Not-for-profit Stewardship Group key messages 26 June 2020

Welcome and introduction

Members were welcomed and an acknowledgement of country was given.

Apologies included:

• Jae Yang, Prolegis is joining us today as a proxy for Anne Robinson
• Simon Sawday, Clubs Australia is joining us today as a proxy for Anthony Trimarchi
• Phil Butler, Australian Institute of Company Directors
• Jacky Rowbotham, Treasury.

No conflicts of interest were declared.

Administration

All the action items from meeting 26 March have been completed. Record of meeting is being published.

A reduced agenda today and going forward our structure will be three 2-hour sessions:

• today 10.00am to 12.00pm – COVID-19 and new measures update webinar and round table discussion
• 16 July 10.00am to 12.00pm – Technical update session
• end of August or early September (date to be confirmed) – virtual design session.

COVID-19 and new measures update

A 13-page slide deck was shared with members and the following key points made:

• Many not-for-profits have received support through the cash flow boost and JobKeeper payment scheme, which has aided a continued connection with the community and their employees. During this time the sector, and many representatives and peak bodies, have actively engaged the ATO to advocate sector support and seek clarity on its administration of the measures.

Information was provided about:

• amended guidelines for ancillary funds, as announced by government
• cash flow boost
• JobKeeper Payment Scheme
• bushfire support.

The key JobKeeper amendments and announcements specific to not-for-profits were outlined:

• inclusion of Deductible Gift Recipient (DGR) endorsed overseas aid funds
• religious practitioners eligible, irrespective of the common law definition of employees
• DGRs and charities able to include certain donations in turnover calculations
• allow charities, except schools and universities, to elect to exclude government revenue from turnover calculations
• six-month turnover test period specified for universities
• on 8 June, the Government announced that JobKeeper payments will cease from 20 July for employees of a childcare subsidy approved service and for sole traders operating a childcare service. Changes are subject to amendments passing Parliament.

An overview of the Not-for-profit (NFP) Centre premium service was provided highlighting the high volumes of calls with the most common enquiries focussing on:

• eligibility
• JobKeeper turnover calculation
• cash flow boost aggregated turnover calculation
• JobKeeper claim process
• exclusion of government grants in JobKeeper turnover calculation for charities.

Reference was made to the government’s announcement for additional support to be made to charities with DGR status:

• the guidelines for ancillary funds were amended to incentivise ancillary funds to give more support to DGRs at a time when they need it most
• amendments allow a credit for funds that make distributions to DGRs of at least four percentage points above the minimum distribution rate in 2019–20 and 2020–21
• brief examples were provided for Private and Public Ancillary Funds to outline how they may apply credits.

An update was provided on the DGR legislation reforms, noting that three of them are delayed and will not proceed until the tax law is amended and passed through parliament:

• the requirement for non- government DGRs to register as a charity with the Australian Charities and Not-for-profits Commission (ACNC)
• the transfer of the administration of the four DGR registers to the ATO and ACNC
• the removal of certain public fund requirements for DGRs
• the update also highlighted that the bill that will create a new general DGR category for community sheds was introduced to Parliament on 13 May 2020 however it is yet to pass parliament and is scheduled for August sitting.

Members were reminded that it is critical for not-for-profits to review governance, risk management and decision making especially at a time where there is a great demand on not-for-profits services. The end of one financial year and the beginning of a new one mark the perfect opportunity to review and reset.

Members' comments

Members noted the ATO NFP Centre has worked hard to provide timely advice and support to the sector.

Several members asked for specific NFP statistics about the COVID-19 measures. Members were advised statistics will be shared once they become available. It was noted the ATO Commissioner made an opening statement at Senate Estimates on 4 June 2020 that $12.9 billion had been paid to 872,000 entities (including not-for-profits).

Many of those impacted by recent bushfires are reaching out to charities for the very first time, and this is likely to go on for 12 months or more.

There is concern about the impact to not-for-profits when stimulus measures and other safe harbours end on 30 September 2020. Members referred to this as the ‘September Cliff’. The full impact to ongoing viability for some not-for-profits is uncertain.

Current environment update

A round table discussion was held for members to offer their observations around the impacts for not-for-profits and how they are responding to the recent bushfires and COVID-19.

