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  • Not-for-profit Stewardship Group minutes 7 August 2019

    Welcome and introduction

    Members were welcomed and an acknowledgement of country was given.

    Staff changes in ATO Not-for-profit (NFP) Centre:

    • Albert Beric and Alison Zeitlhofer have retired
    • Jacinta Lawson, Frances Gobel and Anthony Buman (who is an apology today) have joined.

    Departing members:

    • Simon Bowden – Tax Institute
    • Ashley Selwood – Scouts Australia.

    New members:

    • Bridgid Cowling – Senior Associate, Arnold Bloch Leibler, Tax Institute
    • Ross Joyce – CEO, Australian Federation of Disability Organisations.

    Apologies included:

    • Phil Butler – Australian Institute of Company Directors (proxy Christie McGrath)
    • Dr Fiona Martin – Taxation and Business Law, University of NSW Business School
    • Anne Robinson – Prolegis Lawyers (proxy Jae Yang)
    • Ram Subramanian – CPA Australia
    • Juanita Pope – Justice Connect (proxy Sue Woodward)
    • Sarah Wickham - Manager, Policy and Research, Philanthropy Australia.

    No conflicts of interest were declared.

    Administration

    The meeting minutes from February 2019 were accepted and all action items from that meeting have been completed.

    It was noted a new draft charter was circulated out of session and members were thanked for their feedback.

    Designing the Not-for-profit Centre

    Year-to-date

    Jennifer Moltisanti presented this session and spoke about the following.

    The NFP Centre has been created following the ATO realignment in 2019. It now sits within the Private Wealth business line, but provides support to the ATO nationally. It is led by an Assistant Commissioner and three Directors.

    The Centre’s design has been undertaken collaboratively using the ATO Design process. It has included a three day deep dive of current activities, data analysis, research, stakeholder and staff feedback as well as input from NFP Stewardship Group members.

    Three capabilities form part of the NFP Centre:

    • Advice and Endorsements (includes the NFP premium phone service)
    • Risk and Strategy
    • Transformation and Relationships (includes New measures, projects and Stewardship Group liaison).

    The NFP Centre is committed to building on the strong service-based support it provides to the sector and delivering an assurance that NFPs are:

    • supported to deliver important services
    • operating for purpose
    • accessing the right concessions
    • meeting their obligations.

    The members provided the following feedback:

    • the ATO was acknowledged for its openness
    • agreed that assurance beyond payment and lodgment was needed and that should include advice, guidance and alerts – and that this group could provide input into that process
    • clarity on Ancillary Fund structures and related party transactions would be helpful
    • the ATO and ACNC should continue to collaborate and make clear which entity is responsible for what regulatory activity, and how data is shared between them
    • as entities grow, they may make mistakes by claiming concessions they are no-longer entitled to and some work could be done there
    • there could be focus on reducing complexity
    • ATO and ACNC should operate seamlessly and ensure no overlap.

    Australian Institute of Company Directors (AICD) Governance and Performance Report

    Key report findings were discussed. The report covered:

    • an environmental scan
    • the landscape
    • emerging trends.

    Points of discussion included:

    • findings suggest there is a widening gap between directors’ perceptions of their organisation’s financial performance and its actual performance. This is not always the case. Boards make decisions on financial performance based on the environment and context.
    • director’s remuneration is an ongoing discussion, with arguments on both sides as to whether it is appropriate. In theory good governance costs money, but many NFPs are run by volunteers.
    • what is the difference between remuneration and an honorarium? Remuneration by other means is becoming more prevalent in NFPs. For example, by offering AICD training.
    • historically directorships are filled with those with experience and the trend now is to examine the skills and ability required for the specific role in the NFP.
    • diversity in boards continues to be an issue, but many boards have a lack of diversity through inaction. Diversity tends not to be an issue in smaller NFPs.
    • mergers are extremely time consuming and resource-intensive.
    • mergers are sometimes driven by cost-effectiveness. However, those driven by purpose that are focused on aligning values are often more successful.

    Design workshop

    Based on the NFP Centre role, Jennifer facilitated a design session with the Stewardship Group members to identify:

    • risks and issues that attract attention including behaviours
    • opportunities to work together and transform the system.

