Supplementary Submission to the Joint Standing Committee on Electoral Matters

This supplementary submission outlines key areas of concern for the Community Council for Australia (CCA) in relation to the proposed amended Electoral Legislation Amendment (Electoral Funding and Disclosure Reform) Bill 2017.

CCA is pleased that the Joint Standing Committee on Electoral Matters (JSCEM) have put forward such comprehensive recommendations and the proposed amendments go a long way to reducing the potential negative impact of the original Bill. Given CCA has previously provided a submission on the original legislation, this supplementary submission will make only four key points that CCA sees as important, needing further clarification or amendment.

It is also important to note that CCA is a supporter and participant in the Hands Off Our Charities collaboration and will be a signatory to their joint submission on this issue.

The content of this supplementary submission includes: a brief background to CCA; a listing of key issues relating to the amended Bill, and a conclusion.

CCA welcomes this opportunity to provide input into this Inquiry and is keen to engage in detailed discussion about any proposals arising from the Inquiry.

The Community Council for Australia

The Community Council for Australia is an independent non-political member-based organisation dedicated to building flourishing communities by enhancing the extraordinary work undertaken by the charities and not-for-profit sector in Australia. CCA seeks to change the way governments, communities and not-for-profits relate to one another. It does so by providing a national voice and facilitation for sector leaders to act on common and shared issues affecting the contribution, performance and viability of NFPs in Australia. This includes:

· promoting the values of the sector and the need for reform

· influencing and shaping relevant policy agendas

· improving the way people invest in the sector

· measuring and reporting success in a way that clearly articulates value

· building collaboration and sector efficiency

· informing, educating, and assisting organisations in the sector to deal with change and build sustainable futures

· providing a catalyst and mechanism for the sector to work in partnership with government, business and the broader Australian community to achieve positive change.

Our success will drive a more sustainable and effective charities and not-for-profit sector in Australia making an increased contribution to the well-being and resilience of all our communities.

Key issues with the proposed amended Electoral Legislation Amendment (Electoral Funding and Disclosure Reform) Bill 2017

1. Acknowledgement and support of positive amendments

As noted in the introduction, CCA commends the members of the Joint Standing Committee on Electoral Matters for both listening to the views of groups like CCA and the broader charities and not-for-profit sector, and for making considered amendments to the original proposed Bill that substantially address most of the concerns.

It is pleasing to be part of a democratic process that works not only in the interests of charities, but also communities across Australia that rely on charities to voice their concerns and issues.

CCA supports the proposed amendments.

2. Political versus partisan political

CCA would like to see the term ‘partisan’ political used rather than just the term political when referring to electoral matters. Most charities would like their issue to be front and center when it comes to elections whether the issue be; homelessness, testing of cosmetics on animals, mental health or the needs of returned servicemen and women. For this to happen, the charity would need to promote and advocate for their issue to be an important factor when voters are considering political choices. In other words, many charities would like to be having some impact on the way people might vote. This could be described as political. It could not be described as partisan political because it is about the issue rather than the political party or a particular political candidate.

In explaining the new definition of electoral expenditure, the explanatory material notes:

The definition of electoral matter feeds into this new definition and is based on intent to influence the way electors vote in a federal election, including by promoting or opposing parties, candidates, groups, or parliamentarians.

It is then argued that: The definition does not capture general issue-based advocacy.

If the intent of the charity is to advance their charitable purpose, and the charity campaigns on that issue including providing ranking scores for the issue listed against political parties, does that mean the charity has or has not incurred any political expenditure? If the ranking is not a how to vote card but a scorecard against their issue, is that general issue-based advocacy? CCA believes so, but perhaps it could be clarified in the explanatory materials.

CCA believes that no charities should engage in partisan political activity, but political actions in support of a charitable mission or purpose is often a core aspect of charitable work to deliver a public benefit.

Charities should engage in political activity, but not partisan political activity.

3. Drawing on the work of the Australian Charities and Not-for-profit Commission

The 2013 Charities Act made it clear that having a political purpose was a disqualifying factor in determining charitable status.

There is a regulator charged to enforce this provision, the Australian Charities and Not-for-profit Commission (ACNC). All Australian charities have to report to the ACNC on an annual basis, with organisations over $250,000 in turnover having to provide detailed financial statements and full details on all their responsible persons, as well as breakdowns on sources of income etc..

Unlike most players competing to influence national policies, charities face restrictions on their activities enforced by the ACNC which has significant powers.

Charities can and do lose their charitable status if they pursue a political purpose. Charities cannot support a particular candidate, support a particular party, make donations to political parties, or hand out how to vote cards. Charities can only advocate for their charitable purpose – a purpose that is linked to public benefit.

The ACNC has produced a very clear set of guidelines around political purpose outlining what charities can and cannot do ( see: http://www.acnc.gov.au/ACNC/Reg/Charities_elections_and_advocacy_.aspx ). Most charities reference this set of guidelines in determining if their activities breach any provision of the Charities Act or place them in any danger of losing their charitable status.

CCA believes the work of the ACNC in this area should be written into the Bill or at the very least, form part of the explanatory materials. Anything less will lead to confusion.

4. Multiple reporting or AEC or ACNC?

While all charities report to the ACNC and must be compliant with their requirements, only a very small number of charities report to the Australian Electoral Commission.

The Australian Electoral Commission (AEC) is not used to working with charities and has shown itself to be uninterested in providing any clarity about the potential impact of new electoral expenditure requirements on charities.

It is almost inconceivable that thousands of charities will review their obligations to see whether they may need to report to the AEC.

At the same time, all charities are regularly checking their reporting requirements to the ACNC in relation to all areas of their operations.

CCA believe any public reporting of electoral expenditure would be better reported by charities through the ACNC.

Conclusion

CCA welcomes the amendments to the Bill

There are still areas where CCA would like to see greater clarification, especially in relation to electoral matters and electoral expenditure, but generally the amendments have ensured that most issue-based advocacy will not result in substantially increased compliance and transparency requirements being imposed on charities.

The amendments could be further improved by drawing on the work of the ACNC in relation to issue-based advocacy, political intent and the disqualifying purposes within the existing 2013 Charities Act.

CCA would also like to see charities reporting to the ACNC rather than having the AEC become an additional regulator of charities in relation to campaigning and issue-based advocacy.

Download CCA’s supplementary submission, including our original submission to JSCEM.

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Submission to Treasury on Australian Charities External Conduct Standards

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Submission to Treasury on Australian Charities External Conduct Standards

This submission outlines key areas of opportunity and concern for the Community Council for Australia (CCA) in relation to the proposed Australian Charities External Conduct Standards.

CCA welcomes the opportunity to engage with The Treasury on this very important issue.

CCA has also consulted with members in framing this submission, however, it is important to note that this submission does not override the policy positions outlined in any individual submissions from CCA members.

The content of this submission includes: a brief background to CCA; an overview of the current context for the broader charities and not-for-profit (NFP) sector; a discussion of key issues relating to the inquiry terms of reference; and a conclusion.

CCA welcomes this opportunity to provide input into this consultation and is willing to participate in further discussion as the proposed regulations are finalised.

The Community Council for Australia

The Community Council for Australia is an independent non-political member-based organisation dedicated to building flourishing communities by enhancing the extraordinary work undertaken by the charities and not-for-profit sector in Australia. CCA seeks to change the way governments, communities and NFP organisations relate to one another. It does so by providing a national voice and facilitation for sector leaders to act on common and shared issues affecting the contribution, performance and viability of NFPs in Australia. This includes:

· promoting the values of the sector and the need for reform

· influencing and shaping relevant policy agendas

· improving the way people invest in the sector

· measuring and reporting success in a way that clearly articulates value

· building collaboration and sector efficiency

· informing, educating, and assisting organisations in the sector to deal with change and build sustainable futures

· providing a catalyst and mechanism for the sector to work in partnership with government, business and the broader Australian community to achieve positive change.

