2022 was a significant year of change and progress for the charity and not-for-profit (NFP) sector in Australia – numerous governance and regulatory changes were announced and will come into effect from 2023. If you are heading up a charity or NFP or sit on its board, consider the key matters in the links below as we start 2023.
Your 2022 checklist
Director Identification Number
Directors of NFPs and charities that are companies registered with the Australian Securities and Investments Commission (ASIC) (including incorporated associations with an Australian Registered Business Number and Aboriginal and Torres Strait Islander corporations) were required to obtain a Director Identification Number (Director ID) before 30 November 2022. Directors were given an additional two-week grace period (which ended on 14 December 2022) as it was believed that up to 700,000 directors had not yet obtained a Director ID at that time. Directors who have not obtained a Director ID are encouraged to do so now as a matter of urgency to avoid any penalties. Apply online at abrs.gov.au/directorID.
Annual reporting to the ACNC
Charities with a reporting period of 1 July 2021 to 30 June 2022 should have lodged their 2022 Annual Information Statement (AIS) on the 2022 AIS Hub by 31 January 2023. The AIS should have complied with the new reporting requirements for charities which came into effect on 1 July 2022. These include:
To support ongoing compliance, charities should familiarise themselves with the changes and ensure they have systems, processes and controls in place to enable reporting.
Requirements for Deductible Gift Recipients to be a registered charity
Most categories of Deductible Gift Recipients (DGRs) are now required to be registered charities with the Australian Charities and Not-for-profits Commission (ACNC) or be operated by registered charities. As set out in our previous article, ‘affected DGRs’ had a transitional period of up until 14 December 2022 to become registered charities or to apply to the Australian Taxation Office (ATO) to request for an extension of up to three years (up to 14 December 2025). Moores can assist if these changes have affected your organisation and you are yet to become a registered charity or apply for an extension, please get in touch with us.
Other noteworthy changes in 2022
The ACNC experienced significant change in 2022, its tenth year of operation.
Shortly after the federal election, Dr Gary Johns resigned from his position as Commissioner of the ACNC. Deborah Jenkins took up the role of Acting Commissioner from 1 August 2022 and served until 12 December 2022, when Sue Woodward AM commenced as the Commissioner. Ms Woodward’s appointment was warmly welcomed by the charity sector. She is widely respected for her expertise and experience as well as her significant contribution towards reforming fundraising laws.
Enhanced charity register
The ACNC launched its enhanced Charity Register in 2022, aimed at assisting users to more easily find details about the types of programs being run by charities. If your charity has not reviewed its ACNC charity records recently, it may be a good opportunity to undertake a review of your records to ensure that information about your charity and programs are accurate and up to date. This will also assist potential supporters and funders to readily locate your charity through the search functions. Since launching the enhanced Charity Register, the ACNC noted a 31% increase in searches throughout the last financial year.
A new Assistant Minister for Charities
Following the 2022 federal election and change of government, Dr Andrew Leigh was appointed as the Assistant Minister for Competition, Charities and Treasury. Dr Leigh promised to “end the war with charities” and pledged to:
- fix fundraising laws;
- double philanthropy by 2030; and
- support charitable advocacy.
The sector waits to see how Dr Leigh will implement these changes in practice. However, early signs have been positive, including the government’s recent announcement that it had removed restrictions in funding arrangements with legal aid organisations (i.e. community legal centres) which previously prevented them from engaging in political advocacy.
Amendments to the Corporations Act 2001 (Cth)
In 2022, the government amended the Corporations Act 2001 (Cth) (Corporations Act) to allow companies (including NFP and charitable companies limited by guarantee) to use technology or electronic means to:
- sign documents (i.e. minutes of meetings and resolutions and deeds);
- hold directors’ and members’ meetings (including hybrid meetings) provided certain conditions are met;
- provide (and receive from members or directors) notices and certain meeting related documents; and
- record and retain minute books.
These new, more flexible practices should be taken into account by companies, particularly when making meeting arrangements and reviewing affected provisions in your governing document.
DGR for pastoral care
Public consultation commenced early in 2022 regarding a new DGR category for pastoral care services. This proposal was short-lived, with confirmation in the 2022 Federal Budget that the initiative would not proceed.
Gaming and sporting associations
A new Taxation Ruling, TR 2022/2 Income tax: the games and sports exemption, replaced the ATO’s longstanding previous taxation ruling TR 97/22. The new ruling aims to provide a clearer and more nuanced definition of when a society, association or club will be exempt from income tax under the games and sports exemption in section 50-45 of the Income Tax Assessment Act 1997.
