Chapter 2 Analysis of the Bills
The overwhelming evidence presented to the inquiry was that the
charities and not-for-profits sector supports the establishment of the
Commission, although there is potential for improving the legislation. This
chapter presents some of the evidence in support of the Commission and the ways
in which it will make it easier to work in the sector. Suggested improvements
to the Bills then follow.
Support for the Commission and its benefits to the sector
Less red tape, the charities passport and lodge once-use often
As ACOSS stated during the hearings, organisations claiming tax exempt
status from the ATO will transfer this regulatory relationship to the
Commission. Looking beyond this
change, many organisations in the sector have a regulatory relationship with
other Commonwealth agencies. Treasury advised the committee that it is in the
process of removing this duplication:
For some entities the reductions [in red tape] will happen
immediately, particularly those entities that are regulated at the Commonwealth
level. The consequential amendments that will accompany the ACNC draft will
relinquish the responsibilities of ASIC and a number of other Commonwealth
regulators in respect of charities where there is duplication. If we use a
company limited by guarantee, for example, it will no longer be reporting to
ASIC ... Its interaction will be only with the ACNC. Within that, the
regulatory framework applying to it under the ACNC is less onerous than the
current Corporations Act equivalent for that entity. So those entities will
face an immediate reduction in their red tape and compliance costs.
Treasury is also working on a ‘charities passport’ and a lodge once-use
often regulatory system. The idea is that organisations in the sector will only
have to provide certain information to the Commonwealth once, and the
Commission will be the point at which this occurs. The information provisions
in the Bill are designed to allow the Commission to pass information on to
other agencies for appropriate purposes. More generic information will be
placed on the ACN Register, which will allow charities to prove their bona
fides without effort.
The Implementation Taskforce described how the reduction of duplication
is progressing within government:
... Treasury and the task force are working on an absolutely
comprehensive piece of work across the Commonwealth that would see the current
reporting requirements of every charity put on the table with the relevant
department and charity representatives, along with the requirements that would
come through the ACNC's annual information statement, and reconciliation where
there is duplication.
Currently, 33 Acts are under consideration for this purpose.
This represents a significant reduction in the compliance burden for
organisations with a high exposure to the Commonwealth. Of course, many
organisations in the sector are more exposed to State and Territory frameworks.
The committee concurs with the Commissioner’s observation that addressing
overlap with State and Territory requirements would represent a ‘radical
reduction’ in red tape.
At the hearings, Treasury indicated that it has been negotiating with
the States and Territories and that some jurisdictions plan to ‘turn off’ their
associations legislation if they will be covered by the new Bills:
... discussions on incorporated associations are continuing
with the states and territories. Some states have already indicated that they
will be turning off the incorporated association acts to the extent that the
ACNC is covering them, just as we are with the Corporations Act. In other
states, those discussions are continuing.
Given the scale of the task of establishing an accurate database and
untangling a web of regulatory requirements, it is only to be expected that red
tape reforms will take time to bear fruit. The Community Council of Australia
best summarised this:
If all we can do is establish that the Australian Charities
and Not-for-profits Commission has a very accurate and reliable dataset of all
the charities in Australia with some basic information about them, and that,
when a charity applies for a grant or some kind of concession or is engaged
with some level of government or regulation, they can just provide the link to
the data that is on the ACNC website as the reference point for their core
information—if we can get to that point, that will make a massive difference in
the first instance ... I think that is at least a couple of years ... of work
before that level of information and that level of reliability are established.
But, once it is, the potential for it to benefit the sector is enormous. I do
not think people quite realise how often charities have to demonstrate their
bona fides, and the capacity to do that, by having the equivalent of a
charities passport, has incredible appeal.
Transferring the registration role from the ATO
The committee received consistent evidence that the sector regards the
ATO has a revenue raising agency, and that this is perceived as affecting its
decisions on organisation’s charitable status, which has tax implications.
Further, the ATO’s decisions are not always perceived as being consistent.
This has had led to a less than positive relationship generally between
the ATO and the sector. ACOSS summarised the ATO’s situation as, ‘it was never
intended (nor has it wanted) to be the sector’s regulator; and the relationship
between the sector and the ATO is less than positive as a result.’
The Community Council of Australia expanded on these issues, noting that
many smaller organisations in the sector see the ATO as a very imposing
organisation and are not able to deal with it effectively:
When you talk to these groups about why they have or have not
applied, it is because it is an intimidating process. It requires a lawyer, or
that is their perception. Engagement with the ATO is not something that
Australians see as really desirable. Unless you have a good lawyer and get the
right ATO person, it can be a quite involved and engaged process, and it
favours larger organisations ... and it favours those organisations who can
come and see people like you. There are so many smaller not-for-profits that
should be able to claim charitable status that just find the process too
... There are examples of people who feel that, when the ATO
engages with them, their capacity to actually engage in a real discussion about
what is happening for their organisation is non-existent. It is an ATO ruling;
that is it; you go to court, you accept it or you do not. As I said, if we
tried to impose the ATO as the group that determined charitable status in the
sector, I can only imagine that there would be a massive outcry, if there were
An educative regulator
In evidence, the Interim Commissioner outlined the proposed regulatory
approach. In short, it involves taking an educative approach with charities,
and then escalating the response, if warranted by an organisation’s conduct:
You would have noted, in looking at the statutes, that they
are graduated and that there is opportunity for self-correction. What we have
provided in the implementation report is a regulatory pyramid that details the
approach that would be taken, which would begin with a very strong emphasis on
education, guidance and advice. So there is a significant function for the
ACNC, not just in developing material for the website and to be publicly
available—some dedicated to charity, some to the public—but also with a phone
advisory service and an email advisory service. If there is sustained
noncompliance with the requirements, there are reminders and so on and you can
move then to formal warnings. So you can have proactive intervention. If there
appears to be wilful and serious noncompliance, particularly if there is
concern about the conduct of that entity, then the commissioner does have
powers to suspend.
The committee regards this approach as well-balanced. The educative focus
was also favourably received by many stakeholders in the inquiry.
The comments of the Consumers Health Forum of Australia were representative of
much of the sector:
CHF recognises the need for the Bill to include wide-ranging
enforcement powers for the ACNC Commissioner, to address the unscrupulous
activities of a small minority of NFP organisations. We welcome, however, the
emphasis on the ACNC’s educational activities in all the sections of the
legislation dealing with compliance, as this clearly indicates that the
intention of the ACNC is to work with registered entities and provide them with
guidance to assist them to comply with and understand their obligations under
The committee believes that an educative, proportional approach will
greatly assist the sector in achieving compliance efficiently and effectively
and is encouraged by the depth of forethought that the Implementation Taskforce
has displayed on this issue.
The Commission is off to a good start
The committee received evidence that the Implementation Taskforce,
headed by Interim Commissioner Susan Pascoe, has been effective in establishing
the Commission and communicating to the sector how it can be expected to
The Taskforce has been holding consultations and has published an Implementation
Report, which comprehensively outlines the Commission’s regulatory
approach, with an emphasis on proportionality, transparency, fairness,
timeliness, and consistency. The Smith Family
appreciated the Implementation Report in that it communicated to the
sector that the Commission will apply a measure of trust where warranted. The
Smith Family stated, ‘It is pleasing that the directions spelt out in the
Implementation Taskforce Report suggest that a trust-based approach is
reasonably well founded.’
Catholic Health Australia summarised the sector’s positive perceptions
of the Interim Commissioner’s performance to date:
I also congratulate Commissioner Pascoe and thank the
government for their good sense in appointing such a capable initial
commissioner. Indeed—without seeking to embarrass her noting her presence in
the room today—her appointment gives much confidence to people within the
not-for-profit sector that the commission is off to a good start.
‘Red tape’ in the objects of the Bills
Reducing the burden of ‘red tape’ facing the not-for-profit sector is
one of the explicit aims of the Bills and one of the most sought-after aspects of
reform in the charities sector. The Government has recognised the important
role played by the sector in establishing an inclusive and productive Australia
and has committed to deliver smarter regulation, reduce red tape, and improved
transparency and accountability of the sector.
The committee acknowledges that the Government’s establishment of the
Commission is part of its strategy to reduce red tape and notes that there is
already a reference to the reduction of red tape in the objects of the main
The Treasury submission outlines how the new national regulatory system
of the not-for-profit sector will deliver significant benefits to the sector,
including ‘reducing red tape and duplication by streamlining process’. 
