All articles in Volume 13 Issue 7

ACNC abolition scrapped

16 Apr image

The Federal Government has given its clearest indication yet that the Australian Charities and Not-for-profits Commission (ACNC) is to continue, at least into the foreseeable future.

Assistant Treasurer Josh Frydenberg told a Community Council for Australia forum on 8 April 2015 that while the government was not changing its commitment to remove the ACNC, it was “not a priority for us to proceed with that at this time”, according to The Australian newspaper.

Social services minister Scott Morrison would keep a “watching brief” on the commission, Frydenberg said. Former minister Kevin Andrews had argued the ACNC needed to be dumped as a priority “to remove the regulatory impost on the sector as soon as possible, to ensure that organisations are not reporting unnecessarily”.

The commission was set up in 2012 to increase accountability and transparency in the sector and to promote the reduction of unnecessary regulatory obligations.

The back down was broadly welcomed by charities, which have overwhelmingly supported maintaining the commission, with a survey undertaken by Pro Bono Australia illustrating that 80 per cent of respondents are in support of keeping the commission.

Liesel Wett, chief executive officer at Pathology Australia, welcomed the announcement that the ACNC was here to stay. She said: “The abolition of the ACNC would result in any efficiencies gained to date returned to an era of duplication, leaving us with more hoops to jump through, without the focus on quality that could be achieved through the planned ACNC National Centre for Excellence.

Frydenberg also told the forum that the government was looking at reforming fringe-benefit tax concessions for the not-for-profit sector.


Diversity challenge set

The Australian Institute of Company Directors (AICD) is calling for all boards to ensure that 30 per cent of their directors are female and urges S&P/ASX 200 companies to meet this new target by the end of 2018.

This major initiative is another step in AICD’s long-running campaign to improve gender diversity in local boardrooms.

Launching the new target, AICD managing director and chief executive officer, John Brogden, said the new objective is a significant extension of AICD’s previous diversity initiatives and will help companies more quickly reach the critical mass required to produce the optimal business benefits of board diversity.

“There is an undeniable case for gender diversity on boards. It is not only the right thing to do but the smart thing to do, because it means better business performance,” Brogden said.

“Numerous pieces of research demonstrate a positive link between the level of female representation on boards and improved corporate performance.”

Brogden said the 30 per cent target will apply to all company structures, as AICD has a broad membership of over 35,000 that extends well beyond the top listed companies to small ASX entities, private business and not-for-profit organisations.

However, he added that the AICD recognises that the four-year time frame to achieve the target for ASX 200 boards may not be appropriate for smaller listed and non-listed companies, and as a result, a specific date for these organisations to meet the 30 per cent target has not been set.

“Our previous initiatives to increase diversity have contributed to a steady increase in female directors on ASX 200 boards, from 8.3 per cent in 2009 to 19.8 per cent today. We believe more needs to be done to further increase that number, and we are confident our new policy will help achieve that, at a faster pace,” Brogden added.

The AICD will urge all boards to adopt the target and regularly report on their progress towards it so that the results of this initiative can be transparent and monitored by stakeholders.


ESS tax bill introduced

On 25 March 2015, the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015, which has the potential to affect remuneration frameworks and strategies for start-up companies, was introduced into federal parliament.

The changes will create new opportunities in providing employee equity; remove some of the complexity of the existing law; expand the potential range of instruments which may be used; and may require changes to the existing plan rules, particularly for tax deferral plans.

The new rules are scheduled to come into effect on 1 July 2015.

According to remuneration firm, Guerdon Associates, under the bill, options and rights for all companies subject to deferral will be taxed when they are exercised rather than when they vest. Options and performance rights no longer need a real risk of forfeiture to access deferred taxation.

The maximum period for tax deferral will be extended from seven to 15 years, while refunds can be obtained from the tax paid on options that are not exercised.

Start-up companies are expected to gain from special concessions that will allow employees to receive fair market value options tax free and then only pay capital gains tax on the disposal of the share acquired on exercise of the option. It will also allow employees to acquire shares without having to pay tax on a discount of up to 15 per cent of the market price, with capital gains tax applicable on disposal of the share.

