Submissions-post

CCA Submission to inform the Federal Budget 2020/21

Submissions-post

CCA Submission to inform the Federal Budget 2020/21

This submission outlines nine measures the Community Council for Australia (CCA) believes will significantly strengthen Australia’s not-for-profit (NFP) sector and drive real economic savings for government over the coming financial year and beyond.  These measures have been informed by consultation with CCA members and key organisations in the NFP sector.  

It is important to note that this submission does not override the policy positions outlined in any individual Federal Budget submissions from CCA members.  

The content of this submission includes: a brief background to CCA; a listing of proposed measures; an overview of the current issues for the NFP sector; further details about the costing of proposals; and a conclusion.  

CCA acknowledges both the need for fiscal restraint and the growing demand for government services.  CCA proposes a major government revenue boosting measure (estate duty) as well as incentives to promote philanthropy and strengthen our communities (such as the French 90/10 superannuation rule).  

If Australia is to be a just and fair society where we increase collective ownership of local issues and build flourishing communities, there needs to be a genuine commitment to supporting reforms across the charities and not-for-profit sector (NFPs) from government and other key stakeholders.  This is not about providing more funding to the sector, but about encouraging and supporting more effective and efficient organisations delivering better outcomes for our communities.  

CCA welcomes this opportunity to provide input into the Federal Budget process and to engage in detailed discussion about any issues this submission raises. 
 

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.

Summary of proposed budget measures

The following proposals have been developed through extensive discussions and feedback from CCA members and other key stakeholders.  Each measure would deliver real benefits to government over the longer-term and strengthen communities (proposed measures are outlined in more detail on page four).

  1. Provide Deductible Gift Recipient (DGR) status to all registered charities with an initial exemption of organisations for the advancement of religion, childcare, primary and secondary education. 
  2. Introduce a targeted ‘estate duty’ for people with estates valued at over $10 million with appropriate incentives for donations to charities, safeguards relating to family businesses and farms; and mitigation of any potential adverse impacts.
  3. Implement the French 90/10 rule providing an option for all Australian employees to invest 5-10% of their superannuation into a not-for-profit social enterprise that benefits the community.
  4. Fix fundraising regulations.
  5. Boost sector investment and productivity by increasing certainty in government funding, concessions, incentives and regulations. 
  6. Develop and impose an additional ‘capacity levy’ on all Commonwealth funding of NFPs set at a minimum of 3% to support sector capacity development through; staff training and development, research and evaluation, and technical infrastructure improvements. 
  7. Increase philanthropy by enabling employers to establish more effective ‘opt out’ systems of workplace giving. 
  8. Work with the CCA and key stakeholders to promote uptake and investment in the future blueprint for the sector currently being developed by CCA and other partners.
  9. Review the generous tax concessions provided to gaming, catering, entertainment and hospitality income for mutual organisations, especially licensed clubs. 

CCA believes these measures could be delivered within the next two years and produce a much stronger government budget position as well as building capacity and resilience in our communities.  Australia cannot afford to ignore growing levels of debt, increased inequality and the need to support flourishing communities as a basis for improved productivity and well-being. 

An economy that does not support real growth in opportunity is not serving the interests of our community.  CCA believes every budget statement needs to be framed by what is going to deliver stronger, fairer, more creative, sustainable and connected communities.

Context: not-for-profit reform

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 55,000+ charities collectively turn over more than $147 billion each year and hold close to $300 billion in assets.  

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 strengthening democracy through greater civic engagement, providing incentives for social entrepreneurship and boosting productivity within the NFP sector.

In Australia there have been various initiatives seeking to: promote social enterprise; reduce compliance costs for NFPs; encourage a diversification of financing options to build a more sustainable funding base; streamline and refine the regulation of NFPs and charities; establish less bureaucratic reporting requirements while building community transparency; increase philanthropy; promote impact investing; and increase sector performance measurement.  CCA supports all these activities. 

The establishment of the 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 until recently also provided invaluable information.

While the immediate history of the NFP sector is framed by growth and reform, new issues are emerging.  The level of 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, the Federal 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.  Governments seem reluctant to change established practices that promote competition between charities, increase compliance costs and contribute to growing uncertainty.  These practices are all counter-productive for government and our communities. 

Supporting the proposals outlined in this submission will make Australia stronger. Achieving a better return on existing government investments should also be a high priority.  In the interests of all Australian communities, government should avoid inflicting any long-term damage on a sector that not only holds a vital place in our economy, but also strengthens communities, builds connectedness and increases productivity for all Australians.
 

Description of proposed budget measures

  1. Provide Deductible Gift Recipient (DGR) status to all registered charities with an initial exemption of organisations for the advancement of religion, childcare, primary and secondary education.  

The present system of determining Deductible Gift Recipient (DGR) status largely through the Australian Taxation Office (ATO) and Departmental listing favors larger charities that can afford lawyers and lobbyists to assist the progression of their applications.  Many smaller NFP and charities do not have the capacity to apply for DGR status, and hence they cannot access the community support that comes when donations are tax deductible.  There are up to six government agencies involved in determining DGR status.  While reforms have been proposed, they have not been acted upon.  DGR is currently a complex, costly and inequitable system – with less than half of all charities having DGR status.  The proposed reforms to DGR are a step in the right direction, but it is still difficult to justify the distribution of DGR eligibility given the arbitrary and ad hoc manner in which it has developed.  It makes good policy sense that all donations made to registered, complying charities should be tax deductible.  This is the practice in comparable countries like the UK and Canada.  

The ACNC determining charitable status and DGR will deliver a fairer system and reduce red tape. This policy is economically feasible with the initial exemption of organisations for the advancement of religion and education reducing the likely implementation costs to approximately $130 million per annum.  Excluding all schools and all churches for automatic DGR eligibility makes this measure affordable.  At the same time the intent is not to deny DGR, so existing DGR exemptions for ministers of religion and other concessions based on religious and educational purposes would continue to apply.

Funding to support this measure could come from savings through the recent capping of FBT entitlements for meals and entertainment expenses.

This measure is estimated to be revenue neutral in the first instance.  Initial projected expenditure of approximately $130 million is offset by recent savings in ending uncapped FBT entitlements.

 

  1. Introduce a targeted ‘estate duty’ for people with estates valued at over $10 million with appropriate incentives for donations to charities, safeguards relating to family businesses and farms, and mitigation of any potential adverse impacts.

National estate duties exist in many countries including: the United Kingdom, Germany, Italy, Belgium, the Republic of Ireland, France, the Czech Republic, Canada and the USA.  Not only do these duties provide substantial government revenue, they also increase philanthropy by offering relief from estate duties for any money left to charity.  The Henry Review drew on this international experience in supporting estate duties as a taxation measure.  Among other benefits, estate duties can apply a small brake on growing levels of inequality in our communities.  

Until 1979, many Australian governments gained substantial income through various forms of death or estate duties.  It is suggested that death duties ended because Premier Joh Bjelke Petersen wanted to attract retirees to Queensland and abolished all death duties.  Other states followed.  Until then the threshold had effectively been lowered over time to a level where many not so rich were also having to pay.  As a consequence of these factors, in the late 1970s an estate duty was no longer seen as fair.  

A better targeted approach to estate duties could address these previous failings and would be consistent with a fair go for all.  Using a revised version of capital gains taxes and only applying it to those with estates above $10 million (excluding family farms and other appropriate asset exemptions) offers a workable option.  

In Belgium estate duties contribute 1.4% of total government revenue which would translate into over $5 billion in revenue per annum for Australia.  

Australia’s growing gap between rich and poor, and the gap between government income and demand for government supported services, can both be partially addressed by applying a form of estate duty on the richest 1% in our communities.  A targeted 35% estate duty on all estates over $10 million (with appropriate exemptions) would raise substantial new government revenue and stimulate philanthropy. 