Moreover, Treasury notes that the ‘establishment of a national regulatory
framework, and a “one-stop shop” regulator, would in itself, reduce regulatory
burden on the sector’:
... the objects clause currently requires the Commissioner to
have regard to the ‘benefits gained from minimising procedural requirements and
procedural duplication by cooperation between the Commissioner and other
Australian government agencies; and effective administration of the laws that
confer functions and powers on the Commissioner.’
In addition, a reference to red-tape reduction has been made
in the Guide to the draft Bill, which provides that the ACNC Commissioner will
‘cooperate with other government agencies to oversee a simplified and
streamlined regulatory framework for not-for-profit entities.’
Nevertheless, submissions were consistent in requiring stronger and
specific statement on reduction of red tape in the objects. The Uniting Church
in Australia told the Committee:
We believe that red tape reduction should be the cornerstone
of the bill and that it should empower the commission to take action to reduce
the unnecessary duplicative and burdensome administrative reporting and
compliance obligations on the sector. This would be in keeping with the
government’s own stated aim that red tape reduction is the foundation stone of
its not-for-profit reform agenda. It is important to note that we are asking
for a reduction in unnecessary red tape and not a reduction in accountability
or transparency. Therefore, we ask the committee to recommend amending the
objects of the bill to include a clear obligation on the government and its
agencies to reduce the unnecessary duplicative and burdensome administrative
reporting and compliance obligations on not-for-profits.
The Not-for-profit Sector Reform Council expressed concern that the
‘preamble and the objects do not reflect one of the original intentions of the
Commission, which was to reduce red tape for the not-for-profit sector.’ The
The focus of the current draft does not provide any detail on
how the reporting burden for registered organisations would be reduced. As an
example, the bill could include the fact that organisations registered with the
ACNC and in receipt of a Commonwealth grant would not be required to submit
financial acquittals for the Commonwealth grant if, as an organisation, they
submitted audited financial statements to the ACNC.
Likewise, ACOSS was concerned that ‘provisions such as those at 15-10
that refer to benefits from minimising procedural requirements and duplication,
or cooperation between the Commission and other government agencies, do not
provide adequate assurance that the sector will benefit from this reform’. The
The Government’s not-for-profit reforms were announced in the
context of the commitment to reduce red tape; a commitment predicated on
enhancing productivity and efficiency and, most importantly for charities,
effectiveness for clients. Throughout the evolution of this reform, the sector
has been assured of principles such as ‘light touch regulation’; and of the
commitment to reduce duplication of reporting requirements and enhance the
value of the reporting that is undertaken in terms of information for and about
the sector. Yet these principles are not evident in the ACNC Bill. It is
important that the legislation includes an explicit objective of reducing red
The Committee acknowledges the wishes of the not-for-profit sector that
the reduction of ‘red tape’ should be made an explicit object of the Bill and
agrees this should occur.
||That the objects of the Australian Charities and
Not-for-profits Commission Bill 2012 explicitly include the reduction of red
‘Public trust and confidence’
One of the objects of the Bill is to ‘to maintain, protect and enhance
public trust and confidence in the Australian not-for-profit sector’.
Amongst other things, in performing his or her functions and exercising his or
her powers, the Commissioner must ‘have regard to the maintenance, protection
and enhancement of public trust and confidence in the not-for-profit sector’.
Moreover, in deciding whether to revoke the registration of an entity the
Commissioner must take account of a range of matters, including ‘the extent (if
any) to which the registered entity is conducting its affairs in a way that may
cause harm to, or jeopardise, the public
trust and confidence in the not-for-profit sector mentioned in subclause
15-5(1) (Objects of this Act)’.
The way in which the legislation and explanatory materials portray the
level of public trust and confidence in the sector was of great importance to
stakeholders. For example, ACOSS stated, ‘One area where there has been marked
improvement in the drafting of the legislation is in recognising that the
sector currently holds public trust and confidence.’
Evidence presented to the Committee raised concerns about the
application of ‘public trust and confidence’ in determining the revocation of
registration under the provisions of the Bill. In its submission, Catholic
Social Services Australia highlighted the legal ambiguity of the terminology:
Under section 35-10(2)(e) of the Exposure Draft, the
Commissioner can revoke the registration of a charity if that charity is
conducting its affairs in a way that may cause harm to, or jeopardise, the
public trust and confidence in the NFP sector. Given the inherent subjectivity
on this matter, we recommend enhanced clarity about the definition to be used
for decisions by the Commissioner which may be based on this terminology.
Catholic Health Australia made a similar point:
At present the bill gives no definition of what that new
legal principle might mean. I come to this inquiry not knowing what the
application of the principle might mean for the governance of our
organisations. What I can point to at the moment is section 180 of the
Corporations Act that tells directors of not-for-profit organisations that they
have to exercise their governance with care and diligence. I can turn to
section 181 that tells directors that they have to act in good faith and in the
best interests of the company. Those principles evolved out of years and
decades of development of case law. Case law built up that was then enacted by the
parliament to give us certainty as to how governance is to be exercised.
Catholic Health Australia was concerned that the meaning of ‘public
trust and confidence’ would have to await ‘first prosecution’, when ‘it is then
tested in the courts at great expense’. It suggested that ‘ideally that would
be defined in the legislation before it proceeds, and I think that is entirely
In its submission, the Housing Industry Association argued that ‘Public
trust and confidence’ was often not relevant to organisations in the
not-for-profit sector, as they did not rely on public donations or public
On the other hand, the Not-for-Profit Sector Reform Council saw value in
the Commission having the oversight of the sector in the interests of public
trust and confidence and that it was an important outcome for the sector:
It would only take one or two to diminish that trust and
confidence. I think that we do not know—the mishmash of regulation and those
that have oversight of the sector is so complex and so chaotic that if you had
a situation where there was a fundamental failure then the whole sector would
have the taint of the scandal because the sector, and particularly those
charities that rely on public donation and public support, may find themselves
in a situation where there is a decrease in the amount of donations or public
support for their charities. By having the ACNC there and having a central
regulator, you would have that oversight body that would be able to act
In the same vein, ACOSS recommended that clause 10-5, the guide to the
Act, be redrafted so that it refers to improving the accountability of
the sector, rather than supporting it. Their suggested drafting was:
The Commissioner of the ACNC will provide information to help
the public understand the work of the not-for-profit sector and to support the
transparency and accountability of the sector.
The charities and not for profit sector has managed itself well and has
not had to endure the kind of scandals that have been seen elsewhere in the world
which have been the catalyst for regulation. The Committee acknowledges that
the sector has sought to be proactive in encouraging a regulatory framework
that might help prevent such an event from occurring in the future.
An increase in public trust and confidence strengthens the sector, with
all the flow on benefits of growth in jobs and services in a very large sector
of the economy as well as improved outcomes for the people and outcomes they
support. Given the important and often essential nature of much of the work of
the sector, the impact of a loss of public trust and confidence on the ability
to raise funds would flow through, not just to the organisations, the people
they employ and services they purchase, but to some very vulnerable people who
rely on their services.
Given the nature and significance of the sector covered by the Bill, the
Committee believes that including in the objects of the Bill, ‘to maintain,
protect and enhance public trust and confidence in the Australian
not-for-profit sector’ is appropriate.
However, the Committee recognises that there is some uncertainty in the
sector about how the term ‘public trust and confidence’ will be interpreted and
would support the inclusion of further explanation in the Explanatory Memorandum.
The Committee also supports ACOSS's request to enhance the educative and
enabling role of the Commission in improving the accountability of the sector
and supports the redrafting of the guide to reflect that.
That the Explanatory Memorandum include material on the
meaning of ‘public trust and confidence’ and the way that it might be
That the guide to the Act reflect the educative and enabling
role of the Commission in supporting transparency and accountability in the
The reporting framework for registered entities proposed under the Bills
will be set out in detail in regulations. The framework is due to commence on 1
July 2013, with extensive public consultation to take place in the meantime.
The extended start date is intended to give more time for charities to move to
the new regulatory framework and for the Commission to provide guidance to help
with the transition. The first financial reports are due to be lodged by 31
December 2014, or later if a substituted accounting period applies.
