As the new year approaches, not-for-profit organisations face a series of important reforms that demand attention and proactive measures.
Our philanthropy team have summarised this year's relevant legislative and regulatory changes in the Australian charities and not-for-profits sector that organisations should be aware of coming into the new year.
1. DGR register reforms
The legislation to transition the four unique DGR registers from oversight by separate government departments to the ATO commences on 1 January 2024. Charities that operate a fund listed on the Register of Harm Prevention Charities, the Register of Environmental Organisations, the Register of Cultural Organisations and registered under the Overseas Aid Gift Deductibility Scheme will, from 1 January 2024, have their DGR endorsement administered by the ATO.
Current applications that have not yet been finalised will now transfer to the ATO for the application to be completed in the new year.
If your charity currently operates a public fund endorsed for DGR under one of these categories it will, from 1 January 2024, be treated as a wholly endorsed entity (rather than only the public fund being endorsed as a DGR) but will still need to maintain a gift fund. This means deductible receipts should be issued in the name of your registered charity and not its public fund. The receipt must include your organisation name, your ABN, and a note that the receipt is for a gift. It can also include the amount donated/a description of the gift and the date.
Please check your governing document to make sure you can issue receipts in this way and contact us in the new year if you have any questions or concerns. We are actively working with the ATO in relation to their guidance and approach in this situation.
A number of the public fund requirements and requirements relating to the relevant Register are no longer applicable under the new legislation. This means that, subject to your governing document, you will no longer need to have a public fund committee comprising a majority of responsible persons or to seek donations and contributions from the public, and the membership requirements for charities on the Register of Environmental Organisations will no longer be legislated. Of course, you will still need to follow any such requirements of your governing document unless and until you amend it. Affected DGRs are encouraged to seek advice to amend their governing documents and to pay particular attention to their public fund, not-for-profit, revocation and winding up provisions as they transition to the new regime. Again, please contact us in the new year if you want to make changes to your governing document to reflect the changes in the law.
The ATO will publish guidance on these changes in the new year. You can view recent ATO guidance on the DGR Registers Reform here.
2. Specifically Listed DGR Reviews
This month the ATO commenced a review of the DGR status of the 234 organisations who have DGR status from their listing by name in the tax law. The reviews will focus on proof of activity, purpose and use of donations and will initially prioritise specifically listed DGR organisations that are not registered with the Australian Charities and Not-for-profit Commission (ACNC), and ACNC registered charities that have no reported donations.
The ATO expects to finalise these reviews before the end of the financial year. This review is in addition to the ATO’s ongoing review of DGR endorsed entities, according to which they plan to review between 40 and 50 DGRs this financial year.
3. Self-Assessing Income Tax Exempt Entities
If your NFP self-assesses as income tax exempt, you should already be aware that the ATO has made changes to reporting requirements for non-charitable not-for-profit organisations. For the 2023-24 financial year and future financial years, self-assessing NFPs with an active ABN will be required to lodge an annual self-review return, in order to access the income tax exemption.
We recommend you use some of your Summer downtime to make sure: (i) your NFP’s contact details are up to date on the ABR; (ii) review the purpose of your NFP and its governing document and consider whether it still aligns with one of the categories of self-assessing income tax exempt entity; and (iii) make sure you have set up your myGovID. Your first return will be due in the next financial year so it is worth getting organised now. Please see our previous bulletin here for more information on this return. You can view recent ATO guidance on changes in reporting required for sporting clubs here.
4. Public advice and guidance
The ATO has just updated its website and is currently working on an extensive list of public advice and guidance products. A key priority is the School Building Fund Ruling TR 2013/2. We can expect an addendum to correct the ruling in relation to the definition of a school as a result of the decision in The Buddhist Society of Western Australia Inc v Commissioner of Taxation (No 2) [2021] FCA 1363.
Also look out for an updated Mutuality and Taxable Income for Not-for-profits Guide. This will be very important for those entities that have been self-assessing as income tax exempt and who might discover through the new self-assessing income tax exempt returns that they are actually taxable NFPs.
5. Productivity Commission Philanthropy Draft Report has been released
The Productivity Commission has released its draft report on its review into Philanthropy. You can view the draft report here. A number of draft recommendations are made – among these are a recommendation to simplify the DGR system, including by extending DGR endorsement to most subtypes of registered charity but removing the DGR categories of school building funds and provision of religious education in government schools. Other high-level recommendations are removing the concept of a basic religious charity, strengthening the ACNC and establishing an Aboriginal and Torres Strait Islander philanthropic foundation.
If you want to comment on the draft report, you have until 9 February.
6. ACNC
If you have submitted an application to the ACNC and are awaiting charity registration, be aware that the ACNC has a large backlog. The system is not first in first served. Rather, applications are triaged based on factors including complexity. It is currently taking up to 12 weeks to have an analyst assigned to an application. With the self-assessing income tax exempt returns coming in next year, which will likely result in a number of currently self-assessing NFPs seeking registration as charities with the ACNC, we do not expect a resolution to this backlog in the near future.
7. Legislation updates
Currently being considered by Parliament are two bills relating to charities and not-for-profits. The Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 has been referred to the Senate Economics Legislation Committee. If enacted, the bill will amend the Australian Charities and Not-for-profits Commission Act 2012 (Cth) to allow for disclosures regarding ACNC investigations, subject to a safeguard of a public harm test. Additionally, the establishment of a new category of DGR endorsement, Community Foundations, is currently before the Senate – Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023. At this stage we anticipate that the category will not be as broad as some have hoped.