Our success will drive a more sustainable and effective charities and not-for-profit sector in Australia making an increased contribution to the well-being and resilience of all our communities.

Background context: the not-for-profit sector

The NFP sector encompasses over 600,000 organisations – from large to very small – and employs well over one million staff (around 10% of all employees in Australia). Australia’s 54,000 charities collectively turn over more than $130 billion each year and hold over $260 billion in assets. In the last decade, sector growth has continued at more than 7% a year, a figure that is higher than any other industry group.

These facts tell only a small part of the story. The real value of the NFP sector is often in the unmeasured contribution to Australian quality of life. NFPs are at the heart of our communities; building connection, nurturing spiritual and cultural expression, and enhancing the productivity of all Australians. Collectively, they make us a more resilient society.

The importance of the NFP sector is now being internationally recognised with many governments putting in place measures to increase NFP investment and productivity. Smaller government and bigger community is a common theme, driven in part by savings, but also by a commitment to greater civic engagement, social entrepreneurship and productivity within the NFP sector.

The establishment of the Australian Charities and Not-for-profit Commission (ACNC) is the first time the NFP sector has had an independent regulator dedicated to serving their needs and enhancing their capacity. It has proved to be a positive step towards red tape reductions, increased transparency, and trust in the community by prospective volunteers and donors. The national charities register has also provided invaluable information.

While the recent history of the NFP sector is framed by growth and reform, new issues are emerging. The level of volunteering and individual philanthropic giving as a percentage of income has still not recovered to the highs of 2009. At the same time, revenue available to governments is effectively falling in real terms against a backdrop of increasing demands and higher community expectations. Competition for fundraising and services has increased.

Given the size of the sector and its critical role in our community, Government can achieve real economic and social benefits if it chooses to strategically invest in strengthening our communities and our NFPs. There have been numerous reports and recommendations relating to the NFP sector over the last decade, but relatively few have been acted upon.

The inability of governments to streamline their own regulatory processes, their tendering processes, contract management and programs monitoring has consistently been identified as a major barrier to improving productivity in the not-for-profit sector in Australia. The lack of certainty in the government regulatory environment, funding and contracting processes also undermines performance and ongoing investment in improving outcomes. For the sector to be more effective, these issues must be addressed.

Positive change often requires increased collaboration, recognition of shared goals and shared ways of achieving outcomes. Given the size of the NFP sector and its critical role in improving Australian well-being, there is scope to boost productivity by working constructively with the NFP sector in developing more responsive and effective programs and services, seeking to achieve shared goals and outcomes.

Key Issues with the Proposed Australian Charities External Conduct Standards

The potential net widening impact

There are thousands of charities across Australia that engage in some way with international organisations. This activity often benefits Australia in multiple ways and should be encouraged. Most of these charities should not be subject to external conduct standards.

CCA understands and accepts that charities engaged primarily in international activities should be required to provide a measure of accountability and transparency for their activities to ensure they are appropriate and directly related to their charitable purpose.

The use of the term ‘incidental’ as a way of excluding those charities that mostly operate within Australia seems somewhat vague. What is an incidental activity?

If an Australian orchestra conducts an annual tour of Asia, a sporting group sponsors an international tour from a school team, a drug and alcohol treatment agency offers training in Asia and sponsors international trainees to come to Australia for internships, if an on-line campaign in Australia attracts some foreign engagement, are these activities incidental? The answer is almost certainly yes, but how do we know?

CCA believes the external conduct standards should apply only when an organisation is clearly focused on working internationally as their main activity.

While this may be the intent of the proposed regulations, the reality is that within the term ‘incidental’ there is a high level of uncertainty leading to potential net widening beyond what CCA and most charities see as reasonable.

This is further compounded by the very broad definition of an arrangement, collaboration and third parties that operate outside of Australia.

Australia needs to facilitate rather than stifle international collaborations, particularly between charities that have common goals of delivering public benefit within their own countries.

The explanatory notes cite three examples where the activity is considered incidental. CCA thinks these examples are useful but would also like to see this section include examples where the entity would be captured by the provisions of these regulations – i.e. organisations that operate mostly in Australia that would be captured by the regulations.

Most importantly CCA believes these regulations should be framed by a very clear statement that Australia seeks to encourage and foster greater international collaboration, particularly across the charities sector, and that the purpose of these regulations is not to impede or impose onerous new reporting requirements on charities that operate primarily in Australia.

The goal of increased transparency and accountability is supported, but additional reporting is not required for the thousands of charities that operate mostly in Australia and already provide appropriate levels of public reporting and disclosure to the Australian Charities and Not-for-profit Commission.

Proportionate reporting requirements

The explanatory materials for the regulations refer to ‘reasonable record keeping’ but also provide a comprehensive listing of information that may be required including:

· the kinds of operations and activities that the registered entity conducted outside Australia, on a country-by-country basis;

· details of how the registered entity’s operations and activities outside Australia enabled it to pursue and achieve its purpose, on a country-by-country basis;

· details of all expenditure relating to its operations and activities outside Australia (on a country-by-country basis);

· details of any procedures and processes that the registered entity used to monitor its overseas operations and activities;

· a list of the third parties that the registered entity worked with outside Australia; and

· details of any documented claims of inappropriate behaviour by the registered entity’s employees or responsible entities outside Australia, and subsequent actions taken by the registered entity as a result.

CCA understands that the exact nature of the reporting requirements is yet to be finalised and that the Australian Charities and Not-for-profit Commission will provide more details at some point in the future.

CCA is concerned that the reporting requirements may be overly onerous and lack proportionality.

It is fundamentally important that the scale or size of activities, the scope and the relative risk be taken into account in framing the transparency or reporting requirements.

A small Australian volunteer organisation engaged in helping construct a new library in Indonesia should not be subject to the same reporting requirements as a major international development organisation spending millions of dollars working in terrorist held provinces in Libya and Afghanistan.

Conclusion

CCA supports the concept of having clear external conduct standards for Australian charities whose primary work is international. The charities sector generally supports transparency and accountability.

The concern outlined in this submission is that thousands of Australian charities engage in international activities, often hosting visiting international experts, offering training, master classes, mentoring, special tours and events in Australia and overseas. These charities, whose work is predominantly in Australia, should not be required to satisfy the same additional regulatory imposts and record keeping expected of charities whose work is largely international.

CCA is also concerned that the scope of administrative record keeping outlined in the proposed external conduct standards seems overly comprehensive. It is to be hoped that a reasonable and proportionate approach will be applied in relation to the records required of organisations operating internationally.

Download submission here.

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Open Letter to Government: Civil Society Support for Independent Regulator – 18 March 2014

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Open Letter to Government: Civil Society Support for Independent Regulator - 18 March 2014

RE: Civil Society Support for Independent Regulator

See Media Release here.

Dear Prime Minister

We want to make it very clear to the Commonwealth Government and wider community that like most charities across Australia, we value the Australian Charities and Not-for-Profits Commission, and we want to see it continue its impressive work.

Charities and the broader not-for-profit sector are at the heart of Australian communities. They are there in the good times and bad. They provide support to the most vulnerable; lift our sights and our hearts through culture, sport, education, welfare, support for the aged or the unwell; promote our spirituality; protect our animals and our environment; play our part internationally, and ensure those less able can still participate.

The not-for-profit sector also makes a major economic contribution, employing approximately one million Australians and turning over close to $100 billion each year. In tight economic times, this sector needs to be both productive and effective, regardless of whether it is supported by tax payer funds, self-generated income, public donations or the efforts of our many volunteers. Governments all know we need a strong not-for-profit sector in this country if we are to be both economically strong, and enjoy healthy fulfilling lives.