As part of the reporting framework, all registered entities will be
required to provide an annual information statement. The first annual
information statement will be in respect of the 2012-13 financial year, and
will need to be lodged with the Commission by 31 December 2013, unless a
substituted accounting period applies. Only medium and large entities will be
required to provide annual financial reports to the Commission. Large entities
will be required to have their financial reports audited, while medium entities
can choose to either have a review or an audit.
Under the Bill, the Commissioner may approve a substituted accounting
period, in lieu of a financial year ending 30 June, for a registered entity.
Entities that notify the Commissioner, within six months of the commencement
date, that they currently report under an Australian law for a period other
than a financial year ending 30 June, will be taken to have been approved by
the Commissioner (on an ongoing basis) to lodge their financial report for that
other period. That is, existing substituted accounting periods will be
grandfathered for such entities provided they notify the Commissioner. The
Commissioner’s approval to adopt the alternate accounting period will not be
required in these cases. Registered entities which report using a substituted
accounting period will still report annually. Instead of 31 December,
these entities will be required to provide their financial reports to the
Commissioner six months after the last day of their accounting period. The
Commissioner has the power to impose any conditions that are necessary for this
The reporting framework of the Bill is designed to address the disparate
and overlapping reporting requirements that NFP entities are already subjected
to under various regulatory regimes. The delayed start to the
reporting framework is designed to, ‘give charities more time to transition to
the new regulatory framework’, and enables ‘the ACNC to work with the sector to
provide guidance and information to facilitate the transition to the new
Nonetheless, there is widespread concern within the sector that the
reporting regime for the Commission will duplicate existing reporting processes
and add another layer of reporting to the sector. In its submission, Chartered
Secretaries Australia (CSA) stated:
The draft legislation does not address the question of how
the proposed regime will co-exist with existing parallel legislation …
A key policy objective for the NFP regulatory reform is the
creation of a one-stop shop regulator for the sector, and reduced compliance
and red tape. Unfortunately, until the question is addressed of how the
proposed regime will co-exist with parallel existing legislation, this
admirable objective cannot be realised. CSA understands that there are parallel
processes occurring to address some of these areas. However, lack of definitive
timelines and recommendations leaves the sector uncertain and concerned.
CSA noted that ‘many charities, which were created under state-based
incorporated associations legislation, will now be faced with a parallel
Commonwealth regulatory and reporting framework’. While welcoming the 12-month
extension to reporting obligations contained within the Bill, CSA believed that
‘until such time as reporting for the sector is streamlined between
Commonwealth and state governments, charities in the first instance (and
possibly the entire sector in the future) are likely to be burdened with
duplication of reporting’.
CSA recommended that:
…in the same vein as the ‘basic religious charity’ exemption
contained in the exposure drafts, consideration should be given to providing
the Commissioner with the power/discretion to extend these exemptions to other
types of organisations (for example, schools) where extensive reporting and
compliance is already in existence and unlikely to be changed or amended as a
result of the ACNC legislation, in order to ensure there is no duplication of
In evidence before the committee, Catholic Health Australia highlighted
the existing regulatory burden facing the health care sector:
At the moment, a hospital, if it is established under the
Corporations Act, needs to report to ASIC; it also needs to report to its state
government; and it perhaps has to report to the Private Health Insurance
Industry Council. An aged-care organisation needs to report to Accreditation
and Standards in the Department of Health and Ageing. We think the opportunity
to reduce those reporting obligations is immense, but we do not yet have the
confidence that the know-how to do all of that is actually in place.
A similar burden was placed upon the independent schools sector, with
various reporting requirements to different sections of government at federal
and state level.
Catholic Health Australia argued that the purpose of the reforms was to
remove duplication of reporting, and asked, ‘If it cannot guarantee that at the
time of its passage, why support the legislation in its current form?’
One solution to the problem of duplication offered by Chartered
Secretaries Australia was for ‘transitional arrangements whereby any charity or
not-for-profit currently reporting under state legislation or under the
Corporations Act is exempt from reporting under Commonwealth legislation’. This
was to be done in conjunction with the referral of powers.
In its submission, the Victorian Government suggested that ‘reporting
requirements be streamlined to specifically enable audits and reviews prepared
under Victorian legislation to be accepted for the purposes of the ACNC, thus
reducing duplication caused by the Commonwealth legislation’.
In response to these concerns, the Implementation Taskforce noted the
work being done to ensure that a more streamlined system would be in place
before reporting commenced. It stated:
Quite a body of work is being scoped at the moment where the
ACNC and Treasury will work with individual Commonwealth departments to lay out
what the current reporting requirements are, what the ACNC requirements will be
both through the annual information statement and, for the medium and larger
charities, the financial reporting and then seek to rationalise and indeed
reduce what is required. Preliminary discussions on the scoping for that are
underway. That has been enabled by the minister on 17 May, giving the
additional 12 months for this work to get underway.
Looking specifically at reporting requirements through MySchool, she
noted the potential compatibility of reporting requirements with the Commission
and the potential options for eliminating duplication with only minor
If you look at the current requirements of non-government
schools to report through the MySchool website and the requirements that the
ACNC will have through both the annual information statement and the financial
reports, they are really quite close. That is a piece of work that the task
force members undertook in the development. They looked at certain types of
charities, particularly large groups of charities, to see what the impact might
be. There would not be a significant adjustment to reconcile the two. I think
the key issue is: what is the primary point of entry for the reporting? Do you
maintain the MySchool website with possibly some minor adjustments, and does
the ACNC then take the data through the MySchool website, or not? In terms of
making sure that you maintain the minimum adjustment to the administrative
requirements, that would be the question.
The committee supports the decision of the Government to delay the
implementation of the reporting framework under the Bill, and to subject it to
further consultation. However, the committee acknowledges that there are some
concerns from the sector about reporting duplication. While these problems may ultimately
be resolved through negotiation between different Commonwealth agencies and
between the Commonwealth and the States and Territories, the committee feels
that in the transitional period a flexible approach to reporting arrangements
is in order.
The Committee has some concerns about the complexity involved in
transitioning such a diverse community to a single reporting framework. Sector
includes aged care, organisations that work with disabled children, and foreign
aid organisations. All have substantial reporting requirements. Also, the
sector has incorporated associations across all State jurisdictions,
cooperatives, etc. It may be an advantage for the Commissioner to be able to
‘shelve’ some sectors while prioritising others, or accept reports via the
department for health and take the information they need from them, or retain
Myschool as the principal place for schools to report and take from there.
The Committee recommends that the Bill be amended to specifically state
that the Commissioner has the discretion to accept financial reports and the
required material for its purposes from other Government Departments. This
capacity should be time limited and reviewed as the lodge-once use-often
process is developed. The discretion provides both the Commissioner and the
sector with additional flexibility during the transition phase – to concentrate
on various sectors before others, - to work with various parts of the sector to
get the reporting framework right, and to minimise duplication.
Having made this recommendation, the Committee considers that it would
be a negative unintended consequence if State bodies became the source for
reports during the transition phase, as it is the reporting to several State
bodies across state borders that contributes a large part of the duplication. The
committee anticipates though that State Governments will continue their work
with the NFP reform process and work in good faith to reduce duplication.
||That the Commissioner have discretion to accept reports or
material prepared for other agencies and levels of government as reports for
the purpose of the reporting framework under the Bills. This arrangement
should be time limited and be reviewed as the lodge-once use-often process is
One of the key conduct requirements for entities under the Bills will be
to comply with governance standards, which under clause 45-10, may be specified
in the regulations. Under clause 35-10 of the main Bill, non-compliance makes
an organisation eligible to have its registration revoked, although the
Commissioner must also take a range of other factors into account.
One issue that arose in relation to these requirements was uncertainty.
According to evidence, some parts of the sector are currently unsure about what
will be expected of them when the legislation becomes operational. Chartered
Secretaries Australia argued that they should be principles-based and adaptable
to an organisation’s needs:
On a different note, it is difficult for us to make precise
comment on the governance standards as these have not yet been released for
public consultation. Nevertheless, we hope they are principles based and
flexible. We would like to draw your attention to the ASX Corporate Governance
Council's principles and recommendations which have become what we think are
the default guidelines on governance, but they are adaptable as they operate on
an if not, why not basis, and we do hope that the same proposal is adopted with
the not-for-profit sector.
