Changes in the not-for-profit sector: commencement of the ACNC and review of tax concessions

3 December 2012 marked the beginning of broad regulatory change in the not-for-profit (NFP) sector.

On this date the Australian Charities and Not-for-profits Commission (ACNC) - Australia's first dedicated national regulator of the NFP sector - commenced operations. The ACNC now determines whether a NFP is a 'charity', not the ATO.

Charities will now report to the ACNC and the ACNC will keep and publish a register of those entities.

A federal government working group is soon due to report on the most efficient way to provide support to all NFPs (not just charities) in place of the current range of tax concessions.

Change to the NFP sector will take effect in stages.

This article provides an overview of the impact of the ACNC and the progress of the working group.


What was the previous regulatory framework for NFPs?

Before 3 December 2012, the NFP sector had no dedicated regulator. The ATO acted as the default regulator as it administered tax concessions for charities and other NFPs and enforced tax law. Other government entities played ancillary roles, such as ASIC which regulates companies limited by guarantee - a corporate structure NFPs commonly use.

Why was the ACNC established?

In 2011, the federal government announced that it would establish the ACNC to improve regulation of the NFP sector. The idea was that a specialist NFP regulator would help to harmonise and simplify regulatory and tax arrangements. The federal government was also implementing advice it had received through various reviews of the sector, most recently by the Productivity Commission.

What does the ACNC do?

Since 3 December 2012, the ACNC has registered organisations as 'charities' for all federal tax purposes. The ACNC also:

  • manages a reporting framework for charities;
  • provides support to the NFP sector; and
  • provides a free and searchable register of registered charities.

Does the ATO still have a role in regulating charities?

The ATO remains responsible for deciding eligibility for charity tax concessions, but is no longer responsible for deciding whether an entity is a 'charity'. The ATO will not confer charity tax concessions on an NFP unless the ACNC has first registered the NFP as a charity.

What kind of tax benefits are NFPs eligible for?

NFPs may be eligible for a range of tax benefits under federal tax law, including:

  • exemption from income tax;
  • concessions in relation to GST and fringe benefits tax (FBT); and
  • deductible gift recipient (DGR) status, which entitles the NFP to receive tax-deductible gifts.

The extent and availability of tax concessions varies depending on the nature of the NFP. Some categories of DGR status are only available to certain kinds of charities; some NFPs can self-assess their entitlement to some benefits, others must be endorsed by the ATO. There are also tax concessions available under state/territory and local government laws which are beyond the scope of this article.

Transition to the ACNC for charities

Entities registered as charities prior to 3 December 2012 are automatically registered with the ACNC and have until 3 June 2013 to opt out of registration, in which case they will forfeit tax benefits. The ACNC is strongly encouraging all charities to check the ACNC register as soon as possible to check whether they are registered with the ACNC.

Entities not registered as charities prior to 3 December 2012 must apply to the ACNC for registration as a charity. They may also make their application for tax benefits as part of the same process, although the ACNC will only register the entity as a charity and then pass the application on to the ATO. Alternatively, entities can apply to the ACNC only for registration as a charity and then apply directly to the ATO for endorsement later on.

What does the establishment of the ACNC mean for charities?

Practically, the ACNC has only been in operation for just over a month and legislatively, its regulatory role has not yet been finalised. It is likely that we will have a better idea closer to 1 July 2013. What we do know is that the establishment of the ACNC means charities now face a new - and potentially greater - range of disclosure and governance obligations in exchange for planned relief from some obligations they currently owe under federal laws.

Take, for example, charities which are companies registered under the Corporations Act 2001 (Cth). Prior to the establishment of the ACNC, these entities would have dealt with the ATO in relation to their charity tax concessions and tax issues and ASIC in relation to their reporting and governance obligations under corporations law.

Now, corporations which are charities will deal with the ACNC, the ATO and ASIC as follows:

Involvement with ACNC

Involvement with ATO

Involvement with ASIC

Ongoing: Notify changes to charity's details, governing rules, members of governing body or if charity has not complied with obligations.

Ongoing: Keep financial and operational records.

For 2012-2013 reporting period: Report on operational (non-financial) information for 2012-2013. This will include information on how charity has pursued charitable purpose and number of paid and unpaid staff.

For 2013-2014 reporting period onwards: Report on operational and financial information annually. Nature and extent of these obligations not yet finalised and will depend on annual revenue of charity (reporting obligations increasing with revenue).

From 1 July 2013 onwards: Comply with ACNC governance and external conduct standards. Standards not yet developed.

Ongoing: Lodge tax returns.

Ongoing: Deal with ATO in relation to administration of tax law, for example, ongoing entitlement to tax concessions.