Noteworthy changes to the bill from the exposure draft published in January mean that recipients of the small start-up concession will also be able to benefit from the 50 per cent capital gains tax discount in a wider range of circumstances.

Contributions from certain large venture capital investors will not rule out eligibility for the small start-up concession. The bill will now exclude eligible venture capital investments from the $50 million aggregated turnover test and grouping rules (when determining eligibility for the start-up concession) where the investment is made by venture capital limited partnerships, early stage venture capital limited partnerships, Australian venture capital funds or tax-exempt deductible gift recipients, such as universities.

The government has not responded to submissions calling for the extension of the start-up concessions to ASX-listed companies or for the cessation of employment to be removed as a deferred taxing point for unvested equity.


Taxing times for NFPs

The Federal Government has released a discussion paper about taxation in Australia titled Re:Think which has caused some ripples in the not-for-profit (NFP) sector.

The discussion paper acknowledges the benefits the NFP sector provides for the community and briefly canvasses the current tax concessions that are available exclusively to it. The fact that many entities in the sector do not lodge tax returns means that estimating the value of the tax concessions is difficult. Despite this, the government estimates that the fringe benefits tax (FBT) exemption for NFP employees alone is worth around $3.3 billion. The other major concession is the tax deductibility of gifts, which is estimated at equivalent to $1.1 billion in foregone revenue.

The concerns canvassed by the discussion paper, apart from revenue foregone, seems to be mainly the effect of FBT concessions where the NFP is in a competitive market with non-NFPs and that tax concessions may provide a competitive advantage for the NFP. Also, the tax-exempt status for some associations and clubs is openly described as having “no clear rationale underlying this exemption”.

In discussing deductible gift recipient status (DGR), the emphasis would appear to be the complexity and difficulty of obtaining DGR status rather than revenue foregone.

The discussion paper is calling on submissions that address the following questions:

  • Are the current tax arrangements for the NFP sector appropriate? Why or why not?
  • To what extent do the tax arrangements for the NFP sector raise particular concerns about competitive advantage compared to the tax arrangements for for-profit organisations?
  • What, if any, administrative arrangements could be simplified that would result in similar outcomes, but with reduced compliance costs?
  • What, if any, changes could be made to the current tax arrangements for the NFP sector that would enable the sector to deliver benefits to the Australian community more efficiently or effectively?

Submissions and suggestions on the discussion paper can be made at the website www.bettertax.gov.au until 1 June 2015.


APP guidelines update

Following the first year of operation of new privacy laws, the Office of the Australian Information Commissioner (OAIC) has issued updates to the Australian Privacy Principle (APP) guidelines.

The APP guidelines are the primary guidance for entities in how to interpret and comply with the APPs.

The Australian Privacy Principles came into force on 12 March last year and significantly raised the bar on how businesses and federal government agencies collect, store and handle individuals’ personal information. The privacy regulator is able to levy penalties of up to $1.7 million or impose enforceable undertakings on organisations that breach the principles.

Changes have been made to four chapters, clarifying some aspects of the guidance and responding to issues such as the introduction of separate privacy legislation in the ACT. Some of the main changes are:

  • Chapter A: to explain that the APP guidelines may provide relevant guidance to Australian Capital Territory public sector agencies covered by the ACT Information Privacy Act 2014.
  • Chapter B: to clarify and expand upon guidance about “carries on business in Australia”, a component of the test for whether an APP entity has an “Australian link”.
  • Chapter 8: to clarify guidance about the circumstances where an APP entity may be taken to breach the APPs, when it provides personal information to an overseas contractor as a “use”, and the information is mishandled overseas; and to expand guidance about the circumstances in which the “international agreement” exception in APP 8.2(e) applies.
  • Chapter 11: to update guidance about “reasonable steps” and examples for consistency with the OAIC’s Guide to Securing Personal Information.

The APP guidelines outline the mandatory requirements in the APPs, the Australian information commissioner’s interpretation of the APPs and examples of how the APPs may apply to particular circumstances, as well as good privacy practice.

