The COVID-19 pandemic has created new challenges for charities and not-for-profits (NFPs) who already contributed so much in response to the bushfires last summer. The Federal and State governments have put in place various measures that will help charities and NFPs, over the next 6 months, to stay in operation and to continue to provide their crucial services.
Here is a quick guide:
What measures will help my charity or NFP stay in operation?
Like all business, large and small, charities and NFPs also need to pay their rent, bills, staff and other costs during this crisis.
The Federal Government’s Boosting Cash Flow for Employers measure will assist small and medium NFPs and registered charities through cash flow boosts. To be eligible, non-charity NFPs must have had an active ABN on 12 March; have an aggregate turnover of less than $50 million and have made payments to employees in the relevant time period. Registered charities do not have to meet the ABN cut-off date but must meet the other criteria and be registered charities at the relevant time.
The ATO has also deferred the due date for lodgement of activity statements. However, as the cash flow boost payments are linked to lodgement of activity statements, charities and NFPs may choose to lodge on time to receive the payments.
The ATO will consider additional measures on a case by case basis. Its key message is that it intends to be flexible and practical in working with charities and NFPs to ensure they can continue to operate.
The Federal Government’s Job Keeper package will also apply to charities and NFPs. The legislation is yet to be passed but the Treasurer announced that registered charities will have a concessional test given the benefit they provide to the community. Charities will need to demonstrate a 15% decline in turnover to be eligible to access payments. At this stage there is no indication that the 15% will exclude tied funds.
Many charities and NFPs will undoubtedly still find it hard to stay in operation and may risk trading insolvent. To lessen that risk a new section 588GAAA has been added to the Corporations Act which provides that directors have temporary relief from personal liability for insolvent trading if debts are incurred in the ordinary course of business.
The ACNC has published a regulatory statement that complements this new law and provides that the ACNC will not take action for breach of Governance Standard 5 where directors have allowed insolvent trading in circumstances where this new section 588GAAA safe harbor would apply. The ACNC will require that the directors are aware of the issue and have an achievable aim to return to viability when the crisis has passed. In addition, charities must inform their members and the ACNC if trading while insolvent. The ACNC has said it will apply this relief to all charities, not just companies who have the benefit of section 5888GAAA.
How does my charity help in the COVID-19 Response?
Charities must operate for charitable purposes. This is a requirement of a charity’s governing document, as well as of the Governance and External Conduct Standards, and of the tax legislation regarding income tax exemption. However, many charities will be asked to, or see the need to, undertake activities in response to the COVID-19 crisis which are different from their usual work.
Where a charity is asked to undertake work by, and in conjunction with, government is should be mindful of avoiding being subject to ‘government control’ and any risk of becoming a ‘government entity’ and therefore ineligible to be registered as a charity.
The ACNC has confirmed that for the six months from 25 March to 25 September 2020 it will take a broad view of a charity’s purpose when considering whether its activities are aligned with its purpose. Provided activities further a charity’s primary or ancillary purposes on a broad interpretation of them, the ACNC will not take any action. Where this alignment is hard to see the charity will need to show that members would have approved the activity and demonstrate how the activity relates to the charity’s primary or ancillary purpose.
In addition to ensuring charities continue to operate for purpose, charities will need to be mindful of how they use any “tied” funding. Any charity wanting to repurpose funding in response to COVID-19 would obviously need to contact the relevant funding body to discuss such a variation.
The ACNC has also confirmed that where a charity cannot continue to operate while still keeping staff, volunteers and beneficiaries safe, temporarily ceasing operations or “hibernating” is a reasonable course of action. Where this is necessary the charity should communicate with its members and also those it generally interacts with.
How will my charity or NFP hold meetings?
Many charities and NFPs will have governing documents that allow for meetings by telephone or video conference. Where a governing document does not explicitly allow for this the charity or NFP can consider the overarching incorporation legislation and whether there is permission for such meetings within that legislation.
Where a charity is truly unable to meet by telephone or video conferencing and they must hold an AGM, they should contact the relevant regulator to seek and extension for holding their AGM. Links can be found here.
What other measures has the ACNC put in place?
The ACNC has issued a statement on compliance during the COVID-19 compliance which includes measures in addition to the ACNC statements about Governance Standard 5 and operating for purpose outlined above. The statement can be accessed here.
What about reporting?
The ACNC has also issued a blanket extension to all charities with Annual Information Statements due between 12 March and 30 August. The extension is to 31 August 2020.
In relation to reporting on overseas activities required by External Conduct Standard 2 the ACNC has stated that where a charity cannot comply with External Conduct Standard 2 the ACNC will not take regulatory action provided the charity has recorded reasons why it is unable to obtain reports and obtains reports as soon as possible.
Charities and NFPs must still consider reporting requirements with other regulators. Overall, we encourage all charities and NFPs to record their decisions during this crisis and communicate as regularly as possible with their members as the best way to ensure good governance.
