Explanatory Memorandum
(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)Chapter 14 Transitional provisions
Outline of chapter
14.1 This Chapter outlines the transitional arrangements for:
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- registration;
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- reporting;
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- the Australian Charities and Not-for-profits (ACN) Register;
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- Australian Charities and Not-for-profits Commission (ACNC) annual report;
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- the Advisory Board;
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- endorsement timing; and
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- the disclosure of protected taxation information to the ACNC.
14.2 References in this Chapter to the 'Consequential and Transitional Bill' are references to the Australian Charities and Not-for-profits Commission (Consequential and Transitional) Bill 2012 (Consequential and Transitional Bill). All other references to 'the Bill' are references to the main ACNC Bill.
Summary of new law
14.3 This Chapter explains the transitional arrangements that apply to various aspects of the Bill under the Consequential and Transitional Bill.
14.4 These transitional arrangements allow entities time to transition effectively from endorsement under the taxation law to the new arrangements under the Bill. The transitional arrangements also facilitate additional time for the ACNC to perform its powers and functions under the Bill.
Detailed explanation of new law
Registration
14.5 Transitional registration arrangements will apply that will enable certain entities endorsed or eligible under Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997) to be registered entities under the Bill.
14.6 However, once transitioned, all registered entities are then subject to the ongoing requirements of the ACNC in order to remain registered and charities that are not registered with the ACNC are not eligible to continue to receive Commonwealth tax concessions from 1 October 2012. For more information on Registration see Chapter 3 - Registration.
Charities and charity sub-types
14.7 The entity types described below are automatically registered with the ACNC on 1 October 2012 through the transitional registration arrangements. They do not need to do anything else in order to become registered.
Charities
14.8 Under these transitional registration arrangements, entities that are endorsed by the Australian Taxation Office (ATO) prior to the commencement of the ACNC are taken to be registered entities under the ACNC on the commencement of the ACNC, under the type - charity. [Schedule 1, item 2 of the Consequential and Transitional Bill]
14.9 For the purposes of the transitional registration arrangements, 'charities' are those entities that are endorsed by the ATO as charities that are income tax exempt under table items 1.1 and 1.5 to 1.5B in section 50-5 of the ITAA 1997. This includes all entities which are charitable institutions, funds or trusts endorsed by the Commissioner of Taxation.
14.10 Registration as a subtype under the Bill is not automatic, but if an entity meets the requirements, it can register as one or more subtype at a later date.
Health promotion charities
14.11 Under these transitional registration arrangements, entities that are currently endorsed as health promotion charities are taken to be registered entities under the ACNC on the commencement of the ACNC as entities with a type - charity and a subtype - entity whose principal activity is to promote the prevention or the control of diseases in human beings. [Schedule 1, item 3 of the Consequential and Transitional Bill]
14.12 For the purposes of the transitional registration arrangements, 'health promotion charities' are those entities that are;
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- income tax exempt under table item 1.1; and
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- endorsed under table item 1.1.6 of subsection 30-20(1) of the ITAA 1997; or
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- have access to fringe benefits tax (FBT) concessions under section 57A of the FBTAA)
Example 14.61
Yellow Lines is a health promotion charity registered with the ATO and eligible for income tax exemptions under the ITAA 1997 and FBT concessions under the FBTAA. On 1 October 2012 Yellow Lines is automatically registered with the ACNC under the type - charity and the subtype - institution whose principal purpose is to promote the prevention or the control of diseases in human beings. Yellow Lines does not need to do anything in order to be registered on 1 October 2012.
Public benevolent institutions
14.13 Entities which are currently endorsed as public benevolent institutions (PBIs) are taken to be registered entities under the ACNC on the commencement of the ACNC, as entities with a type - charity and a subtype - public benevolent institution. [Schedule 1, item 4 of the Consequential and Transitional Bill]
14.14 For the purposes of the transitional registration arrangements, 'PBIs' are those entities that are;
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- income tax exempt entities under table item 1.1; and
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- endorsed under table item 4.1.1 of subsection 30-45(1) of the ITAA 1997; or
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- have access to fringe benefits tax (FBT) concessions under section 57A of the FBTAA.
Religious institutions
14.15 Any entities which may be self-assessing as income tax-exempt under item 1.2 in the table in section 50-5 of the ITAA 1997, and which are not endorsed as a charity, a PBI or a health promotion charity are also transitioned across to the ACNC upon its commencement.
