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Checkup – Leaders Connect NFP Sector Developments 18 September 2014

Checkup – Leaders Connect NFP Sector Developments 18 September 2014. Roadmap. Current position with ACNC Merger in the NFP sector Hunger Projects case – implications for PBIs Sneaky Tax Act changes – TR2014/D5. Current position of the ACNC. ACNC commenced 3 December 2012

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Checkup – Leaders Connect NFP Sector Developments 18 September 2014

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  1. Checkup – Leaders ConnectNFP Sector Developments18 September 2014

  2. Roadmap • Current position with ACNC • Merger in the NFP sector • Hunger Projects case – implications for PBIs • Sneaky Tax Act changes – TR2014/D5

  3. Current position of the ACNC • ACNC commenced 3 December 2012 • At 25 August 2014 there were 61,000 charities registered • Charities being registered at rate of 100 new charities per month • Composition of charities registered with ACNC is: • 17% - large (revenue >$1m) • 16% - medium (revenue between $250K and $1m) • 70% - small (revenue <$250K)

  4. Current position of the ACNC contd • Composition of charities: • education – 34% • religion – 32% • PBI/community services – 16% • NFP sector was worth: • $22 billion in 2006/7 • $55 billion in 2012/13 • I.E. a growth rate of 7.8% per annum since 2006 • Turnover is $107 billion per annum which is double that in 2000 in real terms

  5. Current position of the ACNC contd • Repealed bill tabled in parliament on 19 March 2014 – first of two bills • Is thought the second bill likely to be tabled by end of October 2014 • Government has released discussion paper on alternatives; date for submissions closed20 August 2014, with results still to be released • But the sector does not want to see ACNC go • Pro Bono Australia’s online survey found 82% want ACNC to stay

  6. Merger • Merger is being driven by: • business complexity • need to pay directors fees • reduced government funding • need for capital • contestability • competition from for-profit corporates

  7. Merger contd • Outcome of merger needs to be: • simplicity • ability to centralise services • risk and compliance • asset protection restructure i.e. separating management operations from asset owning vehicle • watch legislative constraints though e.g. Affordable Housing and Aged Care Act • but mission has to be maintained

  8. Merger contd • Governance considerations in merger • Right balance between strategic and operational issues • Appropriate skill mix of board members • Appropriate succession planning • Performance review • Educational opportunities for board and senior management • Appropriate framework for accountability to stakeholders • Get the constitution right

  9. Merger contd • Merger alternatives are: • asset transfer

  10. Merger contd • Merger alternatives are (contd): • A and B establishing wholly owned subsidiary

  11. Merger contd • Merger alternatives are (contd): • constitutional merger – wholly owned subsidiary

  12. Merger contd • Complications can arise when trying to merge trusts from a trust law perspective • Also consider any embedded trusts

  13. Merger contd • Will merger impact bequests? • Overall –v- Family Voice Australia Inc case • Consider the lapse rule • Implications of the case are: • ensure that objects remain unaltered during the merger process • ensure that any charitable bequest is expressed to have a general charitable intent • be able to demonstrate merged entity is a successor organisation

  14. Merger contd • Implications of the case are (contd): • this is done by ensuring a paper trail, perhaps appropriate information on website with link to the original entity for search engine purposes • ensure all resolutions are documented

  15. Hunger Projects • Court has said that there is no requirement for: • direct relief for a PBI • gives broader scope to PBI alternatives, although not for overseas entities because for DGR endorsement there is still a requirement for operations to be exclusively in Australia

  16. TR2014/D5 • Deals with special conditions amendment to Tax Act • Charity must: • comply with all substantive requirements in governing rules • apply income and assets solely for the purposes for which the entity is established • Draft ruling requires an analysis of: • what are the governing rules • what are the substantive requirements • has the entity complied with substantive requirements

  17. TR2014/D5 • It would seem substantive requirements are: • objects • not-for-profit status • winding up provisions • obligation to keep financial records? • Ruling distinguishes between requirements for charitable institutions and charitable funds • Income and assets condition a potential concern as a backdoor means of circumventing Word Investments • The relevant example is benign and unhelpful

  18. Any questions?

  19. Paul Paxton-Hall Director Level 10, 15 Adelaide Street, Brisbane Qld 4000 Telephone: 07 3007 9200 Email: paul.paxton-hall@foxthomas.com.au

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