The updated guidelines can be found here.

The Australian Institute of Company Directors has published a book, Privacy Governance: A Guide to Privacy Risk and Governance for Directors and Boards, to help directors comply with the Australian Privacy Principles. Go to our online bookstore to purchase the print or electronic version.


Walk the talk

Boards frequently challenge their executives to get with the digital age – but many have not followed their own good advice, according to an article published by the Harvard Business Review.

The article, Reimagining the Boardroom for an Age of Virtual Reality and AI, explains that while many boardrooms are starting to use more digital tools to gather information, post questions and comments, connect individuals in remote locations, and present ideas more visually, there are plenty of other tools they could be using to do their jobs better.

Citing virtual reality technology as an example, the article explains that boards could gain a deeper understanding of their companies and the value they create by using this technology in a gaming context.

It says business applications for virtual reality technology are starting to take off, as it allows board members to use the technology to play the role of customer, investor, product developer and factory worker, and make the kinds of choices they must make. This enables board members to see the business from various stakeholders’ vantage points.

The article also considers enterprise social-network tools and workflow management programs, like Yammer and Trello, which can facilitate more dynamic communication among board members and help them analyse their activities, interactions, voting patterns and so on. It offers a central repository for communications, which can make it easier to share presentations, budgets, quality reports, compliance reviews, and supporting analyses.

The article adds that the pressure for boards to become more “digital” is coming from a number of sources, with outside stakeholders beginning to demand greater visibility into boards’ operations, particularly in light of the many well-publicised governance failings related to culture problems, poor risk management and fraud. Similarly, investors are expecting boards to match or surpass their own ability to collect and analyse information.


Culture and the board

An article by Heidrick & Struggles proposes that business culture is rapidly becoming a crucial factor in business performance and hence board effectiveness.

While warning that boards must be careful not to begin micro-managing a business’ culture it is suggested that boards must be able to understand and “take the temperature” of the business’ culture in order to be able to fulfil their roles as directors.

While some directors may resist being involved in culture as it is difficult to define and measure, the writers claim that culture should not be invisible to the board and can be discerned from the values of the business and through questioning statements which measure agreement with the values.

While some directors may find this approach somewhat nebulous, the authors contend that directors can define the culture, but the picture they get is often wrong and may need external assistance.

In effectively carrying out the boards’ role having an accurate gauge of the culture can be important for succession planning, compliance and risk management. For example, with succession planning ensuring either a cultural fit or driving a cultural change with a new chief executive officer requires a deep understanding of culture.

Similarly, understanding culture must help to identify cultural drivers that could impact on compliance or risk. For example if a hidden culture of extreme risk taking or carelessness were uncovered there would be ramifications for the board – which could then instigate processes and controls to avert any crisis while then addressing a necessary cultural shift.

To read the full article, click here.


ACSI appoints CEO

The Australian Council of Superannuation Investors (ACSI) has announced the appointment of Louise Davidson as its new chief executive officer.

Davidson is currently the environmental, social and governance investment manager at the $30 billion industry superannuation fund, Cbus and long-standing chair of the Mother’s Day Classic fun run for breast cancer research.

She takes over the role from Gordon Hagart, who is returning to Europe.

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Local Government Super (LGS) has appointed Craig Peate GAICD as the chair of the board, replacing Bruce Miller MAICD following the conclusion of his two-year term.

Peate, an existing director, has over 35 years experience with Tweed Shire Council, and serving as the chair of the board’s governance and remuneration committee as well as a member of the investment committee.

Miller will continue as a director and has taken up the position of deputy chair.

LGS has also appointed Katherine O’Regan and Jeff Morris as directors, representing Local Government NSW on the board.

O’Regan and Morris replace existing directors Leo Kelly OAM and Keith Rhoades. Kelly retires after more than 15 years of service on the board and Rhoades, the current president of Local Government NSW, concludes a two-year term as director at the end of March.

Peate and Miller took up their positions on 31 March 2015. O’Regan and Morris commenced their roles on 1 April 2015.


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