Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 20

What does the new charity regulator mean for trustees?

After almost two decades of reports and debate, a new regulator of Australian charities, the Australian Charities and Not for Profit Commission (ACNC), began operating late last year. If you are a director of a not-for-profit organisation, this change will have an impact on you. Similarly, trustees or directors of trustee companies for foundations will also be affected, so the potential impact is widespread.

The ACNC has been established as the dedicated charity sector regulator. The previous regime had different regulators (some state and some federal) for specific segments of the sector with the ATO being the de facto regulator and doing most of the heavy lifting on the critical matters around tax exemptions. There were both significant gaps and widespread duplication. The ACNC as a sector focused organisation brings together at least Commonwealth supervision with the purpose of maintaining and enhancing public trust in the sector, providing support and reducing red tape. The hope is that state apparatus will be now be unwound to remove the remaining duplication, and South Australia has already started that process.

This is important for foundation trustees because charitable trusts come within the ACNC’s jurisdiction for supervision and reporting and, as importantly, so do the many charities that trustees work with to implement their programmes.

Charitable trust and foundations

While it is often observed that the philanthropic sector in Australia is less developed than in the US in particular, there are over 6,000 charitable funds with income tax exemption. Australia’s 60,000 charities depend much more on government contracts for service provision and individual donor support for funding than they do grants from philanthropic foundations. But foundations are often the critical gap funders of the difficult, new and sometimes politically marginal projects. This mean foundations’ importance is greater than their simple dollar value.

Furthermore, there is a long history of foundations in Australia tracing back to the Wyatt Benevolent Fund origins in South Australia in the 1880s. There are also clear cases of significant impact including the National Gallery of Victoria’s world class collection that owes much to the 1904 Felton Bequest and the Miller homes in many Victorian country towns providing accommodation for poor pensioners for almost 100 years.

For trustees of private charitable trusts and testamentary charitable foundations arising from wills, the ACNC has become the first effective regulator. This means for most charitable trusts, explicit governance standards, information returns, and financial reporting for larger trusts (with income over $250,000 pa), are commencing. Some did argue that this is additional red tape, but the more balanced view is that trusts that receive significant public support through tax exemptions should at least report. There are trusts claiming in excess of $1 million in franking credit refunds that until now have not been required audited financial statements, let alone report to anyone.

While exemptions from probate or estate taxes up until the late 1970s encouraged philanthropy, growth in the philanthropic sector today is driven by tax-effective Public Ancillary Funds (introduced in 1963) and Private Ancillary Funds (introduced in 2000 as Prescribed Private Funds).  More than 1000 wealthy families and individuals have now structured their giving through a Private Ancillary Fund. Community foundations, wealth advisers and others are now widening the scope and reach of Public Ancillary Funds through the use of subfunds to open options for structured philanthropy to more people. Both structures allow individuals and families to get actively involved in their community through increased philanthropy and offer tax deductible donations. Ancillary Fund trustees are used to reporting to the ATO under their respective guidelines, so the new regime brings little substantive change. Most Private Ancillary Funds and Public Ancillary Funds are already under ACNC supervision with the remainder (those having opted to become an Income Tax Exempt Fund) likely to transition under the Statutory Definition of Charity Bill. At this stage, the Annual Ancillary Fund Return is still required to be lodged with the ATO. To underpin continued growth the Government acted in May this year on its commitment to allow those individuals who have established Private Ancillary Funds but want to keep their giving private to do so as long as they continue to adhere to the compliance and reporting requirements.

Wider charitable sector supervision

All foundations, irrespective of their legal structure, implement their charitable purpose through grant-making to charities that actually run the programmes in the Australia or overseas. So in terms of  foundations’ grant-making programme, the ACNC will regulate governance and reporting aspects of those charities and will make more readily available sector and organisation specific information. This is welcome and will facilitate cost effective and non disruptive due diligence by all foundations as part of their grant-making processes. Hopefully the ACNC itself or others will develop smart apps to enable ready access to and analysis of the public access component of ACNC database.

