House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Chapter 3 Registration

Outline of chapter

3.1 This Bill provides the Australian Charities and Not-for-profits Commission Commissioner (ACNC Commissioner) with the power to register entities as particular types and subtypes of not-for-profit (NFP) entities.

3.2 Such registration is a prerequisite for an entity to access certain Commonwealth tax concessions. The Bill ensures that these tax concessions are available only to entities that are governed and regulated in accordance with the Bill.

3.3 Initially, registration with the ACNC is limited to charities. However, the ACNC's role is expected to expand over time to include all NFPs. Further explanation can be found in Chapter 1 - Background.

3.4 This Chapter explains the registration processes and eligibility requirements for entities that wish to be registered by the ACNC Commissioner.

3.5 It also explains the processes and grounds for the revocation of registration by the ACNC Commissioner and the consequences of having registration revoked.

Rationale for registration rules

3.6 The Final Report on the Scoping Study for a National NFP Regulator recommended that a government body should be given the responsibility to endorse and register NFP entities.

3.7 It also recommended that registration should be recognised by all agencies at the Commonwealth level.

3.8 The Government announced in the 2011-12 Budget that it would charge the ACNC Commissioner with responsibility for registering NFP entities.

3.9 The ACNC Commissioner's responsibilities also include collecting relevant information on NFP entities and using this information as a basis for registering an entity under a type and subtype(s) and monitoring the entity's ongoing eligibility for registration.

3.10 Registration is voluntary. However, registration is a prerequisite for access to certain Commonwealth tax concessions. As such, these tax concessions can only be accessed by those entities registered and regulated under this law.

3.11 Other Commonwealth concessions, exemptions or benefits may also be contingent on registration.

3.12 While registration is voluntary, NFP entities accept responsibilities from being registered and the consequences that may follow from having their registration revoked.

Summary of new law

3.13 The Bill provides the ACNC Commissioner with the power to register NFP entities under their type and subtype.

3.14 Registration by the ACNC Commissioner allows NFP entities to access support in the form of Commonwealth exemptions, concessions and benefits (including tax concessions).

3.15 To be registered by the ACNC Commissioner and to maintain this registration, charities must: apply directly to the ACNC for registration; operate consistently with the definition of charity specified in Australian law, or the requirements of any other type or subtype; and comply with prescribed registration conditions and requirements.

3.16 Transitional rules apply in relation to charities that are endorsed by the Australian Taxation Office (ATO), ensuring a smooth transition to the ACNC. These rules are explained in detail in Chapter 14 - Transitional provisions.

3.17 The Bill also provides the ACNC Commissioner with the power to revoke the registration of entities. The ACNC Commissioner may revoke an entity's registration as a type of entity and as a subtype of entity in certain circumstances.

3.18 The ACNC Commissioner must consider a range of factors before making a decision about revoking an entity's registration.

Detailed explanation of new law

3.19 The Bill provides for the ACNC Commissioner to register entities as particular types and subtypes of NFP entities. [Subsection 20-5(1)]

3.20 The Bill also provides for the Commissioner to revoke the registration of registered entities, in certain circumstances. [Subsection 20-5(1)]

3.21 Registration with the ACNC is a prerequisite for access to certain Commonwealth tax concessions. [Subsection 20-5(2)]

3.22 Registration may also be a prerequisite for other exemptions, benefits and concessions provided under Australian laws. [Subsection 20-5(3)]

Registration limited to charities

3.23 Registration is initially limited to charities. Charities may be registered according to their subtypes, including public benevolent institutions (PBIs) and health promotion charities. The ACNC's role may expand over time to the registration of all NFP entities.

Entitlement to registration

3.24 An entity is entitled to be registered by the ACNC if it:

•

meets the description of the relevant type or subtype;

•

is a NFP;

•

meets the governance standards and external conduct standards;

•

has a current ABN; and

•

is not characterised as engaging in, or supporting, terrorist or other criminal activities under an Australian law.

3.25 If the entity has previously been a registered entity, but its registration as a type of entity has been revoked, that entity is entitled to be re- registered if the ACNC Commissioner is satisfied that the matters which led to the revocation have been dealt with, such that the re-registration of the entity would not conflict with the objects of this Bill. [Subsections 25-5(1 ), 25-5(2) and 25-5(3)]

3.26 An entity is entitled to registration if it meets the description of the relevant type or subtype. [Paragraphs 25-5(1)(b) and 25-5(2)(b)]

3.27 Initially, the ACNC will only register charities. Therefore, in order to be entitled to registration as a type of registered entity, an entity must be a charity. [Paragraph 25-5(1)(b)]

3.28 The determination of charitable purpose is to be undertaken in accordance with the common law meaning of the term, as affected by the Extension of Charitable Purpose Act 2004 . [Subsections 25-5(5) and (6)]

3.29 To be registered as a subtype of an entity the entity must meet the description of that subtype. [Paragraph 25-5(2)(b)]

3.30 The ACNC Commissioner will also use the common law definitions of the relevant subtypes to ensure that an entity meets the requirements.