ATO figures suggest over 25,000 people have assets above $10 million.  If 4% of these families paid 35% in estate duties, it would equate to a minimum revenue of $3.5 billion.

 

  1. Implement the French 90/10 rule providing an option for all Australian employees to invest 5-10% of their superannuation into a not-for-profit social enterprise that benefits the community.

France has required all employees to be given the option of investing 5-10%of their superannuation into ‘solidarity organisations’ (the equivalent of our charities) since 2001. In 2008 the government regulated that all super funds needed to provide this option to employees and since that time the amount invested has grown from $700 million to over $5.5 billion.  This has stimulated social entrepreneurship, created opportunities to achieve social impact, improved the capital base and capacity of solidarity organisations.

The success of the French 90/10 rule shows what can be achieved if Australia chose to provide employees with some choice about how their superannuation contributions are invested.  If just 2% of the MySuper funds were invested this way it would generate around $8.5 billion, or enough to significantly reduce homelessness by providing housing to over 50,000 Australians struggling to maintain secure and appropriate housing.

CCA believes this measure could be transformative in encouraging the charities sector to find ways of establishing social enterprises that strengthen our communities.  It would also link into the work of the Social Impact Investing Taskforce recently established by the government and provide a boost to impact investing into the sector.

This measure has very little government impact as costs are almost non-existent – it is simply about enabling a different use of a very small part of Australia’s $2 trillion superannuation investment pool.

 

  1. Fix fundraising regulations.

This measure would save millions of dollars a year in red tape, duplication and dysfunctional compliance activities that provide no benefit to the community. Simply ensuring fundraising activities are covered by the Australian Competition and Consumer Commission (ACCC) would ensure any deceptive or misleading conduct associated with charitable fundraising, whatever the platform, could be closed down and perpetrators prosecuted.  CCA and many other groups have repeatedly called for the fix fundraising solution to be implemented, but still charities languish in a bygone era of accountability that has little relevance or effectiveness, but costs charities millions in wasted effort.

There is no cost to government in ensuring appropriate application of Australian Consumer Law.

 

  1. Boost sector investment and productivity by increasing certainty in government funding, concessions, incentives and regulations. 

This measure is focused on achieving a more stable financial and regulatory framework for all not-for-profits, particularly in relation to government funding and interaction with the sector.  CEO Forums across the country run by CCA with the support of key organisations clearly showed that uncertainty of government funding is a critical barrier to investment in the future sustainability of organisations.  This applies to not just recurrent government funding, but also tax including the losses associated with changes to FBT concessions and incentive programs.  The government needs to actively consider initiatives such as: 

  • an agreed notice period of six months prior to the ending of any major government contract, incentive or concession, with limited exemptions for cases of fraud, other criminal actions, etc.
  • increasing the length of government contracts where possible to at least five years
  • more transparent and accessible processes for reviewing the performance of NFPs
  • more transparent and accountable processes for government funding decisions relating to NFPs. 

These measures would all boost investment in organisational capacity across the NFP sector.

Experience in other sectors has also shown that where an independent feedback process can be established that does not focus on public blame and retribution, system change in relationships can be driven through active feedback and better information exchange.  CCA supports a national feedback exchange program where all NFPs could provide honest feedback on their dealings with government agencies.  Providing avenues to pursue positive improvements in the relationship between governments and the NFP sector is important. 

At the centre of many concerns across the NFP sector is the ability of small and large community organisations to deal with an increasingly uncertain future.  While governments are not responsible for all disruptions and challenges to the NFP sector, increasing certainty in government funding is a critical measure that would build capacity and effectiveness.

CCA anticipates these measures would produce savings with very limited (mostly internal) outlays. 
 

  1. Develop and implement an additional ‘capacity levy’ on all Commonwealth funding of NFPs set at a minimum of 3% to support sector capacity development through; staff training and development, research and evaluation, and technical infrastructure improvements. 

The Australian government invests billions of dollars in charities and not-for profits to provide critical services and supports to communities across Australia. Unfortunately, there is often little allocation of funding to enable funded organisations to improve their services through capacity development in critical areas like staff training and development, research and evaluation, and infrastructure including technological systems.  While the government should not be solely responsible for sector capacity, it is important to acknowledge that increased productivity will only come if there is increased capacity to improve organisations and the way they operate. While many NFPs invest in their capacity, providing an additional 3% allocation on top of government funding to invest in appropriate and effective capacity building will ensure increased productivity and a better return on government investment into the sector.

CCA believe some of the funding provided through this measure should be used to ensure better co-ordination and sharing of best practice through centralised databases of available opportunities in critical areas like; staff training, program evaluation, systems development, etc.  This centralised information sharing capacity could be seen as facilitating excellence across the sector and might involve a range of existing organisations creating a virtual Centre of Excellence for the NFP sector.  It could also fund research into the NFP sector and support a cross-government advisory body like the NFP Sector Reform Council to improve government and NFP relationships.  The details of how best to develop and apply this levy would need to be worked through with central agencies and government departments. 

The annual budget for this initiative will depend on government allocations to NFPs, administrative budgets and the degree of existing expenditure, but may not require new additional expenditure.
 

  1. Increase philanthropy by enabling employers to establish more effective ‘opt out’ systems of workplace giving.

CCA strongly believes that increased community engagement and philanthropic contributions to NFPs produce a net benefit to governments as well as to the communities NFPs serve.  It is counter-productive to treat increased philanthropy and social impact investment as a government loss of potential tax income or ‘foregone revenue’.  The whole community benefits when individuals or organisations choose to direct their resources into strengthening communities, increasing economic and social activity, and improving health and well-being.  This is particularly the case if the money involved avoids the significant transfer costs of moving into, through, and out of government.  Philanthropy and social investment are about encouraging greater ownership of local issues by enhancing the role of NFPs and reducing the size of government.

When in place, ‘opt out’ systems have ensured much higher levels of success in workplace giving programs.  The experience with the French 90/10 superannuation rule shows that once all employees are given the option, the amount being contributed to charitable purposes increases significantly.  With the current ‘opt in’ for existing employee systems, less than 3.5% of Australian workers are in a workplace giving program.  If this could increase to 10% of Australian employees donating 0.5% of their pre-tax income, over a quarter of a billion dollars would be raised through workplace giving.  This is a realistic target that would increase philanthropy and the engagement of Australians in the broader NFP sector.

CCA anticipates there would be no additional costs to government in this measure.

 

  1. Work with the CCA and key stakeholders to promote uptake and investment in the future blueprint for the sector currently being developed by CCA and other partners.

The future of Australia’s NFP sector is too important to our economy and our communities to grow in an ad hoc manner with little comprehensive planning or strategic investment.  CCA is working with partners to develop a blueprint for the charities sector.  At present there is no plan, no strategy and no real projection about the future viability or even the sustainability of the current levels of growth across the NFP sector.  The effective development of a blueprint will include developing clear goals and measures of what the NFP sector is seeking to achieve.  Additional government support to market and advance the blueprint once completed, would enable the blueprint to be much more than a list of desirable activities and outcomes.

With the Federal Government as a joint partner and supporter (and not the sole contributor), the completed blueprint could become a touchstone for sector investment from government, philanthropists, business and other stakeholders.

CCA anticipates the cost to government of supporting the national campaign to promote the value of investing in charities would be in the order of $350,000.

 

  1. Review the generous tax concessions provided to gaming, catering, entertainment and hospitality income for mutual organisations, especially licensed clubs. 

The mutuality principle that rightly applied in the late 1800s in Australia is no longer appropriate or consistent with existing taxation arrangements, particularly for organisations involved in gaming.  Large licensed clubs that act as gaming venues should not be able to treat over 75% of their income as tax free, especially when they have not satisfied the basic requirements of being a not-for-profit organisation that exists to provide a public benefit.  As pointed out in the Not-for-profit Tax Concessions Working Group Report (May 2013), concerns with the current application of the mutuality principle include:

– integrity concerns about member and non-member receipts;  

– competitive neutrality concerns where mutual organisations are trading in competition with taxable businesses;  

– social policy concerns about significant gambling and hospitality receipts of some organisations, which are not subject to income tax at the Commonwealth level; and  

– concerns about private member benefit. 