The establishment of an independent national charities regulator was first seriously proposed through a Howard Government review of the definition of charity in 2001, and has since been supported by many, including the Productivity Commission, the Henry Review and Senate Inquiries involving hundreds of submissions and numerous public hearings.

The launch of the Australian Charities and Not-for-profits Commission in 2012 was a major step forward in creating a regulatory environment that works for the not-for-profit sector rather than against it. In little over one year of operation, the ACNC has built a strong positive reputation by establishing the first public national register of charities, registering more than 2,600 new charities, responding to over 70,000 requests for information from charities and the broader community, investigating and resolving over 200 complaints against charities, and monitoring the extent of red tape and level of public trust and confidence in our charities. The ACNC has done what few new regulators achieve – gained widespread support across the sector it is regulating.

Governments in Ireland and Jamaica are the latest to set up new charity regulators as part of a world-wide push to improve public transparency of the charities sector, increase giving, cut compliance costs and reduce red tape.

The Australian Government intends to shut down the ACNC as soon as it can, and in the meantime, cut its funding and capacity. It is planning to return the key role of determining charitable status to the Australian Taxation Office, re-creating a conflict of interest. This approach is, at best, an unfortunate policy for charities across Australia and our community. Red tape will continue to grow, the size of the bureaucracy will grow, and services to the sector and the public will be reduced.

The vital work of the ACNC must be maintained, for the benefit of charities, not-for-profits and the many communities they serve.

Signatories

Professor Ann O’Connell, NFP Project
Melbourne Law School, University of Melbourne

Belinda Drew, Chief Executive Officer
Foresters Community Finance

Brett Williamson, Chief Executive Officer
Volunteering Australia

Dr Caroline Lambert, Executive Director
YWCA Australia

Dr Cassandra Goldie, Chief Executive Officer
Australian Council of Social Services

Carrie Fowlie, Executive Officer
Alcohol Tobacco and Other Drug Association ACT

Carrillo Gantner AO, Chairman
Sydney Myer Fund

Cate Sayers, Chief Executive Officer
e.motion21

Fr Chris Riley, Chief Executive Officer
Youth Off The Streets

Chris Voll, Chair
Church Communities Australia

Danny Vadasz, Acting Chief Executive Officer
Australian Conservation Foundation

Dawn O’Neil AM, Collective Impact Consultant,
Dawn O’Neil & Associates

David Crosbie, Chief Executive Officer
Community Council for Australia

Dr Dennis Young, Executive Director
DRUG ARM Australasia

Professor David Gilchrist, Director of Curtin Not-for-profit Initiative
Curtin University

Professor Dale Pinto, Professor of Taxation Law and Head of Department (Taxation)
Curtin Law School, Curtin University

Evelyn O’Loughlin, Chief Executive Officer
Volunteering SA & NT

Associate Professor, Fiona Martin
Australian School of Business, University of New South Wales

Fiona McLeay, Chief Executive Officer
Justice Connect

Graeme Danks, Trustee
Danks Trust

Heather Neil, Chief Executive Officer
RSPCA Australia

Jack Heath, Chief Executive Officer
SANE Australia

James Pitts, Chief Executive Officer
Odyssey House McGrath Foundation

Jane Hayden, Chief Executive Officer
Lifeline National Office

Jill Reichstein, Chair
Changemakers Australia

Jill Rundle, CEO
WANADA

John Nicolades, Chief Executive Officer
Bridge Housing Ltd.

John Ryan, Chief Executive Officer
ANEX

Karen Barnett, Chief Executive Officer
Port Phillip Housing Association

Kate Davidson, Chief Executive Officer
Community Colleges Australia

Lisa Grinham, Chief Executive Officer
Charities Aid Foundation Australia

Marc Purcell, Executive Director
Australian Council for International Development

Martyn Myer AO, President
The Myer Foundation

Mary Jo Capps, Chief Executive Officer
Musica Viva Australia

Associate Professor Matthew Harding, NFP Project
Melbourne Law School, University of Melbourne

Mark Watt, Chief Executive Officer
Whitelion

Matthew Noffs, Acting Chief Executive Officer
Ted Noffs Foundation

Michael Thorn, Chief Executive
Foundation for Alcohol Research and Education

Michael Traill, Chief Executive
Social Ventures Australia

Nieves Murray, Chief Executive Officer
IRT Group

Pam Thyer, National Director
Missions Interlink

Paul Arnott, Executive Director
Churches of Christ Vic and Tas

Paul Ronalds, Chief Executive Officer
Save the Children

Peter LeCornu, Chief Executive Officer
St John Ambulance Australia

Peter Ridley, Chief Financial Officer
Hillsong Church

Peter Winneke, Head of Philanthropic Services
The Myer Family Company

Rob Evers, Chief Executive Officer
Wesley Mission Victoria

Robert Dunn, Chief Executive Officer
Opportunity International Australia

Rod Wellington, Chief Executive Officer
SARRAH

Ron Mell, Chief Executive Officer
YMCA Australia

Sam Biondo, Executive Officer
Victorian Alcohol & Drug Association

Sandie de Wolf, Chief Executive Officer
Berry Street

Sandra Dill, Chief Executive Officer
Access Australia

Sue Donnelly, Executive Director
Queensland Theatre Company

Dr Stephen Judd, Chief Executive Officer
HammondCare

Tim Costello AO, Chair
Community Council for Australia

Tony Lawson, Chair
Consumers Health Forum of Australia

Viv Allanson, Chief Executive Officer
Maroba Lodge

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‘in principle’ endorsement of proposed ACNC Financial Reporting Requirements

Submissions-post

'in principle' endorsement of proposed ACNC Financial Reporting Requirements

Manager
Philanthropy and Exemptions Unit
Indirect, Philanthropy and Resource Tax Division
The Treasury
Langton Crescent
PARKES ACT 2600

Dear Sir or Madam

CCA has reviewed the proposed requirements for annual financial reports under the Australian Charities and Not-for-profit Commission (ACNC) and broadly endorses the approach outlined.

All CCA members have been provided with copies of the explanatory materials and the Exposure Draft Legislation. CCA has not identified any significant compliance issues with the proposed financial reporting arrangements and has not received any feedback from our members indicating that there are any significant concerns.

On the basis of this feedback, our reading of the explanatory materials and the discussions we have had with officers from the ACNC, CCA will not be making a full submission in response to the circulation of the proposed financial reporting requirements.

CCA supports the requirements outlined to ensuring appropriate levels of information and transparency in relation to financial reporting across the not-for-profit sector.

CCA offer this ‘in principle’ endorsement of the approach being adopted and looks forward to working further with the ACNC to ensure any compliance costs are kept to a minimum, particularly on smaller not-for-profit entities.

Yours sincerely

David Crosbie
CEO, Community Council for Australia
14thof February, 2013

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Not-for-profit Tax Concessions

Submissions-post

July 1, 2011

Not-for-profit Tax Concessions

Submission to The Treasury

Better targeting of not-for-profit tax concessions

July 2011

Introduction

This submission briefly outlines key issues for Australia’s not-for-profit sector (NFPs) in response to The Treasury Consultation Paper of 27 May 2011 ‘Better targeting of not-for-profit tax concessions’.

This submission has been prepared with the members of the Community Council for Australia (see Attachment 1 listing of CCA members) as well as other key organisations in the not-for-profit sector, academics, lawyers, government officials, and key policy advisors.

