All articles in Volume 12 Issue 6

Moves afoot to save ACNC from going up in smoke

2 April quote

The Australian Charities and Not-for-profits Commission (ACNC) may yet be saved from a "bonfire of legislation" after a bill to repeal it was referred to the Economics Legislation Committee for an inquiry.

As part of the introduction of Repeal Day legislation, Minister for Social Services Kevin Andrews introduced the first of two Bills to implement the government’s election promise to repeal the ACNC, claiming the regulator had not proved to be the best use of government funding and had created unnecessary red tape.

However, he said the first Bill would not take effect until the enactment of the later Bill, which would contain details of the arrangements replacing the ACNC. It is set to be tabled in Parliament’s Winter sitting (June-July).

In a last ditch attempt to save the ACNC, more than 40 peak bodies recently wrote a letter to the Prime Minister. 

Andrews rejected the letter as not being representative of the more than 600,000 players in the NFP sector and noted that through his ongoing consultations with major stakeholders, he had heard overwhelming evidence that the ACNC needed to go.

He added: “The New Zealand Government has abolished its regulator and in the UK, the Charities Commission has been criticised by its National Audit Office as ‘not regulating charities effectively’ and ‘not delivering value for money’. 

“We believe that the role of government is to support civil society, not to control it or bind it in more red tape.”

The Bill was set to be debated today, but on 26 March, the Selection of Bills Committee referred it to the Economics Legislation Committee to consider the impact the repeal of the ACNC would have on the NFP sector and to ensure adequate stakeholder consultation occurs. Submissions close on 2 May and the committee’s report date is 16 June 2014.

Both the federal Opposition and the Australian Greens have said they would not support the repeal of the ACNC.

For her part, Anne Robinson, a principal of Prolegis Lawyers, believes it would be unfortunate to abolish the ACNC before it has a chance to demonstrate the effectiveness of a national regulatory regime.

“I hope the new government will consult widely with the sector before undoing the careful work that has been undertaken over the past six or more years with bipartisan input from a wide representation of charities and NFP organisations,” Robinson says.

Robinson adds: “The ACNC represents added bureaucracy only in the same way that the introduction of the Australian Securities and Investments Commission (ASIC) did, and it is as fair a criticism as it would have been to stop the process of corporate law reform before each of the state Corporate Affairs Offices had been closed.”

She says the great progress in red-tape reduction which has benefitted business over the past decade or two has completely by-passed the NFP sector. “Stopping the reforms when they are only half-way complete would be unfortunate. The Australian Taxation Office does a great job at administering the tax law. It is unreasonable to expect it to be able to provide the kind of proportionate regulation and facilitation of charitable activity that the ACNC can provide.”

However, Ewen Crouch, chairman of Mission Australia, understands the federal government's approach.

“The implementation of the ACNC did not reduce red tape and only added to the compliance burden. There is considerable scope for a better regulatory framework for the NFP sector. However, that requires a whole of government agreement through the COAG process rather than imposition of further regulation at a federal level,” he says.

“The debate on regulation should encompass what reporting should be mandatory and what regulation can be light touch to encourage innovation in service delivery and efficient scale for the sector. Directors will have a point of view on these issues and a willingness to think beyond the organisation they direct.”

In the meantime, Vera Visevic, a partner at Mills Oakley Lawyers, says NFP directors should keep abreast of developments to ensure their respective charities are compliant at all times.

“This can be as simple as knowing which regulator to report to - the ACNC, ASIC, Australian Tax Office or Office of Fair Trading (and its equivalents in other states),” she says.

“As far as directors’ duties are concerned, they are principally the same under both the Corporations Act 2001 and the ACNC legislation, so any change to the regulatory system should not result in any significant changes to how directors behave and conduct themselves in their role as directors of charities.”

Visevic adds that it would be helpful for directors to be aware of what changes they have made to their operations and governance models since the establishment of the ACNC so that if the ACNC is abolished, directors are cognisant of what changes they need to make to comply with the new regime (which will effectively be the same as the regime which existed pre-ACNC). For example, if directors abolished their annual general meetings (AGMs) after the ACNC regime’s governance standards came in, they will need to start holding AGMs again if the ACNC is indeed abolished.

“This may involve some pre-planning. So the more prepared directors are for these sorts of changes, the easier it will be for them to transition back to the old regime,” says Visevic.

She expects Australia to probably revert back to the same regulatory system it had prior to the establishment of the ACNC “that is, for companies, reporting to the ATO and ASIC, and for other organisations, such as incorporated associations, to continue reporting to their state Office of Fair Trading and the ATO”.

 “We may also find that the ATO will not be happy with some of the legal structures which were accepted by the ACNC. For example, the ATO always insisted on charitable funds having the form of a trust, whereas the ACNC had no such stipulation. It will be interesting to see if the ATO is happy to accept charitable funds which have different structures (for example, a company structure) when it has always insisted on a trust. Will the ATO require those charitable funds to change their structure in order to remain eligible for tax concessions?,” asks Visevic.

Professor David Gilchrist, director of the Not-for-profit Initiative at Curtin University, says directors should expect to continue to provide data as the government has not yet decided to abandon the ACNC register.