It is recommended, on public benefit grounds, that the tax law should be amended to treat all member and non-member income of mutual organisations as assessable for taxation purposes in line with normal income tax principles.  

If this recommendation is not supported, all income from gaming, catering, entertainment and hospitality trading activities of mutual organisations should be treated as assessable.  

It is difficult to justify the hundreds of millions of dollars of tax concessions provided to large licensed gaming clubs based on the mutuality principle.  It is time to review these concessions taking into account any unintended consequences on mutual organisations that do provide a real benefit to members. 

CCA anticipates this measure could generate significant additional government revenue.

 

Budget implications (costings)

CCA acknowledges the need to ensure an effective economic framework for all Australian governments that serves the needs of our various communities.  This budget submission has taken into account the need to increase government revenue through sustainable measures that have minimal impact on productivity, to reconsider inappropriate taxation concessions, and promote measures that will diversify the income of charities and not-for-profits enabling a rebuilding of capital, and an expansion in their capacity, without increasing government expenditure. 

In considering the specific budget implications of the nine key measures outlined in this submission, CCA has taken a relatively conservative approach to the projection of new income and expenditure for government.  Given the complexity of some of the proposed measures and the lack of data about others, the initial costs and benefits outlined in this submission represent a starting point for further discussion and more detailed economic modelling.  

CCA believes the measures proposed in this budget submission will generate significant revenue as well as long-term savings for governments, NFPs and the communities they serve.

 

Conclusion

This submission promotes Federal Government measures to strengthen the NFP sector and deliver real economic and social benefits for governments and our communities. 

Many individual not-for-profit organisations (including CCA members) will be seeking to have the Federal Government fund specific measures for the benefit of their own causes and communities.  Most of these budget proposals from the not-for-profit sector are important and have real merit.

There is a strong case for reform in the charities and not-for-profit sector to build more resilient communities through greater engagement in our society and our economy. Over the past two decades, the NFP sector has had limited support to improve capacity and effectiveness.  This is despite the very considerable contribution the broader NFP sector makes in terms of employment, productivity, individual and community well-being.

The harsh reality for most governments is that government income levels are stalling while demand for services continues to increase.  Part of the solution to this tension is achieving real productivity within government and the NFP sector.  Delivering positive change for NFPs requires an initial investment in time and resources to boost capacity and offer the certainty required for organisational investment.

Inequality continues to rise in Australia.  We need fairer ways of generating income for government and more impact investment to strengthen our communities.  Estate duties and the French 90/10 rule are two examples of sustainable policies that have the potential to be transformative.

The NFP sector is too large and too important to be left on the margins of economic debates and major policy reforms within Australia.  Government investment in enabling NFPs to be more efficient and effective will ultimately deliver stronger, more resilient and productive communities across Australia. 

The Federal Budget is the most important policy document a Federal Government produces.  Recognising the role of the NFP sector through implementation of the measures outlined in this submission will translate into a fairer budget that will increase sector productivity and growth, benefitting all Australians.

CCA Submission to inform the Federal Budget 2020/21 Read More »

Submission to the The Australian National Audit Office (ANAO) Performance review of the Australian Charities and Not-for-profits Commission (ACNC)

Submissions-post

Submission to the The Australian National Audit Office (ANAO) Performance review of the Australian Charities and Not-for-profits Commission (ACNC)

CCA’s submission to the The Australian National Audit Office (ANAO) Performance review of the Australian Charities and Not-for-profits Commission (ACNC) outlines key issues in relation to the performance of the Australian Charities and Not-for-profit Commission (ACNC) as a regulator for Australian charities.

CCA has 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. 

CCA has long been a supporter of the need for an independent regulator of charities in Australia.  CCA has advocated for the establishment and retention of the ACNC as a way of delivering increased transparency, accountability, and sustainability for the Australian charities and not-for-profit sector. 

The content of this submission includes: a brief background to CCA; a summary listing of key points within this submission, an overview of the current context for the NFP sector; considering the scope of the review, a more detailed outline of six specific issues to be considered in reviewing the performance of the ACNC, and a conclusion. 

Most of the information referenced in this submission comes from the three most recent self-assessed performance reports produced by the ACNC and Senate Estimates transcripts (see references).

CCA welcomes this opportunity to provide input into this performance review of the ACNC. 

It is important to note at the outset that David Crosbie, CEO of CCA, was one of the founding ACNC Advisory Board members.

The Community Council for Australia

The Community Council for Australia (CCA) 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.

Summary of key points in this submission

  1. The first five years of the ACNC have been remarkably successful

The ACNC initially set the standard internationally for what a charities regulator can and should be. 

  1. Performance metrics have been very positive – but it is difficult to tell if the positive trends are continuing

While we await the latest performance report from the ACNC, there are some concerns about the last performance report self-assessment and what appears to be a declining level of performance information.

  1. The provision of value-add information provided to researchers, policy makers and the charities sector appears to be diminishing

Disbanding support for charity researchers and producing less information for the sector risks undermining the mutuality of information flows between the sector and the ACNC.

  1. The promised Charity Passport is yet to be a reality

Good progress was made establishing the Charity Passport, but many government departments, regulators, funders, and others have not significantly enhanced their use of the ACNC data since 2017.  

  1. There are indicators suggesting a loss of management and leadership skills at the ACNC over the last two years is now negatively impacting performance

While staff surveys are not being released (despite FOI requests), many senior staff have left the ACNC in the last two years and staff morale appears to have declined significantly. The lack of a positive workplace culture combined with a decline in senior management expertise will have a negative impact on ACNC performance.

  1. Charities want the ACNC to focus on being a better regulator

What charities really want is a strong and effective charities regulator.  This means reducing red tape by increasing use of the Charity Passport, thorough investigation of complaints and appropriate enforcement, provision of well targeted advice and guidance, value added information about the sector to inform better policy making, and effective timely service to all who use the regulator and the information it collects.

Background context: the not-for-profit sector

The NFP sector encompasses over 600,000 organisations – from large to very small – and employs well over 1.3 million staff (around 10% of all employees in Australia).  Australia’s 56,000 charities collectively turn over more than $143 billion each year and hold over $275 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.

For many decades there was no consistent regulation of charities in Australia other than the one-off requirement for those seeking any form of taxation concession to register with the Australian Taxation Office.  For many, the process of working with the Australian Taxation Office to gain charitable status was a negative experience. Once registered, most charities never had any further contact with any regulator.

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 providing a one stop shop approach to charity regulation and enhancing their capacity.  The ACNC has already proved to be a positive step towards red tape reductions, increased transparency, and enhancing trust in the community.  The national charities register has also provided invaluable information to millions of Australians.  

It is important to note the ACNC was set up in consultation with the charities sector and sought to support the sector as well as regulate the sector (see this explanation of Object 2 in the ACNC Act https://probonoaustralia.com.au/news/2019/02/second-object-acnc-act-mea).

When there were proposals to disband the ACNC, many charities expressed significant concern.  Surveys conducted between 2012 and 2015 by Pro Bono Australia consistently identified over 75% of charities supported the establishment and maintenance of the ACNC.

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

The level of uncertainty across the charities sector is having a negative impact on medium and longer term strategic-planning, and reducing investment in organisational capacity.  This translates into diminished capacity and limited expenditure on the organisational activities that increase the quality and responsiveness of services provided to communities.

Having a well-functioning high-performance charities regulator is critical to the future credibility and sustainability of the charities sector.

Scope of the ANAO Performance Review of ACNC:  why the six key areas raised in this submission are of importance

The objective of the audit is to assess the effectiveness of the Australian Charities and Not-for-profits Commission’s (ACNC’s) regulation of charities. The ANAO proposes to examine the ACNC’s arrangements for:

  • registering charities and maintaining the Charity Register;
  • supporting charities to meet their ongoing compliance obligations; and
  • reducing the regulatory burden on charities and strengthening the sector.