Finally, Catholic Health Australia argued that the governance standards
should be legislated into the Bills, rather than left to delegated legislation:
In relation to the uncertainty around governance standards,
we have said that the bill should be amended to ensure that, at a future date,
governance standards are enacted as law, not as regulation. Creating a power to
have governance standards enacted under regulation makes it too easy for future
governments to change those governance standards. At present, if the
Corporations Act needs to be amended, it has to go through the process of
parliamentary re-enactment. A regulation creates more opportunity for that to
Treasury responded to most of these points during the hearing. Treasury
confirmed that governance standards would be principles based and be flexible
to take into account the wide range of organisations in the sector:
In effect, the governance requirements will be subject to a
detailed consultation process. The government has announced that it will
undertake consultation in developing those governance requirements, but they
would be principles based and have regard to different circumstances of
particular charities, given the diverse nature of the sector.
Further, Treasury reported that the Government has set back the start
date for governance standards to July 2013, which will provide enough time for
The government is already providing further time for the
development of the reporting and governance obligations, in that they will not
start until 1 July 2013, and first reports for financial statements will not be
until the end of that reporting year. In effect, there are six months from the
end of the reporting year before they have to be lodged with the ACNC.
The process that the government is proposing to develop those
regulations is to take them through a detailed consultation process, so in
effect the regulations would be released as an exposure draft, consultation
meetings would be set up, and submissions would be sought on the detail of
those regulations. We would also work with the states and territories in the
development of those regulations… So in that aspect the government is already
looking to have the ACNC start from 1 October this year but in effect
delay certain aspects of the ACNC operating requirements for a further period
of time to allow this further consultation and development to occur.
In relation to whether the governance standards should be in the Bills, the
committee is satisfied that the planned consultation process will be extensive
and sufficient, particularly given the extended time frame for compliance.
However, the committee appreciates the diversity of the sector and the
need to match governance standards to the nature and size of vastly different
organisations. Governance standards for aged care and for organisations working
with children will be of necessity quite different to those suitable for a local
parks committee, or a local congregation with a building fund.
It is also likely that the negotiations required between the Commission
and State, Territory and Commonwealth Governments will be more complex in areas
like aged care and disability services where the consequences of poor
governance are great. The committee acknowledges that some sectors have, or are
working on, standards that apply across their membership. The Australian
Council for International Development is one example.
The committee therefore seeks to increase the options of both the Commissioner
and the sector in developing governance standards by recommending that the
Minister can annex, by regulation, a limited number of existing governance
standards to the Bill and that the Commissioner could allow organisations to
adopt one of those standards as their own. That would allow discrete sets of
organisations, like independent schools, local places of worship, or foreign
aid organisations, to develop their own set of governance standards to meet the
specific requirements of their circumstances, whether those circumstances
require more complex standards, or extremely simple ones.
There would still need to be a default set of governance standards and a
small set of over-arching principles for all registered entities that might
relate to issues such as charitable objects and ‘fit and proper persons.’
The committee notes that there are many potential ways open to the
Minister, the Commissioner and the sector in working their way through this
issue to the most effective and efficient solution. The committee presents this
recommendation as an option for their consideration.
||That the Government consider incorporating existing or sector-developed
governance standards into the Bill through regulation, in addition to a
default set of governance standards.
Clause 205-25 of the Bill provides for a tiered system of registration
based on revenue thresholds. This has been done in order to minimise the
compliance burden placed on registered entities. Reporting requirements under
the Bill are proportional to the size of registered entities, based on a
revenue threshold. There are three tiers:
n a small registered
entity is an entity with annual revenue of less than $250,000;
n a medium registered
entity is an entity with annual revenue of less than $1 million that is not a small
registered entity; and
n a large registered
entity is an entity with annual revenue of $1 million or more.
Revenue is calculated in accordance with the relevant accounting
standards issued by the Australian Accounting Standards Board.
During the inquiry, the Committee received evidence that the proposed
thresholds were too low. In its submission, the Anglican Church Diocese of
Sydney expressed concern that ‘the revenue thresholds used to determine whether
a registered entity is small, medium or large remain unhelpfully low’. The
submission noted that:
The thresholds currently proposed are based on those used by
States and Territories under incorporated associations legislation and also
under the Corporations Act for companies limited by guarantee. We understand it
is convenient for these thresholds to be retained, particularly to ensure that
that there is minimum impediment for State and Territory agencies agreeing to
report to the ACNC as a one-stop shop. However, beyond convenience, there is no
obvious basis why these thresholds should be adopted for the whole sector and,
in our view, good reason to doubt their suitability as thresholds for the whole
sector under the ACNC Bill.
The submission argued that ‘if one of the objects of the ACNC Bill should
be to simplify and streamline the regulatory arrangements for the
not-for-profit sector, we submit that raising the thresholds for the purposes
of defining small, medium and large registered charities would be appropriate’.
The submission suggested doubling the level of the thresholds.
The Independent Schools Council of Australia also protested against the
probable impact of the threshold on the independent schools sector—most schools
would qualify as large entities with the consequent reporting burden that
applied to that tier:
The vast majority of our schools will be at the high end—that
is, revenue will be above $1 million—and $1 million is not much for a school,
although some 150 schools might be less than $1 million. Our schools receive
very little donation dollars, so if you are regulating organisations that
receive gifts from the general public, then schools should be put aside. We do
receive government funding and of course that is public money and we
acknowledge that. There are several strings attached to receiving that money
and the reporting and compliance requirement for receiving that money is
extensive. So we already have that covered off. There is very little in the way
of public money.
In its submission, the Australian Major Performing Arts Group (AMPAG)
recommended leaving the thresholds at the proposed level but setting them out
‘in an attached schedule rather than enshrined in the legislation, to allow for
increases in CPI etc’. AMPAG also urged ‘the ACNC to inform government of the
appropriateness of thresholds over time’.
In evidence before the committee, Treasury explained the rationale
behind the proposed thresholds, and in particular the precedents upon which
they are based:
Smaller registered entities make up 78 per cent of the entire
population, and they do not actually have any financial reporting requirements.
So, between small, medium and large, the break-up is that 78 per cent are
small, 11 per cent are medium and 11 per cent are large. In fact, you might see
those as being at the higher end of the scale rather than at the low end of the
scale. That said, those thresholds were set in a government review in 2010,
established for companies limited by guarantee, after a thorough consultation
process. We have had discussions with the states and territories, and their
current regulatory regimes, which set thresholds at a lower rate, are all
moving to align themselves with the company limited by guarantee levels that we
have also adopted as part of the ACNC Bill draft.
Furthermore, in its submission, Treasury noted that the ‘legislation
includes a regulation making power which allows for the thresholds to be
changed over time’.
The committee accepts the rationale outlined by Treasury that, while the
thresholds may seem high, 78 per cent of registered entities would be
classified as small entities. Further, the thresholds match those set for companies
limited by guarantee after extensive consultation in 2010. All State and
Territory governments are moving their lower thresholds up to match those for
companies limited by guarantee, which have now been adopted as part of the
The consistency around the thresholds for companies limited by
guarantee, entities registered under State and Territory laws, and those to be registered
by the proposed Commission, provide a suitable framework for further
negotiations on the reduction of red tape. Changing the thresholds for the
Commission alone may create areas of duplication and increased compliance for
some organisations that are close to the thresholds. Therefore, the committee
supports the thresholds as outlined in the Bills.
However, the committee notes that the thresholds can be amended by
regulation and brings the concerns of the sector to the attention of the
Minister and the Commission for consideration at the appropriate time. The
committee has also recommended that the Bills include a five year review and
the reconsideration of the thresholds may be included in that process.
Privacy and reporting requirements
One issue raised during the inquiry concerned how much financial
information about entities would be disclosed on the Register.
The Association of Independent Schools of New South Wales expressed concern
that sensitive information such as principals’ salaries might be published on
My other comment is on the financial reporting. We are also
told that there is a possibility of reporting on the public portal things such
as CEOs' principal salaries and the bottom lines of many of our schools. If you
have seen what some of the media try to do with league tables and My School
information, you will know the delight they will have if they receive this sort
of information on a public portal.