3.31 Registration as a type or subtype is voluntary. However, only an entity that is so registered can access certain types of support provided by the Commonwealth Government.

3.32 To be entitled to registration, an entity must be a NFP entity. [Paragraph 25-5(3)(a)]

3.33 A NFP entity is generally an entity that is not operating for the profit or gain of its individual members, whether these gains are direct or indirect. This applies both while the entity is operating and when the entity winds up.

3.34 Additionally, an NFP entity is one that does not provide any private benefit, directly or indirectly, to a related party such as a trustee, member, director, employee, agent or officer of a trustee, donor, founder, or to an associate of any of these entities (other than reasonable remuneration for services provided or re-imbursement of related costs).

3.35 However, the fact that a NFP entity may make a profit does not negate its NFP status so long as any surplus is applied to the NFP purposes of the entity and the profit does not accrue to the benefit of identifiable members either directly or indirectly.

3.36 An entity is entitled to registration if it meets the governance and external conduct standards. [Paragraph 25-5(3)(b)]

3.37 Further explanation of these standards can be found in Chapter 5 - Governance and external conduct standards.

3.38 An entity is entitled to registration if it has a current ABN. [Paragraph 25-5(3)(c)]

3.39 An entity must have its own ABN to register as a type or subtype. A group of entities cannot register with the ACNC as a single entity.

3.40 An entity is entitled to registration if it is not characterised as engaging in, or supporting, terrorist or other criminal activities under an Australian law. [Paragraph 25-5(3)(d)]

3.41 An entity is characterised as engaging in, or supporting, terrorist or other criminal activities if it is covered by an instrument made by an Australian government agency under an Australian law, such as the Crimes (Controlled Operations) Act 2008 of the Australian Capital Territory.

3.42 An entity which was formerly registered with the ACNC and has had their registration revoked may be registered again if, and only if, in the opinion of the ACNC Commissioner, the matters that led to the revocation of the entity's registration have been remedied, such that registration of the entity would not cause harm to, or jeopardise, public trust and confidence in the NFP sector. [Paragraph 25-5(1)(c)]

3.43 Where the ACNC Commissioner registers an entity which has previously had its registration revoked, the second registration does not rescind the ACNC Commissioner's decision to revoke the first registration of that entity. That is, the registered entity will lose access to any concessions, exemptions or benefits that are contingent on registration as a consequence of revocation between the period in which the entity's registration was revoked and the entity being registered again. [Paragraph 25-5(1)(c) note]

Example 3.1

The Moments Foundation's registration was revoked in 2014 and its managing director was convicted of fraud. Two years later the foundation seeks re-registration with the ACNC. It has put in place a new management team and governing board and has a comprehensive risk management plan. The ACNC Commissioner is satisfied that registration is consistent with the object of the Bill, including the maintenance, protection and enhancement of public trust and confidence in the NFP sector. Accordingly, the ACNC Commissioner registers the foundation.

The Moments Foundation's registration remains revoked during the period between revocation in 2014 and re-registration in 2016. The Moments Foundation will not be eligible to access any Commonwealth tax concessions, exemptions or benefits contingent on registration with the ACNC during the period that it was not registered.

3.44 An entity may be registered as both a type and subtype of entity. It may also be registered as multiple subtypes of an entity provided that it meets the description of the entity subtype in the table in section 5-10(5). However, an entity cannot be registered only as a subtype, it must also be registered as a type of entity. [Subsection 25-5(4)]

3.45 Entities are able to apply for registration under multiple subtypes, provided their activities meet the necessary conditions for registration and the requirements of the subtypes do not conflict. [Subsection 25-5(4)]

3.46 Some tax concessions are only provided to entities registered as a particular subtype.

Example 3.2

The Mockingbird organisation is registered as an entity with the ACNC as the type - charity and as the subtype - public benevolent institution (PBI). It is able to access the Commonwealth tax concessions available to charities and PBIs, including an income tax exemption and goods and services tax and fringe benefits tax concessions.