The actual performance data sets and achievements of the ACNC over the first five years are very clearly in scope for this review, as is the issue of performance metrics in general, how they are being collected and shared.

The provision of value-added information provided to researchers, policy makers and the charities sector is critical to the performance of the ACNC in that it reinforces the benefits of voluntary compliance.  Knowing the information provided by charities to the ACNC will help inform researchers, policy makers and other charities ensures real value is placed upon the information by charities themselves. Charities know that the provision of an Annual Information Statement is not just another form filling exercise to enable information to be collected and filed away for no real benefit to anyone. Not properly drawing on this information diminishes the mutuality of information flows between the sector and the ACNC.  Over time this will lead to poorer compliance which is counter-productive to good regulator performance.

While ACNC staffing and management practices may not be the primary focus of this review, there is no question that the quality of senior staff, the morale of staff in completing their tasks, and the willingness of staff to invest themselves in the organisation, all have a major impact on the performance of the ACNC.  This is particularly true in relation to both the customer service elements of the ACNC performance (registering new charities, advice lines, operating the charities register, investigations and compliance activities); and the charities passport area, where senior management are charged with the task of bringing other agencies on board to the concept and reassuring them about the capacity of the ACNC to provide timely, accurate, validated information.

What charities really want is a strong and effective charities regulator.  The six areas raised within this submission all clearly impact on the performance of the ACNC and all should be in scope for this performance review of the ACNC.  

Key issues in the performance of the ACNC

  1. The first five years of the ACNC were remarkably successful

It is almost inconceivable that the ACNC could have been any more successful in its first five years establishment phase.  In hindsight, this is no accident, but a product of; over 12 months operating as a task force; careful and considered staff selection mixing regulatory expertise with charity experience; extensive consultation with charities, governments, other regulators, and associated experts; a strong focus on sector education and awareness; learning from other regulators around the world; drawing on quality researchers, technical expertise, media and communications; an outcomes based performance matrix; regular engagement and reporting with the Advisory Board, practitioners and sector users.  As a consequence, the ACNC delivered real outcomes including:

2011

2017

Once registered with the Australian Taxation Office, charities not required to report to anyone

Charities reporting annually providing key information on who is involved, income and expenditure, activities in pursuit of mission

No agreed governance standards

Five agreed governance standards

Ad hoc inconsistent advice and support

High level of advice and support for all charities

No public register of charities

Over 13,000 inactive charities de-registered establishing a highly reliable, regularly updated and accessible national register of charities 

A lack of information available about charities in Australia 

Comprehensive information is publicly available about the charities sector that can be cross referenced against; area of activity, location, income levels, staffing levels, etc. 

No single point of reference for key organisational information about a charity for governments, their Departments, regulators, Councils, or donors

Government Departments, regulators in State and Territories, and philanthropists increasingly drawing on ACNC data (the Charity Passport) rather than duplicating information

No clear complaints process for anyone with concerns about a charity behaving badly

Over 1500 complaints lodged and either resolved or investigated drawing on input from multiple regulators and information sources

Little independent research about charities in Australia

Extensive independent research on the state of the charities sector is commissioned on an annual basis

Paper based forms for charity regulation

99% of charities completed their Annual Information Statements online in 2017

No Australian charities regulator

Internationally acclaimed charities regulator with the highest rate of voluntary compliance by charities anywhere in the world

The above list is a truncated snapshot of achievements – so much more could and should be said about the remarkable achievements of the ACNC in its first five years.  

It should also be noted that the initial lack of support from the Federal Government (at times seeking to abolish the ACNC altogether) impeded the capacity of the ACNC to work across governments.  

The leadership of the ACNC throughout its first five years was a critical factor in its success. Not only did the ACNC have an outstanding Commissioner in Susan Pascoe, but also Deputy Commissioners David Locke and Murray Baird provided genuine expertise, knowledge and high-quality management skills.  The senior staff team below this level were also outstanding in their work, despite not having a secure future to look forward to.

What is beyond dispute is that, despite the barriers, in its first five years the ACNC set the standard internationally for what a charities regulator can and should be. 

  1. Performance metrics have been very positive – but it is difficult to tell if the positive trends are continuing

One of the requirements of the ACNC is to provide an annual report to the Parliament and to generally be accountable through processes such as the Senate Budget Estimates questioning of senior officials.  The charities sector, the parliament and many policy and regulatory bodies are rightly interested in the regulation of charities.  The provision of information about the performance of the ACNC was always seen as an important part of enabling the ACNC to fulfil its role as a respected regulator.

Since publication of the 2017/18 performance report no update has been provided.  Many of the examples used to justify positive reporting of performance in the 2017/18 report relate to work initiated or completed previously.  

We do know the number of complaints received about the performance of the ACNC increased significantly from less than 200 in a year in 2016/17 to more than 1200 in 2017/18. While some of this relates to new IT systems, good management should have made any transition to new IT systems less onerous for users of ACNC data.  In many cases links to important data simply disappeared without notice.

There were many more guides and fact sheets published in 2016/17 then there have been since.

Similarly, we know from 2017 there were 76 speaking engagements and 52 sector events run by the ACNC, but this level of engagement has also declined.

It is pleasing to see wait times for phone inquiries averaging less than 40 seconds and processing times for new charity applications below 15 days once all paperwork is submitted for 98% of cases.  

These trends seem a little inconsistent with recent tweets to the sector – e.g. @ACNC_gov_au 26/8/19  Hold the phone! We’re experiencing higher than normal wait times on our 13 22 62 Advice phone line.  If your query is not urgent, please wait until next week to call.  If your query is urgent, thank you for your patience. (Gif Hold the phone).… 

The 47% increase in complaints raised about charities with the ACNC may be a positive indicator that the public are becoming aware of the role of the ACNC, although more information about complaints would be useful.  There is some data suggesting more internally initiated investigations.  CCA would like to see more details and an explanation for any shift in compliance, investigation and enforcement activities.

The fact that only 1 of 26 FOI requests received the full document and 5 of the 26 requests received only a partial release of documents suggests the ACNC FOI policy might need to be reviewed.  Refusing so many FOI requests seems unusual. 

In some areas it is possible to monitor performance over time and see trends, but not all areas, and the lack of a current performance reporting is of concern to the sector.

More timely public reporting processes around key performance metrics would be welcome.

More timely and accurate reporting to the Parliament of Australia would also be welcome. Previously the ACNC Commissioner and Assistant Commissioners would attend most Senate Estimates hearings, often supported by other staff with additional knowledge and expertise. The current Commissioner’s refusal to bring staff expertise to the table for Senate Estimates suggests a lack of genuine interest in providing the best possible information to the Australian Parliament. Sending along a single ACNC staff member with less than three weeks employment experience at the regulator to answer Senators’ detailed questions about the operations of the ACNC showed a level of disrespect for the process of parliamentary accountability. The rationale used that the Commissioner was at a conference where he was not speaking seems inadequate. The suggestion that travel for staff to attend three Senate Estimate hearings each year is too expensive also seems inconsistent given the extraordinary travel costs associated with a Brisbane based Commissioner claiming significant travel expenses for all attendances at the ACNC offices in Melbourne.

  1. The provision of value-add information provided to researchers, policy makers and the charities sector appears to be diminishing

It took a long time for the current ACNC leadership to produce an Annual Charities Report and when it was produced, it seems to be a cut down version lacking the depth of insight and analysis previously provided.  This lack of commitment to the ACNC’s role as a provider of quality information about the charities sector is of concern, especially when it is combined with the discontinuance of support and encouragement for research into the charities sector previously provided by the ACNC.

