Checkup – Leaders ConnectNFP Sector Developments
18 September 2014
Roadmap Current position with ACNC Merger in the NFP sector Hunger Projects case – implications for PBIs Sneaky Tax Act changes – TR2014/D5
Current position of the ACNC ACNC commenced 3 December 2012 At 25 August 2014 there were 61,000 charities
registered Charities being registered at rate of 100 new
charities per month Composition of charities registered with ACNC is:
17% - large (revenue >$1m) 16% - medium (revenue between $250K and $1m) 70% - small (revenue <$250K)
Current position of the ACNC contd Composition of charities:
education – 34% religion – 32% PBI/community services – 16%
NFP sector was worth: $22 billion in 2006/7 $55 billion in 2012/13
I.E. a growth rate of 7.8% per annum since 2006 Turnover is $107 billion per annum which is double that in
2000 in real terms
Current position of the ACNC contd Repealed bill tabled in parliament on 19 March 2014
– first of two bills Is thought the second bill likely to be tabled by end
of October 2014 Government has released discussion paper on
alternatives; date for submissions closed20 August 2014, with results still to be released
But the sector does not want to see ACNC go Pro Bono Australia’s online survey found 82% want
ACNC to stay
Merger Merger is being driven by:
business complexity need to pay directors fees reduced government funding need for capital contestability competition from for-profit corporates
Merger contd Outcome of merger needs to be:
simplicity ability to centralise services risk and compliance asset protection restructure i.e. separating
management operations from asset owning vehicle watch legislative constraints though e.g. Affordable
Housing and Aged Care Act but mission has to be maintained
Merger contd Governance considerations in merger Right balance between strategic and operational issues Appropriate skill mix of board members Appropriate succession planning Performance review Educational opportunities for board and senior
management Appropriate framework for accountability to stakeholders Get the constitution right
Merger contd Merger alternatives are:
asset transfer
Merger contd Merger alternatives are (contd):
A and B establishing wholly owned subsidiary
Merger contd Merger alternatives are (contd):
constitutional merger – wholly owned subsidiary
Merger contd Complications can arise when trying to merge trusts from a
trust law perspective Also consider any embedded trusts
Merger contd Will merger impact bequests? Overall –v- Family Voice Australia Inc case Consider the lapse rule Implications of the case are:
ensure that objects remain unaltered during the merger process
ensure that any charitable bequest is expressed to have a general charitable intent
be able to demonstrate merged entity is a successor organisation
Merger contd Implications of the case are (contd):
this is done by ensuring a paper trail, perhaps appropriate information on website with link to the original entity for search engine purposes
ensure all resolutions are documented
Hunger Projects Court has said that there is no requirement for:
direct relief for a PBI gives broader scope to PBI alternatives, although not for
overseas entities because for DGR endorsement there is still a requirement for operations to be exclusively in Australia
TR2014/D5 Deals with special conditions amendment to Tax Act Charity must:
comply with all substantive requirements in governing rules
apply income and assets solely for the purposes for which the entity is established
Draft ruling requires an analysis of: what are the governing rules what are the substantive requirements has the entity complied with substantive requirements
TR2014/D5 It would seem substantive requirements are:
objects not-for-profit status winding up provisions obligation to keep financial records?
Ruling distinguishes between requirements for charitable institutions and charitable funds
Income and assets condition a potential concern as a backdoor means of circumventing Word Investments
The relevant example is benign and unhelpful
Any questions?
Paul Paxton-Hall
Director
Level 10, 15 Adelaide Street, Brisbane Qld 4000
Telephone: 07 3007 9200
Email: [email protected]