“They currently have a legislated responsibility for submitting an annual information statement,” Gilchrist says.

“The dissolution of the ACNC will not necessarily mean the sector goes back to where it was pre-December 2013 and the provision of data is still something that directors should contemplate.”

Gilchrist believes NFP directors also need to continually look to enhance their practices in financial reporting, governance maturity and service delivery quality.

“Gaining an understanding of the true cost of service delivery and the clinical risks remain constant areas where boards should focus. The current time is no different. Regardless of the reporting or regulatory requirements put in place, if boards focus on better practice, the gap between what they do and what might be required will be narrowed if not closed.”

He believes the replacement arrangements are likely to include a register of some kind, a centre of excellence and a continuation of the taxation and ASIC requirements that existed prior to December 2012.

“Directors should prepare for ongoing uncertainty as the requirements of ASIC, the ATO and other agencies are reset and as the states attempt to reduce their administrative impact on NFPs. Only a federal initiative can reduce red tape effectively in Australia.”


ATO spreads its global net

As governments around the world stepped up their data sharing and harnessed powerful technology to find tax cheats, the concept of the “tax haven” was dying, Tax Commissioner Chris Jordan cautioned last week.

Speaking at the Tax Institute of Australia’s national convention in Hobart on Thursday, he outlined the many steps the Australian Taxation Office (ATO) had taken to work more closely with offshore tax agencies bilaterally, multilaterally and through the OECD and the Joint International Tax Shelter Information Centre.

He also put Australians on notice that the ATO was working with other countries to target undeclared offshore assets and profit shifting to minimise tax.

He noted the ATO had already identified 86 high-risk profit shifting cases for investigation and warned: “If you are going to use ‘on the edge’ minimisation strategies in Australia, we are going to make our presence felt – we will check everything you do and we won’t walk away.”

At the same time, he urged all taxpayers with offshore assets to declare their interests as he unveiled a new offshore voluntary disclosure initiative called “Project DO IT” - a “last chance” opportunity to declare offshore assets and income before December this year, in return for reduced penalties.

Eligible taxpayers who make disclosures under Project DO IT will:

  • Only be assessed for applicable (open) periods of review (generally only the past four years).
  • Be liable for a shortfall penalty of 10 per cent (low-level disclosures will attract minimal or no penalties).
  • Be liable for full shortfall interest charges (these replaced general interest charges in relation to amended assessments after 1 July 2005).
  • Not be entitled to utilise any losses that arose in years for which they are not being assessed.
  • Be able to seek assurance regarding the ATO’s tax treatment of repatriated offshore assets.
  • Be able to enter into a settlement deed to obtain additional certainty (where circumstances call for additional surety).
  • Not be investigated or referred for criminal investigation by the ATO on the basis of their disclosures.

“Thanks to international cooperation, the ATO has made significant progress in collecting offshore tax revenue,” said Jordan. “Australia now has over 100 information exchange treaty partners and these treaties do bear fruit. Even countries previously thought of as 'tax havens', such as Switzerland and the Cayman Islands, are working to increase transparency. In 2012-13, our treaty partners helped Australia to collect around half a billion dollars extra in tax revenue and penalty and interest payments.”

Jordan also outlined details of the new relationship he wanted to forge with taxpayers, noting the ATO planned to play a greater role in developing tax law, using its know-how to influence and advocate for the laws that would have the best outcomes.

In addition, he denied recent media reports that the ATO was going to allow private sector accountants to sign off on some company tax returns. “While this is not exactly true, we are looking to draw on the already rigorous audit processes for listed companies,” he said.

“Indeed, our public groups and international area is exploring a new initiative for undertaking assurance work through the external compliance assurance process project. This aims to give some taxpayers with turnovers of between $100 million and $5 billion the opportunity to use their company auditors to review factual matters, rather than the ATO.”


NFP CEO pay rises despite irregular pay reviews

CEO pay rates in the not-for-profit (NFP) sector have risen over the past year, particularly in the healthcare area, a new survey shows.

The survey by Pro Bono Australia and its partners Beveridge Consulting, BT Private Portfolio and Westpac found mental health is now the sector with the highest average total remuneration across all executive jobs, from the CEO ($201,992) to general managers and financial officers. Arts and culture ($94,349) and human rights ($96,644) have the lowest pay rates across all senior jobs.

Previously, the highest average pay rates for all executive jobs were in the health care or medical research sector ($155,951) followed by foundations or philanthropic organisations ($150,792).

The survey, which polled 2,000 individuals across 13 employment positions, reveals that top pay rates for NFP CEOs are offered in Western Australia ($141,628) while Tasmania ($111,333) has the lowest average pay for CEOs.

For general managers, Western Australia was again the highest paying state or territory ($140,151) with Queensland the lowest paying ($119,519) on average.

While most sectors are very similar in the average pay rates for finance managers ($112,063 to $126,960), environment or conservation organisations ($90,735) and peak body or professional associations ($91,634) pay less than others.

Finance managers in education ($126,823) and healthcare ($126,960) organisations receive the highest remuneration.

