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  • Not-for-profit Stewardship Group minutes 9 November 2016

    Meeting details

    Venue

    Canberra

     

     

    Date

    9 November 2016

     

     

    Start

    10.00am

    Finish

    3.00pm

    ATO co-chair

    Rod Walker, NFP Strategy Team and Client Experience

     

    Community co-chair

    Joe Zabar, Catholic Social Services Australia

     

    Contact and secretariat

    Gess Sottile

    Phone

    02 6216 2264

     

     

     

     

    Attendees

    ACNC

    Murray Baird, Assistant Commissioner and General Counsel

    Arts Law Centre

    Robyn Ayres, Executive Director

    Australian Centre for Philanthropy and Nonprofit Studies, QUT

    Prof. Myles McGregor-Lowndes, Director

    Australian Institute of Company Directors (AICD)

    Phil Butler, NFP Sector Leader

    Catholic Social Services Australia (Co-Chair)

    Joe Zabar, Director Strategic Policy and Engagement

    Giuntabell

    Nunzio Giunta CPA, Managing Director

    Herbert Smith Freehills

    John Emerson, Consultant

    Jobs Australia Ltd

    David Thompson AM, CEO and member of the Board of the National Roundtable of Nonprofit Organisations

    Justice Connect

    Sue Woodward, Not-for-profit Law (for Juanita Pope)

    Law Council of Australia

    Jennifer Batrouney QC, Chair of the Law Council’s NFP Legal Practice and Charities Committee (by phone)

    Prolegis Lawyers

    Anne Robinson AM, Founder and Principal

    Salvation Army

    John McIntosh, Charities Tax Advisory Service

    Tax Institute

    Michelle Hartman, Partner, Deloitte Touche Tohmatsu

    Treasury

    David Pullen and Eliz Duffy (for Murray Crowe)

    ATO

    Martin Jacobs, Assistant Commissioner, Technical Excellence and NFP experience lead

    Rod Walker, Senior Director NFP Strategy and Client Experience

    Mark Ferguson, Manager NFP Policy & Law

    Albert Beric, Director NFP Risk and Strategy

    Matthew Petersen, NFP Risk Manager

    Ilana Millar, Assistant Commissioner, Tax Counsel Network

    Robert Drummond, Assistant Commissioner, Business Reporting and Registrations, Operations

    Sally Bektas, Acting Assistant Commissioner Marketing and Communications Audience Teams

    Justin Dearness, Acting Assistant Commissioner Technical Excellence Services

    John Shepherd, Assistant Commissioner, Single Touch Payroll

    James Finley, Senior Director, Technical Excellence Services

     

    Gess Sottile, Secretariat, ATO NFP Strategy Team, NFP Reinvention

    Apologies

    Murray Crowe, Principal Advisor, Treasury, Individuals and Indirect Taxes Division

    Juanita Pope, Director for Not-for-profit Law, Justice Connect

    Krystian Seibert, Manager Policy & Research, Philanthropy Australia

    Tim Dyce, Deputy Commissioner and NFP Client Experience Owner

    Next meeting 8 March 2017, Sydney.

    Record of meeting

    Welcome

    The Community Co-chair opened the meeting and outlined the agenda for the day.

    Martin Jacobs from the ATO was introduced to the group; Martin is now the ATO’s NFP experience lead in place of Tony Poulakis. Sally Bektas, new Assistant Commissioner (acting) for Marketing & Communications was also introduced to the group. Each was given the opportunity to explain their role to the group.

    The progress of action items from the 13 July 2016 meeting were discussed and it was noted that the unactioned items will be considered as part of the work of the newly established Communication and Engagement working group.

    Confirmation of 13 July meeting notes

    The record of the 13 July 2016 meeting was confirmed and is now available.