It is important to note that this submission does not over-ride the policy positions outlined in the individual submissions from CCA members. In endeavouring to provide concise and useful input in response to the Treasury Consultation Paper, this submission is divided into the following sub headings:

Introduction
About CCA
Executive Summary and Recommendations
The Broader Policy Context
The Policy Intent of Proposed Changes
Related or Unrelated Activity
Establishing a Threshold
Implementation and Timing of Tax
Conclusion

The CCA welcomes this opportunity to provide input into the development of this important policy and commends the Treasury for engaging in this consultation process. CCA would be more than willing to engage in further discussion about any of the issues raised in this submission.

The Community Council for Australia

The Community Council for Australia is an independent, non-political member-based organisation dedicated to building flourishing communities primarily by enhancing the extraordinary work and effort undertaken within the not-for profit sector in Australia. CCA seeks to change the way governments, communities and the not-for-profit sector relate to one another. This includes establishing a regulatory environment that works for community organisations and not against them.

The mission of CCA is to lead by being an effective voice on common and shared issues affecting the contribution, performance and viability of not-for-profit organisations in Australia through:

providing thought and action leadership
influencing and shaping sector policy agendas
informing, educating, and assisting organisations in the sector to deal with change and build sustainable futures
working in partnership with the government, the business sector, and the broader Australian community.

Executive Summary and Recommendations

CCA believe it is appropriate to ensure that taxation concessions to charitable and not-for-profit organisations are properly targeted. It should not be possible for commercial organisations to avoid legitimate taxation by posing as charitable organisations. At the same time, it is important that not-for-profit organisations are encouraged to seek funding sources beyond government grants and service contracts, are able to engage in social enterprise and innovation, and seek income producing investments where appropriate. CCA understand the goal of the proposed reforms is not to raise government revenue through additional taxation on not-for-profit organisations, but to act as a preventative measure closing off the possibility that large scale commercial operations can enjoy not-for-profit taxation concessions. To this end, CCA make the following nine recommendations:

First do no harm. Any new regulatory proposals must be tested against possible negative impact on the broad range of not-for-profit organisations currently doing the right thing and seeking to better serve their communities.
Any new regulatory proposal must reflect the Government’s commitment to reducing red tape and compliance costs for not-for-profit organisations.
Proposed government reforms to the definition of charity and the establishment of a new regulator for the not-for-profit sector should be the first option in addressing issues where organisations inappropriately claim not-for-profit status.
The definition of related activity of not-for-profit organisations must include:
– any activity directed towards the altruistic purpose or objects of the organisation
– activities engaged primarily for the benefit of the community being served, clients, patients, members, students, officers or employees of the not-for-profit organisation
– the sale of merchandise that has been donated to the organisation(e.g. opportunity shop)
– the distribution of items worth less than $25 as incentives for donating funds (stamps, pre-printed mailing labels, etc.)
– legitimate fundraising activities or use of excess organisational capacity in which the majority of money raised after costs is returned to the not-for-profit organisation.
Where the surplus or net profit from unrelated commercial activities is returned to the not-for-profit to fulfil the altruistic purpose or objects of the organisation, the unrelated activity should be treated as related activity and relevant taxation concessions should apply.
A threshold of $2 million of total turnover for unrelated commercial activity by a not-for-profit organisation in any given year should be established for any proposed new regulation. This will minimise concern, reduce compliance costs, and avoid creating new compliance barriers to everyday fundraising activities by not-for-profit organisations. This threshold will also ensure appropriate scaling of compliance effort against likely benefit or return.
Application of the proposed new regulation must allow scope for responsible reinvestment of retained earnings, profits or surplus into unrelated commercial activities at critical times such as start-up social enterprises, medium term investment to address falling profitability, etc.
A minimum two year phase in period should apply to existing not-for-profit organisations engaged in unrelated commercial activities above the threshold.
A second process of consultation should be undertaken on the actual proposed changes prescribed in legislation or new regulatory requirements for not-for-profit organisations.

The Broader Policy Context

It is an unprecedented time of reform in the Australian not-for-profit sector. The signing of the first National Compact between government and the Australian not-for-profit sector just over 12 months ago heralded a new approach by government to both acknowledge and support the role of not-for-profit organisations in Australia. The establishment of an Office for the Not-for-profit Sector within the Department of Prime Minister and Cabinet, the establishment of the Not-for-profit Reform Council and the proposed establishment of the new Australian Charities and Not-for-profit Commission all represent significant positive changes in the relationship between government and the not-for-profit sector, and a commitment to necessary and overdue regulatory reform.

Recent reviews including the Productivity Commission Report into the Contribution of the Not-For-Profit Sector in 2010, Senate Inquiry into Disclosure Regimes for Charities and not-for-profit organisations 2008, and the review of Australia’s Future Tax System 2010, all made recommendations about the need for reform within the NFP sector and within government, most of which have been supported by governments, the not-for-profit sector and key stakeholders.

It is now acknowledged that promoting and supporting the not-for-profit sector is critical to building a more resilient and productive Australia. The not-for-profit sector contributes $43 billion to the economy, employs nearly 900,000 Australians and involves over 4 million volunteers. The Assistant Treasurer Bill Shorten described the sector as ‘punching well below its weight’ in terms of its contribution to the economy, to employment, to community life and the realisation of community values in Australia.

The current Federal Government has committed to promoting social enterprise, reducing compliance costs for not-for-profit organisations, encouraging a diversification of financing options to build a more sustainable funding base, streamlining and refining the regulation of not-for-profits and charities, developing a clearer definition of charities, establishing less bureaucratic reporting requirements while building community transparency, and working to improve relationships between government and the not-for-profit sector (see Attachments 2 and 3).

These important commitments are not acknowledged in The Treasury Consultation Paper, despite the fact that they represent a significant change in the way Government and not-for-profits have agreed to interact in the future. Policy goals that are ignored or not enacted cease to be policy goals. Government has announced their policy intentions and signed the National Compact in good faith. Their commitment must be reflected in the practice of their Departments. It is critical that any proposed new regulatory imposition on not-for-profit organisations is informed by this agreed broader policy context.

At the very least, the broader commitment of government to strengthening the not-for-profit sector needs to be reflected by adopting the following two recommendations:

First do no harm. Any new proposals must be tested against possible negative impact on the broad range of not-for-profit organisations currently doing the right thing and seeking to better serve their communities.
Any new regulatory proposal must reflect the government commitment to reducing red tape and compliance costs for not-for-profit organisations.

The Policy Intent of Proposed Changes

There appear to be two main principles informing the need for proposed new regulations:

the need to prevent commercial organisations avoiding legitimate taxation by posing as charitable organisations
the need to maintain a level of competitive neutrality in commercial markets even when not-for-profit organisations are part of the market.

CCA and the vast majority of not-for-profit organisations strongly agree with the first principle. It is impossible to justify a fully commercial organisation being able to claim a range of taxation benefits by maintaining tenuous links with, or pretending to be a not-for-profit or charitable organisation.

It is important, however, to consider if this important policy goal might best be achieved through a clearer definition of charity and better regulation of the not-for-profit sector. If organisations claiming to be not-for-profit and fulfilling altruistic purposes spend the vast majority of their time, effort and resources on running an unrelated commercial activity, how is it that they are able to maintain their not-for-profit status, even under existing legislation? Trustees or the governance body of an organisation engaged in large scale unrelated commercial activities should be asked to demonstrate how their unrelated commercial activities relate to the organisation’s altruistic purpose. If little or no relationship can be established, the issue is not simply about access to taxation concessions, but about their status as a not-for-profit organisation. This should be a key feature of the new regulatory framework.

While the not-for-profit sector does not support anyone who misuses an organisation’s not-for-profit status as a way to avoid legitimate taxation or mislead the community, there is extensive concern about any suggestion that the best way of addressing this issue is to bring into question the legitimacy of all existing taxation concessions for the activities of not-for-profit organisations. Forcing all not-for-profit organisations to review all their commercial activities will create massive uncertainty, increase the need for legal costs and other compliance activity, and impede the income generating activities of the not-for-profit sector. This would be completely counter to the best interest of governments, the community and not-for-profit organisations.