    Feedback from the members included:

    • greater emphasis on education, awareness, information, guidance and support.
    • integrity is better than assurance. The sector itself wants integrity and for the community to see fairness.
    • have a focus on providing support to NFPs to get back on top when in difficulty and clearly know what best compliance behaviour is.
    • focus on showing system integrity to the broader public – that is those who deserve concessions get them and those who don’t, do not.
    • provide focus and clarity on the difference between charitable purposes and private benefits.
    • provide opportunities for those who have gone off track to get back on track – understand magnitude of error for penalties and interest.
    • privacy for high wealth individuals may hinder overall access to charitable fund information. System integrity is a critical tool to ensure identity protection is not perceived as a shield for compliance.
    • operate for a purpose can be a challenge as NFP purposes and membership changes over time and so purpose can evolve.
    • can the ATO better explain for the broader community the difference between a Not-for-profit and a charity?
    • many large NFPs have tax agents. This cohort could be engaged in education, self-review, voluntary disclosure, amnesty, justified trust and self-diagnosis.
    • some NFPs do not have assessment income and so do not need to lodge, but then risk falling through the cracks in terms of support. As accounts and government go digital, how can those entities be engaged?
    • system integrity is key to providing broad community assurances that concessions are applied fairly, even though some self-assessors are appropriately outside the system. It ensures a level playing field.
    • find a way for those out-side the system to be re-engaged in the system easily if they need to be.
    • the NFP market can have low data due to exemptions, and so can be difficult to rely on.
    • a holistic view is required, as some funds employ people and have withholding and superannuation obligations. They can have many touch points with the tax and superannuation systems - not just NFP.

    After lunch reflection

    John McIntosh welcomed the members back and asked them for key reflections from the pre-lunch workshop and they noted:

    • the ATO should better understand Private Ancillary Funds (PAF) data
    • all committee members agreed that a collaborative process is required to reduce complexity in the sector.

    Treasury regulatory framework update

    Jacky Rowbotham gave an update on the deductible gift recipient (DGR) measures and PAF Guidelines.

    The Government has enacted two DGR reform measures:

    • making indigenous language organisations eligible from 1 July 2019 for inclusion on the Register of Cultural Organisations, and
    • introducing external conduct standards for charities, which came into effect on 23 July 2019.

    The Government remains committed to delivering remaining reforms for administration and oversight of DGR entities by 1 July 2020 and aims to release exposure draft legislation later in 2019. These reforms are:

    • requiring organisations wishing to hold DGR status to register as charities
    • removing public fund requirements for DGRs, and
    • merging the overseas aid, harm prevention, cultural organisations and environmental organisation DGR registers with the ACNC Charity Register.

    In the 2019–20 Budget, the Government announced a new DGR category for Men’s and Women’s Sheds to take effect from 1 July 2020. The Government will consult later this year on the definition for this category.

    PAF Guidelines setting out requirements for PAF’s to maintain DGR status are “sun-setting” and will be remade. Draft guidelines are on The Treasury website for comment until 21 August 2019.

    Exposure draft legislation making cash payments and donations of $10,000 or more an offence is on The Treasury website for comment until 12 August 2019. Charities would still be able to receive individual cash donations below $10,000.

    In response to a query, Treasury confirmed that the Assistant Treasurer, who has responsibility for consumer policy matters, will be attending the next Forum on Consumer Affairs in Queenstown at the end of August.

    AUSkey replacement

    AUSkey will be retired in 2020. NFPs that use AUSkey (or manage ABN connections) will need to move to the following two products:

    • myGovID is a secure proof of identity app. Set it up once and use it to prove who you are when accessing government online services - like the 100 point ID check, but on your phone. Use your myGovID for both personal and business matters.
    • Relationship Authorisation Manager (RAM) allows you to link your myGovID to an ABN. It lets you manage who can act on behalf of your organisation online.

    NFPs can access the Business Portal now using myGovID and start the transition now. They can continue to use AUSkey while they are making the move.

    In preparation for this change, NFPs should check that their:

    • ABN details are up-to-date in the Australian Business Register (ABR)
    • nominated AUSkey users are still correct, if an Administrator AUSkey is used.

    To support NFPs, the ATO will:

    • develop a suite of practical animated videos to support NFP organisations to transition to myGovID
    • test a list of NFP related client scenarios with the stewardship group
      • ATO will ask Stewardship Group members (or one of their NFP network) for volunteers in filming a Vox Pop.

    Member discussion included:

    • the NFP audience has a lot of volunteers and short term employees. Manual support options and instructional (step-by-step) guides would be useful
    • a broader campaign would be useful for the roll-out. In particular, the close wording between MyGov and MyGovID may cause confusion.

    Tax Counsel Network

    The ATO is finalising a review of draft Taxation Ruling TR 2018/D1 Income tax: the ‘in Australia’ requirement for certain deductible gift recipients and income tax exempt entities.

    Feedback received on TR 2018/D1 highlights the importance of clearly stating and adequately illustrating the relevant factors for both the Division 30 ‘in Australia’ and the Division 50 ‘physical presence in Australia’ conditions. Whilst certain aspects of TR 2018/D1 attracted frequent comment, there was a diversity of views about how these aspects should be addressed.

    The ATO anticipates that the new version of the ruling will differ from TR 2018/D1 in some respects. It was agreed that a working group of NFP Stewardship Group members be formed to provide additional comments/feedback to the ATO authoring team on a new version. The working group will also be invited to provide recommendations on what further consultation arrangements are desirable, if any.

