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  • Not-for-profit Stewardship Group key messages 26 March 2020

    Welcome and introduction

    Co-chair, John McIntosh, Salvation Army, welcomed members, noted apologies and gave an acknowledgement to country. No conflicts were declared.

    Changes in member representation and guest attendees were noted for:

    • Australian Charities and Not-for-profit Commission (ACNC) – Anna Longley, Assistant Commissioner General Counsel replaces Mel Yates as a member.
    • ATO Tax Counsel Network – Len Hertzman, Assistant Commissioner as a guest attendee and replaces Simon Haines who has previously joined in this capacity.

    Administration

    Assistant Commissioner Jennifer Moltisanti acknowledged the agenda was adjusted to:

    • provide clarification on not-for-profits eligibility and access to the COVID-19 Cash flow boost for employers stimulus package
    • hear from members about how not-for-profits are being impacted by the economic downturn associated with COVID-19, and other key issues facing the sector.

    Assistant Commissioner Moltisanti advised the minutes from the November 2019 meeting had been published on 4 March 2020, and provided a progress update for open action items:

    • NFPSG 30-19 DGR Reform update – An update will be provided by Treasury at Agenda Item 5.
    • NFPSG 25-19 AASB Definition of Not-for-profit – A discussion with members initially planned for today’s meeting will now be progressed out of session.
    • NFPSG 23-19 How risk is assessed for PAFs – The webinar initially organised for 24 March 2020 will be rescheduled. Not-for-profits already registered for the webinar will be notified of the alternative arrangements.
    • NFPSG 21-19 Collaboration platform for members – On hold.
    • NFPSG 18-19 Special conditions under Division 50-50 – On hold.
    • NFPSG 14-19 AUSkey Transition support from the not-for-profit network – Regular communications on how to make the transition were issued over the last few months, along with a not-for-profit fact sheet for re-sharing across member networks. A majority of not-for-profits have now set-up a myGovID for their organisation. Closed.

    Stimulus Package

    Chadd Gunton, Treasury, provided an overview of legislation for the cash flow boost for employers measure.

    Chadd noted that legislation was passed to provide temporary cash flow support to businesses and not-for-profit organisations that employ staff during the economic downturn associated with COVID-19. Eligible not-for-profits will receive a credit of at least $20,000 up to a maximum of $100,000.

    To be eligible, not-for-profits will need to have reported pay as you go (PAYG) withholding payments to employees, even if the amount withheld is zero. This includes payments that are made to contractors and for directors’ fees. Not-for profits will also need to have held an active ABN on 12 March 2020 or be a charity registered with the ACNC. They must also have an aggregated annual turnover of under $50 million.

    Credits will be delivered through two waves, covering periods March to September 2020:

    • Wave one – initial cash flow boost
    • Wave two – additional cash flow boost.

    Assistant Commissioner Jenny Lin, ATO provided an administration overview of the cash flow boost for employers outlining that the cash flow boost will be delivered as a credit through the activity statement system. This will work as follows:

    • To receive the boost not-for-profits will need to lodge the monthly March 2020 activity statement. Quarterly reporters will need to lodge their March 2020 activity statement.
    • Cash flow boost credits will be processed from 28 April 2020 by the ATO. This means the credit will not be viewable as a post to the not-for-profit's account until after 28 April 2020.

    Jenny advised that regardless of whether or not an activity statement is lodged before or after 28 April, the eligible credit will still be applied by the ATO system. This means that not-for-profits can lodge as they normally would do.

    The initial cash flow boost will be applied to monthly and quarterly activity statements lodged for periods March 2020 to June 2020. The credit will be calculated based on reported PAYG withholding amounts, with a minimum credit of $10,000 and a maximum of $50,000.

    Eligible not-for-profits who received initial cash flow boosts will receive additional cash flow boosts for the periods June to September 2020. The additional credits will be equal to the total amount of initial cash flow boosts received, and they will be delivered in either two instalments for quarterly reporters or four instalments for monthly reporters.