    Improvements delivered for not-for-profits

    The ATO Co-chair outlined for the group changes aimed at improving ATO processes and offerings and assisting better NFP/ATO engagement and compliance, including:

    Questions and answers

    • Does the ATO know if there has been a change in the quality of interactions between not-for-profits and the ATO?
      • The changes have not been in place long enough to say definitively. Effectiveness measures are in place and the ATO intends to measure the effect of the changes and will report on these.
       
    • Good work so far in promoting the work of this group – next steps?
      • The ATO will discuss promoting the work of this group as part of the Communication and Engagement working group including consideration of different channels for getting messages out to the community.
       
    • What is the ATO learning from engaging with the largest NFPs ($1b turnover or $500m net assets) through one-on-one conversations?
      • The ATO is in the process of evaluating the experience and also in the process of refining the criteria for selecting new clients to add to the program.
       

    What the ATO heard

    • When undertaking surveys to understand the not-for-profit population the ATO should use the international taxonomy for classification purposes – the ACNC and the ABS use this and if the ATO follows their lead then it will be easier to make comparisons with other data.
    • In relation to understanding behaviour around workplace giving, the outcomes of the Giving Australia project is likely to include insights into what the administrative irritants may be for employees, employers and not-for-profits. Giving Australia 2016 launched | Community Business PartnershipExternal Link.
    • Not-for-profits are ‘surveyed out’. There is a lot of information already available that should be tapped into. Some, including the Australian Institute of Company Directors noted reduced response rates to recent surveys.
    • If the ATO surveys not-for-profits or involves them in consultation events then it is important to tell the participants the results.
    • In relation to redesign of websites and content – the concept of having to go to a specific website to look for information is starting to become ‘old fashioned’. The challenge is to find out which organisations don’t know what they are supposed to be looking for. Push information to the right clients at the right time.
    • In relation to secondment program – the ATO should look at what other government agencies are doing, including state and territory governments.

    Australia’s response to Financial Action Taskforce (FATF) Recommendation 8

    The ACNC provided an update about Australia’s response to Financial Action Taskforce (FATF) Recommendation 8 as follows:

    Information about the Financial Action Taskforce (FATF)

    FATF was established 1989 with 35 nations to set standards and implement measures to combat money laundering, terrorist financing and other threats to the integrity of the international financial system.

    Its standards are called recommendations and for today’s purposes, recommendation 8 is relevant to non-profit organisations and requires countries to:

    Review the adequacy of laws and regulations that relate to non-profit organisations which the country has identified as being vulnerable to terrorist financing abuse. Countries should apply focused and proportionate measures, in line with the risk-based approach, to such non-profit organisations to protect them from terrorist financing abuse, including: 

    1. by terrorist organisations posing as legitimate entities; 
    2. by exploiting legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset-freezing measures; and 
    3. by concealing or obscuring the clandestine diversion of funds intended for legitimate purposes to terrorist organisations. 

    The Mutual Evaluation of Australia

    FATF conducted its Mutual Evaluation of Australia with a site visit in August 2014 and a report published in April 2015. Australia was rated non-compliant with recommendation 8 with:

    'Australia has not implemented a targeted approach nor has it exercised oversight in dealing with non-profit organisations (NPOs) that are at risk from the threat of terrorist abuse. Authorities have not undertaken a review of the NPO sector to identify the features and types of NPOs that are particularly at risk of being misused for TF.'

    In relation to the ACNC the Report said:

    'Australia has a general charity regulator, but its focus is on voluntary registration (mainly for tax purposes) and not on TF. About 40 000 of the estimated 140 000 NPOs with legal personality, and 20 000 without legal personality, have registered. No TF-related risk assessment has been conducted, no TF-related monitoring and limited TFS-related outreach has taken place.'

    The Report makes the following recommendation:

     'Australia should implement a targeted approach in relation to preventing NPOs from TF abuse. As a first step, Australia needs to undertake a thorough review of the TF risks that NPOs are facing (beyond the issues already covered in the NRA) and the potential vulnerabilities of the sector to terrorist activities.'