    John Churchill discussed a rewrite of the Taxation Ruling TR 97/22 Income tax: exempt sporting clubs (which deals with income tax exemption under item 9.1(c) of the table in section 50-45 of the Income Tax Assessment Act 1997 for a society, association or club established for the encouragement of a game or sport). John acknowledged industry and sector feedback to a November 2018 discussion paper. John explained that the ATO would like to engage in further consultation with a working group of interested Not-for-profit Stewardship Group members. John also said that further targeted consultation with interested parties outside the Not-for-profit Stewardship Group also seems appropriate, as Stewardship Group members may not be representative of all those affected by the redraft. John canvased the stewardship for suggestions as to who could be consulted.

    John acknowledged that the responses to the November 2018 discussion paper highlights that there are varying views on the relevance of Commissioner of Taxation of the Commonwealth of Australia v Word Investments Limited [2008] HCA 55External Link to the exemption for sporting clubs and that it is likely that this element of the re-write will be taken to the Rulings Panel.

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

    Mel Yates provided an update on behalf of the ACNC and discussed the following items:

    • AIS 2019 – online version launched 15 July 2019
      • changes to questions
        • collecting optional web presence (eg website or social media)
        • where withholding is in place, changing the way financial statements are collected
      • group and bulk lodgement options have been finalised and published
      • affected entities will be reminded to lodge later in the calendar year
    • External Conduct Standards - effective from 23 July 2019
      • guidance updated on ACNC website including some case studies
      • this will continue to be developed based on questions and contact received (FAQs and case studies)
      • registration form to be updated in the next couple of months to include some additional questions
    • double defaulter process underway for registered charities with two outstanding AIS lodgements (need not be consecutive)
    • Northern Territory streamlined reporting arrangement in place for Incorporated Associations
      • small charities need to submit financial statements to ACNC so they can be passed on to Licensing NT
      • the new exemption, effective from 1 July 2019, applies to charities registered with both Licensing NT and the ACNC
      • charities will no longer need to submit an annual return to both agencies
      • only submit an AIS once to the ACNC
      • no fee payable
      • duplicated reporting is switched off
      • Licensing NT have communicated directly with eligible charities
    • new resources include self-evaluation checklist, small charities library plus a Governance Toolkit (this will be launched later in August 2019)
    • 2017 Charities report launched with interactive data available from the ACNC website
    • Australian National Audit Office (ANAO) audit open for public comment until 25 August 2019
      • the objective of the audit is to assess the effectiveness of the ACNC’s regulation of charities
    • ACNC corporate plan has been published.

    Members discussed the Charitable Marketplace. There was a range of views on this matter, with concerns about whether this will impose a new layer of red tape on charities. The marketplace is about reporting which programs a charity undertakes, who they help and where they operate (what, who and where). Discussion was held on how this will be implemented and potential challenges associated with this new reporting. The specifications for these changes are being developed at the moment with communication to occur before the changes are made.

    Round table

    Treasury was asked for an update on the special conditions under Division 50-50. Jacky took this question on notice.

    Treasury was also asked for an update on the NFP Tax Concession working group. Jacky advised the group had not met since the last NFP Stewardship Group meeting and therefore no update was available.

    The ATO was asked for further advice on the potential application of the meal entertainment 50-50 election in conjunction with certain NFP FBT tax issues. Jennifer Moltisanti agreed to follow this up.

    Key messages and meeting close

    Co-chair John McIntosh invited members to offer key messages for this meeting.

    • In light of today’s discussion, what does, or should, assurance mean for the ACNC, the ATO and the NFP industry going forward.
    • The reviews of the In Australia and Sporting Clubs rulings were important.
    • The new digital identity processes and the actions required to get ready for them.
    • There were a number of opportunities for the NFP Stewardship Group members to get involved in:
      • reviewing Treasury papers and providing feedback
      • ruling and other working groups
      • Vox pops for myGovID transition.

    John thanked members for their contribution to the meeting and closed the meeting.

    The next meeting is scheduled for 19 November 2019 at the ATO office in Sydney.

    Action item update

    Action item

    NFPSG 10-19

    Due date

    4 October 2019

    Responsibility

    Members

    Description

    In response to NFP Design session, members to send additional feedback from this session to Jennifer after the meeting. ATO to provide a sanitised version of NFP Centre material presentations for the stewardship group members to distribute to association members and networks.

     

    Email sent to members on 17 September 2019.

     

    Action item

    NFPSG 11-19

    Due date

    4 October 2019

    Responsibility

    Members

    Description

    In response to Treasury update, members to send feedback on any of the items discussed during agenda item 5 to Treasury (Jacky Rowbotham).