14.16 Entities that fall under this category must notify the ACNC Commissioner of their type, and any subtype(s), in the approved form and within 12 months of the commencement of the ACNC. [Schedule 1, item 6 of the Consequential and Transitional Bill]
Opting out of registration
14.17 Registration with the ACNC is voluntary. As such, charities, PBIs and health promotion charities that are automatically registered upon the commencement of the ACNC may opt-out of registration if they wish to.
14.18 Religious institutions do not need to opt-out of registration as they are not endorsed by the Commissioner of Taxation and are therefore self-assessing as tax exempt. They will be required to notify the ACNC of their intention to be registered under the transitional registration arrangements.
14.19 If an entity opts-out of registration with the ACNC they lose ongoing access to Commonwealth tax concessions, exemptions and other benefits.
14.20 To opt-out of registration with the ACNC, charities must provide advice, in the approved form, to the ACNC Commissioner by 1 March 2013. [Schedule 1, subitem 5(1) of the Consequential and Transitional Bill]
14.21 If an entity decides to opt-out of registration, they are taken to have never been automatically registered with the ACNC. [Schedule 1, subitem 5(2) of the Consequential and Transitional Bill]
14.22 An entity that opts-out of registration is taken to not to have been registered since 1 October 2012, and taken to have been dis-endorsed by the Commissioner of Taxation from 30 September 2012. [Schedule 1, subitem 5(3) of the Consequential and Transitional Bill]
14.23 As such, they lose access to tax concessions from the commencement of the ACNC, even if they do not provide advice to the ACNC until a later date.
Example 14.62
Tea and Sympathy is a PBI endorsed by the ATO to receive income tax exemptions and FBT concessions. Tea and Sympathy is automatically registered with the ACNC upon its commencement on 1 October 2012.
Tea and Sympathy does not wish to be registered with the ACNC. Tea and Sympathy provides advice to the ACNC, in the approved form, before 1 March 2013 that it wishes to opt-out of registration. Tea and Sympathy is taken to have never been registered with the ACNC.
Tea and Sympathy loses its PBI status and endorsement from 1 October 2012. It also loses ongoing access to Commonwealth tax concessions from 1 October 2012.Example 14.63
The South Fund, a charity, is automatically transitioned to a registered entity under the ACNC on 1 October 2012. However, the South Fund decides to opt-out of registration. They provide advice in the approved form to the ACNC Commissioner on 1 December 2012.
During the period 1 October to 1 December 2012 the Fund receives $1,000 in tax-free income. The South Fund is taken to have never been registered with the ACNC, and dis-endorsed by the Commissioner of Taxation from 30 September 2012 and may be liable for tax on the $1,000 of income.
The ACN Register
14.24 The ACN Register is an electronic database made available to the public which contains information about entities registered with the ACNC. For more information on the ACN Register see Chapter 4 - The ACN Register.
14.25 However, the ACNC Commissioner will not have all the information detailed in Division 20 of the Bill in the first 15 months from the commencement of the ACNC.
14.26 This is because registered entities are not required to provide information such as their first annual information statements and financial reports until sometime after the commencement of the ACNC and the existing ATO information may not be disclosed to the ACNC (under the transitional secrecy arrangements discussed below) straight away.
14.27 In recognition of this, the transitional ACN Register provision allows the ACNC Commissioner to maintain an incomplete ACN Register in the first 15 months from the commencement of the ACNC. [Schedule 1, item 7 of the Consequential and Transitional Bill]
14.28 During the period from 1 October 2012 to 1 December 2013, the transitional ACN Register provision operates so that Division 20 of the Bill does not apply to information or documents that the ACNC Commissioner does not possess. [Schedule 1, item 7 of the Consequential and Transitional Bill]
14.29 The ACNC Commissioner must only publish the information to which he or she has access to in the period between 1 October 2012 and 1 December 2013.
Reporting
Statements, reports and other documents given to other Australian government entities
14.30 The ACNC Commissioner may treat a statement, report or other document given under an Australian law to an Australian government agency (other than the Commissioner) by a registered entity (whether before or after the entity is registered) as being:
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- an information statement for a financial year given to the Commissioner under the ACNC Bill; or
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- the reports mentioned in section 60-10 of the ACNC Bill for a financial year given to the Commissioner in accordance with Subdivision 60-C (Annual financial reports) or 60-D of the ACNC Bill.
