Most schools will be aware that land used for school purposes generally qualifies for an exemption from land tax in Victoria.
However, there are a number of nuances which can impact on this general position. In this article we highlight some of the potential traps which schools and other education providers should be aware of.
Land tax
Vacant residential land tax (VRLT)
There are three specific areas where we have noticed some of our education clients getting caught out with regard to land tax and VRLT.
Trap 1 – Not applying for an exemption
The charitable land tax exemption is only available upon application to the SRO. Certain evidence must be presented in support of the application, including evidence of specific non-profit provisions in the school’s constitution and evidence demonstrating the use of the land in question.
Once an exemption is granted, it is ongoing so long as the use of the land continues to satisfy the criteria for exemption.
If the use of the land changes so that it no longer qualifies for exemption, the SRO must be notified. If not, then penalty tax may be applied on top of normal land tax once the issue is detected.
Trap 2 – Sharing use of school facilities
Sharing use of school facilities can impact on your exemption status. In brief:
A more detailed exploration of the issue of shared use can be found in our previous article ‘Hiring out the hall in 2025 – Land tax and facility hire for charities‘.
If you are unsure about whether your particular shared use arrangements could impact on your land tax exemption, guidance can be sought from the SRO in the form of a private ruling application.
Trap 3 – Overlooking VRLT reporting
It is common for schools to have residential landholdings – these properties may be used as a principal’s or caretaker’s residence, be rented out to third parties, or held for future school development.
These properties will be subject to land tax, but they may also be subject to VRLT if they are not occupied by a person as their PPR for more than 6 months of the year. If such a vacancy does occur, then a VRLT notification needs to be made to the SRO by 15 February of the following year, otherwise penalty tax may be imposed on top of VRLT.
The Commercial Real Estate team at Moores has extensive experience assisting schools and other education providers in navigating the land tax and VRLT rules, and we would be glad to help you with any questions, exemption applications, private ruling applications or reporting in this space.
Please contact us for more detailed and tailored help.
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Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.
Is your not-for-profit (NFP) contemplating a merger? This is part four of a five-part article series that will offer some practical guidance to your board or merger advisory committee. Subscribe to receive the remaining articles in the series.
Due diligence is the process of obtaining and reviewing information in order to critically evaluate a potential merger partner. The primary purpose of due diligence is to assist the board to identify potential risks and issues that could impact a merger, ensuring that the board can make an informed decision regarding whether or not to proceed with the merger. Due diligence also assists to inform the choice of merger type (discussed in article 2) and identify issues that may need to be prioritised and addressed as soon as practicable following any merger.
The due diligence process should include:
The culmination of the due diligence process is a report that is provided to the board in order to inform and support its decision regarding whether or not to proceed with a merger agreement.
Some of the key considerations that should be taken into account in the due diligence review include:
A detailed analysis of the financial health of the prospective partner should be carried out to determine its ongoing financial viability. A review of donor and grant history as well as projected grant income will help inform the analysis. This work is often carried out as a discrete component of the due diligence process by a financial advisor who is experienced in working with not-for-profit organisations.
A complete list of assets (tangible assets and intangible assets – intellectual property and goodwill) and liabilities (security interests registered on the Personal Property Securities Register and mortgages recorded on any certificates of title) should be reviewed, including conducting appropriate searches.
These are the liabilities that will be transferred from the one entity to another (usually the acquiring NFP or the new merged NFP). Historical liabilities can create significant risks for NFPs in a merger. This is because child abuse liabilities in particular: do not have a limitation period; may be uninsured; and depending on the merger type and jurisdiction, may transfer between entities in a merger. It is important to assess the risk of historical liabilities – this will include reviewing the claims history of the organisation and enquiring about known historical issues. Part five of our article series will address historical liabilities in more detail.
If a merger will result in one or more NFPs closing, it will be necessary to provide for the transition of employees to the acquiring NFP (and for the redundancy of any employees who will not be retained). Ideally terms of employment will be substantially the same as or better than the employee’s current terms of employment. A substantial difference in the employee benefits between the two merging organisations may result in unanticipated costs if parity requires an increase for a number of employees. The acquiring NFP will also need to confirm the current status of leave entitlements, fringe benefits tax exempt benefits (relevant for Public Benevolent Institutions and Health Promotion Charities) and superannuation guarantee contributions. Other employment risks that should be considered in the due diligence process. These include (without limitation) the possibility of a wage underpayment (liability for which may be able to be traced to any parent entity) and any unresolved workplace disputes.