The informing policy goal must be consistent with the government’s publicly stated policy intent and focus on preventing larger scale abuse of not-for-profit status, not questioning every economic activity of every not-for-profit organisation (see Attachment 4).

The question of competitive neutrality is similarly more about the definition of charity than taxation concessions. If one organisation is engaged in commercial activity to build personal wealth and another organisation is engaged in commercial activity to benefit an altruistic purpose, these organisations are not equal and should not be treated as equal. This is the basis of concessional arrangements for not-for-profit organisations and rightly so. It is not a level playing field and should not be conceived of in this way.

Not-for-profit organisations rightly have the same responsibilities as other sectors to fulfil their legal, OHS, HR, and other statutory obligations.

The fundamental point is that governments in Australia see a real benefit in the work of not-for-profit organisations and rightly provide taxation concessions to better enable them to fulfil their purpose. These concessions should not be jeopardised by the need to better define and regulate which not-for-profit organisations are not acting to fulfil their altruistic purpose. Consequently, CCA make the following recommendation in relation to the primary purpose of the proposed changes:

3. Proposed government reforms to the definition of charity and the establishment of a new regulator for the not-for-profit sector should be the first option in addressing issues where organisations inappropriately claim not-for-profit status.

Related or Unrelated Activity

If the government is committed to using changes in eligibility to taxation concessions as a way of addressing tax avoidance by a very small minority of commercial organisations operating as not-for-profit organisations, the notion of what is related commercial activity and what is unrelated commercial activity needs to be as clearly defined as possible to avoid confusion and uncertainty. It is also noted that there is limited information from Government available on the scale and type of avoidance activity.

The first and most important criteria is that any commercial activities developed to support the altruistic purpose of the not-for-profit are clearly related to the purpose and should not bring into question eligibility for appropriate concessions. The difficulty in fulfilling this primary criterion is that often organisations are involved in a broad range of activities to support their core mission.

For example, there are drug treatment not-for-profit organisations in Australia that have reducing the harm from drug dependence as their primary purpose, but engage in activities including; training and employment, housing and accommodation, family reconciliation, child welfare, education, art, recreation, health care, running small farming enterprises, paid music performances, and other activities. Another real world example is the provision of funding for diesel four wheel buses that take junior footballers from one remote community as part of a program to achieve higher indigenous retention in school. The children can only play in the football competition if they have attended school. This program has been effective.

If too narrow a definition of ‘related activity’ is applied, it would bring into question some of the most innovative and effective responses from not-for-profit organisation to many complex social issues.

An additional criterion should be whether the activities are for the benefit of the people who use the not-for-profit – the community the not-for-profit organisation serves. If the indigenous junior football team goes to watch an AFL game and raises money for the travel costs by hosting a rock music concert, the activities are clearly still related to the primary purpose of indigenous school retention because they are about benefiting the students involved.

As part of raising funds, the indigenous football might auction a signed football from an AFL team, or under-take a large direct mail campaign, sending photos of the team and a team beanie to those who might sponsor their activities. Again these commercial activities should not be seen as unrelated commercial activities or bring into question the not-for-profit status and taxation concessions this program has access to.

Uncertainty is a very real barrier for not-for-profit organisations engaging in any activity. Most not-for-profit organisations are highly risk averse when it comes to commercial activities. If not-for-profit organisations do not engage in these related commercial activities they will have less funding, provide less benefits to the community and require additional government funding. While all definitions rely to some extent on interpretation, CCA strongly recommend that:

4. The definition of related activity of not-for-profit organisations must include:
– any activity directed towards the altruistic purpose or objects of the organisation
– activities engaged primarily for the benefit of the community being served, clients, patients, members, students, officers or employees of the not-for-profit organisation
– the sale of merchandise that has been donated to the organisation (e.g. opportunity shop )
– the distribution of items worth less than $25 as incentives for donating funds (stamps, pre-printed mailing labels, etc.)
– legitimate fundraising activities or use of excess organisational capacity in which the majority of money raised after costs is returned to the not-for-profit organisation.

5. Where the surplus or net profit from unrelated commercial activities is returned to the not-for-profit to fulfil the altruistic purpose or objects of the organisation, the unrelated activity should be treated as related activity and relevant taxation concessions should apply.

Establishing a Threshold

If questions are to be asked about all the commercial activities of all not-for-profit organisations there is a very real danger that thousands of not-for-profit organisations will choose to avoid putting their organisations at risk, even though they are usually only contemplating small scale investment in commercial activities that will benefit their community into the future.

Experience overseas clearly indicates that a very small proportion of larger not-for-profit organisations engage in significant commercial activities and this small minority contribute the vast majority of unrelated business income taxes collected by governments.

This highlights the issue of scale of collection and compliance costs compared to revenue or savings in potentially avoided taxation. As with most taxation measures, there is a point at which the costs of complying with and enforcing new regulations are higher than any potential benefits.

If the policy goal is to only target significant commercial activities, a threshold must be established to provide certainty to smaller not-for-profit organisations.

The Australian Taxation Office currently provides small business concessions to commercial organisations with a gross turnover of less than $2 million per year (Attachment 5).

In reviewing actual returns under not-for-profit Unrelated Business Income Tax in the United States, it emerges that less than 1.5% of organisations submitting a UBIT return declare a total unrelated business income of in excess of $2 million, yet this tiny minority of large organisations making a UBIT return pay 65% of the over $600 million UBIT collected each year in the United States (Attachment 6).

Establishing a threshold is critical to ensuring only those organisations with significant unrelated commercial activities are given reason to seek legal and taxation advice before engaging in income producing activities. To not have a threshold would mean every single not-for-profit organisation in Australia would have to think about how compliance with a new requirement to justify any income producing activities might apply to their fundraising activity, their small investment or their new social enterprise.

Placing this kind of compliance burden across the whole not-for-profit sector is indefensible even if there are examples of inappropriate use of taxation concessions in unrelated commercial activities. It is totally inconsistent with broader government policy reforms for the not-for-profit sector and inconsistent with the stated intent of this proposed new regulation.

A threshold is critical if the not-for-profit sector is to support the proposed new regulation. A $2 million threshold is consistent with the ATO position on what a small business is. A $2 million threshold will allow the government to target larger unrelated commercial activities that are more likely to pose a real risk to competitive neutrality. A $2 million threshold meets the scalability test of cost versus benefit in terms of likely savings on taxation avoidance while requiring limited enforcement and compliance costs for the vast majority of not-for-profit organisations that have very limited commercial activities. For these reasons the CCA makes the following recommendation:

6. A threshold of $2 million of total turnover for unrelated commercial activity by a not-for-profit organisation in any given year should be established for any proposed new regulation. This will minimise concern, reduce compliance costs, and avoid creating new compliance barriers to everyday fundraising activities by not-for-profit organisations. This threshold will also ensure appropriate scaling of compliance effort against likely benefit or return.

Implementation and Timing of Tax

In addressing the government commitment to strengthen the not-for-profit sector and the fundamental need of the sector to have some certainty in forward planning potential income producing activities, it is important to clarify and establish new regulatory requirements as soon as possible.

At the same time, the broader regulatory reforms currently being developed for the not-for profit sector have already created a level of concern and uncertainty and there is a need to ensure appropriate consultation on any proposed new regulations.

Ideally the government will make very clear the principles and guidelines they are likely to adopt on the new regulations within the next three months. This does not mean finalising the actual regulation, but it does mean confirming the principles such as a threshold and the definition of related activity.

