Almost 400 charities that failed to submit two or more ACNC Annual Information Statements (AIS’s) have lost their registration. In April 2022, the ACNC notified another almost 750 organisations that they also risked revocation for failure to lodge AIS’s (source: extract from ACNC media release of 19 May 2022).
This type of ACNC compliance activity should also be considered along side more targeted ACNC activities directed towards reviewing the integrity of data recorded on the ACNC Charity Register as well as making sure that only charities that are entitled to be registered are listed on the Register.
Is your organisation one of the ‘at risk’ charities?
As part of the ACNC risk-based approach to compliance, in the 2020-21 financial year it began a project of reviewing data published on the Charity Register. The aims of the review included to ensure data integrity as well as making sure that only charities that are entitled to be registered are listed on the Register.
The ACNC Charity Register contains information about charities’ purposes, activities, financial information, Responsible Persons, and the people they work to benefit.
The project reviewed charities in three areas:
- Charities endorsed as Deductible Gift Recipients (DGRs): Reviewing 2% of charities endorsed as DGRs annually to ensure they remain entitled to be registered.
- Charitable purposes and entitlement: Reviewing a selection of charities with certain risk factors to ensure they are maintaining their charitable purposes and entitlement to registration.
- Charity details: Reviewing charities to ensure they have provided all the information required to maintain registration.
On 2 June 2022, the ACNC released a report of the work undertaken and their initial findings. The outcomes of the integrity review project (in broad terms) were:
- charities where potential concerns were identified about their charity registration entitlement were required to rectify the risk areas within an agreed timeframe; and
- in cases of serious risk, where a charity was unable or unwilling to address the identified issues, the ACNC has revoked or is taking steps to revoke the registration or registered subtype(s). (Note – the registered subtype is relevant to determining matters like whether an organisation can access DGR or FBT exempt status as a public benevolent institution or health promotion charity).
It is TaxEd’s understanding that over time, the ACNC may expand their evaluation to include other areas for assessment that (in the ACNC view) could compromise public trust and confidence in the Australian not-for-profit sector.
Who were selected?
For 2020-21 the ACNC focus was on charities registered with public benevolent institution (PBI) subtype of which 303 were selected for the integrity review project.
An additional 577 non-DGR endorsed charities were also selected for review of their entitlement to registration, from which 413 were escalated for a more detailed assessment.
What measures were examined and end result?
Based on the ACNC report it would appear that a prime focus of the review, was on activities that a charity engages in and the extent to which those activities are directed towards achieving the charitable purpose(s) described in their registered subtype(s).
The end result of the 2020-21 completed case reviews were:
- 56% PBIs and 30 charities were requested to take action to rectify issues or concerns identified during the review process;
- 28% PBIs and 19 charities had their registration or one of their subtype registrations revoked;
- 15% PBIs and 4 charities had no compliance issues; and
- 8 charities assessment are still in progress.
The ACNC also reviewed certain elements of other data held on the Register that, in the ACNC’s view, could compromise the integrity of the Charity Register and possibly indicates that a charity is no longer entitled to registration. A total of 5,622 charities were identified to have errors in their charity details.
Common non-compliance issues
The most common issues found from the integrity review project include:
- a disconnect between a charity’s purpose(s) and the activities that it undertook to achieve that purpose(s);
- charities registered with subtypes that were not appropriate for their charitable purpose;
- a change in charitable purposes since initial registration or affected by changes in case law;
- PBIs failing to focus on benevolent relief or seek to address benevolent needs;
- PBIs having a non-benevolent purpose in addition to a PBI-related purpose;
- charities with purposes that may not be charitable;
- charities not having charitable purposes;
- cases where no governing documents had been submitted;
- cases where governing documents submitted were out of date and contained clauses that contradicted the not-for-profit and public benefit requirements of a charity;
- cases where not all responsible persons were listed;
- charities incorrectly registered as basic religious charity subtype;
- invalid requests for certain information to be withheld from the Charity Register;
- incomplete or late AIS reporting;
- charities with cancelled ABNs;
- charities no longer operating but not having applied to have their registration revoked; and
- charities that are government entities (a government entity generally cannot be registered as a charity).
Income tax exempt non-charity not-for-profits & new self-assessment reporting obligations from 1 July 2023
Income tax exemption is not conditional on being registered with the ACNC where an organisation is not a charity ( for example, a not-for-profit sports club).
Effective from 1 July 2023 non-charity income tax exempt not-for-profits (NFPs) with an active ABN will be required to submit an annual self-review return to the ATO in order to maintain their income tax exempt status. These reforms were announced as part of the 2021-22 Federal Budget (click here TaxEd September 2021 Tax Update). The ATO has released a range of self-evaluation tools (refer to this link) to assist with this self-review process. It is expected the ATO will issue more specific information relating to this new requirement later in FY 2022/23.
Non-charity DGR’s – new requirements to register with ACNC
We have also previously covered new obligations for certain DGR’s that have historically not been required to register as charity with the ACNC despite being entitled to DGR status.
These new obligations are summarised in our October 2021 TaxEd article and on the ATO website (click here).
Both of the above obligations add to the focus an organisation needs to place on being properly prepared when dealing with matters like ACNC registration or tax exemptions and the ongoing related obligations and entitlements.
Being prepared
In view of the increasing scrutiny from both the ACNC and the ATO, having a good governance framework is increasingly important.
As a minimum, a periodical (and possibly annual) self-assessment of an organisation’s entitlement to ACNC registration and various ATO and State/Territory tax concessions should be considered.
There are a range of self-evaluation tools released by the ATO (refer to this link) and the ACNC (refer to this link) to assist with self-assessment process.
Given the significance of ACNC registration and related matters such as income tax /FBT exemption and other State/Territory concessions organisations need to proactively monitor and manage these ongoing obligations/entitlements.
And as a final comment, where contact is made by the ACNC, an organisation should ensure that appropriate resources are directed to responding. A lack of response or inadequate response may prove a costly error.