A comprehensive contracts register that tracks key information (including the name of the contract, whole-of-life costs, the supplier, the contract manager, the commencement and termination date and performance and payment milestones) should be prepared. A review of all contracts should be carried out to identify material risks and ascertain whether the contract can be novated or assigned (if appropriate).
Insurance documents will need to be reviewed to confirm that the prospective merger partner is appropriately insured.
The prospective merger partner’s privacy policy should be reviewed to confirm it allows for any disclosure of personal information, health information or sensitive information that is anticipated as part of the merger process. Any risk of significant non-compliance with privacy obligations should be also identified and assessed.
The anticipated efficiencies of a merger may be significantly impacted by an inability to integrate systems and data. An expert IT consultant can assist to review technology systems and data sets to determine how different technology systems might interact post-merger and give a considered assessment of the potential cost and complexity of systems integration.
Once the due diligence report has been prepared and submitted to the board, the acquiring NFP will need to determine whether or not to proceed with a merger agreement. This involves returning to any non-negotiables and merger principles established up front (discussed in article 3) as well as assessing identified risks in the context of the organisation’s risk appetite. It may also involve a review of cultural alignment – have any cultural red flags been identified in terms of the merger partner’s transparency and conduct during the due diligence process? Depending on the nature of the risks identified, it may be possible to choose a merger type and/or include conditions in the merger agreement that will assist to mitigate the risks.
Depending on the complexity of the merger, the due diligence process can be daunting and time-consuming. The Charity and Not-for-profit Law team at Moores can help with developing a fit-for-purpose due diligence strategy or assisting with the due diligence process.
Right now, church properties across the country are underutilised as a result of the government directions to slow the spread of Coronavirus. But churches (particularly those constructed in the last 30-40 years) typically have great car parking and large level spaces which can be easily adapted.
As the need arises (which is starting to happen now), church properties should be made available for COVID-19 testing stations. Apart from places of worship, there are not many properties that are better placed for this kind of activity.
Absolutely. Charities are required by law to use their assets solely to further their stated charitable purposes. It might seem that this use is not sufficiently ‘on purpose’ for a religious organisation. However, many various activities are an expression of faith. Churches hold car boot sales to connect with their communities. Plenty of other ancillary activities happen within religious organisations as part of its overall activities. This kind of activity is easily characterised as an expression of religious observance (eg, “love thy neighbour”).
Even if it was not strictly ‘religious’ in nature, it falls easily into the category of “other purposes beneficial to the community”. In our view no church would compromise any property tax exemptions by engaging in this kind of temporary use. Moores has been able to obtain confirmation from some revenue authorities that confirm this view.
Many church congregations are autonomous in relation to the day-to-day use of church property. Take steps to make connection between congregations and your relevant church property trust. And although Moores is not a broker for finding COVID-19 testing station sites, we are willing to help in any way we can.
Please get in touch if your church is in a position to “love thy neighbour” in this way. Do not hesitate to contact us here.
Much of the business of For Purpose organisations is necessarily conducted through meetings – both regular meetings of your responsible persons (your Board or Committee) throughout the year and a meeting (typically annual) of your members.
New social distancing measures will be in place for at least six months, with the possibility of enhanced restrictions. Current restrictions limit non-essential gatherings to less than 100 people with no more than one person per four square meters. For organisations with a significant number of members, in-person annual general meetings will no longer be feasible. Even if your annual general meeting or Board or Committee meeting might be compliant with social distancing, many organisations and individuals are likely to prefer not to meet in person at this time.
Here’s what you need to know before you schedule that video conference.
Your governing document (a constitution for companies or rules for associations) sets out how decisions are made by your responsible persons or members. A well-drafted governing document will provide for meetings to be held by technology and confirm that decisions made at those meetings are legally effective. For example, the ACNC template constitution for a charitable company limited by guarantee reads:
The company may hold a general meeting at two or more venues using any technology that gives the members as a whole a reasonable opportunity to participate, including to hear and be heard.
Unfortunately, many governing documents are silent on the use of technology or were prepared long before technology existed to facilitate voice or video conferencing (this is one of many reasons why you should dust off your governing document and make sure it is still fit for purpose). In this case, the legislation that applies to your organisation may help.
You also need to be aware of the requirements of your governing legislation.
Corporations
The requirements for companies limited by guarantee differ depending on whether or not your organisation is a registered charity.
If your organisation is not a registered charity, you may benefit from the “no-action” position taken by the Australian Securities and Investments Commission (ASIC). ASIC has advised that it will not take action against companies that breach their constitution by holding a hybrid (online and in person) or online only AGM. ASIC will also allow companies to defer AGMs due to be held on 31 May to the end of July. ‘No-action’ means you may still be in breach of your constitution or the Corporations Act, but ASIC will not act on the breach. Be aware that a vexatious member might not overlook the breach. There is detailed information here (albeit targeted at larger companies) about the position of companies limited by guarantee that are not registered charities.