The 2016/17 ACNC performance report states:

We also maintained the ACNC research network, providing a forum for researchers and academics interested in studying the sector to get together with the ACNC. At network teleconferences, attendees received updates about the ACNC’s research work and shared information about their projects.

The ACNC research network has been disbanded in the last two years.  

The open provision of ACNC data and encouragement to researchers to draw on this data is central to the role of a charities regulator.  For many in the sector it is one of the most important reasons for supporting a charities regulator.  If charities know that the information they provide to the ACNC will inform value-added reports and research, the additional work to provide timely data can be seen as a worthwhile contribution to improving knowledge and policy making for the sector.  

CCA believes the mutual benefit of two-way information flows is one of the reasons the ACNC has enjoyed strong support across the charities sector. The ACNC currently enjoys the highest level of voluntary information provision of any charity regulator in the world.  Less added-value information flow back to the charities sector will undermine this achievement and risks less voluntary compliance. This sense of mutuality will diminish if the ACNC provides less value-add information.  

  1. The promised Charity Passport is yet to be a reality

When charities were being asked to support the new ACNC, one of the positive selling points of the regulator was the capacity to cut red tape by developing a Charity Passport which could be used by government departments, funders, and other regulatory authorities at a federal, state and local level.

Prior to the ACNC, if a charity wanted to book a local community hall, gain a concessional rates approval from a local council, seek an exemption from payroll tax from a state government, apply for funding from a charitable foundation, seek charitable funding through a federal government department, seek approval to fundraise or engage in many other activities, they would have to prove their charitable status (often requiring multiple copies of letters from the Australian Taxation Office) and provide detailed information about their charity to establish their bona fides.  

The Charity Passport is a single document drawn from ACNC data that meets the basic identity and credentialing requirements as well as conveying verified information about the charity.  Adoption of the Charity Passport has the potential to save many millions of dollars of duplicated administrative tasks within charities.

The major barrier to early adoption of the Charity Passport was the determination of the Federal Government to abolish the ACNC.  Once this threat was no longer being made, the ACNC achieved very significant progress in having a broad range of organisations adopt the Charity Passport as meeting basic identification and credentialing requirements.

Unfortunately, it appears progress in advancing the Charity Passport has slowed since 2017 with many charities still reporting multiple duplicated administrative tasks largely providing the same sets of information in different forms to different authorities and government departments. According to the ACNC self-assessment, the number of agencies using the Charity Passport increased by over 25% in 2017 and only 5% in 2018.

Many charities have complained that after several years operation there is still a lack of alignment between ASIC and ACNC databases in terms of maintaining the officers of the company.  This often creates issues with some people still referring to ASIC despite ACNC being the appropriate regulator.

The failure to align fundraising regulations has become a major issue for many charities.  While this in part relates to Australian Consumer Law, the lack of State and Territory regulator alignment to the ACNC creates a huge administrative burden in many charities.

There are many other contributors to red tape in the charities sector, but the failure to gain widespread acceptance and adoption of the Charity Passport continues to represent a major failure in effective charity regulation.

Only by working diligently and authentically with many government departments and regulatory authorities will the barriers to adoption of the Charity Passport be overcome.  

Whether the current leadership of the ACNC can advance this task is now an issue of concern given the poor progress reported in the most recent ACNC self-assessment.

The important point here is that in terms of ACNC performance, this failure to see the Charity Passport more widely adopted is very frustrating and annoying for the charities sector.

  1. There are indicators suggesting a loss of management and leadership skills at the ACNC over the last two years is now negatively impacting performance

In assessing the ACNC performance, the issue of organisational culture and the ability to attract and retain quality staff should clearly be considered as these factors directly impact organisational performance.

Many in the charities sector are concerned with what could be described as a total leadership clean out at the ACNC over the last 18 months. The following senior staff have left the ACNC: David Locke, Murray Baird, Annie Keely; Carolyn Doyle, Prue Monument, Susie Cotterill, Ben Rashid, Sean Lounder.  CCA understand some of the senior positions – including Assistant Commissioners – will remain unfilled.

The Australian Taxation Officer has had to employ a ‘mobility officer’ within the ACNC – so many staff were seeking to leave.  The latest ACNC staff survey has apparently revealed a significant drop in morale since the new leadership was installed, but the full survey has not been released (despite FOI requests).

Concerns have also been expressed about the processes now being employed to award contracts such as the Tulipwood Economics report.  

The ACNC Commissioner has instigated a new project that seems to mirror the way the ‘Donor Inform’ company previously sought to operate.  The Donor Inform company was deregistered two years ago having been unsuccessful in tapping into any demand for this kind of information.   

All of these concerns matter because they suggest an operating environment that is not conducive to the best possible performance within the charities regulator.  

Leading an effective charity regulator requires good management skills, good leadership and a shared vision of what excellence means within the organisation.  A high-performance organisational culture is unlikely to be achieved in a workplace with low staff morale and a lack of senior experienced and respected staff.  There is concern that the required management and leadership skills are in diminishing supply within in the ACNC and this will inevitably translate into poorer organisational performance.

  1. Charities want the ACNC to focus on being a better regulator

It may seem obvious, but it is important to emphasise that what matters most to charities is ensuring the sector is well regulated. Any charity malpractice has the potential to significantly damage the charity brand.  Some charities have indicated that their donations from the public are negatively impacted by stories in the media highlighting how one bad charity has misled donors.  

Ensuring charities are held to account is good for charities, their workers, the people they serve, and the broader community.  This is why charities have been so engaged in pushing for a charities regulator and supportive of the establishment phase of the ACNC.

CCA would like to see the ACNC more actively engaged with the sector, producing more reports, supporting more research, expanding the Charity Passport, recruiting high quality and experienced senior staff to broaden the leadership team, and being more accountable to Parliament and the public for its own performance.  We would like the ACNC focused more on being a good regulator and less on new projects like creating a marketplace for donors.  These measures are critical to good performance.

A good charities regulator is very important for all charities.

Conclusion

The ACNC has been an outstanding success, despite numerous barriers and years of uncertainty about its future.  It enjoys a strong reputation in Australia and around the world as one of the best charity regulators.  The remarkable achievements of the ACNC across the first five years of operation are a testimony to the expertise and resolve of an outstanding group of people working at and with the ACNC during the first five years.  

Maintaining the confidence of the charities sector in the ACNC is important to the effectiveness of the regulator.  This confidence is now not as strong as it was previously largely because the ACNC is providing less information about its activities, services such as telephone advice lines seem to be experiencing declining standards, and advances in critical areas such as the Charity Passport seem to be slowing.  

The performance of the ACNC must be sustained, enhanced and improved, not diminished.

It is to be hoped the ACNC will be held to account to ensure the key achievements of the ACNC in its first five years continue to form the foundation of a very effective charities regulator. 

Submission to the The Australian National Audit Office (ANAO) Performance review of the Australian Charities and Not-for-profits Commission (ACNC) Read More »

CCA Pre-Budget Submission 2019-2020

Submissions-post

CCA Pre-Budget Submission 2019-2020

This submission outlines nine measures the Community Council for Australia (CCA) believes will significantly strengthen Australia’s not-for-profit (NFP) sector and drive real economic savings for government over the coming financial year and beyond.  These measures have been informed by consultation with CCA members and key organisations in the NFP sector.  

It is important to note that this submission does not override the policy positions outlined in any individual Federal budget submissions from CCA members.  
The content of this submission includes: a brief background to CCA; a listing of proposed measures; an overview of the current issues for the NFP sector; further details about the costing of proposals; and a conclusion.  

CCA acknowledges both the need for fiscal restraint and the growing demand for government services.  CCA proposes a major government revenue boosting measure (estate duty) as well as incentives to promote philanthropy and strengthen our communities (such as the French 90/10 superannuation rule).  

If Australia is to be a just and fair society where we increase collective ownership of local issues and build flourishing communities, there needs to be a genuine commitment to supporting reforms across the charities and not-for-profit sector (NFPs) from government and other key stakeholders.  This is not about providing more funding to the sector, but about encouraging and supporting more effective and efficient organisations delivering better outcomes for our communities.  