     

    Action item

    NFPSG 12-19

    Due date

    Completed

    Responsibility

    Claire Miller

    Description

    Distribute links to materials on the AUSkey Replacement program.

     

    Email sent to members on 2 October 2019.

     

    Action item

    NFPSG 13-19

    Due date

    Completed

    Responsibility

    Claire Miller/Jennifer Moltisanti

    Description

    ATO to provide a sanitised version of the AUSkey presentation for the stewardship group members to distribute to association members and networks.

     

    Email sent to members on 2 October 2019.

     

    Action item

    NFPSG 14-19

    Due date

    10 October 2019

    Responsibility

    Members

    Description

    Members to provide names of volunteers from their networks to be involved in filming a short video to talk about their experience in transitioning from an AUSkey to a myGovID for their NFP organisation.

     

    Action item

    NFPSG 15-19

    Due date

    Complete

    Responsibility

    Members

    Description

    Members to nominate to participate in a sub working group for either/both the “In Australia” or “Sporting Clubs” rulings review.

     

    Working parties are in place and initial workshops conducted on 19 September 2019.

     

    Action item

    NFPSG 16-19

    Due date

    19 November 2019

    Responsibility

    Jennifer Moltisanti

    Description

    Outcomes from NFPSG 15-19 are communicated to the broader NFP Stewardship Group.

     

    Broader NFP Stewardship Group advised and consultation hub updated – ongoing.

     

    Action item

    NFPSG 17-19

    Due date

    Completed

    Responsibility

    Jennifer Moltisanti

    Description

    ATO to map a consultation timeline both the “In Australia” or “Sporting Clubs” rulings, to aim to have them both published by the end of this calendar year,

     

    Completed as part of working group discussions and ongoing.

     

    Action item

    NFPSG 18-19

    Due date

    19 November 2019

    Responsibility

    Jacky Rowbotham

    Description

    Treasury will provide an update on any consideration for review of the special conditions under Division 50-50.

     

    Action item

    NFPSG 19-19

    Due date

    Completed

    Responsibility

    Jennifer Moltisanti

    Description

    Arrange a meeting between ATO FBT and Ernst and Young, seeking further advice on the potential application for the meal entertainment 50-50 election with certain NFP FBT issues.

     

    Jennifer has initiated contact.

     

    Action item

    NFPSG 20-19

    Due date

    19 November 2019

    Responsibility

    Members

    Description

    Members to provide feedback and thoughts about the format of Not-for-profit Centre design session. Is this a useful format to explore issues?

     

    Initial feedback received has been positive.

     

    Action item

    NFPSG 21-19

    Due date

    19 November 2019

    Responsibility

    Jennifer Moltisanti

    Description

    ATO to explore establishment of a universal collaborative platform that may be accessible for all members.

    Attendees

    Attendees are listed below.

    Organisation

    Members

    ATO

    Tim Dyce (Co-chair), Private Wealth

    ATO

    Claire Miller, Enterprise Solutions and Technology

    ATO

    Frances Gobel, Private Wealth

    ATO

    Helen Thomas, Enterprise Solutions and Technology

    ATO

    Jacinta Lawson, Private Wealth

    ATO

    Jennifer Moltisanti, Private Wealth

    ATO

    John Churchill, Tax Counsel Network

    ATO

    Mark Ferguson, Private Wealth

    ATO

    Melinda Knight, Private Wealth

    ATO

    Simon Haines, Tax Counsel Network

    Arnold Bloch Leibler

    Joey Borensztajn

    Australian Charities and Not-for-profits-Commission

    Mel Yates

    Australian Federation of Disability Organisations

    Ross Joyce

    Australian Institute of Company Directors

    Christie McGrath

    Catholic Social Services Australia

    Joe Zabar

    Centre for Social Impact, Swinburne University of Technology

    Krystian Seibert

    Clubs Australia

    Anthony Trimarchi

    Community Council for Australia

    David Crosbie

    EY

    Amanda Spinks

    Giuntabell

    Nunzio Giunta

    Justice Connect

    Sue Woodward

    Law Council of Australia

    Jennifer Batrouney

    PricewaterhouseCoopers

    Judy Sullivan

    Prolegis Lawyers

    Jae Yang

    Salvation Army

    John McIntosh (Co-chair)

    The Tax Institute

    Bridgid Cowling

    Treasury

    Jacky Rowbotham

    Treasury

    Nick Berger-Thomson

    Apologies

    Apologies are listed below.

    Organisation

    Members

    Australian Institute of Company Directors

    Phil Butler

    CPA Australia

    Ram Subramanian

    Justice Connect

    Juanita Pope

    Philanthropy Australia

    Sarah Wickham

    Prolegis Lawyers

    Anne Robinson

    University of NSW Business School

    Fiona Martin

      Last modified: 13 Nov 2019QC 60600