Alongside this statement of principles a second process of consultation should be initiated to ensure the actual proposed new regulatory requirements do not cause significant problems or issues for legitimate not-for-profit organisations seeking to diversify their income base and provide better services to their communities.

It is assumed that the Board of Taxation will review any new regulations once they have been in place for a period of time to ensure they are meeting the policy intent.

In relation to transition arrangements, it is not unreasonable to consider a phase-in period for unrelated commercial activities above the threshold currently being undertaken by not-for-profit organisations. Given the proposed new requirements are likely to apply to only a very limited number of not-for-profit organisations, it is suggested that the government should allow at least a two year phase in period during which organisations might have an opportunity to either restructure their practices or enter into dialogue with relevant government authorities.

One of the critical issues in relation to the implementation of new requirements is the capacity of not-for-profit organisations to make appropriate investments in income producing activities and social enterprises. The reality is that good governance and responsible management both require not-for-profit organisations to ensure there is appropriate reinvestment into their income producing activities. Forcing organisations to redirect all surplus income or profits from income producing activities into the altruistic purpose of the not-for-profit may actually compromise the viability of the income producing activities.

Social enterprise is only just emerging in Australia, but is likely to be an important area of investment in altruistic purpose for not-for-profit organisations. It also has the potential to leverage existing not-for-profit assets and attract new forms of capital into supporting and benefiting the Australian community.

For these reasons the CCA recommends the following:

7. Application of the proposed new regulation must allow scope for responsible reinvestment of retained earnings, profits or surplus into unrelated commercial activities at critical times such as start-up social enterprises, medium term investment to address falling profitability, etc.

8. A minimum two year phase in period should apply to existing not-for-profit organisations engaged in unrelated commercial activities above the threshold.

9. A second process of consultation should be undertaken on the actual proposed changes in legislation or regulatory requirement for not-for-profit organisations.

Conclusion

CCA supports the government policy goal of preventing commercial organisations utilising not-for-profit status to avoid payment of taxation.

CCA does not support adopting an approach that assumes a policy position in which no concessions apply to the income producing activities of not-for-profit organisations unless the not-for-profit organisations satisfies strict related activity criteria (as applies in some countries).

CCA is concerned about the potential for unintended and negative consequences for the vast majority of not-for-profit organisations that can occur with the uncertainty of new regulations and the imposition of new compliance costs. Such an outcome is not justified by the need to prevent a very small minority of organisations seeking to avoid their taxation obligations through use of not-for-profit status. The only real winners in this approach are legal services and other consultancy firms who can use the uncertainty to increase their own income. Unfortunately there have already been a number of instances where some firms have told their not-for-profit clients that they will need legal advice before engaging in any income producing activities.

The proposed new definition of charitable organisations and the soon to be established Australian Charities and Not-for-profit Commission provide an appropriate opportunity to ensure not-for-profit organisations are actively engaged in fulfilling their altruistic purpose.

There is a very real danger that good government policy intent supported by the not-for-profit sector might be derailed by poor policy implementation leading to massive compliance costs for both the sector and government with minimal return to government. This kind of negative outcome will not only reduce the income producing activities of not-for-profit organisations, but also reduce the capacity of communities to respond to their own social, environmental or economic challenges. It is very difficult to put a price on the costs to our communities in stifling innovation and responsiveness through burdensome compliance. The one thing we do know is that we will all pay a price if the proposed regulation fails to clearly and broadly define unrelated commercial activities and establish a fair threshold

If the recommendations in this submission are adopted, the proposed new regulations will have minimal negative impact on the not-for-profit sector, the government will maintain its commitment to positive reform for the not-for-profit sector, and the policy goal of preventing misuse of not-for-profit status to avoid taxation will be addressed.

Attachment 1

List of Members of the Community Council for Australia

As at 15 March 2011

Aboriginal Employment Strategy Ltd. – Danny Lester
Alcohol and other Drugs Council of Australia – David Templeman
Alcohol Tobacco and Other Drugs Association ACT – Carrie Fowlie
Associations Forum Pty. Ltd – John Peacock
Australian Indigenous Leadership Centre – Rachelle Towart
Australian Institute of Superannuation Trustees – Fiona Reynolds
Australian Major Performing Arts Group – Susan Donnelly (Director)
Connecting Up Australia – Doug Jacquier
Good Beginnings Australia – Jayne Meyer Tucker (Director)
HammondCare – Stephen Judd (Director)
Hillsong Church – George Aghajanian
Illawara Retirement Trust – Nieves Murray
Lifeline Australia – Dr Maggie Jamieson
Maroba Lodge Ltd. – Viv Allanson
Mental Health Council of Australia – Frank Quinlan
Mission Australia – Toby Hall (Director)
Musica Viva Australia – Mary Jo Capps (Director)
Opportunity International Australia – Rob Dunn
Philanthropy Australia – Deborah Seifert
RSPCA Australia – Heather Neil (Director)
Social Ventures Australia – Michael Traill
Surf Life Saving Australia – Brett Williamson (Director)
The ANZCA Foundation – Ian Higgins
The Benevolent Society – Richard Spencer (Retiring Director)
The Big Issue – Steven Persson (Director)
The Centre for Social Impact – Peter Shergold
The Smith Family – Lisa O’Brien (Director)
The Ted Noffs Foundation – Wesley Noffs
Volunteering Australia Inc. – Cary Pedicini
Wesley Mission – Keith Garner (Director)
WorkVentures Ltd. – Arsenio Alegre
World Vision Australia – Tim Costello (Chair)
YMCA Australia – Katherine Pengilly

Attachment 2

National Compact Extract: signed by sector organisations and Government 17/3/10

Shared principles of the National Compact

The Australian Government and the Third Sector will work together according to these principles to achieve their shared vision:

We believe a strong independent Sector is vital for a fair, inclusive society. We acknowledge and value the immense contribution the Sector and its volunteers make to Australian life.
We aspire to a relationship between the Government and the Sector based on mutual respect and trust.
We agree that authentic consultation, constructive advocacy and genuine collaboration between the Sector and the Government will lead to better policies, programs and services for our communities.
We believe the great diversity within Australia’s Third Sector is a significant strength, enabling it to understand and respond to the needs and aspirations of the nation’s varied communities, in collaboration with those communities.
We commit to enduring engagement with marginalised and disadvantaged Australians, in particular, Aboriginal and Torres Strait Islander people and their communities.
We recognise the value of our multicultural society and we will plan, design and deliver culturally responsive services.
We share a desire to improve life in Australia through cultural, social, humanitarian, environmental and economic activity. To achieve this, we need to plan, learn and improve together, building on existing strengths and making thoughtful decisions using sound evidence.
We share a drive to respond to the needs and aspirations of communities through effective, pragmatic use of available resources.
We recognise concerted effort is needed to develop an innovative, appropriately resourced and sustainable Sector.
We acknowledge the need to develop measurable outcomes and invest in accountability mechanisms to demonstrate the effectiveness of our joint endeavours.

Priorities for action

Implementing the Compact principles will require coordinated engagement across Government and collaboration with the Sector to develop action plans. These plans will detail how the Compact’s eight priorities for action, outlined below, will be met.

Document and promote the value and contribution of the Sector.
Protect the Sector’s right to advocacy irrespective of any funding relationship that might exist.
Recognise Sector diversity in consultation processes and Sector development initiatives.
Improve information sharing including greater access to publicly funded research and data.
Reduce red tape and streamline reporting.
Simplify and improve consistency of financial arrangements including across state and federal jurisdictions.
Act to improve paid and unpaid workforce issues.
Improve funding and procurement processes

Reference: www.nationalcompact.gov.au/resources/national-compact/

Attachment 3

Statement of government support for PC recommendations (extract from the Communiqué from the second meeting of the Not-For-Profit Sector Reform Council, 18 May 2011)

With regards to the Productivity Commission research report, Contributions of the Not for Profit Sector, the Minister advised that the Commonwealth Government has accepted ‘in-principle’ all but one of the recommendations relating to the Commonwealth. The one recommendation not supported was recommendation 9.5 pertaining to program related social innovation funds. While encouraging greater innovation is critical, the Government believes this should be pursued in other ways.