The ACNC legislation has been generally welcomed by the sector. The Coalition opposed the legislation on the basis the sector did not need more regulation and has indicated it will scale back the ACNC’s regulatory powers should it win the September election.

But perhaps the greatest opportunity for the sector is in the ACNC mandate to reduce red tape for charities to allow them to focus resources on implementing effective programmes and not administration and filling in forms. Progress on removing the varying state requirements, which are a serious administrative burden particularly for national charities, will be a critical ‘success’ benchmark. This will require state and federal co-operation with all the politics that involves. One would hope that with all state governments focused on deficit reductions, maybe the opportunity to utilise the one federal regulator will become compelling.

So the ACNC has some challenges, but for the first time the sector has a dedicated regulator.

David Ward is Technical Director at Australian Philanthropic Services.


 

Leave a Comment:

     

RELATED ARTICLES

Maximising the impact of charitable giving

Ten funding models for nonprofits

banner

Most viewed in recent weeks

Three steps to planning your spending in retirement

What happens when a superannuation expert sets up his own retirement portfolio using decades of knowledge? He finds he can afford much more investment risk in his portfolio than conventional thinking suggests.

Finding sustainable dividend stocks on the ASX

There is a small universe of companies on the ASX which are reliable dividend payers over five years, are fairly valued and are classified as ‘negligible’ or ‘low’ on both ESG risk and carbon risk.

Among key trends in Australian banks, one factor stands out

The Big Four banks look similar but they are at fundamentally different stages as they move to simpler business models. Amid challenges from operating systems, loan growth and neobank threats, one factor stands tall.

Why mega-tech growth are the best ‘value’ stocks in the market

They are six of the greatest businesses ever and should form part of the global portfolios of all investors. The market sees risk in inflation and valuations but the companies are positioned for outstanding growth.

How inflation impacts different types of investments

A comprehensive study of the impact of inflation on returns from different assets over the past 120 years. The high returns in recent years are due to low inflation and falling rates but this ‘sweet spot’ is ending.

How to manage the run down in your income in retirement

The first of five articles on modern retirement income products that aim for an increasing pension that lasts for life and on average should not decline in real terms. They are not silver bullets but worth a look.

Latest Updates

Superannuation

Retirement income promise relies on spending capital

The Government has taken the next step towards encouraging retirees to live off their capital, and from 1 July 2022 will require super funds - even SMSFs - to address retirement income and protect longevity risk.

Superannuation

How retirees might find a retirement solution in future

Superannuation funds need to establish a framework that offers retirees a retirement income solution that lasts a lifetime. It will challenge trustees to find a way to engage that their members understand and trust.

Investment strategies

Dividend investors, your turn is coming

Dividend payments from listed companies, depended on by many in retirement, have lagged the rebound in share prices over the past year. Better times are ahead but sources of dividends will differ from previous years.

Investment strategies

Four tips to catch the next 10-bagger in early-stage growth

Small cap investors face less mature companies with zero profit that need significant capital for growth. Without years of financial data to rely on, investors must employ creative ways to value companies.

Investment strategies

Investing in Japan: ready for an Olympic revival?

All eyes are on Japan and the opportunity to win for competing athletes. After disappointing investors for many years, Japan is also in focus for its value, diversification and the safe haven status of its currency.

Fixed interest

Five lessons for bond investors from the Virgin collapse

The collapse of Virgin Australia not only hit shareholders, but their bond investors received between 9 and 13 cents in the $1. A widely-diversified portfolio can tolerate losses better than a concentrated one.

Investment strategies

The 60:40 portfolio ... if no longer appropriate, then what is?

The traditional 60/40 portfolio might deliver only 1.5% above inflation in future without diversification benefits. Knowing an asset’s attributes rather than arbitrary definitions is better for investors.

Retirement

Two factors that can transform retirement investing

Retirees want better returns but they have limited appetite to dial up their risk exposure in order to achieve it. Financial advice and protection strategies in portfolios can enhance investment outcomes.

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.