From 1 July 2023, all charities registered with the Australian Charities and Not-for-profits Commission (ACNC) will be required to report related party transactions in their Annual Information Statements. These changes are part of the Australian Government’s reforms that were initially announced in mid-2021 with an aim to provide greater accountability to donors, charity beneficiaries and members of the public.
What is a related party transaction?
The term ‘transaction’ is defined by the ACNC to be a “transfer of resources, services, or obligations between related parties. It does not have to include financial payment.” A charity engages in a transaction if it is either giving or receiving the resources. This can include actions such as: purchases/sales, donations, loans, leases, guarantees, delivery of goods, resources or services, and the provision of employees or volunteers.
The ACNC defines the term ‘related party’ differently according to a charity’s size.
For small charities (annual revenue under $500,000), a simpler definition is used by the ACNC whereby a related party is “a person or organisation that is connected to the charity and has significant influence over the charity.” This includes responsible persons (directors, board members), senior managers, family members of those persons and others who may have influence over a charity’s decision making.
For all other charities, the ACNC adopts the definition of ‘related party’ that is used in the Australian Accounting Standards (AASB 124). Under that definition, a related party can be:
- a person that is connected to the charity or has control of the charity (responsible persons and family members);
- an organisation that is connected to the charity and has control or significant influence over the charity (i.e. a parent or related entity);
- an organisation that the charity has control or significant influence over, such as a subsidiary;
- a member of the charity’s key management personnel or a close member of their family; or
- an associate or joint venturer of the charity.
What must charities now do?
The ACNC has recently released guidance to assist charities to understand their new obligations and to provide charities with certainty about what transactions should be reported.
All charities will need to report on related party transactions in their Annual Information Statements submitted to the ACNC from 1 July 2023 onwards. If a charity notes that they have reportable related party transactions then they will need to select the type of related party transactions that they have engaged in from the following list:
- Fees paid to a related party for providing goods or services to the charity.
- Loans from or to a related party.
- Salary or wages paid to a related party’s relative.
- Transfer of charity property or assets to a related party.
- Charity goods or services provided at a discount to a related party.
- Significant use of charity property by a related party.
- Investment in a related party.
There will also be an ‘other’ option if charities wish to report on other forms of related party transaction not provided for in the list.
Charities will also be able to provide additional relevant information about these related party transactions if desired. For example, charities may wish to include details about the value of these related party transactions and how they have been managed.
Small charities will only need to provide details about ‘reportable’ related party transactions (the ACNC has supplied some examples in its guidance notes about when a related party transaction will be ‘reportable’). All other charities will need to provide details about ‘material’ related party transactions. The materiality of a related party transaction will depend on the context of a charity’s specific circumstances – charities will need to determine what is and is not material. Medium and large charities also need to provide details of related party transactions in their annual financial statements in accordance with the requirements of Australian Accounting Standards (AASB 124 and AASB 1060).
How Moores can help
To comply with these ACNC reporting requirements, charities should now be recording details about their related party transactions, including the value of these transactions and how they are being managed.
Moores is here to help your charity to put appropriate policies and procedures into place to ensure that you are able to comply with your financial reporting and statutory obligations. We can assist you to review key arrangements and agreements to ensure that they are complaint and in the best interests of your charity.
Please contact us for more information or guidance regarding any of the above.
Subscribe to our email updates and receive our articles directly in your inbox.