The Mockingbird organisation could also register as the type - charity and both the subtype - the relief of poverty, sickness or the needs of the aged and the subtype - public benevolent institution.

If the Mockingbird organisation was registered only as an entity with the type - charity, and did not register as a subtype of entity, it would not be able to access Commonwealth tax concessions that are only available to PBIs, such as fringe benefits tax concessions.

Types and subtypes

3.47 A table has been included in the Bill to explain the types and subtypes of entity that may register with the ACNC. [Subsection 25-5(5)]

3.48 The table lists item numbers, type of entity and subtypes of entity.

3.49 In column one, the table currently lists only one type of entity that is entitled to register. This is an entity that is a charity. The table may be expanded in the future to list other types of entities.

3.50 The ACNC Commissioner's determination of an entity's charitable purpose is based on traditional definitions of charity found in the common law as affected by the Extension of Charitable Purpose Act 2004 . [Subsections 25-5(5) and 25-5(6)]

3.51 The ACNC Bill does not change the existing common law definition of charity, nor does it make any changes to the public benefit test that forms part of that definition.

3.52 The ACNC Commissioner's determination of an entity's charitable status must be accepted by all other Commonwealth Government agencies, including the ATO.

3.53 However, being registered as a charity with the ACNC does not necessarily mean that an entity qualifies as being charitable for State or Territory purposes.

3.54 Column two lists subtypes of entities that are entitled to registration. Items one to four in column two are the heads of charity as recognised in Commissioners for Special Purposes of Income Tax v. Pemsel (1891 ). These are: the relief of poverty, sickness or the needs of the aged; the advancement of education; the advancement of religion; and purposes that are beneficial to the community. Item five is the tax law definition of a health promotion charity.

3.55 Items five and six (institution whose principal activity is to promote the prevention or control of diseases in human beings and PBIs) have been included as separate items in column two in recognition of the different Commonwealth tax concessions that these subtypes of entities are eligible to receive. Generally entities with these subtypes will also be eligible to register under subtype one (relief of poverty, sickness or the needs of the aged) in column two. [Subsection 25-5(5)]

3.56 Item seven has been included as a subtype to recognise that the Extension of Charitable Purpose Act 2004 extended the definition of charity to include the provision of NFP childcare services. [Subsection 25-5(5)]

3.57 An entity may register as a type of charity, and as a subtype of charity.

3.58 An entity may also register as more than one subtype. For example, an entity that has PBI status may register with the type - charity and with the subtype - entity with a purpose that is the relief of poverty, sickness or the needs of the aged and the subtype - public benevolent institution. [Subsection 25-5(4)]

3.59 An entity may register with one subtype at one point in time, and register as another subtype at a later point in time.

3.60 For example, an entity may register as the type charity with the subtype - entity with a purpose that is the advancement of religion at one point in time. That entity may later register with the subtype - entity with a purpose that is the advancement of education, in addition to its first subtype registration so long as it meets the requirements for both subtype registrations.

3.61 An entity may not register with more than one subtype where the requirements of those subtypes conflict.

3.62 For example, in order to meet the requirements of the subtype - public benevolent institution, an entity could not meet the requirements of the subtype - entity with a charitable purpose described in section 4 of the Extension of Charitable Purpose Act 2004 (provision of child care services).

3.63 An entity may not register only as a subtype. An entity must register as a type in order to register as a subtype.

3.64 Registration as a type or subtype is at the entity level. This is the same as the current ATO registration process. As described above, an entity must have its own ABN to register as a type or subtype.

3.65 Entities registered separately may be able to report together. See Chapter 6 - Reporting and record keeping for more information.

Process of registration

3.66 Entities may apply to the ACNC Commissioner for registration as a type or subtype. [Section 30-5 and subsection 30-10(1)]

3.67 An application for registration must be in the form approved by the ACNC Commissioner and accompanied by any documents that the ACNC Commissioner requires. The approved form requirements are explained in Chapter 13 - Miscellaneous. [Subsection 30-10(2)]

3.68 The ACNC Commissioner may require an applicant to provide additional information where that information is necessary to decide whether the applicant is entitled to registration. In particular, the ACNC Commissioner may require documents that provide proof of identity to be supplied. [Subsection 30-15(1)]

3.69 This additional information could include, for example, clarification of responses in applications, certified copies of the governing rules of the entity or further details about responsible entities.

