Many charities are now facing increased demand for their services as a result of the COVID-19 pandemic. Charities face an existential crisis right now - of doing even more, for even less. JobKeeper, and other measures put in place by the Government, are absolutely vital to their survival. The Government’s most recent amendments to the JobKeeper rules have been rightly welcomed across civil society, but even so, there remain critical gaps in the Rules for charities and the broader not-for-profit sector that unless filled, may have a devastating impact for some charities.
Qualification for the JobKeeper Scheme requires, among other things, that on 1 March 2020 the entity:
- carried on a business in Australia,
- was a non-profit body that pursued its objectives principally in Australia, or
- was a deductible gift recipient for the operation of an overseas aid fund.
There are a number of interpretive issues with the JobKeeper criteria for charities and not-for-profits. For example, a non-profit body will not, on the face of the Rules, be eligible for JobKeeper if on March 2020 it was pursuing objectives principally out of Australia (and did not operate an overseas aid fund). Unfortunately, this means there is a real possibility a range of DGR entities may be ineligible, particularly vitally important Public Benevolent Institutions delivering relief to overseas communities.
The JobKeeper ‘in Australia’ requirement may also be an issue for non-profit bodies that vary their activities over time given the JobKeeper rules appear to require a point-in-time analysis that asks where a non-profit body was principally pursuing its activities on 1 March this year. Unfortunately, this anomaly was not corrected by the recent amendments to the JobKeeper Rules.
To qualify for JobKeeper, not-for-profits and charities must also meet a decline in turnover test.
For charities registered with the ACNC, the decline in turnover test is 15% (whereas it is 30% for other entities). This concessional turnover test recognises the universally acknowledged benefit charities provide to civil society. DGRs and not-for-profit community organisations that are not registered charities cannot access this 15% concessional turnover threshold. Schools and universities are also excluded from the 15% concessional turnover test. These entities are rightly concerned that they miss out on the same JobKeeper changes their registered charity colleagues are to benefit from.
When assessing turnover for charities, gifts of money, certain property and listed shares are included under the Rules. For DGR entities gifts of the kind mentioned in the table at section 30-15 of the Income Tax Assessment Act 1997 (Cth) are included. In effect, the value of all gifts to both charities and DGRs are included when assessing turnover. However, both charities and DGRs must exclude gifts from associates in these calculations.
From 1 May, registered charities may elect to exclude government grant revenue from the JobKeeper turnover test. This will greatly help to ensure the qualification of charities that deliver services that are funded by tied Australian government grants. Charities that have already registered for the Scheme and want to make this election should do so this week. This option is not extended to schools and universities, non-charity DGR entities and not-for-profits.
Finally, if a not-for-profit does not have an appropriate relevant comparison period for the purpose of assessing a decline in turnover there is an alternative turnover test that may apply. This needs to be carefully considered with an accountant or financial adviser, along with the technical guidance on the JobKeeper scheme.
Charities and not-for-profits face all the challenges of for-profit business in dealing with the fallout from COVD-19. This includes, for example, leasing, employment, health and safety, governance and financial challenges. But they also face what must at times seem like an insurmountable increase in demand for their assistance. We have covered some remaining issues for charities and not-for-profits in this bulletin. We will continue to advocate for the sector and work with the Government to achieve sensible reform, helping to build on a remarkable spirit of collegiality and cooperation amongst all concerned in these difficult times.