[Schedule 1, subitem 10(4) of the Consequential and Transitional Bill]
14.31 The purpose of this provision is to enable the ACNC Commissioner to address potential reporting duplication during the process of establishing the ACNC as a one-stop shop regulator.
14.32 The non-government schools sector and charitable Indigenous corporations would be examples of classes of entity that are intended to benefit from the exercise of the discretion of the ACNC Commissioner.
14.33 In determining whether to treat a statement, report or other document as satisfying an entity's reporting obligations under the ACNC Bill, the Commissioner must have regard to the following matters:
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- what access the Commissioner has to the statement, report or other document;
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- whether the statement, report or other document contains:
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- the information required under the ACNC Bill to be in the information statement or reports; or
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- other information that relates to, or has the purpose of, enabling the same recognised assessment activities to be carried out in relation to registered entities;
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- the processes that have been undertaken to verify the information contained in the statement, report or other document. This may include, for example, whether the report, statement or document has been subject to an audit or review.
14.34 This applies to statements, reports or other documents in respect of:
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- the 2012-13 financial year; and
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- the 2013-14 financial year; and
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- the 2014-15 financial year; and
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- a later financial year prescribed by the regulations.
[Schedule 1, Subitem 10 of the Consequential and Transitional Bill]
14.35 The requirements relating to substituted accounting periods apply (see detailed explanation of substituted accounting periods below).
Annual Information Statements
14.36 All registered entities must complete an annual information statement for the first financial year of the ACNC, and later financial years. [Schedule 1, subitem 8(1) of the Consequential and Transitional Bill]
14.37 The first annual information statement will need to be prepared for the financial year commencing 1 July 2012 to 30 June 2013, and will need to be lodged with the ACNC by 31 December 2013.
14.38 If an entity adopts a substituted accounting period (SAP) under Subdivsion 60-F, then the annual information statement will be due six months after the end of the SAP that commences in the 2012-13 financial year. [Schedule 1, subitem 8(2) of the Consequential and Transitional Bill]
Financial reports
14.39 Unlike the annual information statement, financial reporting is not compulsory for the first financial year. The annual financial report requirements of the ACNC Bill apply to the 2013-14 financial year and later financial years. [Schedule 1, subitem 9(1) of the Consequential and Transitional Bill]
14.40 Financial reporting is compulsory for all medium and large registered entities from 1 July 2013. This will mean that the first financial report will be due by 31 December 2014, in respect of the 2013-14 financial year.
14.41 If an entity adopts a SAP under Subdivision 60-F, then the financial report will be due six months after the end of the substituted accounting period that commences in the 2013-14 financial year. [Schedule 1, note in subitem 9(1) of the Consequential and Transitional Bill]
Voluntary financial reports
14.42 Entities that wish to complete a financial report for the 2012-13 financial year may do so voluntarily and lodge it with their annual information statement.
14.43 If an entity wishes to voluntarily complete a financial report for the 2012-13 financial year, they do not need to comply with the rules set out in the Bill about the content of financial reports, audit requirements or due dates for lodging such reports. [Schedule 1, subitems 9(2) and 9(3) of the Consequential and Transitional Bill]
14.44 If an entity adopts a substituted accounting period under Subdivision 60-F, then the financial report will be due six months after the end of the substituted accounting period that commences. [Schedule 1, note in subitem 9(4) of the Consequential and Transitional Bill]
Substituted accounting periods
14.45 The transitional arrangements allow entities which currently report under an Australian law on a substituted accounting periods (SAP) basis to continue to report to the ACNC on the basis of the SAP. [Schedule 1, item 11 of the Consequential and Transitional Bill]
14.46 These arrangements are applicable to all entities that are or were required under an Australian law to prepare a report (any form of financial reports) for a period of 12 months that ended on a substituted end day during the 2012-13 financial year. [Schedule 1, subitem 11(1) of the Consequential and Transitional Bill]
14.47 Registered entities in this situation are taken to have been approved by the ACNC Commissioner to have a SAP.
14.48 The registered entity must advise the ACNC Commissioner of their reporting period, in the approved from, within six months of the commencement of the ACNC to allow the ACNC Commissioner to update their records so they know which entities operate on an existing SAP. [Schedule 1, subitem 11(2) of the Consequential and Transitional Bill]
14.49 Financial reports for entities with SAPs are due six months after the end of the first SAP that substitutes for the 2013-14 financial year.