Dealing with an application for registration

3.70 If the ACNC Commissioner is satisfied that the applicant meets all of the requirements for registration, then the ACNC Commissioner must register an entity and specify the type and, where relevant, subtype of entity. Otherwise, the ACNC Commissioner must reject the application for registration. [Section 30-20]

3.71 The ACNC Commissioner must provide the applicant entity with written notice of his or her decision. [Section 30-25]

3.72 The registration has effect from the date specified by the ACNC Commissioner. This date can be retrospective, subject to limitations expressed in the Bill. [Subsection 30-30]

3.73 Where the ACNC Commissioner has not made a decision on an application for registration within 60 days of receiving it, the applicant entity may give the ACNC Commissioner written notice, in the approved form, that the entity wishes to treat the application for registration as rejected. [Subsection 30-15(2)]

3.74 If an entity gives such notice, the ACNC Commissioner is taken to have refused the application on the day in which the notice is given. [Subsection 30-15(4)]

3.75 This ensures that entities have recourse if a decision is not made in the set time and ensures that entities can have the decision reviewed where appropriate.

3.76 If the ACNC Commissioner requests additional information, the application can be taken to have been refused on the later of:

•

the end of the 28th day after the last day on which the applicant gives the ACNC Commissioner additional information as required; or

•

the end of the 60th day after the application was made.

[Subsection 30-15(3)]

Example 3.3

The Mosies Foundation applies for registration on 1 March 2013. On 20 April 2013, the ACNC Commissioner requests that further details about responsible entities (in this case, the directors of the Foundation) be provided. The Mosies Foundation provides this information on 1 May 2013. If the ACNC Commissioner does not notify the foundation of his or her decision by 29 May 2013, the Foundation is entitled to treat the application as refused provided that it gives written notice to the ACNC Commissioner.

Review rights

3.77 The ACNC Commissioner's decision to reject an application for registration is a reviewable decision. [Section 30-35]

3.78 The entity has the right to object to a decision in line with the review and appeals provisions. These are explained in Chapter 12 - Reviews and appeals.

Revocation of registration

3.79 In certain circumstances, the ACNC Commissioner may revoke the registration of a registered entity. This power is necessary to ensure that entities accessing public monies operate transparently and in line with the regulatory requirements, and to ensure that public monies are used appropriately.

3.80 The ACNC Commissioner is able to revoke an entity's registration as a type or subtype of entity if the ACNC Commissioner is satisfied that certain circumstances are present, having considered a number of factors. If the ACNC Commissioner revokes an entity's registration as a type of entity, it must also revoke its registration as a particular subtype. [Section 35-5]

Example 3.4

Better People is a registered entity. Better People is registered with a type - charity and the corresponding subtypes - public benevolent institution and entity with a purpose that is the relief of poverty, sickness or the needs of the aged. Better People changes its activities so that it no longer meets the requirements of the subtype - public benevolent institution.

The ACNC Commissioner revokes Better People's registration as a subtype - public benevolent institution, but leaves its registration as a subtype - entity with a purpose that is the relief of poverty, sickness or the needs of the aged.

Grounds for revocation of registration

3.81 The ACNC Commissioner may only revoke the registration of the entity if he or she is satisfied that at least one of the following conditions is met:

•

at any time after the entity's registration, the registered entity was not entitled to be registered as that type of entity (or as the subtype of entity) [paragraph 35-10(1)(a)] ;

•

the registered entity provided information that was false or misleading in a material particular in connection with its application for registration [paragraph 35-10(1)(b)] ;

•

the registered entity has contravened, or is more likely than not to contravene a provision of this law, or has not complied, or is more likely than not to not comply with a governance standard or an external conduct standard [paragraph 35-10(1)(c)] ;

•

the registered entity has a trustee in bankruptcy, a liquidator, or a person authorised to manage the affairs of the entity under an Australian law because it is unable to pay all its debts when they become due and payable [paragraph 35-10(1)(d)] ; or

•

the entity has made a request to the ACNC Commissioner that its registration as a type or subtype of entity be revoked [paragraph 35-10(1)(e)] .

3.82 The ACNC Commissioner may only revoke an entity's registration where one of these grounds is met following consideration of a number of factors.

3.83 The ACNC Commissioner may revoke the registration of an entity, if, at any time after the entity's registration, the entity has lost its entitlement to be registered in accordance with section 5-10 of the Bill. [Paragraph 35-10(1)(a)]

Example 3.5

The MED organisation is no longer undertaking charitable activities and is not operating on an NFP basis. It is no longer entitled to registration and its registration can be revoked.

