
Organisation |
Member |
|---|---|
Australian Federation of Disability Organisations |
Ross Joyce |
Clubs Australia |
Simon Sawday |
Law Council of Australia |
Jennifer Batrouney |
The Tax Institute |
Bridgid Cowling |
University of NSW Business School |
Fiona Martin |