    What is the National risk assessment into the NFP Sector

    The national risk assessment aims to build a better understanding of the extent, nature and types of money laundering and terrorism financing risks that the not-for-profit sector faces.

    This aims of the risk assessment is to identify:

    • the risk of money laundering and terrorism financing in the not-for-profit sector
    • what are the key vulnerabilities and risk indicators of high-risk organisations
    • which are the high risk groups that will benefit from targeted outreach and support
    • what are the vulnerabilities that could be exploited to support terrorism
    • a strategy to counter these vulnerabilities

    The assessment is being led by AUSTRAC but the team includes the ATO and the ACNC who are working closely with ACFID.

    It is important to make sure that the sector has a voice within the risk assessment and that it clearly reflects their experiences and insights.

    There is a new web page with further information about risk assessment www.acnc.gov.au/nfpriskExternal Link.

    See also:

    Questions and answers

    • What is the scope of the review?
      • This review covers the whole of the not-for-profit sector.
       

    Single Touch Payroll update

    Following a presentation from the ATO’s Assistant Commissioner for Single Touch Payroll, members provided feedback on the initiative.

    Questions and answers

    • Is there capability to send out alerts?
      • An alert functionality is still in the design phase and is expected to be optional for clients.
       
    • Has any consideration been given to addressing the costs incurred by not-for-profits to change or update their technology and software?
      • No, this has not been considered for not-for-profits. Some software developers are absorbing the cost for their employer clients.
       

    What the ATO heard

    • It is important to leverage natural cycles.
    • Any alert functionality should be the same experience for all clients, important that alerts go out to all clients in the same way.
    • Many not-for-profits engage an intermediary to help them meet end of year obligations. This initiative may cause the loss of this expert assistance at end of year.
    • The ATO needs to consider education support for rural and sporting organisations for example, around how to deal with cash payments or goods in lieu of cash.

    Division 50-50 Working Group Workshop

    The ATO outlined its views on the policy intent and administration of the special conditions, specific concerns which had been raised by not-for profit representatives about their operation, and approaches of the ATO to supporting the case for law reform. Specific issues discussed were:

    • the governing rules special condition;
    • the operation of the solely special condition for examples where an entity pursues purposes or conducts activities which are incidental or ancillary to the purpose for which it is established;
    • the operation of the special conditions for minor, inadvertent and/or remediated breaches; and
    • the Taxation Ruling TR 2015/1.

    The views were discussed by the group.

    The group then discussed and decided on next steps. It was recognised that not for profit representatives have a responsibility to provide clear examples to help make a strong case for law change to government.

    Action item:

    Due date:

    Responsibility:

    NFPSG 30 - 16 ASAP ATO and Law Council member

    The ATO and Law Council will initiate and coordinate the drafting of options for addressing the issues discussed with a strong evidence base, engaging with the Division 50-50 working group including the Treasury.

    Compliance update

    A compliance update was provided by the ATO’s Director NFP Risk and Strategy and the NFP Risk Manager:

    • The ATO undertakes an annual assessment of the not-for-profit risk landscape which feeds into the program of work for each financial year. This is an important initiative and the current process is expected to be completed in March 2017. This is a robust process that includes consultation with the ACNC. The ATO is very keen for this group to provide input into the process and will be contacting members early next year to share findings and to ask for comments and feedback.
    • Private ancillary funds are considered a higher risk population, as they are closely held entities and they hold significant assets, so they remain a key focus for the ATO’s compliance strategy. The ATO undertakes regular monitoring and compliance work on private ancillary funds and recently focussed on late lodgment of Ancillary Fund Returns and noted an improvement in lodgment rates. A recent campaign resulted in 127 lodgments, five were found to have wound up and some cases were marked for further action. Some reasons for non-lodgment included being unaware of the obligation, confusion about the nexus between ATO and ACNC obligations or simply an oversight. With the commencement in 2017 of registered charity ancillary funds reporting only to the ACNC these issues are expected to lessen. Other ATO focus areas include:
      • related party transactions and indirect benefits and working to test some assumptions about these issues
      • looking at donations of shares from privately held companies where there is a relationship with the donor; for example, where money or assets are appearing on the books but ownership is not transferred
      • looking at non arms-length transactions such as loans
      • checking the application of minimum distribution rates.
       