Example 3.6

The registration of the Green Apple organisation as an entity whose principal activity is to promote the prevention or the control of diseases in human beings is revoked because it no longer meets the requirements of this subtype, however, it still has charitable purposes and remains registered as a charity.

3.84 Revocation of registration can also occur where information that was false or misleading in a material particular has been provided in connection with a registered entity's application for registration. This ground for revocation ensures that entities do not fraudulently obtain registration by providing misleading information in their applications for registration. [Paragraph 35-10(1)(b)]

Example 3.7

The KIO Trust is registered with the ACNC. It is brought to the attention of the ACNC Commissioner that the trust provided false information in its application for registration, including making misleading statements about the identity of responsible entities and providing misleading information about the nature of its purpose and activities. The trust's registration can be revoked by the ACNC Commissioner.

3.85 Registration may also be revoked where an entity has contravened, or is more likely than not to contravene a provision of the Bill, or has not complied, or is more likely than not to not comply, with a governance standard or external conduct standard. [Paragraph 35-10(1)(c)]

3.86 The ACNC Commissioner will aim to use education and guidance to assist registered entities to understand and comply with their obligations under this Bill.

3.87 However, where enforcement action is required the ACNC Commissioner will have a range of enforcement powers, including the power to revoke registration, to ensure he or she can provide appropriate and effective regulatory responses in a range of circumstances. Further information on the compliance approach of the ACNC Commissioner can be found in the June 2012 Australian Charities and Not-for-profits Commission Taskforce Implementation Report .

Example 3.8

The FM Foundation contravenes the Bill by not notifying the ACNC Commissioner of a change to the responsible entities of the Foundation. The change in the responsible entity is brought to the ACNC Commissioner's attention when that responsible entity commits fraud by entering into a contract with a spouse to acquire assets at a substantial discount. The ACNC Commissioner directs the foundation not to perform the contract. The FM Foundation fails to comply with the direction. The ACNC Commissioner may revoke the registration of the Foundation.

3.88 This ground of revocation allows the Commissioner to consider both contraventions and cases where it is more likely than not that an entity will contravene a provision of the Bill and both non-compliance and cases where it more likely than not that the registered entity will not comply with the governance and external conduct standards.

3.89 This ground only covers a situation where there is a substantial or significant likelihood of a contravention or non-compliance and would not extend to a situation where there was only a small chance of a contravention or non-compliance occurring.

3.90 In determining whether an entity is more likely than not to contravene a provision of this law or is more likely than not to not comply with a governance standard or external conduct standard, the ACNC Commissioner must have sufficient, reliable and accurate evidence which clearly indicates that there will be a contravention.

3.91 A mere suspicion, rumour or possibility of a likely contravention or likely non-compliance is insufficient for the ACNC Commissioner to take action.

3.92 In addition, a 'reasonably believes' test needs to be satisfied which ensures that the ACNC Commissioner will only revoke registration for likely contraventions where a reasonable individual, provided with the set of information available to the ACNC Commissioner, would conclude that it is more likely than not that a registered entity will contravene a provision of the Bill.

3.93 An example of a more likely than not contravention is when a registered entity enters into a contract, the terms of which contravene a provision of this Bill by providing for the transfer of assets contrary to the entity's charitable purpose. Until the registered entity performs the contract, it may not have contravened the Bill. Yet, a contract that has not yet been performed is sufficient evidence that a registered entity is likely to contravene the Bill. This enables the Commissioner to intervene to prevent the breach from occurring, and proactively protect the charity's assets before they may be depleted.

3.94 Where a registered entity has a trustee in bankruptcy, a liquidator or a person authorised to manage its affairs because it is unable to pay all its debts as and when they become due and payable, that entity's registration may be revoked. [Paragraph 35-10(1)(d)]

3.95 This condition ensures that the ACNC Commissioner is able to act, if it is necessary, where significant charitable assets may be at risk due to the insolvency of the entity and to ensure that the public can rely on their donations to a registered entity being used for NFP purposes.

3.96 The ACNC Commissioner may also revoke the registration of an entity that wishes to have its registration revoked as a type or subtype of entity. For instance, where an entity wishes to change its purpose such that its current subtype is no longer appropriate. [Paragraph 35-10(1)(e)]

Example 3.9

The Fairsight Foundation is registered as a charity and is registered under the subtypes - entity with a purpose that is the advancement of religion and entity with a purpose that is the relief of poverty, sickness, or the needs of the aged. The Foundation changes its activities so that it no longer meets the requirements of the subtype - entity with a purpose that is the relief of poverty, sickness, or the needs of the aged. The Foundation requests that its registration as the subtype - entity with a purpose that is the relief of poverty, sickness, or the needs of the aged be revoked. The ACNC Commissioner may revoke the Fairsight Foundation's registration as a subtype. The Fairsight Foundation continues to be registered with the subtype - entity with a purpose that is the advancement of religion.

