NFPs that do not meet the Statutory Definition of “Charity”

Following the establishment of the Australian Charities and Not-for-profits Commission (ACNC) in 2012, we have encountered situations where our not-for-profit (NFP) clients do not meet the statutory definition of a “charity” under the Charities Act 2013 (Cth).  The statutory definition comes into effect on 1 January 2014 and is the key determinant of whether an NFP can remain, or be registered under the ACNC beyond this date.

For further clarification, we contacted the key regulatory bodies; ACNC, ASIC and the ATO to enquire as to whether a company can be deregistered as a “charity” and still remain as an NFP, and determine the consequences of doing so.  Having recently experienced this situation with some of our NFP clients, we’d like to share the advice given to us, and hopefully clear up some of the grey area.

Background of the ACNC

The ACNC commenced operation on 3 December 2012, as the independent national regulator of charity organisations.  The role of the ACNC, other than to register charity organisations, is to also provide education and support to registered charities and administer a regulatory framework for the sector. For further information about the ACNC, please refer to their website.

During December 2012, NFPs holding Charitable Status with the Australian Taxation Office (ATO) were automatically transferred from ASIC to ACNC’s jurisdiction. Furthermore, all NFPs that meet the statutory definition of a “charity” under the Charities Act 2013 (Cth) will remain governed by the ACNC from 1 January 2014 onwards.

ACNC only has jurisdiction over charities

ACNC advised that they have no jurisdiction over not-for-profits; only charities. Despite their somewhat misleading name, the ACNC was originally established with a view to having jurisdiction over both charities and NFPs, but jurisdiction over the latter “may only occur in the future”.  Should a company revoke (or lose) their charitable status, it will no longer be governed by the ACNC.  ACNC have advised that companies in this position “will have to apply to be recognised as a not-for-profit”, but at this stage, they do not have authority over such recognition.

NFPs not registered with ACNC will again be registered by ASIC

If a company revokes its registration with ACNC, the company’s details will need to be updated with ASIC. To date, ASIC’s records and ACNC’s records for companies are not concurrent, and discussions are continuing between ACNC and ASIC to harmonise such records. To that end, they have confirmed that the lodgement of forms to update the Company’s details will attract late fees, although there has been no requirement to update certain records (i.e. appointment of new directors) with ASIC. It is expected that the late fee will be minimal (in this case around $300) as such companies have not received an Annual Company Statement from ASIC since being transferred to ACNC in December 2012. ASIC have advised that a fee waiver application would have to be lodged with ASIC for reimbursement, and that reimbursement “should be available”.

Status with the ATO

The ATO’s not-for-profit division advised that the new NFP status is available to companies now, and it is largely a self-assessment process. Further information is available on the ATO website.

Submission of the ACNC Annual Information Statement

ACNC has extended the deadline for the submission of companies Annual Information Statements (AIS) to 31 March 2014. However, if a company were to revoke its status as a charity organisation prior to this date, it would not be necessary to submit the AIS.

 

Disclaimer: this blog does not represent legal advice.  We suggest that companies seek their own advice from ACNC, ASIC, ATO and their legal advisers to understand their individual situation.

Please feel free to contact us via our contact page if you have any questions, comments or insights.  We also have an ACNC LinkedIn discussion group if you would like to take part in other ACNC related topics.