    • At the time of the meeting the ATO had 110 reviews or audits on hand and was noticing some clusters of issues including self-assessing public education institutions that are closely-held and being run for the benefit of associates.

    Questions and answers

    • The ATO asked if there is value in being transparent about its compliance approach for not-for-profit issues. For example, information in the Not-for-profit segment tab on the ato.gov.au homepage?
      • Yes.
       
    • Is there active examination of self-assessing entities that are possibly charities?
      • Yes, the ATO has recently undertaken reviews of the higher risk larger type entities and has contacted these entities to confirm their status; and the majority have now registered with the ATO. The ATO now plans to look at another larger pool with lower turnover.
       

    What the ATO heard

    • The ATO should consider looking at crowd funding as an issue.
    • The ATO should consider looking at the DGR review questions as they are too standardised. For example, in relation to school building funds there are not enough questions about ‘is it a school?’
    • A lot of smaller entities have not registered as charities because they lack the resources.

    ABR issues update and transforming the ABR presentation

    The ATO’s Business Reporting and Registrations representative provided the following update on ABR issues.

    Entity swaps and moves

    The group were provided with information in relation to clients changing business structures. The turnaround time for entity swaps and moves is now an average of 30 days, down from the previous turnaround of up to 12 months.

    DGR status on ABN Lookup

    Incorrect posting of deductible gift recipient status on ABN Lookup has reduced. If members notice errors, please send details to NFPStewardshipGroup@ato.gov.au.

    Fund names not showing

    There is an issue for a small group of clients where the fund name is not displaying. Work is underway to understand why this is happening.

    Keeping authorised contact details up-to-date

    Work is underway in partnership with the ACNC to find ways to share data about changes to authorised contacts that are reported to the ACNC by registered charities.

    Action item

    Due date

    Responsibility

    NFPSG 31 - 16 March 2017 Robert Drummond

    Provide an update on the progress of work with the ACNC to find ways to share data about changes to authorised contacts and responsible persons that are reported to the ACNC by registered charities. 

    Discussion

    • Responsible persons - the following issues cause frustration and concern for not-for-profits and their advisors:
      • There is apparently no link between having an AusKey and being a responsible person.
      • The different requirements to be a responsible person for ACNC and ATO.
       

    Transforming the Australian Business Register

    The ATO’s Business Reporting and Registrations representative sought feedback from the group on initiatives contained in a presentation about Transforming the Australian Business Register and explained that the key outcomes of this project are to:

    • reduce the cost to business in interacting with government
    • increase confidence in the system and improve outcomes for the community
    • provide access to valuable business information that government needs, when they need it to help business and the community.

    The vision is to have the ABR recognised and accepted as a trusted source of business information and to bring all government registers onto the same platform.

    The proposed initiatives are at the early stages of development and will need to be supported by law change.

    ATO Law update

    ‘in Australia’

    The ATO is waiting on Treasury advice before publishing a draft ruling on ‘in Australia’ for public comment.

    Treasury update

    The Treasury representative provided an update to the group.

    Other business

    Contacting the ATO

    Members were reminded that they can raise issues or submit questions to the ATO anytime via the NFP Stewardship Group inbox NFPStewardshipGroup@ato.gov.au.

    2017 Meeting dates:

    • 8 March 2017, Sydney
    • 19 July 2017, Melbourne
    • 8 November 2017, Canberra
      Last modified: 14 Mar 2017QC 51490