CCA welcomes this opportunity to provide input into the Federal Budget process and to engage in detailed discussion about any issues this submission raises. 
 
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.

Summary of proposed budget measures

The following proposals have been developed through extensive discussions and feedback from CCA members and other key stakeholders.  Each measure would deliver real benefits to government over the longer-term and strengthen communities (proposed measures are outlined in more detail on page four).

1. Provide Deductible Gift Recipient (DGR) status to all registered charities with an initial exemption of organisations for the advancement of religion, childcare, primary and secondary education.  This measure will be completely funded by recent changes to Fringe Benefits Tax (FBT) concessions that introduced the capping of meals and entertainment expenses.

2. Introduce a targeted ‘estate duty’ for people with estates valued at over $10 million with appropriate incentives for donations to charities, safeguards relating to family businesses and farms; and mitigation of any potential adverse impacts.

3. Implement the French 90/10 rule providing an option for all Australian employees to invest 5-10% of their superannuation into a not-for-profit social enterprise that benefits the community.

4. Establish a Social Finance Taskforce (as recommended by the Senate Economics References Committee) to promote impact investing and better access to capital for NFPs.  

5. Boost sector investment and productivity by increasing certainty in government funding, concessions, incentives and regulations. 

6. Develop and impose a productivity levy on all Commonwealth funding of NFPs set at a minimum of 3% to support sector capacity development through; staff training and development, research and evaluation, and technical infrastructure improvements. 

7. Increase philanthropy by enabling employers to establish more effective ‘opt out’ systems of workplace giving. 

8. Work with the NFP sector to develop a future blueprint for the sector, including extensive consultation; economic modeling of future scenarios; strategies to capitalise on emerging opportunities; and increased capacity to respond to emerging risks and limitations.

9. Review the generous tax concessions provided to gaming, catering, entertainment and hospitality income for mutual organisations, especially licensed clubs. 
CCA believes these measures could be delivered within the next two years and produce a much stronger government budget position as well as building capacity and resilience in our communities.  Australia cannot afford to ignore growing levels of debt, increased inequality and the need to support flourishing communities as a basis for improved productivity and well-being. 
An economy that does not support real growth in opportunity is not serving the interests of our community.  CCA believes every budget statement needs to be framed by what is going to deliver stronger, fairer, more creative, sustainable and connected communities.  

Context: not-for-profit reform

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 55,000+ charities collectively turn over more than $140 billion each year and hold close to $300 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 strengthening democracy through greater civic engagement, providing incentives for social entrepreneurship and boosting productivity within the NFP sector.

In Australia there have been various initiatives seeking to: promote social enterprise; reduce compliance costs for NFPs; encourage a diversification of financing options to build a more sustainable funding base; streamline and refine the regulation of NFPs and charities; establish less bureaucratic reporting requirements while building community transparency; increase philanthropy; promote impact investing; and increase sector performance measurement.  CCA supports all these activities. 

The establishment of the 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 until recently also provided invaluable information.

While the immediate history of the NFP sector is framed by growth and reform, new issues are emerging.  The level of 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.  In the context of recent changes, the NFP sector is slowly but surely finding its voice – building its collective power and seeking real reform that will provide substantial savings to government as well as tangible benefits to the community.  

Given the size of the sector and its critical role in our community, the Federal 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.  Governments seem reluctant to change established practices that foster competition between charities, increased compliance costs and growing uncertainty.  These practices are all counter-productive for government and our communities. 

Supporting the proposals outlined in this submission will make Australia stronger.  While reductions in government expenditure may be economically prudent, achieving a better return on existing government investments should also be a high priority.  In the interests of all Australian communities, government should avoid inflicting any long-term damage on a sector that not only holds a vital place in our economy, but also strengthens communities, builds connectedness and increases productivity for all Australians.  

Description of proposed budget measures

1. Provide Deductible Gift Recipient (DGR) status to all registered charities with an initial exemption of organisations for the advancement of religion, of religion, childcare, primary and secondary education. 

This measure to be completely funded by limiting Fringe Benefits Tax (FBT) concessions; namely capping meals allowances and limiting multiple claiming of FBT concessions.

The present system of determining Deductible Gift Recipient (DGR) status largely through the Australian Taxation Office (ATO) and Departmental listing favors larger charities that can afford lawyers and lobbyists to assist the progression of their applications.  Many smaller NFP and charities do not have the capacity to apply for DGR status, and hence they cannot access the community support that comes when donations are tax deductible.  There are up to six government agencies involved in determining DGR status.  It is a complex, costly and inequitable system – with less than half of all charities having DGR status.  While proposed reforms to DGR are a step in the right direction, it is still difficult to justify the distribution of DGR eligibility given the arbitrary and ad hoc manner in which it has developed.  It makes good policy sense that all donations made to registered, complying charities should be tax deductible.  This is the practice in comparable countries like the UK and Canada.  

The ACNC determining charitable status and DGR will deliver a fairer system and reduce red tape. This policy is economically feasible with the initial exemption of organisations for the advancement of religion and education reducing the likely implementation costs to approximately $130 million per annum.  Excluding all schools and all churches for automatic DGR eligibility makes this measure affordable.  At the same time the intent is not to deny DGR, so existing DGR exemptions for ministers of religion and other concessions based on religious and educational purposes would continue to apply.

Funding to support this measure could come from savings through the recent capping of FBT entitlements for meals and entertainment expenses.

This measure is estimated to be revenue neutral in the first instance.  Initial projected expenditure of approximately $130 million is offset by equivalent savings in ending uncapped FBT entitlements.
 
2. Introduce a targeted ‘estate duty’ for people with estates valued at over $10 million with appropriate incentives for donations to charities, safeguards relating to family businesses and farms, and mitigation of any potential adverse impacts.

National estate duties exist in many countries including: the United Kingdom, Germany, Italy, Belgium, the Republic of Ireland, France, the Czech Republic, Canada and the USA.  Not only do these duties provide substantial government revenue, they also increase philanthropy by offering relief from estate duties for any money left to charity.  The Henry Review drew on this international experience in supporting estate duties as a taxation measure.  Among other benefits, estate duties can apply a small brake on growing levels of inequality in our communities.  

Until 1979, many Australian governments gained substantial income through various forms of death or estate duties.  It is suggested that death duties ended because Premier Joh Bjelke Petersen wanted to attract retirees to Queensland and abolished all death duties.  Other states followed.  Until then the threshold had effectively been lowered over time to a level where many not so rich were also having to pay. 

As a consequence of these factors, in the late 1970s an estate duty was no longer seen as fair.  

A better targeted approach to estate duties could address these previous failings and would be consistent with a fair go for all.  Using a revised version of capital gains taxes and only applying it to those with estates above $10 million (excluding family farms and other appropriate asset exemptions) offers a workable option.  

In Belgium estate duties contribute 1.4% of total government revenue which would translate into over $5 billion in revenue per annum for Australia.  

Australia’s growing gap between rich and poor, and the gap between government income and demand for government supported services, can both be partially addressed by applying a form of estate duty on the richest 1% in our communities.  A targeted 35% estate duty on all estates over $10 million (with appropriate exemptions) would raise substantial new government revenue and stimulate philanthropy. 
ATO figures suggest over 25,000 people have assets above $10 million.  If 4% of these families paid 35% in estate duties, it would equate to a minimum revenue of $3.5 billion.
 
3. Implement the French 90/10 rule providing an option for all Australian employees to invest 5-10% of their superannuation into a not-for-profit social enterprise that benefits the community.

France has required all employees to be given the option of investing 5-10% of their superannuation into ‘solidarity organisations’ (the equivalent of our charities) since 2001.  In 2008 the government regulated that all super funds needed to provide this option to employees and since that time the amount invested has grown from $700 million to over $5.5 billion.  This has stimulated social entrepreneurship, created opportunities to achieve social impact, improved the capital base and capacity of solidarity organisations.