In relation to what will be published on the Register, the committee
notes that clause 40-5 of the main Bill, which lists the relevant items, only
includes basic information. Some other matters can be included under the
regulations, but these will be subject to the disallowance process in the
Parliament. Further, clause 40-10 allows the Commissioner to remove certain
types of information from the Register. This includes material that is
commercially sensitive, or has the potential to cause detriment to an entity or
to an individual. Therefore, the committee concludes that, not only is there no
evidence to suggest that information such as staff salaries will be placed on
the Register, but that the Commissioner will have a legislative avenue for not
publishing it as well.
Anonymity of private ancillary funds
Private ancillary funds (PAFs) provide a tax-effective mechanism for
individuals to pursue philanthropy in that they receive a tax deduction on
monies placed in a PAF, provided at least five per cent of the corpus is
distributed annually. PAFs do not receive donations from third parties. Rather,
they are location in which individuals can place their own funds for
distribution over time.
PAFs are subject to a high degree of regulatory oversight, which they
accept as the price for their favourable tax treatment. In addition, a large
amount of aggregate data is published about them through the Queensland
University of Technology. In 2009-10, PAFs distributed $197 million to the
Clause 40-5 in the main Bill describes the information to be placed on
the Register. This includes basic entity information, information statements,
financial reports, some enforcement history, if any, and data specified in the
regulations. Clause 40-10(1) describes what can be removed from the Register,
including material that is commercially sensitive, offensive, inaccurate or
misleading, or that specified in the regulations.
Clause 40-10(2) is a general override provision. It states that the
Commissioner may include information, or decline to remove it, if the public interest
outweighs the criteria in clause 40-10(1), including the regulations.
PAFs are charitable organisations and will be subject to the Bills. The
committee received a number of submissions from philanthropists expressing
concern that donor identities could be disclosed under the legislation.
At the hearing, Philanthropy Australia argued that publishing individual data
on PAFs would, for many of them, be contrary to the nature of their activities:
… for some people, giving is a very private activity. They do
not seek acknowledgement for it. In fact, some of them think that
acknowledgement is almost counterintuitive to the generosity of giving, whether
that is from religious or personal reasons. And there are some individuals, for
instance, who work as volunteers in not-for-profit organisations and support
those organisations through their family philanthropy, and they do not want to
be recognised within that volunteering role as being the person that is also
funding the organisation, because they just believe that that would be totally
inappropriate as far as their personal values are concerned.
Publishing individual data about PAFs would have two potential negative
effects. For example, there could be an increase in unsolicited approaches from
groups seeking money. There could also be a reduction of money in PAFs, or at
least lower growth, as individuals who highly valued their privacy would reduce
their engagement with philanthropy.
The Community Council of Australia supported philanthropists’ request for
anonymity at the individual level.
At the hearing, the committee questioned Treasury about the Government’s
intentions in relation to PAFs. Treasury confirmed that the regulations were
likely to accommodate their concerns:
During consultations, a number of those consulted raised with
us concerns, particularly in the private ancillary fund space, particularly
around the privacy of individual donors, and this is the group that we have in
mind when the government goes about developing those regulations.
Philanthropy Australia acknowledged and appreciated this intention, but
also argued that the public interest provisions in sub-clause 40-10(2) raised
too much uncertainty for its membership. It also commented that the public interest
would already be reflected in the regulations, which would be promulgated by
the Government and subject to Parliamentary scrutiny:
The current draft has provision for the minister to issue
regulations and … it is indicated that these regulations could, for instance,
be used to protect private information. That is seen as something that could
happen rather than something that will happen. We are happy with that
intention. The one specific clause is, I think, clause 40-10(2) which gives the
commissioner the ability to override any regulation if they think it is in the
public interest. To our minds, if the minister issues a regulation, the public
interest has been taken into account at that point and, therefore, we would
have thought, a regulation from the Governor-General should not be overridden
by the commissioner.
The committee appreciates the contribution of PAFs to the sector and
also notes the large degree of regulatory oversight and aggregate reporting to
which they are subject. The committee also understands that, for many private
donors, anonymity goes to the very nature of philanthropy.
PAFs by nature do not accept donations from the public or from other
parties. While the committee can see the benefits to the community of being
able to see the scale and range of PAFs, the committee can see no public
benefit in publishing the names of private donors where they seek to keep their
philanthropy private. Therefore, the committee recommends that the Government
investigate ways to strengthen protection in the Bill for these private donors.
In making this recommendation, the committee makes no comment on whether other
non-identifying information about PAFs may be published.
||The Government investigate ways to strengthen protection in
the Bills for private donors who wish to keep their philanthropy private.
Likelihood of conduct sufficient grounds for enforcement action
In parts of the main Bill, such as clause 35-10(1)(c) in relation to revoking
registration, the Commissioner may take enforcement action if they reasonably
believe that something is likely to occur. Examples are a contravention of the
legislation or non-compliance with a governance standard, or an external
The ‘likelihood standard’ represents a greater than 50 per cent chance
of something occurring. In the inquiry, stakeholders argued that the likelihood
standard was too low for the Commissioner to take enforcement action and that a
greater probability of something occurring should be required.
In evidence, ACOSS argued for a ‘reasonable belief’ test:
I think the commission that is almost here will have a
culture of early intervention and of creating good relationships with the
entities involved. There is plenty of scope for early intervention through
practice directions, but the ability to warn, direct and fine should be
confined to reasonable belief that there has been noncompliance.
The committee notes that varying degrees of probability are required in different
areas of the general law. For example, in civil matters a 50 per cent test is
sufficient. In criminal matters, ‘beyond reasonable doubt,’ which is well above
a 50 per cent probability, is often applied.
The key point here for the committee is that the Commissioner must take
into account a range of matters before taking enforcement action. In clause
35-10(2) of the main Bill, for example, the Commissioner takes into account the
‘nature, significance and persistence’ of misconduct. The committee’s expectation
is that, for the more serious types of misconduct, the Commissioner is more
likely to act when they conclude that something is likely to happen.
Conversely, if there is a 50 per cent chance of less serious misconduct
occurring, the committee expects that the Commissioner would be less likely to
In other words, the Bills allow the Commissioner to respond in a
proportional manner to varying circumstances. Therefore, the committee does not
see value in restricting the Commissioner by applying a reasonable belief test,
rather than a likelihood test.
Division 180 of the Bill deals with obligations, liabilities and
offences under the Act, and provides that:
If an entity (the primary entity) is subject to an obligation
or liability, or commits an offence, certain entities that are responsible for
managing the primary entity may also be subject to the obligation or liability,
or commit the offences, in specific situations.
In effect, the bill imposes personal liability on directors of bodies
corporate in certain circumstances.
However, under the Bill, only one offence, being an offence against the
requirement to comply with a direction from the Commissioner under clause 85-30
of the Bill, that is committed by a body corporate, is taken to have been
committed by the body corporate and each director of the body corporate at the
time the body corporate committed the offence. Directors will not be taken to
have committed any other offence, besides a failure to comply with a direction
from the Commission, under the Bill. The rationale for this power is that:
An offence arising from a failure to comply with a direction
from the ACNC Commissioner is considered to be a serious offence, as the ACNC
Commissioner would generally be expected to use other means of encouraging
compliance with the Bill before issuing a direction. In these cases, it is
appropriate that the directors be taken to have personally committed the
Treasury notes that directors ‘will only be personally liable for the
liabilities of the body corporate in cases of dishonesty, gross negligence,
recklessness, or a deliberate act or omission’. Treasury further notes ‘that
this test is used in other contexts, and has an established meaning’.
Directors have two defences available to them:
The offence will not apply to a director of a body corporate
if, because of illness or for some other good reason, it would have been
unreasonable to expect the director to take part, and the director did not take
part, in the management of the body corporate at any time when the offence was
The offence will also not apply to the directors of a body
corporate, if the director took all reasonable steps to ensure that the body
corporate did not commit the offence, or there were no such steps the director
could have taken.
The evidential burden for proving these defences lies with the director;
however, the evidential burden for proving the offence remains with the
The Committee has received a considerable amount of evidence bearing on
this issue, most of it expressing concern about the application and effect of
In evidence before the Committee, the Australian Institute of Company
Directors (AICD) questioned the value of placing liabilities on people who were
essentially volunteers working for the community:
This bill, on its face, adds to the liabilities all these
people have under the corporate law. It concerns me massively that we might be
the first country in the world to make being on a not-for-profit as a director
more onerous than being on a for-profit. It seems we must definitely identify
what is happening with the corporate obligations before we decide to put extra
obligations on the not-for-profit sector directors.
