Not for Profit News July 2016

Welcome to the July Edition of Not For Profit News

Packed full of useful information covering specific updates on financial reporting, education and tax as far as they affect the NFP sector as well as the latest on what the Australian Charities and Not-for-profits Commission has been up to.

We very much hope that you enjoy the contents of this newsletter and your thoughts and comments are always welcome.

AICD releases NFP performance study

The Australian Institute of Company Directors (AICD) has released its annual Not-for-profit Governance and Performance Study for the seventh successive year.

Focusing on the health-services sub sector and its financial stability, the study is the biggest and longest of its kind in Australia.

If you are interested in not-for-profit governance, you can find past reports and participate in this year’s study at aicd.com.au/nfp-governancestudy.

New answers to FAQs on fundraising

The Australian Charities and Not-for-profits Commission (ACNC) has published new guidance to help the man in the street and donors to understand charity fundraising.  The frequently asked questions cover issues such as:

  • Fundraising regulation in Australia
  • How and why charities fundraise
  • What the public can do if they don’t want to be approached by fundraisers
  • The do-not-call register
  • Information privacy, and
  • The role of the ACNC and ATO (Australian Tax Office).

You can read more at acnc.gov.au/fundraisingFAQs.

ACNC releases fact sheet on concessions

Several federal, state and territory tax concessions are available to charities.

Your charity must be registered with the ACNC to apply for ATO concessions, but unregistered charities can apply for certain state, territory and local government concessions.

Details can be found in the Charity tax concessions available fact sheet.  It’s important to understand that while the ACNC registers organisations such as charities for federal purposes the ATO remains responsible for administering tax law, including deciding your organisation’s eligibility for tax concessions.

The fact sheet addresses:

  • Applying for tax concessions from the ATO
  • Income tax exemptions and franking credits
  • Goods-and-services tax concessions
  • Fringe-benefits tax rebates
  • Additional charity tax benefits (you can apply for tax benefits additional to those listed above if your charity is registered as a public benevolent institution, health promotion charity or charity for the advancement of religion)
  • Fringe-benefits tax exemptions
  • Deductible-gift-recipient (DGR) status, and
  • Tax concessions from state, territory and local governments.

1700 charities risk revocation

Almost 1700 registered charities that have failed to report to the ACNC are at risk of losing their status.

The charities have failed to submit an information statement for either 2013 or 2014, and a further report (for 2015) was due on 30 June. Double-defaulting is grounds for revocation of charity status. The charities were also at risk of losing their Commonwealth tax concessions.

Registered charities at risk of revocation can be found at acnc.gov.au/doubledefaulters. Check the list, and if you are associated with one of the charities, or know someone who is, contact the ACNC immediately.

ACNC announces four charity revocations

The ACNC has revoked the charity status of four entities following investigations into their operations and activities.

The entities are:

  • Newcastle Night Angels Homeless Care Incorporated, which has been operating since 2013 and is based in New South Wales.  It was endorsed by the ATO as a deductible-gift recipient (DGR) and was also endorsed to access Commonwealth income-tax concessions as a public benevolent institution.
  • St Andrews Children Neighbourhood Centre Inc, which has been operating since 2000 and is based in New South Wales. It was endorsed by the ATO to access Commonwealth GST concessions, the FBT rebate, and income-tax exemption.
  • Balranald Aboriginal Health Service Incorporated, which has been operating since 2001 and is based in New South Wales.  It was endorsed by the ATO as a DGR, and was also endorsed to access as a public benevolent institution GST concessions, FBT exemption and income-tax exemption.
  • Xin Yi Dai Inc, which began operating in November 1999 and is based in Victoria.  It was endorsed by the ATO to operate a fund with DGR status.  The entity had also been endorsed to access GST concessions, the FBT rebate, and income-tax exemption.

The charities have 60 days to object to the ACNC’s revocations.

Commissioner Susan Pascoe AM said that the ACNC’s ‘compliance activity starts with education and guidance’.  The commission was committed, though, to maintaining and protecting public trust and confidence in the sector.  ‘When we find serious circumstances of mismanagement or deliberate breaches of the ACNC Act we will revoke charity status’, she said.

‘The overwhelming majority of people running charities do the right thing for the benefit of the community.  However, since the establishment of the ACNC we have found a small group that are not willing to meet their obligations and, in some cases, are purposely using a charity as a vehicle for private benefit.’

The ACNC is prevented from disclosing further details due to secrecy provisions.  The commission publishes instances, however, in which it uses its formal powers, including revocation, on the register.