As required: Apply for tax endorsements.

Ongoing: Deal with ASIC in relation to matters such as fundraising (which ASIC will continue to regulate).

For 2012-2013 reporting period: Lodge annual returns and financial statements as required by corporations law as usual.

For 2013-2014 reporting period onwards: Extent of relief from obligations to ASIC not yet finalised. Existing obligations under corporations law (for example, annual general meeting procedures, directors' duties) will continue to apply until the governance and external conduct standards and financial reporting obligations to the ACNC commence (expected July 2013).


What does the establishment of the ACNC mean for NFPs who are not charities?

The relevance of the ACNC to non-charities will depend on the particular NFP. For example:

  • entities with DGR status which are not charities - such as some government entities - may remain regulated by the ATO;
  • 'religious institutions' which were not registered as charities by the ATO must register with the ACNC by 3 December 2013 to be treated as a religious charity (previously, these religious institutions self-assessed their entitlement to exemption from income tax); and
  • other entities may be brought within the ACNC framework by subsequent legislative changes.

If you are involved in the management of an NFP, we strongly encourage you to obtain legal advice to assess the relevance of the establishment of the ACNC to your organisation.

Will the ACNC's role expand?

The ACNC is initially only to assume regulatory responsibility at the federal level for registering charities. The federal government has not yet confirmed how its role will or may expand, although the ACNC anticipates ultimately regulating all NFPs from 1 July 2014 and/or to assuming NFP regulatory functions currently performed by state, territory and local governments.

What other changes to the sector are planned or proposed?

Quite apart from the ACNC being established and becoming the NFP sector's central regulator, the federal government's 'Not-for-profit Sector Tax Concession Working Group' (Working Group) is:

  • examining the entire range of NFP tax concessions; and
  • determining whether there are fairer, simpler and more effective ways for the government to deliver support to NFPs which is commensurate with that they receive via existing concessions.

The Working Group published a Discussion Paper on 2 November 2012. The Discussion Paper does not prescribe (or proscribe) any particular changes - it only identifies issues and concerns with 5 areas of NFP tax concessions and canvasses options to deal with these. Options canvassed include:


Examples of Working Group concerns

Examples of Working Group options

Income tax exemption

  • Only charities are required to be endorsed (rather than self-assess) to receive exemption from income tax
  • Tax-free threshold for NFPs has been set at $416 for several decades
  • Requiring all NFPs (charities and non-charities) to apply for endorsement as exempt from income tax
  • Increasing the tax-free threshold for NFPs

DGR status

  • Significant percentage of tax deductions for gifts to DGRs are not claimed by donors
  • Threshold for tax-deductible gifts has been $2 for several decades
  • Establish an ATO clearing house for donations to DGR entities
  • Increasing threshold for deductible gifts to $25

FBT concessions

  • Notorious meals, entertainment and entertainment benefit concession is not subject to caps on FB
  • FBT caps available to employers, not employees - employees with several employers can access full value of additional cap for each employer
  • Bringing this concession within relevant caps 
  • Require employment declarations to include information about FBT concessions to avoid employees benefiting from multiple caps

GST concessions

  • 'Fundraising concession' is available to events where all goods are sold for $20 or less outside the ordinary course of the NFP's business, or as approved by the Tax Commissioner
  • Amending the fundraising concession to provide for general principles and allowing NFPs to self-assess to reduce compliance burden


  • Principle is uncertain and complex
  • Clubs that have a tax-free surplus as a result of mutuality principle may be free to spend this as they see fit not necessarily for philanthropic purposes
  • Legislating mutuality tax entitlements and extending to a greater range of entities
  • Repealing the common law definition and legislating a narrower definition

A full discussion of the Discussion Paper is beyond the scope of this article. If you would like to read the full Discussion Paper, it is available here.

Will all NFPs be better off?

The terms of reference for the Working Group include identifying offsetting budget savings from within the NFP sector for any proposals that have a budget cost. This means that any reform will likely have winners and losers.

What happens next?

The Working Group has not yet recommended altering the existing framework of NFP tax concessions. Submissions were sought on the Discussion Paper and due on 17 December 2012. The Working Group will consider the submissions and prepare its final report, which it is due to deliver by March 2013.

The likely extent of change to the existing NFP tax concession framework will not became clear until the government has considered this final report and issued a response. We will monitor the Working Group's final report and any proposed legislation which may follow.

More information from Maddocks

Contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Tax and Revenue or General Commercial teams.

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[1] 'Mutuality' refers to a common law principle where a group of people contribute to a common fund created and controlled by them for a common purpose and any surplus created in the fund is not considered 'income' for tax purposes.