The second thing is that there is personal liability given to
essentially volunteers. This has been looked at in other situations and,
indeed, steered against. It seems quite wrong that people who are giving out of
the goodness of their hearts, being proper people, should not be given the benefit
of the corporate veil.
In a submission to the inquiry, AICD noted that ‘Section 180-5(1) of the
Bill gives the directors the same obligations as the company. Section
180-5(1) therefore has the effect of piercing the corporate veil.’ AICD argued that,
in effect, ‘the section fails to appreciate the legal effect of incorporation,
in that upon incorporation the company becomes its own legal person separate
from its directors.’ It also stated that ‘Section 180-5(1) makes no distinction
between the obligations or legal requirements of the company (as a legal
person) and the obligations of the directors (as separate legal persons). As
such there is no distinction between what the company must do and what a
director must do.’
AICD wanted the liability provisions in the Bill redrafted ‘so that they
are clear, straightforward and easily understood’, and stated that:
Before the liability and offence provisions in the Bill can
be re-drafted and finalised:
a) all of the
obligations (including any director’s duties, external conduct standards,
governance standards and reporting requirements); and
intended interaction of the Bill with the Corporations Act must be set out and
opened for public consultation.
AICD also argued that ‘the Bill should impose less onerous liabilities
upon directors that act in a volunteer capacity’.
Chartered Secretaries Australia also questioned the extent of
liabilities imposed under the Bill, stating that it was more onerous than that
under corporate law:
The bill also imposes obligations, liabilities and offences
on covered entities and that is those responsible for managing the registered
not-for-profit entity, and where the registered not-for-profit entity is an
unincorporated association the effect of the provisions is to impose all of the
obligations as well as the liabilities of the unincorporated association on
each member of the committee of management at the time the obligation arises or
the liability becomes payable and to render any offence of the unincorporated association
as being taken to have been committed by each member of the committee of
management. Those liabilities and obligations are far more than are imposed on
directors under the Corporations Act.
AICD suggested amending the liability provisions of the Bill to focus
upon dishonest, grossly negligent or reckless behaviour, and removing liability
for a deliberate act or omission of the director, arguing that this would
better reflect the circumstances of the not-for-profit sector:
The first bit would be potentially fine if you are only
liable where it was ‘reckless’ et cetera. But in relation to the second bit,
where it arises from an omission or act, take, for example, a board of a
school—maybe a school for the disabled or whatever. They could well take an
act—for example, an act to build a building or to employ a person or
whatever—and then, if it is not within the regulations or it is not dealt with
properly, the way I read it, they have a liability, irrespective of whether
they were honest or dishonest.
The second point I would make is if it is decided by the
committee that this is all rectified by removing ‘omission or act’ and just
making it ‘recklessness’ et cetera—which I think by the way is getting close to
the point—I would still make the point that I think it is not good to have
legislation which says, ‘You are liable, but by the way if you come within this
exemption you are not.’ It seems to me that that is not really what we are
trying to do or what I would be suggesting to you we should be trying to do,
which is to foster volunteerism in the sector. It would be much better to say,
‘They are not liable if they act properly et cetera, but if it can be proved
that they have acted improperly then that is a different thing.’
AICD requested a conditional carve-out for directors of charities
serving on a voluntary basis, with liability limited to criminal actions. Their
We believe that an important policy objective of the NFP
reforms should be to encourage volunteerism. We have previously noted that a
high proportion of directors in the NFP sector serve on a voluntary basis. As a
starting point these directors should be supported in their efforts. With this
in mind, we believe as a matter of principle that there should be an explicit carve-out
or safe harbour from liability (across all relevant Acts imposing liability on
a charity director) where a director of a charity serves on a voluntary basis.
We accept there would need to be some limitation on the
extent of the carve-out, such as where the director has been involved in a
criminal act. In this regard, we note exclusions from liability that exist in
various Acts, including the Civil Liability Act 2002 (NSW) (see Part 9
of that Act). Again, however, we would emphasize that these issues should be
the subject of full and proper public consultation.
Other witnesses argued for removing director liability from the Bill
In evidence before the Committee, Treasury expressed concern that the
purpose and scope of the directors’ liability provisions had not been
understood, that the provisions were much more limited in scope than people
We had best correct some misunderstandings. It is probably a
reflection that early exposure drafts were filed wider and they were narrowed
quite dramatically in scope subsequent to the issue of those original exposure
drafts. I suppose, consistent with other Commonwealth, state and territory laws
currently applying to charities, such as the Corporations Act and the Tax Act,
the ACNC legislation imposes a number of obligations on directors of
incorporated charities to ensure that the individuals do not seek to hide
behind the protection of a corporate veil to protect themselves from acts of
deliberate misconduct. However, unlike some of the other laws, only in very
limited circumstances will directors be held liable for breaches of the ACNC
Act. Those cases are where the director was the direct cause of a breach
because they undertook a deliberate act that was knowingly a breach or they
were acting dishonestly, with gross negligence or recklessness. Further, there
is only one offence that applies to a director within the ACNC Act—that is, a
failure to follow a direction of the commissioner. Such a direction can only be
issued in the most serious of cases and disobeying such an order is a serious
matter that needs an appropriate sanction.
Treasury has also refuted claims that the director liability regime
contained in the draft Bill is more onerous than that applying to large
for-profit companies, stating:
This is not the case, as the governance standards are
expected to be simplified, tailored for the NFP sector, and otherwise modified
to take into consideration comments made during the consultation process. On 17
May 2012, the Government announced that the revised governance standards will
be subject to further consultation and implemented through regulations.
Nonetheless, Treasury has undertaken to review aspects of the liability
Some stakeholders queried whether a ‘deliberate act or
omission’ should be qualified with a reasonableness test, or some other
requirement that the act or omission needs to occur knowingly in contravention
of the law. This is the intention of the draft legislation, and to the extent
that this intention is not clear, Treasury will examine options to clarify the
drafting of this provision in consultation with the Office of Parliamentary
The committee is concerned that either the directors’ liability regime
is unduly onerous, as suggested by a significant portion of expert evidence
presented to the committee, or that, as presented in the Bill, it is not
sufficiently comprehensible for people to understand its intent or purported
mode of operation. The committee understands the importance of not providing
disincentives for people to work in responsible positions in the not-for-profit
sector. Placing an unnecessary burden of liability could be seen as such a
disincentive, which is opposed to the purpose and objects of the Bill. The committee
therefore recommends that Treasury redraft this section of the legislation with
a view to clarifying its intent
||The Committee recommends that Treasury redraft Division
180—Obligations, liabilities and offences, of the Australian Charities and
Not-for-profits Commission Bill 2012, with a view to clarifying its intent and
Division 35 of the Bill provides the Commissioner with the power to
revoke the registration of entities and the power to revoke the registration of
an entity as a type of entity or subtype of entity. The Bill details the
grounds for revocation and provides, in line with other clauses of the Bill,
that the entity has a right to object to a decision in line with the review and
appeals provisions outlined in Part 7-2 of the Bill.
Division 100 of the Bill provides the Commissioner with power to suspend
or remove responsible entities and to appoint acting responsible entities. The
Bill details the grounds for suspension or removal of an entity and provides,
in line with other clauses of the Bill, that the entity has a right to object
to a decision in line with the review and appeals provisions outlined in Part
7-2 of the Bill.
In addition, the Bill provides the Commission a wide spectrum of
enforcement powers for where the Commission’s educative function fails to
induce required action. The range of enforcement powers the Bill provides is
intended to enable the Commission to take strong, proportional and targeted
action to address actions or lack of actions that could threaten public trust
and confidence in the NFP sector.
This Bill provides the Commission with the authority to:
n issue warning notices;
n issue directions;
n enter into
n apply to the courts
n suspend or remove
responsible entities; and
n appoint acting
Clause 40-5 details information to be published on the ACN Register,
including the details of the following matters (including a summary of why the
matter arose, details regarding any response by the relevant registered entity and the resolution (if any) of the
warning issued to a registered entity by the Commissioner under Division 80;
direction issued to a registered entity by the Commissioner under Division 85;
undertaking given by a registered entity and accepted by the Commissioner under
injunction (including interim injunctions) made under Division 95;
suspension or removal made under Division 100.