Reference:

www.notforprofit.gov.au/node/140

Attachment 4

Statement from Assistant Treasurer Bill Shorten on the purpose of new regulations (extract from Speech given to National Press Club, Canberra, ‘Passing Round the Hat for Change: This Labor Government and the Not-for-Profit Sector’, 27 May 2011)

Unrelated business income

But regulation is only part of the picture. The sector also needs a sustainable funding base.

Funding for the sector via forgone tax revenue is a significant outlay for Government. Indeed, quantifiable tax expenditures in 2010-11 are estimated to be $3.3 billion, but this does not include unquantifiable expenditures including forgone income tax which is estimated to be at least $1 billion per year but could be significantly more.

Like any significant government outlay, taxpayers should expect the fiscal ruler to be run over things from time to time.

As I’m sure you are all aware, the High Court held in Commissioner of Taxation v Word Investments Ltd (2008) that charities are able to use tax concessions intended to support altruistic activities for unrelated commercial activities.

As part of the reform package announced in the Budget, and in response to the Word Investments case, the Government announced that it would reform the tax concessions provided to not-for-profits that carry on unrelated commercial activities.

A clear policy intent underpins this measure.

It is designed to protect the integrity of the sector by ensuring that valuable tax concessions are utilised to further the altruistic aims of the sector, rather than being used to provide an uncompetitive advantage to a purely commercial activity.

We understand that many not‑for‑profits face challenges in raising funds to maintain their services.

As our record shows, this Government has actively encouraged not-for-profits to be innovative and to diversify and to grow their revenue streams.

However, we do consider that Government support by way of taxpayer concessions to not-for-profits is best utilised in furtherance of the altruistic purposes of the not-for-profit entity. That is the very reason for the existence of the concessions.

It is what taxpayers expect.

Accordingly, as of 7.30pm on Budget night, not-for-profits will be required to pay income tax on those profits from new unrelated business activities that are not directed back to their altruistic purpose – that is, the earnings they retain in their commercial undertaking.

This is not a revenue raising measure – you won’t see a single dollar gained in the forward estimates as a result of this reform.

But the Government has acted based on the strong advice of the Treasury and ATO that the loophole created by Word Investments posed a significant risk of exploitation and presents a risk to revenue for all levels of Government.

Importantly, it is not the Government’s intention for these reforms to affect the use of tax concessions that support a charity’s related commercial activities.

That means the sort of innovative commercial activities established by some of the people in this room – the likes of GoodStart or some of the social enterprises – will continue to receive the benefit of charitable tax concessions.

We think that the local op shops providing discounted goods to the disadvantaged, not-for-profit child care centres, or even not-for-profit hospitals should notbe prevented from accessing these concessions to undertake their vital activities, even when they are being operated on a commercial basis. This sort of innovation is, and should be, encouraged.

We also recognise that low risk and small scale commercial activities should be carved out. Therefore running a local lamington drive, school fete or leasing out a school hall, will not put at risk an entities status. The Government realises that these activities are a natural part of the local community life.

There are also no Budget night shocks for those not-for-profits with existing unrelated commercial activities. Tax concessions will initially be available to support these activities. And we will talk to the sector about transitional arrangements.

There are also exemptions for not-for-profit entities that have entered into a government service delivery contract as at 10 May 2011 or participate in the National Rental Affordability Scheme.

But these reforms will raise a number of legitimate questions about the application of these measures to the diverse and innovative activities that the sector engages in. Sometimes the line between what is ‘related’ or ‘unrelated’ may be blurred. Some organisations may structure their activities in a certain way that might not automatically gel with these reforms. And we understand that it may hard to determine what constitutes a ‘low risk’ activity.

I am mindful of the law of unintended consequences, and I am determined to get this right. We want to provide certainty to the sector – we shall consult.

So today I am pleased to release a discussion paper on this issue, seeking input from the sector about these reforms and how best to implement this change. I am keen to hear from each of you on how these changes will affect existing unrelated commercial activities that are being undertaken or planned, and how best to transition entities that are undertaking unrelated commercial activities over time.

Reference:

www.dpm.gov.au/DisplayDocs.aspx?doc=speeches/2011/019.htm&pageID=005&min=brs&Year=&DocType=1

Attachment 5

ATO Eligibility for Small Business Concession

Guide to small business entity concessions

Eligibility

You generally qualify for the small business entity concessions if your business is a ‘small business entity’ for the year in question. However, some of the concessions have additional conditions which you will also need to meet.

You are a small business if you carry on a business and your business turnover (aggregated turnover) is less than $2 million.

Your turnover includes all income earned in the ordinary course of business for the income year. Turnover refers to your gross income or proceeds, rather than your net profit. It doesn’t include any goods and services tax (GST) amounts you have charged on your sales.

Your aggregated turnover is the sum of your turnover for an income year and the annual turnover of any entity you are connected with or that is an affiliate of yours at any time during that income year.

There are aggregation rules that determine whether you need to include the turnover of another entity in your aggregated turnover.

You satisfy the turnover test for the current year if your aggregated turnover:

was less than $2 million in the previous income year, or
is estimated to be less than $2 million for the current year (provided that your aggregated turnover was less than $2 million for one of the two previous income years), or
is actually less than $2 million at the end of the current year.

Reference: http://www.ato.gov.au/businesses/content.aspx?doc=/content/00231250.htm&page=2&H2

Attachment 6

UBIT Tax Returns US 2007 (see attached file)

Not-for-profit Tax Concessions Read More »

Finance for not-for-profits – Senate Inquiry

Submissions-post

June 1, 2011

Finance for not-for-profits - Senate Inquiry

Submission to the Senate Economics References Committee

Inquiry into Finance for Social Organisations

June 2011

Introduction

This brief submission provides a summary of discussions and consultations CCA has had with not-for-profit organisations, a number of key finance sector organisations, government officials and investors in the not-for-profit sector. The submission should be read as a collation of views rather than a formal CCA policy position statement.

CCA commends the Senate Economics References Committee for initiating this very important inquiry, and would be happy to expand on any of the issues raised in this brief submission.

The Community Council for Australia

The mission of (CCA) is to lead by being an effective voice on common and shared issues affecting the contribution, performance and viability of not-for-profit organisations in Australia through:

• providing thought and action leadership

• influencing and shaping sector policy agendas

• informing, educating, and assisting organisations in the sector to deal with change and build sustainable futures

• working in partnership with the government, the business sector, and the broader Australian community.

This Inquiry

CCA believe this Senate Inquiry into financing the not-for-profit sector addresses a fundamental and important issue for the future of social organisations in Australia. As the Productivity Commission and others have repeatedly demonstrated, the not-for-profit sector (NFP sector) is a significant economic force in Australia employing almost a million people. It is also the heart and soul of our community life.

It is questionable that the NFP sector can continue to maintain compound growth of 7% a year as it has done for over a decade. Even given this growth there remains an ongoing need for capital renewal. Overseas trends suggest that while ongoing government engagement and support of the sector remains critical, new forms of financing the not-for-profit sector are being developed primarily out of necessity. There is no clear future direction in terms of accessing and using finance in the Australian not-for-profit sector. An inquiry that seeks to identify the issues and provide some guidance about immediate and medium term priorities can only benefit the NFP sector and the broader community.