    Members emphasised a critical need for clear and consistent messaging that easily communicates not-for-profit eligibility and access to the cash flow boost. Jenny noted that the ATO coronavirus webpage is being updated daily and encourages regular visits to the website.

    The ATO took questions on notice and agreed information will be distributed to members covering:

    • not-for-profit eligibility for the cash flow boost and what steps not-for-profits need to take in order to access credits through their activity statements
    • if the additional payment deferral period will increase from the announced 4 month period to 6 months. Also, if a payment deferral can be requested and processed without an existing debt on the system.
    • whether a cash flow boost credit will offset against another debt on the account, or if the full credit amount will be refunded to clients
    • how aggregated turnover is calculated to determine eligibility of associated and connected entities for the cash flow boost measure.

    Further information is available at Boosting cash flow for employers and COVID-19 on ato.gov.au

    Current environment round-table

    Assistant Commissioner Moltisanti led a round-table discussion on how not-for-profits are responding to unfolding events. Members were invited to share what they were hearing, what they were seeing and to surface the key impacts facing the not-for-profit sector.

    Members raised emerging issues observed across their member networks and suggested that consideration be given to temporary administrative options or tax concessions that will support cash flow and future viability for the sector.

    Retaining the workforce

    In order to ensure the safety of clients and volunteers, many not-for-profits and charities are having to temporarily suspend or close down services that are delivered in-person. This is resulting in some workers being stood down.

    A shortage of available volunteers is emerging due to self-isolation requirements, in particular for the groups of volunteers most vulnerable to COVID-19 infection.

    Current social distancing and self-isolation practices are impacting the ability to appeal and recruit new volunteers to sub-in for vulnerable workers needing to self-isolate.

    Some organisations are re-deploying back-office staff to front-of-house activities, where possible and appropriate.

    Staff focussed on tax, financials and bookkeeping may have hours reduced, for example to one day a month for the foreseeable future.

    Cash flow boost for employers

    Information around eligibility could be clearer. The first stimulus package did not specifically mention not-for-profits. The second measure specifically listed not-for-profits and charities for inclusion. All measures need to be clearly explained for not-for-profits on agency websites to lift certainty across the sector.

    While the stimulus focused on small organisations, large not-for-profits are also experiencing real pressure.

    Future viability

    Several risks are emerging associated with how to best support people who are currently receiving care outside of mainstream services, for example those with disability or senior Australians living at home with daily support from family, friends or other means.

    Viability of the disability employment program is at risk, as job vacancies to place the unemployed are in decline. It will be challenging for these entities to survive in the short term. However, these entities will be critical in supporting future recovery and ongoing employment.

    A number of insolvency issues are emerging with not-for-profits and charities seeking advice on insolvency provisions.

    Some smaller not-for-profits and charities do not have the existing infrastructure, such as cloud based solutions, to continue providing services when working from home. This may lead to some not-for-profits and charities needing to cease their services.

    There are concerns about the viability of the Arts which is significantly impacted by COVID-19 restrictions, such as social distancing. The level of support available needs to be lifted for this sector.

    Revenue streams, cash flow and funding

    There is an urgent need for not-for-profits and charities to secure cash flow to assist with retaining staff.

    Not-for-profits and charities that usually rely on event based fundraising activities and face-to-face collections are finding it challenging to raise funds in the current environment.

    Revenue generated over the Christmas period was largely diverted to bushfire relief funds. These funds are restricted to being used for the established purpose. With COVID-19 social distancing restrictions in place, campaigns usually run over the coming months are also now at risk. This has a cumulative effect and poses significant cash flow issues for not-for-profits and charities.

    Not-for-profits and charities are uncertain about ongoing viability, and as such require clear information on available funding and how to access it.

    Not-for-profits and charities may need help and advice on accessing loans or debt financing.

    Many contracts cease on 30 June, and timely assurance is required to increase certainty about continuing government funding after 30 June. It would help improve cash flow if there was more flexibility around government contractual obligations and certainty of government grants post 30 June.