The issue of procedural fairness, particularly around the issue of
refusal or revocation of registration of an entity, was one of the issues
highlighted in the evidence presented to the Committee. ACOSS stated:
…we raise again the issue of procedural fairness and the
absence of explicit directions around procedural fairness within the bill.
While we note that these are issues that the ACNC task force has been looking
at in terms of its consultation with the sector, again the question before the
committee and the question that the sector is asking is: what are the
safeguards and the appropriate mechanisms in this bill that will ensure the
mechanisms around procedural fairness carry through the legislative framework?
That is what we look to in terms of a series of recommendations around
insertions within the bill that will provide that guarantee for the sector.
Sector Seven was also concerned about the lack of procedural fairness
provisions in the Bill and urged the adoption of similar provisions from the
Corporations or National Consumer Credit Protection Acts. The submission
There is no requirement in the Bill for the ACNC to give the
NFP entity procedural fairness through written submissions or a hearing (unlike
the Corporations and NCCP Acts). There are provisions for procedural fairness
in respect of revocation but given the implications of revocation, we believe
these provisions should replicate the provisions set out in the Corporations
and NCCP Acts. Under the Bill, the ACNC must issue a ‘show cause’ notice where
it believes ‘on reasonable grounds that a registered entity is not entitled to
be registered’. The notice must set out the grounds on which the notice is
given and invite the entity to provide a written response within 28 days. There
is no provision for a hearing (as required under the Corporations and the NCCP
Acts) and the ACNC may dispense with the show cause notice if ‘in the opinion
of the ACNC it is reasonable to do so’. It should also be noted that there are
no circumstances in which ASIC may suspend or cancel a licence without first
In summary, there are well established principles in the
Corporations and the NCCP Acts for procedural fairness that we suggest should
be incorporated in the Bill. In our submission, these provisions would not
unduly complicate the process and ensure both the ACNC and the NFP entity were
properly and effectively apprised of the key issues in dispute before embarking
on a more expensive and time consuming appeal process.
In its submission, the Not-for-profit Project at the University of
Melbourne Law School also expressed concern at ‘the absence of appropriate
procedural fairness requirements in relation to the ACNC’s exercise of its
powers to revoke an entity’s registration (Div 35) and the suspension and
removal of responsible entities (Div 100)’. It noted that ‘both outcomes are
quite severe sanctions and would ordinarily attract the obligations of
procedural fairness’. While approving of the review provisions surrounding
these decision making powers, the submission felt that the Bill ‘confuses
procedural fairness with administrative review’, and further stated:
Imposing clear legislative obligations on the ACNC in
relation to the procedures by which it makes significant regulatory decisions
ensures that decisions are made properly at first instance and increases public
confidence in the regulator. Without such provisions, the ACNC is left in great
uncertainty as to whether it has fulfilled its obligations and increases the
likelihood that its decisions will be challenged on the grounds that it has
failed to provide procedural fairness in accordance with its common law
obligations. It also leaves the Bill out of step with every other major piece
of Commonwealth regulatory legislation, all of which clearly define the
procedural steps for hearings and notices prior to regulatory decisions being
Including provisions in the Bill for a general opportunity to
be heard prior to a decision being made is fairer, more flexible, and more
likely to produce accurate decisions than the option for the review of decisions.
It is fairer because it permits an entity to respond to a claim before an
administrative decision is made, which may have significant practical and
reputational consequences. It is more flexible because, once a decision is made
the relatively formal process of objection is required.
Administratively, there may be benefits in allowing
organisations to clarify concerns held by the regulator without triggering the
review process. Finally, it promotes accurate decision making because decisions
will be made after appropriate information is laid before the regulator.
In its submission, the Public Interest Law Clearing House expressed
concern about the lack of prior notification of adverse findings or enforcement
actions, and particularly the potential effects of the publication of such
matters on the ACN Register. The submission stated:
In particular, Divisions 80 and 85 of the Bill provide scope
for the ACNC to provide directions and formal warnings to entities in
contravention of (or likely to contravene) a provision of the Bill, and for
such actions to be noted on the Register in accordance with Division 40. The
consequences of publishing such a warning on the Register should not be
understated, particularly as charities are reliant on their public reputation
and perception. A reference on the Register to a formal direction or warning
issued against a charity has significant repercussions, and for this reason we
submit that there ought to be a stated procedure in the Bill that accords with
principles of natural justice and procedural fairness. While it may be the
intent of the ACNC to engage in informal discussions with non-compliant
charities prior to issuing formal warnings, the procedure ought to be
recognised in legislation.
The Public Interest Law Clearing House recommended that ‘the Bill
incorporate principles of natural justice and procedural fairness prior to an
adverse decision being made in relation to a registered entity’.
In response to these concerns, Treasury emphasised existing precedents
for the review and appeals framework of the Bill.
Treasury noted that:
The draft legislation provides a review and appeals
framework, which is modelled closely on the existing review and appeals
framework in Part IVC of the Taxation Administration Act 1953 (TAA).
Entities that apply for a review, or appeal a decision taken by the ACNC
Commissioner are required to comply with the decision being reviewed until it
is overturned. As such, the framework set out in the draft legislation is
consistent with standard practice. Consultation was undertaken on the review
and appeals framework in the draft ACNC legislation, and there was strong
support for a model based on Part IVC of the TAA.
The committee acknowledges the sector’s concerns about the lack of procedural
fairness in the provisions of the Bill. The committee is of the view that in
matters as serious as those covered by Division 35 and Division 100 of the
Bill, the Commissioner should provide written notice of intent and an
opportunity for the entity to be heard, before a decision is enforced. However,
the committee also recognises that there can be some situations where immediate
action is necessary, such as when a fraud or other criminal act is imminent.
The Commissioner should be exempt from these provisions if it is satisfied that
the circumstances require immediate action.
The Committee agrees that the effect of publication upon the ACNC Register
of adverse findings and enforcement actions upon registered entities should not
be underestimated. The Committee believes that provision should be made in clause
40-5 for the removal of such details from the Register once an appropriate
amount of time has elapsed, the matters in question have been resolved and
there are no public interest grounds for retaining the information. Furthermore,
as a matter of procedural fairness, the Commission should provide written
notification to registered entities of the Commission’s intention to publish
information under clause 40-5(f).
The Committee recommends that the Australian Charities and
Not-for-profits Commission Bill 2012 be amended to provide that the
Commissioner provide written notice of intent, and an opportunity for the
entity to be heard, before a decision is enforced to revoke the registration
of an entity or suspending or remove responsible entities.
The Commissioner should be exempt from these provisions if they
are satisfied that the circumstances require immediate action.
The Committee recommends that clause 40-5 of the Australian
Charities and Not-for-profits Commission Bill 2012 be amended to:
the Commissioner to provide written notice of intent to the relevant
registered entity, and an opportunity for the entity to be heard, prior to
publication of the Commission’s intention to publish information under clause
the details of matters published on the ACNC Register under clause
40-5(f) to be removed from the register once an appropriate amount of time
has elapsed, the matters in question have been resolved and there is no
public interest grounds for retaining the information.
The administrative penalty regime
Administrative penalties are imposed by Commonwealth agencies without
the need for court action. The Bills propose two offences to be subject to
administrative penalties. The first is the making of false or misleading
statements. The penalty amounts are:
n 20 penalty units
($2,200) where the false or misleading statement was due to a failure to take
reasonable care to comply with the Act;
n 40 penalty units
($4,400) for recklessness; and
n 60 penalty units
($6,600) for intentional disregard.
The penalty can be increased or decreased by 20 per cent where the
entity sought to obstruct the Commissioner or voluntarily disclose the error to
the Commissioner, respectively.
If an entity fails to lodge documents on time, the base penalty amount
is 1 penalty unit ($110) for each 28 day period that the document is late,
up to a maximum of 5 penalty units. This base amount applies to small entities.
It is doubled for medium entities and multiplied by five for large entities.
Administrative penalties will be payable within 14 days of the Commissioner
issuing the penalty notice. The Commissioner may remit part of or the entire
penalty. If they do not remit the entire penalty, they must provide reasons to
the entity. The general interest charge (GIC) will apply to unpaid penalty
amounts and will be collectable by the ATO.
The Government does not expect that administrative penalties will be
imposed frequently. However, it argues that appropriate sanctions are required
for a deterrent effect and to protect those who seek to cooperate with the Commissioner.