Example 3.10

The Fairsight Foundation, as described above, is registered with two subtypes. The Fairsight Foundation merges with another entity and requests that its registration be revoked. The Foundation's registration (as both a type and subtypes) can be revoked by the ACNC Commissioner.

Considerations for revocation of registration

3.97 The new law provides for a list of factors that the ACNC Commissioner must consider before deciding to revoke the registration of an entity. These factors require the ACNC Commissioner to balance different considerations to ensure that any decision to revoke an entity's registration is proportional and appropriate in all circumstances. [Subsection 35-10(2)]

3.98 The ACNC Commissioner's education and guidance will assist registered entities to understand and comply with their obligations under this Bill. However, where enforcement action is required the ACNC Commissioner has a range of enforcement powers, including the power to issue directions, so that the ACNC Commissioner can provide a proportionate and effective regulatory response.

3.99 The considerations include factors to ensure that, wherever possible, other options to help promote compliance, such as education, are considered before an entity's registration is revoked.

3.100 In some situations, such as in relation to minor non-compliance and where other measures such as warning notices or enforceable undertakings are available, it would not be appropriate to revoke an entity's registration.

3.101 In other situations revocation will be necessary, even where other enforcement actions are available to the ACNC Commissioner and have not been taken.

3.102 Revocation of registration will only be used as a last resort, but it is a necessary power to ensure that the ACNC Commissioner can act in circumstances of serious non-compliance where it would be inappropriate for an entity to remain registered.

3.103 In deciding whether or not to revoke an entity's registration, the ACNC Commissioner must consider:

•

the nature, significance and persistence of any contravention or non-compliance [paragraph 35-10(2)(a)] ;

•

what action the ACNC Commissioner, the registered entity, or any of the responsible entities could have or have taken:

-

to address any contravention or non-compliance (or prevent any such contravention or non-compliance that is more likely than not); or

-

to prevent any similar contravention or non-compliance [paragraph 35-10(2)(b)] ;

•

the desirability of ensuring that contributions made to the registered entity are applied consistently with the NFP nature and the purpose of the registered entity [paragraph 35-10(2)(c)] ;

•

the objects of any Commonwealth laws that refer to registration under this Bill [paragraph 35-10(2)(d)] ;

•

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 NFP sector [paragraph 35-10(2)(e)] ;

•

the welfare of members of the community (if any) that receive direct benefits from the registered entity; and [paragraph 35-10(2)(f)]

•

any other matter that the ACNC Commissioner considers relevant [paragraph 35-10(2)(g)] .

3.104 This list of factors should be considered in its entirety and a decision should be made by balancing each of the factors.

3.105 Using this list of factors, the ACNC Commissioner must consider the nature, significance and persistence of any contravention or non-compliance. Accordingly, the ACNC Commissioner would consider differences in the case for revocation for an entity that has committed a single contravention that is of low significance and the case for an entity that has repeatedly and significantly contravened the Bill. [Paragraph 35-10(2)(a)]

3.106 The ACNC Commissioner must also consider what action could have been taken or could be taken to address or prevent the contravention or non-compliance by the ACNC Commissioner, the registered entity or any of the responsible entities. [Paragraph 35-10(2)(b)]

3.107 This factor ensures that the ACNC Commissioner considers the options available to address or prevent the contravention or non-compliance (for example education or an enforceable undertaking), and what action has been taken.

3.108 This allows the ACNC Commissioner to acknowledge differences between a registered entity that took steps to prevent or address non-compliance or contravention and one that did nothing or was deceptive.

3.109 This factor also allows the ACNC Commissioner to consider what action has been taken by the registered entity, responsible entity or ACNC Commissioner themselves, to address the contravention or non-compliance since it was made known.

3.110 Furthermore, this factor also requires the ACNC Commissioner to consider the range of their enforcement powers to ensure they choose the most appropriate response to remedy the issue in the circumstances.