Concerns can be raised by calling 13 ACNC or by visiting acnc.gov.au/raiseaconcern.

Financial changes this year and beyond

At each reporting period, NFP directors and management committees need to be aware of changes that might affect their financial statements.  Here, we look at standards effective for 30 June this year and future relevant changes.

It’s great news that there are, in fact, no new accounting standards that are effective for the first time for 30 June year-ends this year.

We need to consider future standards, however, and ensure that implementation plans are developed where necessary.  Some of the changes will cause significant impact on the reported financial position and performance of not-for-profits.

AASB 15 Revenue from Contracts with Customers is effective for annual reporting periods beginning on or after 1 January 2018, however the AASB are still deliberating about the scope of this standard for NFPs.

There will continue to be two revenue-accounting standards for NFPs:

  • AASB 15, which will be used for revenue under a contract that has sufficiently specific performance obligations and is enforceable – the AASB are finalising the guidance around these terms in an Australian-specific appendix, and
  • AASB 10XX, which will require revenue that falls outside the scope of AASB 15 to be recognised when control is received, most likely to be on receipt of funds.

We encourage NFPs to review AASB 15 and to begin the process of determining the impact on relevant revenue streams.  Due to the timing of NFP revenue guidance, NFPs are likely to be exempt from a restatement of comparatives under AASB 15/AASB 10XX.

There is relief from certain fair-value disclosures for public-sector NFPs that have level 3 assets.  The standard is applicable for annual reporting periods commencing on or after 1 July this year but is available for early adoption.  It provides relief from disclosure of quantitative information about the significant unobservable inputs used in fair-value measurements and a description of the sensitivity of fair-value measurements to changes in unobservable inputs.

AASB 9 Financial Instruments and associated amending standards is applicable for all NFPs.  This standard is applicable for annual reporting periods beginning on or after 1 January 2018 and contains several significant changes from the current financial-instrument accounting.

For NFPs, the impact of AASB 9 should be low.  The biggest change is likely to be the treatment of available-for-sale investments (that is, shares in listed entities held on a long-term basis as part of an investment strategy).  These investments are no longer required to be tested for impairment and movements in fair value will remain in other comprehensive income as well as any gains or losses on sale.

We would not recommend early adoption of AASB 9, however NFPs should start to consider the impact of the new standard, particularly if they have financial instruments that might be more complex, such as derivatives.

The current exemption from providing related-party disclosures for NFP public-sector entities has been removed from 1 July this year.  Public sector entities will have to identify their key management personnel (KMPs), their remuneration and other transactions with them and their related entities.

Entities affected by this change should begin an implementation plan as soon as possible to ensure that current systems and processes are able to identify the required information.

AASB 16 Leases requires the majority of leases held by an NFP to be brought onto the balance sheet (statement of financial position).  The distinction between operating and finance leases will be removed.  There are limited exceptions for short-term leases and low-value assets.

The income statement will no longer show rental expense. Instead, we will see depreciation expense (relating to the right-of-use asset) and interest expense (relating to the lease liability).

Entities should begin the process of understanding leasing arrangements in place and ensure that they have the systems and personnel to be able to account for them under AASB 16.

The effective date of AASB 16 is annual reporting periods beginning on or after 1 January 2019.

Income of NFP entities latest AASB decisions

The draft AASB 10XX Not-for-Profit Entity Transactions provides guidance as to when control of a resource is obtained, include ‘signposts’ to accounting standards that entities should apply, and replaces the income-recognition requirements of AASB 1004 Contributions with new principles for transactions that are not within the scope of existing standards (for example, AASB 15 Revenue from Contracts with Customers).

No new principles will be developed for perpetual endowments but, rather, to include examples that illustrate the principles.  Guidance will be included about whether an entity controls an endowment.  Fair value of the rights to future income would normally be equal to the face value of the perpetual endowment.

Grants of cash that must be used to acquire or construct a non-financial asset (capital grants), and that have a return obligation if not spent appropriately, are to be accounted for under this standard.  Where there is a return obligation and clear requirements to build or construct an asset to specifications under the grant, and in substance the arrangement is a grant of a non-financial asset, there are obligations attaching to the receipt of the cash.  No revenue is recognised until the obligations are satisfied (for example, as the non-current asset is constructed).

Comparative information will be encouraged, but not required, in the year of first application.