What you can expect in 2023
ATO and Income Tax Exemptions
NFPs that are not registered charities should prepare for impending changes regarding self-assessments for income tax exemption (ITE).
From 1 July 2023, the ATO will require NFP companies to lodge an annual self-review form along with supporting documentation in order to maintain eligibility for ITE. To assist organisations with complying with this new requirement, the ATO has produced a number of self-assessment tools including a self-governance checklist and an ITE self-assessing worksheet for sporting organisations and all other ITE categories. Since announcing the changes, the ATO has also continued its targeted consultation, which is likely to result in additional support and guidance materials to assist with the transition.
NFPs should give careful consideration to whether they are entitled to self-assess as income tax exempt. They should also consider whether their entity is able to be a registered charity, as the effect of the Income Tax Assessment Act 1997 (Cth) is that an entity that can be a registered charity must be a registered charity – it should not seek income tax exemption under another ITE category.
Proposed new Commissioner’s Interpretation Statements
In mid-2022, the ACNC commenced public consultation on the proposed updated Commissioner’s Interpretation Statements (CISs) for Public Benevolent Institutions and Health Promotion Charities. Public consultation on the proposed updated CISs has now closed. The sector awaits the ACNC’s response to submissions made in the consultation process. In the meantime, the current CISs continue to apply.
DGR register reform
The Australian Treasury (Treasury) has released a draft bill and explanatory memorandum which proposes to abolish the registers of Cultural Organisations, Environmental Organisations and Harm Prevention Charities and the current Overseas Aid Gift Deductibility Scheme. These reforms intend to reduce red tape and increase the processing time of DGR application, which would instead be processed by the ATO. For more information about these reforms see our article.
Treasury is engaging in a process of consultation with regards to the proposed reforms and has invited the public to comment on the matters set out in the exposure drafts. Submissions are open until 19 February 2023.
Beneficial ownership register
In late 2022, Treasury sought submissions, (which closed on 16 December 2022) in relation to the design features for a publicly available beneficial ownership register. This public register would require entities regulated by the Corporations Act (which includes many charities and NFP companies limited by guarantee) to maintain a register (parts of which would be publicly available) including details about beneficial ownership of assets.
The driver for these reforms is enhancing the tax integrity of multinational entities and to increase transparency about ownership of companies. There are concerns about how the proposed requirements would impact charitable and NFP entities, including introducing further record-keeping and compliance requirements as well as making public information that may have otherwise been undisclosed to date.
Strengthening the Australian Business Number system Bill
Treasury has also recently finalised its community consultation in relation to a new bill focused on strengthening the Australian Business Number (ABN) system in Australia. The bill proposes to enable the Australian Business Register (ABR) to cancel an ABN if a person or entity either:
- fails to lodge an annual income tax return for two or more years in a row (if required to do so); or
- fails to annually confirm with the ABR that their details are still accurate.
The bill in its current form would apply to all ABN holders, including NFPs and charities registered with the ACNC. Whilst Moores welcomes reforms focused on improving the accuracy of information on the ABR, there is concern about the impact that the implementation of the bill could have on the NFP and charity sector, including increased reporting requirements and the potential consequences of non-compliance. The sector awaits the published outcomes of the community consultation.
…and another thing
The ACNC has released new guidance for the sector on crypto-assets. Charities are encouraged to consider the risks and benefits before accepting donations or crypto-assets or investing in crypto-assets given that managing a charity’s financial affairs responsibly is a key requirement under Governance Standard 5 and the risks associated with crypto-assets are greater and harder to manage.
The ACNC has invited stakeholders to complete a survey and comment on its guidance note in relation to related party transaction reporting in the 2023 AIS. Comments are welcome before 10 March 2023 and the survey must be completed by 16 March 2023.
The Australian Institute of Company Directors (AICD) has launched its NFP Governance and Performance Study 2022-23, providing valuable insights into the sector.
The AICD has also made one hundred scholarships available for its 2023 Disability Leadership Program. This is a full-fee scholarship to undertake the AICD Company Directors Course, Foundations of Directorship Program or Governance Foundations for Not-for-profit Directors. Individuals with disability can submit an application by 19 February 2023.
How can we help?
Moores can help if you have any questions about setting up your NFP or charity for a successful 2023 or complying with any of the recent reforms.
Please contact us for more detailed and tailored help.
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