3.111 The ACNC Commissioner must also consider the desirability of ensuring that contributions made to the registered entity are applied consistently with the NFP nature and purpose of the entity. [Paragraph 35-10(2)(c)]

3.112 This factor ensures that where contributions have been made by donors, volunteers, funding bodies etc. For a registered entity to carry out a particular activity or to pursue a charitable purpose, the ACNC Commissioner can act to protect their interests. This factor also ensures that the ACNC Commissioner can consider whether there is a risk of fraud or misapplication of those contributions, which in the context of NFPs would be a very serious compliance issue.

3.113 This factor further allows the ACNC Commissioner to consider the need to ensure the proper application of a registered entity's assets.

3.114 A contribution to a registered entity is defined as the provision of money, property or any other benefit to the entity and includes the following:

•

the provision by an individual of her or his time or reputation to the entity; and

•

the provision by a government of tax concessions or other forms of government support to the entity.

[Section 205-40]

3.115 The ACNC Commissioner is also required to consider the objects of other Commonwealth laws that refer to registration with the ACNC in deciding whether revocation is appropriate. For instance, it will be necessary to consider the taxation consequences of continuing or revoking the registration of an entity, including the integrity of the tax system. [Paragraph 35-10(2)(d)]

3.116 The ACNC Commissioner must consider 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 NFP sector. [Paragraph 35-10(2)(e)]

3.117 This factor allows the ACNC Commissioner to consider whether or not the contravention or non-compliance has harmed or will harm the public trust and confidence in the NFP sector, and accordingly, if revocation of registration is an appropriate consequence.

3.118 This factor recognises the role of the ACNC Commissioner as the regulator for the whole of the NFP sector.

3.119 Public trust and confidence, and the ways in which public trust and confidence can be strengthened and weakened are discussed in Chapter 1 - Background.

3.120 The ACNC Commissioner must consider the impact of one registered entity's actions on other NFPs, for example, where one entity's misdeeds cause a loss of confidence and could affect the whole sector, particularly its ability to access funding.

Example 3.11

Sweeland Inc is registered with the subtypes - public benevolent institution and entity with a purpose that is the relief of poverty, sickness or the needs of the aged. Sweeland Inc changes its activities so that it no longer meets the requirements of the subtype - public benevolent institution. It continues to conduct charitable activities that help to relieve poverty. It requests that the ACNC Commissioner revoke its subtype registration as a public benevolent institution.

The ACNC Commissioner considers that this revocation will not jeopardise the public trust and confidence in the NFP sector, as Sweeland Inc still effectively conducts its relief of poverty activities and meets all its other regulatory obligations. Considering all the factors listed above, the Commissioner decides to revoke Sweeland Inc's subtype registration as a public benevolent institution.

Example 3.12

Monroe Kids is registered with the ACNC as a charity. When it first registered it helped to relieve the poverty of teenagers in disadvantaged areas. It comes to the ACNC Commissioner's attention that Monroe Kids no longer helps disadvantaged teenagers in poverty, but runs a reputable after-school sports program for all teenagers in the area. As such, Monroe Kids is no longer entitled to registration as a charity, as after-school sports programs are not considered charitable according to the common law definition.

The ACNC Commissioner considers that the public trust and confidence in the sector is not at risk, as Monroe Kids is still conducting beneficial activities in the area. However, considering all the other factors, the ACNC Commissioner decides to revoke the registration of Monroe Kids.

Example 3.13

Core Pursuits is registered with the ACNC. It comes to the Commissioner's attention that the management of Core Pursuits has been using deductible gift recipient (DGR) funds to purchase lavish properties for their own personal use.

This action may cause future donors to doubt that their donations will be used to further an organisation's NFP purpose, and may lead to a reduction in philanthropic giving across the sector. Core Pursuit's actions place the public trust and confidence in the sector in jeopardy. Having regard to the other factors listed above, the Commissioner decides to revoke Core Pursuit's registration.

3.121 The ACNC Commissioner must consider the welfare of members of the community (if any) that receive direct benefits from the registered entity. This means that the ACNC Commissioner must consider whether the wellbeing of recipients of charitable services may be improved or worsened by an entity's registration being revoked. [Paragraph 35-10(2)(f)]

3.122 The ACNC Commissioner must also consider any other matter that he or she considers relevant. [Paragraph 35-10(2)(g)]

Example 3.14

The Orange Book Foundation is a registered entity that purports to provide assistance to needy people in urban centres, however, it has merely been used for money laundering purposes. This is a significant contravention of the Bill with the potential to severely jeopardise public trust and confidence in the NFP sector. In considering all the required factors, it would be reasonable for the ACNC Commissioner to revoke the entity's registration even though it is the only instance of non-compliance and no other enforcement action has been taken.