14.50 Registered entities with a SAP can also voluntarily lodge financial reports before this time. If a registered entity with a SAP reports voluntarily before financial reports are mandatory they need not comply with the rules set out in the Bill about the content of financial reports, audit requirements or due dates for lodging such reports. [Schedule 1, subitems 9(2), (3) and (4) of the Consequential and Transitional Bill]
Example 14.64
Towns Girls School reports to the Australian Curriculum, Assessment and Reporting Authority at the end of each calendar year. Upon the commencement of the ACNC on 1 October 2012, Towns Girls School is automatically approved by the ACNC Commissioner to continue reporting on a calendar year basis. Towns Girl School notifies the ACNC Commissioner of their SAP on 1 January 2013.
Towns Girls School's first SAP after 1 July 2013 begins on 1 January 2014 and ends on 31 December 2014. Towns Girls School's first report is due six months after 31 December 2014 on 30 June 2015.
14.51 These arrangements allow for registered entities to continue to report to the ACNC over the same period as they previously reported to a government body, without needing to apply to the ACNC Commissioner for approval of a SAP. This minimises the compliance burden on registered entities.
14.52 Entities which are or were not required under an Australian law to prepare a financial report in the previous financial year are not automatically approved for a SAP.
14.53 However, such an entity may apply to the ACNC Commissioner, in the approved form, for a SAP (in lieu of the financial year) by the time set down by the ACNC Commissioner
ACNC Annual report
14.54 As the ACNC commences part way through a financial year, on 1 October 2012, the first annual report produced by the ACNC Commissioner will not relate to an entire financial year.
14.55 Consequently, the first annual report will be for the period commencing 1 October 2012, and finishing on 30 June 2013. [Schedule 1, item 12 of the Consequential and Transitional Bill]
Advisory Board
14.56 The Advisory Board must meet four times each financial year beginning in the 2013-14 financial year.
14.57 However, under the Consequential and Transitional Bill, the Advisory Board is not required to meet four times during the period 1 October 2012 to 30 June 2013, although the Chair may still convene meetings during this period. [Schedule 1, item 13 of the Consequential and Transitional Bill]
Endorsement timing issues
14.58 The ATO is responsible for endorsing entities as charities (including as PBIs and health promotion charities) until 30 September 2012.
14.59 The ACNC is responsible for registering entities as charities (including PBIs and health promotion charities) from 1 October 2012.
14.60 Entities that have applied to the ATO for endorsement as a charity (including as a PBI and health promotion charity) prior to the commencement of the ACNC, but have not yet had their application finalised by 1 October 2012, continue to have their application finalised by the ATO.
14.61 If such an entity then receives endorsement by the ATO under the relevant provisions, they are taken to be a registered entity under the ACNC upon its commencement under the transitional registration provisions.
Example 14.65
The JRC Foundation applies to the ATO for endorsement as a charity on 10 September 2012. The ATO approves the JRC Foundation's application and endorses it as a charity on 20 September 2012.
The JRC Foundation is automatically registered with the ACNC on 1 October 2012.Example 14.66
Following on from the above example, the ATO approves the JRC Foundation's application and endorses it as a charity on 15 October 2012.
The ATO backdates the JRC Foundation's endorsement as a charity to the day that it applied to the ATO. The JRC Foundation is taken to have been a tax endorsed charity since 10 September 2012. As such, the JRC Foundation is taken to have automatically transitioned to the ACNC on 1 October 2012.
The JRC Foundation is registered with the ACNC and does not need to do anything further.
14.62 Entities that have applied to the ATO for endorsement as a charity (including as a PBI or health promotion charity), but have had their application rejected by the ATO prior to the commencement of the ACNC, and wish to appeal that decision, must appeal under the tax law review and appeal rules against the decision of the Commissioner of Taxation.
Example 14.67
MOLA applies to the ATO for endorsement as a charity on 10 September 2012. The ATO does not approve MOLA's application and notifies the entity of this on 20 September 2012.
MOLA wishes to appeal the decision. MOLA must appeal the Commissioner of Taxation's decision under the tax law review and appeal rules.
MOLA could also choose to abandon an appeals process and apply to be registered with the ACNC.
14.63 Any review or appeal that commenced with the ATO prior to the commencement of the ACNC remains with the ATO for determination according to the tax law review and appeal rules.