The success of the French 90/10 rule shows what can be achieved if Australia chose to provide employees with some choice about how their superannuation contributions are invested.  If just 2% of the MySuper funds were invested this way it would generate around $8.5 billion, or enough to significantly reduce homelessness by providing housing to over 50,000 Australians struggling to maintain secure and appropriate housing.

CCA believe this measure could be transformative in encouraging the charities sector to find ways of establishing social enterprises that strengthen our communities.
This measure has very little government impact as costs are almost non-existent – it is simply about enabling a different use of a very small part of Australia’s $2 trillion superannuation investment pool.
 
4. Establish a Social Finance Taskforce (as recommended by the Senate Economics References Committee) to promote impact investing and better NFP access to capital.

In its report ‘Investing for good: the development of a capital market for the not-for-profit sector in Australia’ the Senate Economics References Committee recommended the establishment of a high profile Social Finance Taskforce similar to taskforces established in both the UK and Canada.  The following is taken from the Executive Summary of this report: 

‘The Taskforce should build on the work of this inquiry and provide recommendations to government on the capacity of the sector, its access to capital, enhancing the role of intermediaries and simplifying the sector’s legislation and regulations.’

CCA perceives this leadership role as critical in the development of a longer term sustainable strategy to enhance the work of the NFP sector while reducing its dependency on government. This group could also consider the potential use of dead money accounts and unclaimed funds (as happened in the UK) and work with experienced practitioners (such as Social Ventures Australia) and emerging leadership groups in this area (such as Impact Investing Australia).  

This measure would require a two-year investment from government to support establishment, the preparation of initial reports and implementation of recommendations.

Cost to government is estimated to be in the order of $1 million each year for two years.
 
5. Boost sector investment and productivity by increasing certainty in government funding, concessions, incentives and regulations. 

This measure is focused on achieving a more stable financial and regulatory framework for all not-forprofits, particularly in relation to government funding and interaction with the sector.  CEO Forums across the country run by CCA with the support of key organisations clearly showed that uncertainty of government funding is a critical barrier to investment in the future sustainability of organisations.  This applies to not just recurrent government funding, but also tax including the losses associated with changes to FBT concessions and incentive programs.  The government needs to actively consider initiatives such as:   an agreed notice period of six months prior to the ending of any major government contract, incentive or concession, with limited exemptions for cases of fraud, other criminal actions, etc.  increasing the length of government contracts where possible to at least five years  more transparent and accessible processes for reviewing the performance of NFPs  more transparent and accountable processes for government funding decisions relating to NFPs. 

These measures would all boost investment in organisational capacity across the NFP sector.

Experience in other sectors has also shown that where an independent feedback process can be established that does not focus on public blame and retribution, system change in relationships can be driven through active feedback and better information exchange.  CCA supports a national feedback exchange program where all NFPs could provide honest feedback on their dealings with government agencies. 

Providing avenues to pursue positive improvements in the relationship between governments and the NFP sector is important. 

At the centre of many concerns across the NFP sector is the ability of small and large community organisations to deal with an increasingly uncertain future.  While governments are not responsible for all disruptions and challenges to the NFP sector, increasing certainty in government funding is a critical measure that would build capacity and effectiveness.

CCA anticipates these measures would produce savings with very limited (mostly internal) outlays. 
  
6. Develop and impose a ‘productivity levy’ on all Commonwealth funding of NFPs set at a minimum of 3% to support sector capacity development through; staff training and development, research and evaluation, and technical infrastructure improvements. 

The Australian government invests billions of dollars in charities and not-for profits to provide critical services and supports to communities across Australia.  Unfortunately, there is often little allocation of funding to enable funded organisations to improve their services through capacity development in critical areas like staff training and development, research and evaluation, and infrastructure including technological systems.  While the government should not be solely responsible for sector capacity, it is important to acknowledge that increased productivity will only come if there is increased capacity to improve organisations and the way they operate.  While many NFPs invest in their capacity, providing a small leveraged fund to invest in appropriate and effective capacity building will ensure increased productivity and a better return on government investment into the sector.

CCA believe some of the funding provided through this measure should be used to ensure better coordination and sharing of best practice through centralised data bases of available opportunities in critical areas like; staff training, program evaluation, systems development, etc.  This centralised information sharing capacity could be seen as facilitating excellence across the sector and might involve a range of existing organisations creating a virtual Centre of Excellence for the NFP sector.  It could also fund the Satellite Account research into the NFP sector and support a cross-government advisory body like the NFP Sector Reform Council to improve government and NFP relationships.  The details of how best to develop and apply this levy would need to be worked through with central agencies and government departments. 

The annual budget for this initiative will depend on government allocations to NFPs, administrative budgets and the degree of existing expenditure, but may not require new additional expenditure.
 
7. Increase philanthropy by enabling employers to establish more effective ‘opt out’ systems of workplace giving.

CCA strongly believes that increased community engagement and philanthropic contributions to NFPs produce a net benefit to governments as well as to the communities NFPs serve.  It is counter-productive to treat increased philanthropy and social impact investment as a government loss of potential tax income or ‘foregone revenue’.  The whole community benefits when individuals or organisations choose to direct their resources into to strengthening communities, increasing economic and social activity, and improving health and well-being.  This is particularly the case if the money involved avoids the significant transfer costs of moving into, through, and out of government.  Philanthropy and social investment are about encouraging greater ownership of local issues by enhancing the role of NFPs and reducing the size of government.

When in place, ‘opt out’ systems have ensured much higher levels of success in workplace giving programs.  The experience with the French 90/10 superannuation rule shows that once all employees are given the option, the amount being contributed to charitable purposes increases significantly.  With the current ‘opt in’ for existing employee systems, less than 3.5% of Australian workers are in a workplace giving program.  If this could increase to 10% of Australian employees donating 0.5% of their pre-tax income, over a quarter of a billion dollars would be raised through workplace giving.  This is a realistic target that would increase philanthropy and the engagement of Australians in the broader NFP sector. CCA anticipates there would be no additional costs to government in this measure. 

8. Work with the NFP sector to develop a future blueprint for the sector, including extensive consultation; economic modeling of future scenarios; strategies to capitalise on emerging opportunities; and increased capacity to respond to emerging risks and limitations.

The future of Australia’s NFP sector is too important to our economy and our communities to grow in an ad hoc manner with little comprehensive planning or strategic investment.  At present there is no plan, no strategy and no real projection about the future viability or even the sustainability of the current levels of growth across the NFP sector.  The effective development of a blueprint will include developing clear goals and measures of what the NFP sector is seeking to achieve.

Issues to be considered would include; performance and productivity measures, better using existing assets, promoting social enterprise, the NFP workforce, the potential for mergers and collaboration, efficiencies and effectiveness, and capacity building.

CCA has been in discussions with a number of groups who have expressed a strong interest in participating in and contributing to the development of a blueprint for the NFP sector.  With the Federal Government as a joint partner and supporter (and not the sole contributor), a forward-looking blueprint for the NFP sector could be in place within 12 months.

CCA anticipates the cost to government would be in the order of $350,000.
 
9. Review the generous tax concessions provided to gaming, catering, entertainment and hospitality income for mutual organisations, especially licensed clubs. 

The mutuality principle that rightly applied in the late 1800s in Australia is no longer appropriate or consistent with existing taxation arrangements, particularly for organisations involved in gaming.  Large licensed clubs that act as gaming venues should not be able to treat over 75% of their income as tax free, especially when they have not satisfied the basic requirements of being a not-for-profit organisation that exists to provide a public benefit.  As pointed out in the Not-for-profit Tax Concessions Working Group Report (May 2013), concerns with the current application of the mutuality principle include:
– integrity concerns about member and non-member receipts;  
– competitive neutrality concerns where mutual organisations are trading in competition with taxable businesses;  
– social policy concerns about significant gambling and hospitality receipts of some organisations, which are not subject to income tax at the Commonwealth level; and  
– concerns about private member benefit. 