Example 3.15

The Human Charity is a federally regulated entity that is registered with the ACNC. A responsible entity on the Board of the Human Charity is charged with fraud. The other responsible entities act quickly to notify the ACNC Commissioner and remove the responsible entity from the Board.

In this case, while the contravention of the Bill is serious, the ACNC Commissioner could consider that the other board members acted quickly and appropriately to address the contravention, and that this was a single contravention of the Bill. The issue has been addressed so there is no need for enforcement action or revocation of registration.

Example 3.16

Aloe Wishes is a federally regulated entity that is registered with the ACNC. Aloe Wishes enters into a related party transaction, the terms of which contravene the Bill. Aloe Wishes has yet to complete the transaction and, prior to this, has never contravened the Bill. Taking into account the list of factors described above, the ACNC Commissioner decides that issuing a direction to the entity not to perform the related party transaction is the most appropriate enforcement action in a situation where the entity appears not to wish to take voluntary action.

3.123 If the ACNC Commissioner decides to revoke the registration of an entity, the ACNC Commissioner must give the entity written notice (and within that notice provide a statement of reasons) within 14 days of the decision to revoke registration which clearly specifies the day on which the revocation takes effect. [Subsection 35-10(4)]

3.124 If the reason the ACNC Commissioner revokes an entity's registration is that the entity is not entitled to be registered, the revocation may take effect from the day the entity first ceased to be entitled or a later day, as specified by the ACNC Commissioner. [Paragraph 35-10(3)(a)]

3.125 If the reason the ACNC Commissioner revokes an entity's registration is that the registered entity provided, in connection with its application for registration, information that was false or misleading in a material particular, the revocation may take effect from the day on which the registration took effect, or a later day as determined by the ACNC Commissioner. [Paragraph 35-10(3)(b)]

3.126 In all other circumstances, the revocation takes effect on the day the ACNC Commissioner decides to revoke an entity's registration or on a later day specified by the ACNC Commissioner. [Paragraph 35-10(3)(c)]

Show cause notices

3.127 In general, the ACNC Commissioner will pursue all other avenues to address issues before considering revocation of registration. Where the ACNC Commissioner believes on reasonable grounds that a registered entity is not entitled to registration then prior to taking any revocation action, the ACNC Commissioner is required to give an entity a notice to show cause why an entity's registration should not be revoked. [Subsection 35-15(1)]

3.128 The show cause notice must state the grounds on which the notice is given and invite the registered entity to respond in writing within 28 days after the day the notice is given. [Subsection 35-15(2)]

3.129 The notice provides the entity with the opportunity to give the ACNC Commissioner, within 28 business days, a written statement showing cause why the ACNC Commissioner should not revoke its registration. [Paragraph 35-15(2)(b)]

3.130 This ensures that prior to the revocation of the registration of an entity, the registered entity has the opportunity to respond to the ACNC Commissioner and explain why its registration should not be revoked. While the ACNC Commissioner will, as a matter of practice, provide education and other opportunities to remedy any problems in advance of such a notice being issued, this mechanism allows for a final opportunity to ensure that entities have an opportunity to state their case prior to revocation.

3.131 In certain very serious cases where the Commissioner believes the circumstances warrant more immediate action, the ACNC Commissioner is not required to issue a show cause notice, or to wait for a response to a show cause notice. [Subsection 35-15(3)]

3.132 In such circumstances, and having regard to the factors listed in subsection 35-10(2), the ACNC Commissioner may revoke an entity's registration where no show cause notice has been issued, and where a show cause notice has been issued, where no response has yet been received. [Subsection 35-15(3)]

3.133 In all other circumstances, the ACNC Commissioner is required to issue a show cause notice before an entity's registration can be revoked.

3.134 This ensures that in very serious circumstances the ACNC Commissioner is not constrained from taking immediate action where a failure to do so would have very serious implications for public trust and confidence in the NFP sector and the interests of innocent third parties who are relying on the ACNC Commissioner's continued registration of the entity, for example, donors, volunteers and other government agencies.

Example 3.17

The CD Foundation is a registered entity which purports to pursue charitable purposes. However, it has merely been acting as a conduit for a terrorist organisation. It would be reasonable for the ACNC Commissioner to revoke the entity's registration even though no show cause notice has been issued.

Review rights

3.135 The ACNC Commissioner's decision to revoke the registration of a registered entity is a reviewable decision. [Section 35-20]

3.136 The entity has the right to object to a decision in line with the review and appeals provisions. These are explained in Chapter 12 - Reviews and appeals.