Example 14.68
BendIt applied to the ATO for endorsement as a charity on 15 August 2012. The ATO rejects their application and notifies BendIt on 5 September 2012. BendIt appeals the decision. On 5 October 2012 the Administrative Appeals Tribunal (AAT) decides that BendIt should have been endorsed as a charity by the Commissioner of Taxation.
The AAT decides that BendIt should have been endorsed by the Commissioner of Taxation on 5 September 2012. BendIt is taken to have been automatically registered with the ACNC on 1 October 2012.
14.64 The application information provided by entities that apply to the ACNC (on or after 1 October 2012) to be a registered entity under any subtype category, and seek a backdated registration and endorsement prior to 1 October 2012, is to be passed to the ATO for consideration of the period prior to 1 October 2012.
Example 14.69
LooLA applies to the ACNC to be registered as a charity on 15 October 2012. LooLA seeks backdated registration to 15 September 2012. The ACNC Commissioner of the ACNC determines the organisation's charitable status from 1 October 2012. The ACNC passes LooLA's application information to the ATO to allow the ATO to determine LooLA's eligibility to be endorsed as a charity for the period 15 September 2012 to 30 September 2012.Example 14.70
Following on from the example above the ACNC determines that LooLA is entitled to register with the ACNC from 1 October 2012. However, the ATO determines that LooLA was not eligible to be endorsed as a charity for the period 15 September 2012 to 30 September 2012.
LooLA may appeal the Commissioner of Taxation's decision in accordance with the tax law review and appeal laws.
Disclosure of protected taxation information to the ACNC
14.65 In order to facilitate a smooth transition for the ACNC, transitional secrecy provisions in the Consequential and Transitional Bill enable a taxation officer to make a record or disclose to the ACNC Commissioner protected taxation information for the purpose of the ACNC Commissioner performing powers and functions or exercising powers in relation to the ACN Register. [Schedule 1, item 14 of the Consequential and Transitional Bill]
14.66 However, the record or disclosure of protected taxation information can only be made up until six months from the start of the commencement day. [Schedule 1, paragraph 14(d) of the Consequential and Transitional Bill]
14.67 This temporary exception to the operation of section 355-25 in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) enables the ACNC to populate the ACN Register with information about existing charities that were previously endorsed by the ATO prior to the commencement day.
14.68 This ensures that as the ACNC takes over the function of registering charities, it is able to publish information previously provided to the ATO on the ACN Register subject to the ACNC secrecy framework and subject to the restrictions on the disclosure of personal information under the ACNC Bill.
14.69 This allows the ACNC to be fully functional from the commencement date and remove the need for the ACNC to contact all of the existing charities to provide information which the ATO already has available.
14.70 Whilst there are consequential amendments (as part of the Consequential and Transitional Bill) that facilitate the disclosure of protected taxation information under Division 355 in Schedule 1 to the TAA 1953 to the ACNC for the purpose of administering the Bill, these transitional secrecy provisions are necessary for a different purpose.
14.71 Unlike disclosure under the consequential amendments (wherein the information disclosed retains its character as 'protected taxation information' and is subject to the on-disclosure provisions in Division 355 in Schedule 1 to the TAA 1953, the information disclosed under these transitional secrecy provisions will become publicly available as they are published on the ACN Register and will then become 'protected ACNC information' and be subject to the secrecy framework within this Bill.
14.72 However, the transitional secrecy provisions do not extend to the disclosure of protected taxation information that is outside of the scope of the type of information required under section 40-5 of the Bill.
14.73 Moving forward, should the ACNC require (for purposes under this Bill) tax specific information or any other information not covered within transitional secrecy arrangements, it will need to request disclosure of that information from the Commissioner of Taxation in accordance with the proposed consequential amendment to Division 355 in Schedule 1 to the TAA 1953 allowing for disclosure of protected taxation information to the ACNC for the purposes of administering the Bill.
Five year review
14.74 The ACNC Consequential and Transitional Bill provides for a statutory review of the ACNC legislation. This ensures that five years after the commencement of the Bill, the Minister must appoint a person to review the operation of the ACNC Bill and the ACNC Consequential and Transitional Bill. The review will focus on the operation of the legislation and the ACNC and how the objects of the ACNC Bill have been achieved. The reviewer must provide a report and present the report to the Parliament. [Schedule 1, item 15]