To ensure existing grants that have been fully recognised in income need not be reconsidered (unless an entity chooses to do so), an ‘Aus’ paragraph will be included in AASB 15 that for an NFP entity on transition ‘a completed contract is a transaction for which the entity has recognised all of the revenue in accordance with AASB 1004’ and that a similar ‘Aus’ paragraph refer to AASB 137 Provisions, Contingent Liabilities and Contingent Assets.

For existing peppercorn leases, the practical expedients in AASB 16 Leases will be replicated and the lessee has an option to measure the carrying amount of the right-of-use asset at the date of initial application of AASB 10XX at fair value.

This proposed standard will be further discussed at the board’s 30-31 August meeting.

Charities transitional reporting arrangement extended

The ACNC has been working with the federal government to amend its regulations to extend transitional-reporting provisions, allowing the commission to accept certain reports lodged with other government agencies.

In 2014 and 2015, the ACNC decided to accept the following reports as meeting ACNC’s requirements:

  • Financial reports lodged by incorporated associations, co-operatives and fundraisers with state and territory regulators
  • Financial questionnaires lodged by non-government schools with the Department of Education and Training, and
  • Annual returns and financial reports lodged by indigenous corporations with the Office of the Registrar of Indigenous Corporations.

To give the sector immediate certainty, the ACNC has committed to accept these reports for the 2016 reporting year.  Information about transitional reporting provisions is at acnc.gov.au/transitionalreporting.

ATO releases information sheet on franking credits

The Australian Taxation Office (ATO) has released the information sheet Refund of franking credits 2015 – 16.

Franking credits attached to franked dividends paid to your organisation and attached to an entitlement to a franked distribution are refundable provided certain eligibility criteria are met and your organisation is any of the following:

  • A charity registered with the ACNC and endorsed by the ATO as exempt from income tax
  • An income-tax-exempt deductible gift recipient (DGR) endorsed in its own right.  It’s not sufficient if your DGR is endorsed only in relation to a fund, authority or institution that it operates, such as a school-building fund
  • An income-tax-exempt DGR listed by name in the tax law
  • An income-tax-exempt relief fund declared by the federal treasurer to be a developing country-relief fund, and
  • A prescribed income-tax-exempt entity eligible for a refund under relevant regulations.

Franking credits generally occur for shareholders when certain Australian-resident companies pay income tax on their taxable income and distribute their after-tax profits by franked dividends.  Franked dividends have franking credits attached.

Franked dividends can also occur as a result of an entitlement to a franked distribution, such as when the organisation is a beneficiary of a trust.

Organisations that receive a dividend from a New Zealand company with Australian franking credits attached will be able to obtain a refund of those Australian franking credits.

New Zealand franked credits cannot be claimed.  If the New Zealand company that paid the dividend has not specified that the franking credit is Australian, you should contact the company to work out if it is an Australian or New Zealand franking credit. In most cases, if it is not specified as Australian, it will be a New Zealand franking credit.

ACNC seeks comments on benevolent institutions

The ACNC is seeking comment about its draft commissioner’s interpretation statement (CIS) on public benevolent institutions (PBIs).

It states that for ACNC purposes, a PBI is a charitable institution with the main purpose of providing benevolent relief to people in need.

The CIS sets out the ACNC’s views on what ‘public’, ‘benevolent’ and ‘institution’ mean.  PBIs, for instance, might provide crisis accommodation to the homeless and disability services or be international development organisations.

The statement covers issues such as:

  • The degree of need beneficiaries must be in
  • Whether organisations can collaborate to provide relief
  • Whether PBIs can operate overseas, and
  • The distinguishing features of an institution

Its appendix sets out a series of practical scenarios illustrating how the ACNC proposes to apply the CIS in practice.

The ATO administers the taxation implications of the PBI charity subtype for Commonwealth purposes.

Comments closed on 1 June.

ATO app makes donating easy

An ATO app can help you make the most of your fundraising efforts.

The myDeductions tool within the app simplifies record-keeping and tax-time reporting, which might make it easier for your supporters to keep track of their deductible gifts and donations.

If you’re planning or managing a fundraising campaign, consider how the ATO app will benefit your target audience.

Without the hassle of searching for receipts, eligible deductions can be claimed with ease – providing increased assurance for your supporters, so they may donate with confidence.

The app is easy to download and even easier to use.  When a donation has been made, the donor can simply open the myDeductions tool, add a description, the amount donated and take a quick snap of their receipt. The details are then stored on their phone, making them easily accessible.

When it’s time to lodge their 2015-16 tax return, the completed deductions can be uploaded to myTax or sent directly to an accountant or tax agent … No more missed deductions.