The ‘no-action’ position for companies limited by guarantee applies to members meetings only. It does not apply to meetings of directors. The replaceable rules permit directors’ meetings by technology (if your constitution does not expressly exclude the replaceable rules or include a contrary provision).
If your organisation is a registered charity, its principal regulator is the Australian Charities and Not-for-profits Commission (ACNC), not ASIC. Although registered charities are exempt from the Corporations Act provisions which regulate meetings, they must comply with the Governance Standards. Among other things, the ACNC Governance Standards require you to be accountable to your members. This includes holding members’ meetings and complying with the provisions of your constitution that regulate meetings.
The ACNC has been proactive about relaxing requirements in the past for charities that have legitimate compliance challenges. For example, reporting deadlines were extended for charities affected by the bushfires. However, the current ACNC guidance falls well short of providing reassurance to registered charities that propose to extend their AGM date or hold a hybrid or online-only AGM in breach of their constitution due to coronavirus concerns.
Registered charities must also comply with the provisions of their constitution that regulate directors’ meetings. Your constitution may permit the use of technology or circular resolutions. If you’re unsure, seek advice to make sure that your directors’ resolutions are valid.
Associations
In some cases (such as all Victorian associations meetings and Queensland associations Committee meetings) the legislation permits associations to hold a meeting by technology even if the rules don’t expressly allow it. In other cases, you can seek an extension to your AGM date.
Again, associations would benefit from additional guidance from their State regulator and/or the ACNC (in the case of charitable associations).
A meeting held using technology must still meet the other requirements of your governing document. Don’t forget to:
If your organisation hasn’t used video conferencing to hold its meetings before, make sure you:
It is helpful to remind participants of the protocol before the session commences.
This is an issue that may last from some time, or could recur in the future. Having the flexibility to hold an online Board, Committee or members’ meeting without compliance concerns is always valuable. Additionally, if your governing document predates technology or is silent as to the use of technology, there’s a good chance it may not include other important provisions too.
If you’d like advice about the provisions in your current governing document or how they might be updated, get in touch with the For Purpose team at Moores. Please do not hesitate to contact us here.
Memorandums of Understanding (MOUs) seem to be the weapon of choice in the for purpose sector. Commonly used to formalise joint projects and other collaborations between organisations, MOUs are popular because they are perceived to be a quick, informal and simple way to sketch out the terms of a relationship. Organisations need to be aware, however, that these seemingly innocuous documents can lead to confusing situations that might require legal advice to untangle, or leave one party exposed to risk.
This article looks at the top four things not-for-profit organisations should consider when entering into MOUs.
Before considering the content of the agreement, organisations should first consider whether a MOU is appropriate for what they are trying to achieve. Although MOUs do not have a set definition in law, they are generally understood to be a non-enforceable written understanding between two or more organisations.
This expectation of non-enforceability is the key characteristic of a MOU. It allows organisations to record their understanding and expectations without the deliberation required for a formal contract. This means that a MOU can be simple and cost-effective to prepare.
However, the strengths of a MOU – non-enforceability and easy preparation – are also its weaknesses:
The nature of a MOU means that it is better suited for informal or good-will based collaborations of low value or low risk, such as:
A more formal, enforceable agreement is more appropriate for:
The key questions for organisations considering entering into a MOU is – how severe could the consequences be for our organisation if the other party does not meet their obligations and we cannot enforce this agreement? If you need to be able to enforce an agreement, it is best to use a properly drafted contract.
Even in the most informal relationships, it may be appropriate to have some terms that will be enforceable and can even survive the termination of the relationship. These need to be clearly distinguished from the rest of the MOU and may deal with matters such as confidentiality and non-disparagement.
Some organisations prefer a MOU precisely because it is non-enforceable – they don’t want the agreement to be able to “come back to bite them”. Organisations should be aware that simply describing a document as a “Memorandum of Understanding” or “Heads of Agreement” does not automatically make it legally unenforceable. It is not uncommon to see “MOUs” that are actually legally binding contracts.
The question is whether the parties intended to create a legally binding relationship. This will depend partly on the circumstances surrounding the MOU, and partly on the wording of the document itself. A clause stating “nothing in this MOU is intended to create legally binding obligations” is a great start. On the other hand, a MOU that is silent on intention but includes a large amount of detail (like specifics of the services one party will deliver, how they will be remunerated and consequences if the parties don’t meet their obligations) could in fact be a contract.