    Timeliness of contractual payments made by government agencies to not-for-profits is critical. Could consideration be given to potentially front loading payments?

    Government agencies should consider prioritising payment of invoices to smaller not-for-profits as soon as practicable, to ensure continuity of essential services and support.

    Timely payments to the National Disability Insurance Agency are needed. Available funding is affecting the provision of National Disability Insurance Scheme (NDIS) services. Merger activities may increase.

    Similarities with the Global Financial Crisis are being predicted. It is anticipated that many philanthropists will step-up their response and stimulate further giving. However, it is possible that some will also consider reducing distributions.

    A volatile stock market may see some ancillary funds request a Commissioner’s variation to their required minimum annual distribution of funds.

    Governance

    Social distancing restrictions may impact the ability for incorporated associations to meet the requirement for holding an Annual General Meeting. The sector requires clarification from the ACNC on how this impacts compliance with governance standards.

    A clear regulatory approach is required regarding carrying out activities for the established purpose only, and how this applies to ACNC governance and conduct requirements set out in section 50-50 of the Income Tax Assessment Act 1997.

    There are instances, locally and internationally, where not-for-profits and charities are being asked to provide services or funds for COVID-19 that are outside of normal operating purposes. Sometimes this may be at the request of government and requires repurposing of funds.

    Clear information is required to explain the regulatory approach for repurposing funds to COVID-19, for example repurposing funds collected for Bushfire relief. Is there a potential for a regulatory moratorium to be considered?

    Deductible gift recipient (DGR) measures recognise funds for frontline aid, which includes internships and scholarships. Due to travel limitations this can no longer be spent for that purpose and greater flexibility is required.

    Compliance with ATO, Australian Securities and Investments Commission and ACNC requirements is challenging at this time. Some grants cannot be fulfilled under the current circumstances and there is concern that funds may need to be returned. Could consideration be given to how rules, regulations and penalties apply to grants during this period?

    There is a need for ACNC, ATO and the government to provide a clear regulatory approach for the sector on emerging issues.

    Other potential relief and concession suggestions

    • To support cash flow of not-for-profits and charities at this critical time, could consideration be given for temporary tax concessions or administrative measures? These could include:  
      • a GST pause for GST inclusive grants
      • extending tax deductibility beyond 100% of the donation
      • extending DGR status to all charities
      • fringe benefit tax (FBT) concession relief
      • GST relief on government contracts for a specified timeframe, for example GST is waived on all new contracts for 12 months
      • bulk deferral of reporting the FBT reportable amounts on employee income statements, which are due for lodgment in July 2020
      • guarantees for investments made in the stock market.
       
    • Extending cash boost assistance to large aged care and disability organisations. This is a sector with a vulnerable patient base. $100,000 boost may not be sufficient to save these entities.
    • Consider deferring or suspending the ACNC review of public benevolent institutions that hold deductible gift recipient status, as these reviews may impact many working on the frontline and subsequently divert attention away from service provision.
    • Registered clubs are an intrinsic part of the social fabric of Australia, and regularly support drought, bushfires and returned services. They would appreciate concessions for reportable amounts and deferrals.
    • Any potential extensions for FBT return lodgments need to be cognisant that reportable fringe benefits are still required to be reported by 14 July, unless this can be extended too.
    • Members also suggested potential relaxation of the requirement to item 1 DGRs only.

    Communication and available support

    Clear co-ordination is required to communicate government and agency messages to the sector, in particular ensuring call centre scripts are consistent.

    Any communication needs to be delivered in plain English and in an accessible format, including use of appropriate captioning and ensuring AUSlan interpreters are visible on screen. The Australian Federation of Disability Organisations offered assistance to help ensure communications meet accessibility standards.

    Not-for-profits seek quick and easily digested messaging.

    Members commended the scheduling of the special joint ACNC-ATO webinar on Monday 30 March – Charities, ACNC and COVID-19.

    Information is being published to the Philanthropy AustraliaExternal Link website to help philanthropists prepare for and support those affected by COVID-19, including a list of 10 possible approaches or actions philanthropists may consider taking.

