Starting on July 2020, the Australian Charities and Not-for-profits Commission (“ACNC”) will review 500 Public Benevolent Institutions (“PBIs”) to determine whether they remain eligible for their Deductible Gift Recipient (“DGR”) endorsements and tax concessions.
For context – just over 2 years ago, the Australian Government announced proposed reforms to the DGR system with the intention of:
- Strengthening DGR governance arrangements;
- Reducing administrative complexity; and
- Ensuring appropriate oversight of DGRs.
As part of these reforms the ACNC will review a selection of charities with DGR endorsement – about 500 per year – to ensure that they are eligible for the charity/DGR registrations that they possess. They are starting with PBIs from July 2020.
DGRs need to be “getting their house in order” to prepare for these reviews. We suggest that this would be a good exercise for all charities, and not just the DGRs which may be reviewed.
Which PBIs are being prioritised for review?
PBIs will be prioritised for review if, by February 2020, they:
- Had no governing document uploaded to the ACNC Register;
- Had only one or no Responsible Person listed on the ACNC Register (noting that charities are required to have a minimum of 3 Responsible Persons at all times);
- Were registered as a PBI before 3 December 2012; or
- Are not regulated by the Office of the Registrar of Indigenous Corporations.
A PBI may also be reviewed if a specific concern is brought to the ACNC’s attention.
It is especially important for PBIs registered before 3 December 2012 (being the date of establishment of the ACNC) to be prepared for reviews, since their charitable and DGR registration was automatically transferred to the ACNC Register from the Australian Taxation Office, and they have likely never been assessed for compliance.
What information will the ACNC require?
In conducting the reviews, the ACNC will only make use of information that they already have, or that is publicly available (for example, information on the DGR’s ACNC Extract or the DGR’s website). Importantly, DGRs will only be contacted by the ACNC if there is an issue with their registration. DGRs are not required to undertake any action unless they are contacted by the ACNC.
What can charities do to prepare for review?
It is important that DGRs intentionally prepare for the review, as DGRs that do not meet their obligations may face the loss of their charitable/DGR registration.
As a first step, DGRs should use the ACNC’s self-assessment tool provided on the ACNC website. Next, we suggest that they obtain legal advice if they have any concerns, or if any issues are identified. Last, they should ensure that issues and concerns are attended to before the ACNC reviews commence in July 2020.
In our view, DGRs should be (non-exhaustively) particularly focusing on:
Charitable purpose: A DGR must have a legitimate charitable purpose which is appropriate for a recognised Deductible Gift Recipient category (for non-DGR charities who are conducting their own review simply for a “health check”, it is noted that they are required to have a legitimate charitable purpose, but that charitable purpose need not fit with a recognised DGR category). A PBI must have a charitable purpose of relieving poverty or distress.
This charitable purpose must be set out in the charity’s Constitution or governing document. A charity must also be able to demonstrate how its activities advance its charitable purpose.
Governing document: If the charity’s governing document is old or was not drafted by a professional, the charity should have its governing document reviewed. The charity should also ensure that an up-to-date version of the governing document is uploaded to the ACNC Register.
Responsible Persons: All charities (including DGRs) must have a minimum of 3 Responsible Persons at all times. A charity’s Responsible Persons are usually its Directors, Management Committee members, individual trustees or for trusts with a corporate trustee – the Directors or Management Committee members of the corporate trustee. If a charity does not have a minimum of 3 Responsible Persons, we suggest seeking legal advice. A charity should check to ensure that the ACNC Register is up-to-date and reflects its current Responsible Persons (which should result in at least 3 Responsible Persons being recorded on the ACNC Register).
Annual reporting: A charity should check to ensure that all of its annual reporting is up-to-date (including the submission of its Annual Information Statements and if relevant, its Financial Reports). If it is not up-to-date, this should be rectified as soon as possible.
The charity’s website: Often an overlooked aspect, it is important that the charity’s website is consistent with its charitable purpose and the requirements of its charitable registration. For example, the website of a PBI should not contain information about how the PBI is applying significant resources towards building a church (given that PBIs cannot, at the date of this article, exist for the advancement of religion). If such inconsistencies are present, this could well point to some much larger issues bringing the charity’s charitable registration into question.
Other things that charities should be thinking about include ensuring that the charity:
- Has an active Australian Business Number;
- Has provided an up-to-date Address For Service to the ACNC (by recording this on the ACNC Register);
- Is compliant with the Governance Standards; and
- Is compliant with the External Conduct Standards (if relevant).
DGR Responsible Persons should be ensuring that their organisation is prepared as much as is possible for the upcoming reviews. In any event, it is always good to conduct regular reviews to ensure that a charity is complying with their charitable registration obligations.
If you have any questions or concerns about the upcoming reviews, please contact our Business Development Team.