A key risk with a MOU that is a “contract in disguise” is that it will often not have been prepared with the care and deliberation that should go into an enforceable contract. It may also not have been through any requisite Board approval process.
There are essential matters MOUs should address. These help to ensure that the document is practical, comprehensive and captures matters that otherwise may be merely recorded in meeting notes and through chains of emails. A well drafted MOU will give clarity to all parties and help them to confirm that they are on the same page before they get started.
At a minimum, MOUs should address the following:
Depending on the scope of the MOU, it may also be useful to cover details like definitions, interpretation, relationship to other agreements and use of intellectual property.
Organisations should give careful consideration to whether an MOU is the appropriate way to set out the terms of a collaboration or joint project. Any MOU must be carefully prepared to ensure that it does not leave your organisation exposed.
Our For Purpose team regularly helps clients to appropriately document the terms of their relationships with project partners. If you have a query, please do not hesitate to contact us.
In August 2019 , the charity status of five organisations was revoked, while another charity entered into a compliance agreement with the ACNC. With a broad range of enforcement powers available to the ACNC, how should a charity facing investigation respond to ensure the best outcome for that charity and its beneficiaries?
All charities are required to comply with the ACNC Governance Standards and, if the charity has overseas operations, the External Conduct Standards (the Standards) in order to remain registered as charities and eligible to receive charity tax concessions. If the ACNC becomes aware of a potential failure to comply with these Standards, it may carry out an investigation. The purpose of the investigation is to obtain and critically review information and documentation from the charity to assess whether the Standards have been breached. If the ACNC finds that there has been a breach of the Standards, it may exercise its compliance powers – including, in the most serious cases, revocation of charity registration – in accordance with the ACNC’s Regulatory Approach.
Compliance with the Standards is a governance matter, not an operational matter. A charity’s responsible persons (the Board, Committee or Trustees) should be immediately informed of any ACNC compliance action. Any notice of investigation should be circulated to all responsible persons and a meeting convened as soon as possible. A charity’s responsible persons should be actively involved in determining how the charity will respond to an investigation and settling any formal written response to the ACNC.
An ACNC notice of investigation typically includes a request for the provision of a detailed and extensive range of documents and information. The deadline for providing this documentation and information is usually short – a matter of weeks – and the ACNC may refuse to grant an extension. It is prudent to instruct trusted administrative staff, professional advisers or volunteers to begin collating this material immediately, even if the charity’s responsible persons have not yet been able to meet.
Due to secrecy provisions, there is limited information available about how the ACNC has managed compliance actions in the past. This can create some uncertainty about how the ACNC will respond to a particular compliance matter. One thing is certain, however – ignore the ACNC investigation, obfuscate or fail to cooperate and the ACNC’s response will escalate. It is critical that a charity facing investigation communicates with the ACNC, meets deadlines (or seeks extensions if absolutely necessary) and provides the information sought in a clear and comprehensive format. Don’t put your head in the sand – an ACNC investigation won’t go away if you don’t address it.
Compliance is, in part, a question of context. There is no universal way to apply the Standards. The Standards are, broadly, principles based. This means that each charity must determine how it should apply the principles set out in the Standards in its particular context, including its purpose, size, operations, beneficiaries and other stakeholders. When responding to an ACNC investigation, the charity’s story and context may be critical to explaining conduct that might otherwise appear to be a breach of the Standards.
Most charities that assess their governance and operations closely against the Standards will identify areas for improvement. A prudent charity will proactively make improvements in the course of an investigation. Improvements made can be communicated to the ACNC as part of the response to the investigation, rather than waiting until the ACNC identifies the organisation’s shortcomings and requires them to be addressed.
A lot is at stake in an ACNC investigation. An experienced charity lawyer can assist throughout the process – from understanding the scope of any request for documents and information, to assisting the organisation to articulate and explain its context, identifying areas of non-compliance and recommending improvements. For this reason, it’s important to bring any advisers on board early.
An ACNC compliance investigation usually requires a significant investment in terms of time spent collating documents, reviewing an organisation’s operations and governance and preparing a response. Nothing focuses the collective minds of a charity’s responsible persons and executive team quite like an ACNC investigation. When done well, however, a considered and strategic response to an ACNC investigation will not only mitigate the risk of ACNC compliance action, it will result in improvements to the charity that will ensure its good governance well into the future.
Moores’ For Purpose team provides strategic and practical advice to charities experiencing change and crisis. To find out more, please do not hesitate to contact us.
[1] [see section 70-1 ACNC Act 2012]