Overview

The questions being asked in this inquiry go to the heart of many complex issues facing the not-for-profit sector in Australia. In simple terms, providing a broader range of options and products to finance the not-for-profit sector can only enhance ongoing reform and improvements for the whole sector.

It is important to acknowledge, however, that the access to finance issue is one of several critical issues the not-for-profit sector (NFP sector) is currently struggling to address. Even if it were possible to instantly provide a broader range of financing products and increase investment and engagement in the NFP sector, there are a number of critical issues relating to workforce, evaluation and measurement, accreditation, regulation, contracting and compliance, relationship with government and community, governance and technology that all remain central to the future of the not-for-profit sector. Many of these areas are also the subject of review and reform creating a challenging environment for the sector.

From a CCA perspective, one way of briefly responding to the questions asked by this inquiry is to consider them from four different perspectives. Even within sectors there are divergent views about the issue of financing, but understanding the way different stakeholders interact on this issue is fundamental to moving forward. This submission briefly outlines the separate but interconnected roles and perspectives of: the not-for-profit sector; governments; the community; and the finance sector in relation to this area.

Again it is important to note that within this brief submission there is limited capacity to fully explore issues for all sectors. It is hoped this discussion will serve as a starting point for further consideration of how best to move forward.

The not-for-profit sector

In any discussion of the not-for-profit sector it must be acknowledged that there is a fundamental principal that drives most activities and approaches – to better respond to the needs of the communities they serve. This is the great strength of the sector, but can also lead to limitations in prioritising and addressing longer term organisational needs.

The consequence of this approach is that many not-for-profit organisations seek to expend most of their resources in the year they receive them on the work they do. If they generate a surplus, the immediate response is most likely to be about either spending it to improve service provision or holding the money as liquid assets in reserve for future program enhancement or to provide substitute funding for existing services. Only a small percentage of the 600,000 not-for-profit organisations in Australia are in a position to make investments or to leverage their assets, and those that are tend to be reluctant to engage in this form of activity. There are some exceptional organisations within the NFP sector that have taken a lead in some areas of financing, but they really are exceptional.

Most not-for-profit organisations are actively seeking more funding to improve their services both in terms of capital and programs. But for as long as the immediate priority is the programs and services they provide to their communities, the idea of developing innovative approaches to financing and capital renewal seems a long way from where their primary focus is.

This reluctance to prioritise long term organisational sustainability is compounded by cultural and other barriers, including the fact that many not-for-profit Boards and senior executives believe that fulfilling their civic responsibility means adopting a conservative approach to financial risk management.

As a consequence, and with a notable few exceptions, the not-for-profit sector remains largely outside of discussions about new ways of financing the sector or gearing existing assets. This is despite the fact that there are significant assets being held by the 10% of not-for-profit organisations that engage in economic activity, and considerable potential to both leverage investment and attract new sources of financing and funding.

What this brief discussion highlights is that any move to significantly increase uptake of new financing options will require extensive education and brokerage activity back into the not-for-profit sector.

Governments

Over the past few decades, governments have increasingly outsourced programs and services (and risk) to the not-for-profit sector, often accompanied by a level of contractual service control and management from the bureaucracy. In some cases, bureaucracies see the programs being run by not-for-profit organisations as belonging to them, not the community they are being provided for, or the not-for-profit organisation running the services. The consequent compliance burden is (mistakenly) seen as a way of managing risk and ensuring better performance. Dysfunctional contractual relationships are often compounded by the silo approach of government where one area of government funds one aspect of need, and a different government agency contracts services to meet an associated area of need, often for the same community group or target population.

Within this context, financing approaches such as social impact bonds, leveraged investment, place based social entrepreneurship, etc. are seen as increasing risk and therefore counter to traditional government funding approaches. From a policy perspective it makes sense that the policy goal should inform what is funded, not the interpretation of the policy goal through bureaucratic processes. In practice this is often not the case.

Where reform in funding approaches for the NFP sector has begun to be adopted by government, it has been driven largely from outside the bureaucracy. IN this area, as in others, there are some notable exceptions, but generally there is not a large appetite for new financing options within government bureaucracies.

We now know that the future of the NFP sector cannot be assured if we restrict the government role to simply being a purchaser of units of service. Buying tightly controlled contracted programs (or units of service) from the NFP sector has significant limitations in terms of ongoing sustainability of the organisations themselves.

It is not really clear at this stage how government can best facilitate the development of a range of financing options for the NFP sector, however, it is clear that the community benefits if there is a diversity of financing options available to support better responses to community needs.

While there are a number of promising options to be considered and trialled, there is also a need for a change in approach from within many government bureaucracies. Part of that change is cultural – real partnerships are about relationships not contracts. Real risk management is about knowing and supporting the capabilities of organisations, not increasing compliance requirements.

The role of government can be enhanced by taking a much stronger policy outcome approach that enables NFPs and their communities to develop and innovate around finances, funding and service provision to better need their own needs as well as the goals of government.

Government can also take a lead in piloting new ways of funding the NFP sector and underwriting some investment approaches.

Without the active engagement of government in stimulating and facilitating better uptake of innovative financing options, it is difficult to see how this area can be advanced.

The Community

There Australian community is actively engaged in the not-for-profit sector. Many work in the sector or receive services or volunteer. The community also support the sector financially through donations and through structured giving programs, trusts and foundations. However, beyond giving money or time directly to the NFP sector, most Australians are not aware of, and have no demand for, new financial investment options that may support the not-for-profit sector.

Again this is fundamentally an issue of awareness, knowledge, having appropriate products available and having appropriate ways of engaging, allocating, monitoring, and reporting on financial investment and other products. There is clearly untapped potential here to influence the extent and nature of giving if appropriate products can be developed.

Without appropriate brokerage and awareness campaigns, it is difficult to see how demand for more innovative NFP investment and financing options might become more accessible.

The Finance Sector

Given the issues outlined above, the role of the finance sector becomes fundamental. There is a financial knowledge brokerage role, a product development role and a facilitating (brokerage) role for the finance sector in partnership with government, the NFP sector and the community.

From a commercial perspective not-for-profit bonds, social investment, and other financing products offer a limited return, have limited demand from the community and limited capacity within the NFP sector to actively engage and use appropriately.

A small group of organisations within the finance sector have challenged this view and have been working to develop products and options for better attracting investment in the not-for-profit sector and better leveraging that investment into real outcomes.

This is an area where leadership is as much about commitment to improving our community as about making profits, although there is clearly scope both to make some profits and to build credibility and community support.

Perhaps even more than other areas, the development of an active and engaged group of finance specialists is an important pre-requisite to establishing more financing options for the NFP sector. To this end, it is important to listen to those from the finance sector who are currently active in this area. If governments, not-for-profits and the community can better support their role, it is much more likely more viable investment and financing options will be developed over time.

Conclusion

CCA does not have a neat set of answers to the important questions being asked through this inquiry. At the same time, through this very brief submission, CCA has tried to highlight the different issues faced by the key stakeholders in this area and provide suggestions about how some of the barriers can be addressed.

Government has a critical role to play in addressing its own practices and a culture that militates against new financing approaches for the NFP sector. Government must also play an important role in supporting both the finance sector and the NFP sector to better understand and embrace the emerging range of financing and credit opportunities. This is no easy task.

The challenge for groups like CCA is to work within the not-for-profit sector to increase understanding and awareness of the emerging possibilities. The NFP sector needs to think differently about assets and organisational sustainability.

Communities are best served by organisations with the flexibility to respond to needs in a timely and effective manner. This can only happen when NFPs have developed flexible sources of finance and program funding.

We need to put the future of the NFP sector into the in-trays of all NFP organisations, governments, the community and the finance sector.

There can be no doubt that emerging financing options are a critical component in forward planning and need to be fully exploited if Australia is to enhance not-for-profit sustainability and effectiveness.

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