According to Pro Bono, marketing, fundraising and communications managers in the areas of research or medical research ($134,224) and multidisciplinary ($130,018) are the highest  earners. Arts and culture/heritage bodies are among the lowest paying with an average salary of $74,891.

The survey also found that many NFPs do not review their staff salaries and pay rates regularly. The greatest proportion of people not receiving regular pay reviews were in social enterprise (53 per cent), sport and recreation (53 per cent), volunteering (52 per cent) and Aboriginal/Indigenous (51 per cent).

“Even the better performing sectors in terms of regular pay reviews still had around a quarter of people not receiving a regular review,” says Beveridge Consulting founder Andrew Beveridge.

“In the absence of regular reviews on an annual or biannual basis, there is a risk that individual pay levels do not keep pace with industry and cost-of-living increases.

“While pay is rarely the key motivator for those employed in the NFP sector, the lack of regular pay reviews is likely to be a potential source of frustration for many.”


Succession planning comes under investor scrutiny

A new report by one of Australia’s largest fund managers reveals that shareholders are increasingly interested in how succession planning drives the quality of a company’s leadership and equips it to tackle its challenges.

AMP Capital’s Corporate Governance Report for 2013 notes that following the global financial crisis and credit crunch, shareholders were very focused on how companies used their capital and handled their cost pressures, including the reigning-in of executive pay.

“As we move beyond the financial crisis, it is clear investors are now focused on moving forward,” the report observes. “As Australia is in this rebuild-refocus-revitalise phase, there is increased interest in the quality of Australia’s management and whether it is up to the task.”

The report notes that the greatest proportion of a company’s value is not attributed to tangible assets (such as plant, equipment and inventory), but rather to intangible factors (such as skills, talent, intellectual property and licence to operate).

“Hard assets alone don’t generate returns but, rather, it is how those assets are managed, financed, developed and protected that will have a far greater impact on the long-term sustainability and profitability of the operation.”

And, this is where the importance of the quality of a company’s management and succession planning comes in.

“When shareholders decide to invest in a company, the decision is based on particular risk-return assumptions and an expectation that the company’s board and management are in a position to deliver those outcomes,” the report states.

“The sudden departure of a CEO can be very disruptive to a company that has no succession plan in place. 

“Boards need to know where the company is going and the CEO skills needed to take them there. Boards that spend time on succession planning are able to focus on those skills and develop staff accordingly.

“While it is not always practical, or possible, to have a CEO replacement ready in the wings, research has shown that it is usually preferable for companies to appoint an internal candidate.

“Not only are internal candidates able to ‘hit the ground running’, but the transition tends to be far less disruptive and far less costly - unless significant cultural change is required.”

AMP Capital notes that the issue of leadership succession in general is gaining further prominence through both the work being done by The Centre for Leadership Succession and also specific requirements that were incorporated into the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations.

While not specifically relating to senior management, the ASX principles highlight the importance of board renewal and succession planning.

The third edition of the principles was released last week and introduces nine new substantive recommendations which directors should understand.


Maximise your tax opportunities before 30 June

Business owners are advised to review their tax liabilities before 30 June to maximise tax opportunities.

Andrew Graham, national head of business solutions at RSM Bird Cameron, says: “The end of financial year presents opportunities for business owners to reduce their tax liabilities and ensure they are in the best position for the new financial year.”

He lists the following as the key opportunities for business owners to reduce their tax liabilities:

Superannuation: The minimum super business owners must pay is 9.25 per cent of each eligible employee's “ordinary time earnings”. Payments must be made at least four times a year within 28 days of the end of each quarter, including the quarter ending 30 June 2014. Business owners can generally claim a tax deduction for super contributions that are paid on time. However, super is one contribution that can’t be claimed until it is paid. Business owners need to pay the contribution in sufficient time so it is banked by the fund before 30 June to claim it in the 2014 year.

Personal super: Business owners need to pay their personal super contributions so it is banked by the fund trustee prior to 30 June to get a deduction. The fund trustee needs to be notified of the intended deduction as well.

Bad debts: Business owners should go through their debtors list and write off anything that is not collectible. These should be written off prior to 30 June to be eligible for a deduction.

Review carrying value of assets: Business owners should review the carrying written down value of assets on the businesses depreciation report and if applicable write off any assets which are no longer used in the business.

Stocktake: A 30 June stocktake is required to determine the correct value of closing inventory and find any obsolete or damaged stock. Business owners can choose to value the stock at cost, replacement or market sale price depending on what is lower. Stock that is obsolete or damaged can be written off or reduced in value for tax purposes and claimed as a deduction.

Bringing forward expenses: Business owners should undertake forward planning and look at expenditure for the next few months. There may be some expenses, such as training, repairs, maintenance or prepaying interest (only for Small Business Entity taxpayers), that will be incurred and would be better brought forward.

Shareholder loans: Ensure that loans are set up properly or repaid by the end of the financial year to avoid a deemed dividend and unexpected tax.

Trust distributions: If operating a trust, make sure the trustee decides how the profit will be distributed prior to 30 June and that this is recorded and signed off before the end of the financial year. 


Mercedes

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