It is recommended, on public benefit grounds, that the tax law should be amended to treat all member and non-member income of mutual organisations as assessable for taxation purposes in line with normal income tax principles.  

If this recommendation is not supported, all income from gaming, catering, entertainment and hospitality trading activities of mutual organisations should be treated as assessable.  

It is difficult to justify the hundreds of millions of dollars of tax concessions provided to large licensed gaming clubs based on the mutuality principle.  It is time to review these concessions taking into account any unintended consequences on mutual organisations that do provide a benefit to members. 

CCA anticipates this measure could generate significant additional government revenue.

Budget implications (costings)
CCA acknowledges the need to ensure an effective economic framework for all Australian governments that serves the needs of our various communities.  This budget submission has taken into account the need to increase government revenue through sustainable measures that have minimal impact on productivity, to reconsider inappropriate taxation concessions, and promote measures that will diversify the income of charities and not-for-profits enabling a rebuilding of capital, and an expansion in their capacity, without increasing government expenditure. 

In considering the specific budget implications of the nine key measures outlined in this submission, CCA has taken a relatively conservative approach to the projection of new income and expenditure for government.  Given the complexity of some of the proposed measures and the lack of data about others, the initial costs and benefits outlined in this submission represent a starting point for further discussion and more detailed economic modelling.  

CCA believes the measures proposed in this budget submission will generate significant revenue as well as long-term savings for governments, NFPs and the communities they serve.
 
Conclusion 
 
This submission promotes Federal Government measures to strengthen the NFP sector and deliver real economic and social benefits for governments and our communities. 
Many individual not-for-profit organisations (including CCA members) will be seeking to have the Federal Government fund specific measures for the benefit of their own causes and communities.  Most of these budget proposals from the not-for-profit sector are important and have real merit.

There is a strong case for reform in the charities and not-for-profit sector to build more resilient communities through greater engagement in our society and our economy.  Over the past two decades, the NFP sector has had limited support to improve capacity and effectiveness.  This is despite the very considerable contribution the broader NFP sector makes in terms of employment, productivity, individual and community well-being.

The harsh reality for most governments is that government income levels are stalling while demand for services continues to increase.  Part of the solution to this tension is achieving real productivity within government and the NFP sector.  Delivering positive change for NFPs requires an initial investment in time and resources to boost capacity and offer the certainty required for organisational investment.

Inequality continues to rise in Australia.  We need fairer ways of generating income for government and more impact investment to strengthen our communities.  Estate duties and the French 90/10 rule are two examples of sustainable policies that have the potential to be transformative.

The NFP sector is too large and too important to be left on the margins of economic debates and major policy reforms within Australia.  Government investment in enabling NFPs to be more efficient and effective will ultimately deliver stronger, more resilient and productive communities across Australia.  

The Federal Budget is the most important policy document a Federal Government produces.  Recognising the role of the NFP sector through implementation of the measures outlined in this submission will translate into a fairer budget that will increase sector productivity and growth, benefitting all Australians.

CCA Pre-Budget Submission 2019-2020 Read More »

Electoral Funding and Disclosure Reform Bill – revised Bill is a good demonstration of how public policy can be improved when the concerns of charities are taken seriously

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Electoral Funding and Disclosure Reform Bill - revised Bill is a good demonstration of how public policy can be improved when the concerns of charities are taken seriously

The Community Council for Australia (CCA) was very concerned about how the original Electoral Reform Bill (2017) would impact thousands of charities who would have faced quite complicated new administrative requirements and restrictions if they chose to make any public statements advocating for their cause or their community. 

The chilling impact of the new requirements and restrictions would have significantly diminished the public voice of charities in Australia. 

Since CCA first raised our concerns about the Bill, the Shadow Minister for Charities Andrew Leigh has been an active advocate for a more sensible approach that would protect issues-based advocacy by charities. 

We are pleased that a more reasoned Bill is now being introduced into the Parliament and would like to acknowledge the ALP, Greens, cross-bench Senators and the government who have all now agreed that electoral reform should proceed without significantly restricting the public advocacy of charities that are pursuing their charitable purpose. 

The revised Bill is a good demonstration of how public policy can be improved when the concerns of charities are taken seriously.  Our democracy is stronger when charities are able to actively represent their causes and ensure the least powerful in our communities are represented. 

CCA made submissions and appeared before the Joint Standing Committee on Electoral Matters.  Catch up here.

Electoral Funding and Disclosure Reform Bill – revised Bill is a good demonstration of how public policy can be improved when the concerns of charities are taken seriously Read More »

Supplementary Submission to the Joint Standing Committee on Electoral Matters

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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.

Supplementary Submission to the Joint Standing Committee on Electoral Matters Read More »

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.

Submission to Treasury on Australian Charities External Conduct Standards Read More »

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

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

‘in principle’ endorsement of proposed ACNC Financial Reporting Requirements

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'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

‘in principle’ endorsement of proposed ACNC Financial Reporting Requirements Read More »

Not-for-profit Tax Concessions

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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:

  1. 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. 
     
  2. Any new regulatory proposal must reflect the Government’s commitment to reducing red tape and compliance costs for not-for-profit organisations.
     
  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. 
     
  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.
     
  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.
     
  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 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:

  1. 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.
  2. 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

  1. Aboriginal Employment Strategy Ltd. – Danny Lester
  2. Alcohol and other Drugs Council of Australia – David Templeman
  3. Alcohol Tobacco and Other Drugs Association ACT – Carrie Fowlie
  4. Associations Forum Pty. Ltd – John Peacock
  5. Australian Indigenous Leadership Centre – Rachelle Towart
  6. Australian Institute of Superannuation Trustees – Fiona Reynolds
  7. Australian Major Performing Arts Group – Susan Donnelly (Director)
  8. Connecting Up Australia – Doug Jacquier
  9. Good Beginnings Australia – Jayne Meyer Tucker (Director)
  10. HammondCare – Stephen Judd (Director)
  11. Hillsong Church – George Aghajanian
  12. Illawara Retirement Trust – Nieves Murray
  13. Lifeline Australia – Dr Maggie Jamieson
  14. Maroba Lodge Ltd. – Viv Allanson
  15. Mental Health Council of Australia – Frank Quinlan
  16. Mission Australia – Toby Hall (Director)
  17. Musica Viva Australia – Mary Jo Capps (Director)
  18. Opportunity International Australia – Rob Dunn
  19. Philanthropy Australia – Deborah Seifert
  20. RSPCA Australia – Heather Neil (Director)
  21. Social Ventures Australia – Michael Traill
  22. Surf Life Saving Australia – Brett Williamson (Director)
  23. The ANZCA Foundation – Ian Higgins
  24. The Benevolent Society – Richard Spencer (Retiring Director)
  25. The Big Issue – Steven Persson (Director)
  26. The Centre for Social Impact – Peter Shergold
  27. The Smith Family – Lisa O’Brien (Director)
  28. The Ted Noffs Foundation – Wesley Noffs
  29. Volunteering Australia Inc. – Cary Pedicini
  30. Wesley Mission – Keith Garner (Director)
  31. WorkVentures Ltd. – Arsenio Alegre
  32. World Vision Australia – Tim Costello (Chair)
  33. 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.

  1. Document and promote the value and contribution of the Sector.
  2. Protect the Sector’s right to advocacy irrespective of any funding relationship that might exist.
  3. Recognise Sector diversity in consultation processes and Sector development initiatives.
  4. Improve information sharing including greater access to publicly funded research and data.
  5. Reduce red tape and streamline reporting.
  6. Simplify and improve consistency of financial arrangements including across state and federal jurisdictions.
  7. Act to improve paid and unpaid workforce issues.
  8. 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

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 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. 

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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