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Phil Shepherd Pitcher Partners

Beyond the reform…strategising for growth. Phil Shepherd Pitcher Partners. Contents. ACNC Purpose Impact on your organisation Tax Reform Current position Proposed changes Impact on your organisation. Purpose of the ACNC.

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Phil Shepherd Pitcher Partners

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  1. Beyond the reform…strategising for growth Phil Shepherd Pitcher Partners

  2. Contents • ACNC • Purpose • Impact on your organisation • Tax Reform • Current position • Proposed changes • Impact on your organisation

  3. Purpose of the ACNC • The Australian Charities and Not for Profit Commission (ACNC) is now operational • Intended to: • Maintain protect and enhance public trust and confidence • Robust, vibrant, independent and innovative sector • Reduce red tape • Responsibilities: • Registration of charities • Assist in meeting obligations • Maintain free searchable database of registered charities • Charity Passport • Monitoring and enforcing compliance

  4. Impact on Your Organisation • Registration • Reporting • Governance

  5. Registration with ACNC • Registration with ACNC is voluntary, however charities and at a later stage other NFP’s must be registered to access certain Commonwealth concessions & benefits • Must meet governance standards as of 1/7/2013

  6. Reporting • Key dates: • Financial Reporting Framework and Governance Standards from 1 July 2013 • Annual Information Statement 31 December 2013 • First Financial Reports to be lodged 31 December 2014 (for entities with revenue greater than $250k)

  7. Reporting – Impact on you • Review of: • Financial reporting systems & procedures • Accessibility of information • Budgeting and forecasting • Required to be proactive • Have the answers to the questions

  8. Governance • 5 Governance standards: • NFP nature and charitable purpose • Accountability to members • Compliance with Australian laws • Suitability of board members • Duties of board members

  9. Governance • Board members must: • Understand role • Ensure delivery of purpose • Exercise effective control • Act with integrity • Be accountable • Commissioner has the power to suspend or remove a Director

  10. Tax Reform – Current Position • Depending on the type of Not for Profit: • Income Tax exemption • FBT exemption or FBT rebate (up to a cap) • GST concessions • Tax deduction for Donations • Refund of Franking credits

  11. Tax Reform – Current Position 1 2 1 Charities that are endorsed as deductible gift recipients or specifically listed in the Income Tax Assessment Act 1997 can receive deductible gifts Deductible gift recipients are generally charities that also have income tax exemptions, but an income tax exemption does not automatically flow from an entity having DGR status 2

  12. Statutory Definition of Charity • Charities Bill was passed in July 2013 • Definition of Charity: • it is not-for-profit; • it has all charitable purposes (other than ancillary or incidental purposes that further or aid the charitable purpose) that are for the public benefit; • it does not have disqualifying purposes; and • it is not an individual, a political party or a government entity.

  13. Proposed changes It’s not law yet, but if the Government gets their way... • For those NFPs that are tax exempt • Profits from unrelated commercial activities will become taxable where the profits are not used for the activities of the entity that allows its income to be tax exempt • Proposed start date: • 1 July 2014 for activities that commenced after 10 May 2011 • 1 July 2015 for activities that commenced before 10 May 2011

  14. Proposed changes Will not apply to: • Passive investments (such as rent and interest) • Small scale and low-risk unrelated commercial activities • Government service delivery contracts entered into before 11 May 2011 • Commercial activities that further the NFP charitable purpose, including “NFP hospitals, op-shops that sell second hand household items and clothing at discounted prices to disadvantaged members of the public, NFP childcare centres, and charities whose purpose is to provide meaningful employment to disabled persons”

  15. How taxing rules might apply Not for Profit Refund of tax on profits remitted 100% owned Company or Trust Entity pays tax on profit if retained

  16. NFP Tax Concession Working Group • Established February 2012 • To examine what changes should be made to the tax concessions provided to the NFP sector • Fairer, simpler & more effective? • Discussion paper released 2 November 2012

  17. Discussion Paper • Reforms will have to be tax neutral • Some of the issues flagged: • Extend DGR status to all charities? • But pay for extension of DGR status by including meal entertainment & entertainment facilities in the FBT caps? • Include a public benefits test for tax exemption? • Stop employees from accessing more than one FBT cap? • Longer term – remove FBT concessions and replace with government support? • Increase threshold for a deductible gift from $2 to $25? • Provide a tax deduction for testamentary gifts? • Impose tax at a concessional rate on gaming, catering & entertainment activities for Not for Profit clubs? • Repeal the principle of mutuality (that exempts income from tax) for something not as broad?

  18. What other changes are on the way? Generally DGRs will need to operate & pursue their purpose solely in Australia Other entities will need to operate principally (greater than 50%) in Australia to be exempt Taxing of retained profits from unrelated commercial activities that commenced before 11 May 2011 Further changes to tax concessions arising from “Not for Profit Sector Tax Concession Working Group” Reform of Charitable Fundraising Regulation

  19. Impact on your organisation • Review all new unrelated commercial activities that commenced after 11 May 2011 • Determine if exempt from being taxed because either: • Passive • The commercial activity is consistent with the entities altruistic purpose (e.g. op shops) • Determine extent to which profits are not directed back to altruistic activities • Start to provide for any tax liability • Confirm your organisation meets the new definition of a ‘Charity’

  20. Impact on your organisation • If operating overseas, determine if it will affect access to tax concessions • Consider whether restructuring may be required to maintain tax concessions • Can you partner with other organisations? • Consider JV’s, mergers, acquisitions • Stay in touch with changes, as the detail is yet to be finalised

  21. Questions???

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