    Justice Connect is providing COVID-19 webinars on employee and staff issues and they have been fully booked. They will however be recorded and made available to a broader audience. A future webinar on conducting annual general meetings remotely will be scheduled.

    Treasury update

    Treasury was scheduled to provide an update on the ACNC Review, DGR Reforms and Community Sheds, however, given focus and resources have shifted to the COVID-19 stimulus measures, these items will be deferred until a later meeting.

    Members were advised that as Parliament is not scheduled to reconvene until 31 August any proposed legislative changes may be delayed. Should Parliament be recalled in the interim, it is likely to be for COVID-19 stimulus measures. It was noted that consideration will be given to suggestions put forward at today’s meeting. Members may contact Jacky Rowbotham directly with any additional feedback on potential tax concessions and relief measures to help the sector retain employees and support cash flow. This may include options to support larger not-for-profits and charities not covered by existing cash flow boost measures.

    Technical update

    Assistant Commissioner Len Hertzman and John Churchill advised that the ATO has shifted its focus to examining administrative solutions to support those impacted by COVID-19.

    Taxation Ruling 97/22 Income tax: exempt sporting clubs will be handled out of session by the working group with an update to be provided at the next meeting. It is pertinent that any legal and technical work be focussed on supporting the sporting clubs sector during this critical time.

    NFP Centre update

    Given the focus of today’s meeting was on how not-for-profits are responding to unfolding events, Assistant Commissioner Moltisanti provided a brief update on ATO NFP Centre activities:

    • AUSkey Transition to myGovID and RAM – 83% of not-for-profits have set-up their organisation with a myGovID. It is expected that 90% will have made the move before AUSkey is decommissioned on 27 March 2020.
    • Refund of Franking Credit Pilot – $1.5 million in Franking Credits have been paid to not-for-profits with all feedback received being positive. 88% were paid out on or prior to the date that was advised. The pilot and the parameters are to be expanded, including access to third party data matching to bring more clients on board.
    • Self-assessing tax exempt not-for- profits – To improve transparency an analysis of self-assessing income tax entities has been underway since the last Not-for-profit Stewardship Group meeting. To support this work and obtain a better understanding of these entities and their current reporting, this was to be the focus of today’s design session with members. However, the agenda was restructured to focus on the impacts of COVID-19 on the not-for-profits and charities sector. NFP Centre will schedule this work into the future.

    Members expressed an interest in understanding insights and questions received through the NFP Premium Phone Service related to COVID-19.

    The ATO noted the majority of calls received were querying stimulus eligibility. Overall a reduction in inbound volumes of enquiries from not-for-profits has been seen.

    NFP Premium Phone Service staff are receiving regular and ongoing updates to ensure they provide the most up-to-date information on how not-for-profits can access COVID-19 stimulus measures.

    Not-for-profits may seek further information through the NFP Premium Phone Service on 1300 130 248 between 8am to 6pm Monday to Friday.

    Calls to the NFP Premium Phone Service will continue to be answered by ATO staff recently set-up to work remotely. This will ensure coverage is maintained during the government’s COVID-19 isolation directions.

    ACNC update

    Assistant Commissioner Anna Longley provided an ACNC update noting that, given the current circumstances, only a few of the originally listed topics needed to be addressed today.

    • Annual Information Statements (AIS) lodgment has been deferred until 31 August 2020, for bushfire affected charities.
    • Transitional reporting arrangements extended until 2023-24.
    • Government response to ACNC legislative review released.
    • Australian National Audit Office performance audit still expected to be tabled in April.
    • ACNC DGR reviews to commence in July 2020, timing is being considered in view of the current environment.
    • Changes to Annual Financial Report requirements as a result of accounting standard changes.
    • The Charities Report, 2018 AIS, is planned for release in April.
    • The DGR self-assessment tool is available and members are invited to provide feedback as to its usability separately out of session.

    COVID-19 support for charities is published to the ACNC webpage, with any updates date stamped. A joint ATO-ACNC webinar will be held on 30 March 2020. This will be recorded and made available more broadly for viewing.