The regime is proportional and takes into account the conduct of the entity
The administrative penalty regime was criticised during the inquiry
because of the perception that the Commissioner must impose an administrative
penalty for these two offences. If this is the case, then the offences must
then be notified to the entity and the ATO, regardless of whether the penalty
is remitted. The regime is based on that applying in tax administration and was
criticised as being too heavy-handed for the charitable sector.
The Public Interest Law Clearing House stated in its submission:
While we appreciate that the ACNC must be notified of certain
matters on a timely basis to ensure the Register remains current, we submit
that it ought to maintain discretion over whether it issues notices of
liability for such breaches. While we note that the Bill does provide the ACNC
with the ability to remit all or part of an administrative penalty once
notified, it is less than ideal for the ACNC to have to notify an entity of its
liability, only to subsequently remit in circumstances where, for example, the
failure to notify was an oversight reasonable in the circumstances. This is
also important given clause 175-70 of the Bill compels the ACNC to notify the
ATO each time a notice is issued, regardless of whether the intent is to remit
liability. This undermines the independence of the ACNC and this obligation
should either be removed, or greater discretion should be vested in the ACNC on
whether to issue a notice in the first place.
The Objects of the Bill recognise ‘the principle of
proportionate regulation’, however the structure of the administrative penalty
regime is such that there is strict liability for any failure to notify the Commission
of certain events, or lodge documents on time. While there has been some degree
of concession for small registered entities in relation to the length of time
to notify the Commissioner of certain events (60 as opposed to 28 days), we
submit that a discretion which allows the Commissioner to address
non-compliance without a liability notification would be useful and consistent
with the stated object of assisting registered entities in complying with and understanding
the legislation by providing charities with guidance and education.
By way of comparison, the committee examined similar provisions in the
State and Territory associations legislation. For false or misleading
n New South Wales
provides for an offence under its general criminal law of imprisonment for two
years and a fine of 200 penalty units, or $22,000 (sections 307B and 307C of
the Crimes Act 1900);
n Victoria provides for
an offence of 60 penalty units, or $8,450.40 (section 49 of the Associations
Incorporation Act 1981); and
n Queensland provides
for an offence with a maximum penalty of 10 penalty units, or $1,000
(section 121A of the Associations Incorporation Act 1981).
For failure to lodge a document:
n New South Wales
provides for an offence for larger entities in relation to submitting financial
statements of 5 penalty units, or $550 (section 45 of the Associations
Incorporation Act 2009);
n Victoria provides for
an offence in relation to submitting financial statements of 5 penalty units,
or $704.20 (section 30 of the Associations Incorporation Act 1981); and
n Queensland provides
for an offence in relation to submitting financial statements with a maximum
penalty of 4 penalty units, or $400 (section 121A of the Associations
Incorporation Act 1981).
The proposed penalty amounts in the Bills for false or misleading
statements are lower than two of the listed jurisdictions, but above that for
Queensland. The proposed penalty amounts in the Bills for failure to lodge a
document tend to be higher, especially for larger entities. However, the
committee expects that larger entities would be more likely to be supervised at
the Commonwealth level and smaller entities would register at the State and
Territory level. Treasury acknowledged that penalty amounts had been reduced
following initial consultations. The committee concurs
that the proposed penalties are roughly comparable with State and Territory
In examining the Bill, however, the committee is not convinced that the
Commissioner is without a discretion in relation to administrative penalties.
For example, there is no statement in the legislation that states there is no discretion
and the committee’s understanding of the Bill is that a discretion applies.
The Committee acknowledges that the penalty amounts in the proposed
legislation for false and misleading statements and failure to lodge are
roughly comparable with State and Territory provisions. This was not contested
during the inquiry.
What was contentious was the perception that the Bills propose a system
whereby the Commissioner must impose an administrative penalty for these
offences and advise the ATO of this, regardless of whether the Commissioner
remits the penalty. The committee’s understanding is that a discretion is
available and would like to see this matter clarified in the Explanatory
Memorandum to the Bills.
||The Explanatory Memorandum to the Bills clarify that the
Commissioner has a discretion not to impose an administrative penalty.
Review of the Act
In its submission, Moores Legal Pty Ltd recommended the Bill include a
provision for an automatic review of the legislation after five years. The
submission noted that ‘such a provision is warranted given the importance of
reducing the regulatory burden on Not for Profit entities and the fact that it
is likely to only be achieved over time (with the cooperation of the States and
Territories’. It noted similar provision in the Charities Act 2006 (UK).
This suggestion was also raised in evidence before the Committee at its public
hearing on 27 July 2012.
… and one of the issues that have been picked up in one of
the written submissions—No. 45—but that I have not seen mentioned this morning
is the need for a five-year review. I think that in any redraft a five-year
review would be a good idea.
The committee notes that five-year reviews of legislation can be
mandated in Commonwealth legislation, although this is by no means universal.
n section 61A of the Australian
Crime Commission Act 2002;
n section 72 of the Fuel
Quality Standards Act 2000;
n section 76A of the
National Greenhouse And Energy Reporting Act 2007;
n section 37 of the
Governance Of Australian Government Superannuation Schemes Act 2011; and
n Section 64 of the National
Environment Protection Council Act 1994.
The committee is of the view that, given the complexity of the
legislation, and the challenges in its implementation, it would be useful for
the new laws to be subject to a thoroughgoing review after five years, with a
view to identifying problems and suggesting improvements.
||The Committee recommends that the Australian Charities and
Not-for-profits Commission Bill 2012 be amended to provide for a review of
the legislation after it has been in operation for five years.
These Bills have been a long time coming. A national regulator for the
sector was first proposed in 2001 and has been a consistent theme in reviews of
the sector since then. Charities and not-for-profits have been subject to an
inefficient regulatory framework spread across many agencies and more than one
level of government. The Bills offer a way to remedy this.
The sector itself supports the change. Bodies in the sector must prove
their bona fides each time they deal with government, and they anticipate the
day when this information is located in one easily accessible place.
The Bills will establish an independent, national regulator for the
sector. Charities and not-for-profits will provide streamlined information to
the Commission, which will determine their charitable status and pass on
officially required data to other Commonwealth agencies, including the ATO. It
will implement flexible, proportional regulation in accordance with entities’
size and through graduated enforcement powers such as warnings and enforceable
In major reforms such as these Bills, stakeholder uncertainty is a major
risk and the committee appreciates that some organisations are apprehensive
about them. The committee examined a number of issues, such as financial
reporting, and concluded that the regulatory details will be covered in
upcoming consultations and that there is substantial time before these matters
must be finalised. What will be of benefit for the sector is for the
legislation to pass and the new Commissioner to be formally appointed so that
they can work with the sector in finalising requirements and explaining the
practical details of how the legislation will work. The Not-for-profit Sector
Reform Council made this argument in evidence:
Given that the government has taken on board the sector's
request for further time to discuss and be consulted in relation to the
reporting requirements and the governance standards, it can take on its role
from day one to be engaged in those consultations about how it will implement
its requirements under the legislation.
Broadly, the committee covered three major policy areas in the inquiry.
The first is the capacity of the Commission to reduce red tape. Work has
already begun. The Commonwealth is seeking to ‘turn off’ any duplication, such
as reports to ASIC or other Commonwealth agencies. It is also discussing
whether States and Territories might wish to do the same with their
associations legislation to the extent that these organisations are covered by
the Bills. This is a long term project, but the committee is confident that,
over time, duplication will be minimised.
The second policy area was the liability of directors, trustees and
management committees for the conduct of their organisations. Key stakeholders
were very concerned about how these provisions would operate and the committee
found the legislation and explanatory materials very confusing. For the sake of
clarity, the committee has recommended that these provisions should be
The third main policy area revolved around procedural fairness. The
committee has recommended that the Commission notify entities prior to
There have been considerable efforts to harmonise business regulation
across the country recently, and it is only fair that a similar process occurs
for the charities and not-for-profits sector. The sector holds great hope that
the Bills will deliver this result and the committee agrees that, with some
amendments, this will occur. The Bills should pass.
||Subject to the recommendations in this report, the House
pass the Australian Charities and Not-for-profits Bill 2012 and the
Australian Charities and Not-for-profits Commission (Consequential and
Transitional) Bill 2012.
Julie Owens MP
9 August 2012