Members' comments

Every member noted and thanked the ATO NFP Centre for its tremendous effort to support not-for-profits during the establishment and ongoing management of the Government stimulus packages. Having ATO staff come to speak at seminars and webinars was also greatly appreciated.

Members also noted the great value of the close working relationship between the ATO and the ACNC. An example was where some registrations were given priority by the ACNC, to allow time to claim the stimulus from the ATO.

The reconciliation of payroll to the amount of JobKeeper paid is problematic given that the software does not enable a reconciliation of JobKeeper to individuals. An action item was taken to progress this item.

The requirement to claim the stimulus electronically has boosted the uptake of myGovID and the Relationship Authorisation Manager.

ACNC are preparing for the lodgment date for Annual Information Statements. The lodgment date was deferred until 31 August 2020, as part of the COVID-19 response.

The question was raised on the use of DGR Scholarship funds to provide fee relief for families within religious groups. The ATO reinforced its view that scholarship funds cannot be used to provide fee relief.

DGR-endorsed scholarship funds can only be used to award scholarships for reasons of merit or equity and must be open to individuals within a region of at least 200,000 people. You cannot use a scholarship fund to provide fee relief to families who are unable to pay their school fees, even if only for a limited period.

The amendment to ancillary fund guidelines has been useful to philanthropists especially the government announcements. More information about how many Ancillary Funds have requested the Commissioner’s discretion to reduce their annual distribution was sought.

Many advisers have navigated through the majority of workload associated with Government stimulus. They are now focussing on end of year financial reporting and tax matters.

Most members expressed concerns about longer term COVID-19 impacts on not-for-profits, including potential solvency issues. Government stimulus ends in September 2020, however the impacts of COVID-19 on the not-for-profit sector will go on for 12–18 months. This may give rise to some charities closing with guidance required for winding-up processes. To note:

• There may be value in considering the broader implications in addition to insolvency or wind-ups, which encompass tax matters.
• Some smaller entities may not have the capacity to diversify and may choose to reduce activities which may result in minimal to nil operations for a period of time.
• The notion of ‘zombie’ charities was tabled (ie: dormant charities).

Several members suggested Government stimulus should be tapered off, rather than cut-off.

The big issue for clubs is meeting the looming Fringe Benefit Tax lodgment deadline. (The member was reminded they can call the premium telephone number for support).

Several members supported the idea of 150% deductibility. One member advised a 50-page submission was made to the COVID-19 Management Senate Select Committee on 15 June 2020 in this regard.

There is interest in recent court outcomes for the NSW Rural Fire Service Bushfire Campaign. The focus is around what an ancillary fund can do with its donations received and limitations on providing binding undertakings to donors.

There are concerns about some of the platforms used by charitable campaigns, for example PayPal. There is a risk that monies could find their way into a personal bank account rather than a registered charity account. Members suggested strengthening of regulations.

Media coverage on the refund of membership fees and subsequent donations to the Australian Sports Foundation had caused a level of concern.

Access to finance was raised as an issue. Charities, due to their not-for-profit nature, may have difficulties getting bridging loans.

Not-for-profits are not covered by the Corporations Act and therefore the focus on governance is becoming increasingly important. Members are seeking more targeted governance guidance, in particular for smaller not-for-profits to support them in the lead up to September 2020 when many COVID-19 response measures and safe harbours draw to a close.

There is a growing number of micro-charities, including small groups and Facebook pages, starting to emerge in the not-for-profit sector.

Volunteer numbers have dropped by around 60% as many are part of COVID-19 higher risk groups and are required to practice social distancing and self- isolation. There will be some challenges in re-engaging them, even when the social distancing requirements are lifted.

Some not-for-profits may identify a discrepancy in their turnover calculation for JobKeeper. Even where the correct method was used at the time and in good faith, not-for-profits may find that it now does not match their actual turnover. Members were advised they can call the ATO to discuss their circumstances. Some National Disability Insurance Scheme recipients reported that the cost of living went up with a 10% levy applied to services.

JobKeeper and safe harbour measures have provided a level of protection for a number of clubs, including continued connection with their employees. A survey of clubs found that while approximately 100,000 employees were stood down, only around 1,000 were made redundant. However, many safe harbours also end at the same time as JobKeeper.

Many clubs also support the live music industry with social distancing restrictions continuing to prevent its return to clubs.

Action Items

Attendees

Apologies