    Assistant Commissioner Longley noted the ACNC is aware of the emerging impacts and is considering suggestions raised by members and the charity sector:

    • deferring annual general meetings for incorporated associations
    • compliance with governance standards
    • the need for charities to use income and assets consistent with operating purpose.

    The ACNC call centre is still operating. The service is currently available between 1pm–5pm daily.

    Key messages and close

    No other business was put forward. Co-chairs John McIntosh and Deputy Commissioner Tim Dyce summarised some of the key messages:

    • The COVID-19 situation is unprecedented.
    • There are dedicated ATO and ACNC COVID-19 web pages.
    • The ATO NFP Premium Phone Service remains open.
    • The cash flow stimulus will be paid to eligible entities after 28 April regardless of whether entities lodge before or after this date. There is no requirement to change lodgment behaviour.
    • The ATO thanked members who have contacted the government and asked them to keep communicating out of session.
    • Find the time to be kind to each other.
    • Listen to each other and raise issues early.

    A last minute addition was made by one member who raised awareness of a potential issue around payday lenders applying pressure to clients to use stimulus credits to repay loans.

    Assistant Commissioner Moltisanti will review current communications and ensure clear and consistent messaging is shared. Members may contact her directly if required to discuss any issues.

    Co-chair John McIntosh recognised the time taken out of the members’ businesses to share their experiences and thanked them for offering their considered suggestions and ideas.

    Attendees

    Attendees are listed below.

    Organisation

    Attendee

    ATO

    Tim Dyce (Co-chair), Private Wealth

    ATO

    Angela Gaeta, Private Wealth

    ATO

    Anthony Buman, Private Wealth

    ATO

    Brendan O'Shea, Enterprise Strategy and Design

    ATO

    Dean Dyer, ATO Corporate

    ATO

    Frances Gobel, Private Wealth

    ATO

    Gary Issar, Private Wealth

    ATO

    Jacinta Lawson, Small Business

    ATO

    Jennifer Moltisanti, Private Wealth

    ATO

    Jenny Lin, Superannuation and Employer Obligations

    ATO

    Joanna Austin, Australian Charities and Not-for-profit Commission

    ATO

    John Churchill, Tax Counsel Network

    ATO

    Len Hertzman, Tax Counsel Network

    ATO

    Melinda Knight, Private Wealth

    ATO

    Michael Mirtsis, Policy, Analysis and Legislation

    ATO

    Michelle Maher, Private Wealth

    ATO

    Rowan Fox, Policy, Analysis and Legislation

    Arnold Bloch Leibler

    Joey Borensztajn

    Australian Charities and Not-for-profits Commission

    Anna Longley

    Australian Federation of Disability Organisations

    Ross Joyce

    Australian Institute of Company Directors

    Phil Butler

    Catholic Social Services Australia

    Joe Zabar

    Centre for Social Impact, Swinburne University of Technology

    Krystian Seibert

    Community Council for Australia

    David Crosbie

    CPA Australia

    Elinor Kasapidis

    CPA Australia

    Ram Subramanian

    EY

    Amanda Spinks

    Giuntabell

    Nunzio Giunta

    Grant Thornton

    Katrina Siamatas

    Justice Connect

    Juanita Pope

    Law Council of Australia

    Alice Macdougall

    Philanthropy Australia

    Sarah Wickham

    PricewaterhouseCoopers

    Judy Sullivan

    Prolegis Lawyers

    Anne Robinson

    The Salvation Army Australia

    John McIntosh (Co-chair)

    Treasury

    Chadd Gunton

    Treasury

    Jacky Rowbotham

    Treasury

    Lisa O’Reilly

    University of New South Wales Business School

    Fiona Martin

    Apologies

    Apologies are listed below.

    Organisation

    Member

    Clubs Australia

    Anthony Trimarchi

    Law Council of Australia

    Jennifer Batrouney

    The Tax Institute

    Bridgid Cowling

      Last modified: 16 Jul 2020QC 62092