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FIERCE EXTREMES: WILL TAX ENDORSEMENT STYMIE MORE NUANCED ENFORCEMENT BY THE ACNC?
Assistant Professor Ian Murray
FACULTY OF LAW
The University of Western Australia
FIERCE EXTREMES: WILL TAX ENDORSEMENT STYMIE MORE NUANCED - - PowerPoint PPT Presentation
FIERCE EXTREMES: WILL TAX ENDORSEMENT STYMIE MORE NUANCED - - PowerPoint PPT Presentation
FACULTY OF LAW FIERCE EXTREMES: WILL TAX ENDORSEMENT STYMIE MORE NUANCED ENFORCEMENT BY THE ACNC? Assistant Professor Ian Murray Overview Obligations of ACNCs ACNC Registered Enforcement Role Charities Tax Enforcement Income Tax
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The University of Western Australia
ACNC’s Role
Support Public Trust & Confidence Support & sustain NFP sector Decrease unnecessary regulation
OBJECTIVES
- Gatekeeper to NFP status -
registration
- Educator to aid registered Cs in
complying
FUNCTIONS
- Monitoring & enforcement to
ensure compliance by registered Cs
- Maintaining a public register
- n registered Cs
- Cooperating with other
regulators & government agencies
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The University of Western Australia
Obligations of Registered Charities
Registration ABN NFP Complies with governance and external conduct standards No terrorist or criminal activities Charity Obligations Record keeping Reporting Notification Governance standards External conduct standards
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The University of Western Australia
ACNC’s Role
ACNC Enforcement
ACNC, ‘ACNC Regulatory Approach Statement’ (Consultation Paper, December 2012) 11
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The University of Western Australia
Income Tax Exempt Endorsement
Current
Registered charity ABN Meet one of s50-50 ITAA97 tests:
- In Australia
- Item 1 deductible
gift recipient
- Prescribed by law
Proposed* (TLA (Special Conditions for NFP Concessions) Bill 2012)
Registered charity ABN Modified geographic nexus tests:
- In Australia
- Item 1 deductible gift recipient
- Prescribed by law
Comply with all substantive requirements in governing rules Apply income and assets solely for purpose for which the entity is established NFP: not carried on for the profit or gain of
- wners/members & prohibited from distributing
profits/assets to owners/members
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The University of Western Australia
Tax Enforcement
Commissioner’s responses Ignore loss of entitlement to endorsement Permitted? TAA sch 1 s 426-55(1): Commissioner ‘may’ revoke the endorsement Relevance of range of factors considered by the ACNC Commissioner? Revoke endorsement Seek prosecution for failure to notify of loss of entitlement Relatively broad range of circumstances if Bargwanna reasoning is applied to proposed endorsement requirements
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The University of Western Australia
Enforcement Crossover
Tax endorsement conditions overlay ACNC registration requirements for charities Coordination / cooperation
- Joint application form
- ACNC/ATO MOU
- Information disclosure
provisions Yet, separate and on-going roles in relation to income tax exempt charities
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The University of Western Australia
Scope Comparison – Circumstances for Enforcement
Current External conduct standards Focus is on whether funds are used for ‘legitimate purposes’ and reach ‘legitimate beneficiaries’ Section 50-50 ITAA97 tests focus on a sufficient geographic link with Australia, or whether alternative reasons/conditions justify the exemption Disparate foci, so degree of
- verlap may be
small
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The University of Western Australia
Scope Comparison – Circumstances for Enforcement
Proposed
ACNC Requirement Tax Endorsement Conditions Comment Maintain status as a NFP. Notify of a significant contravention of ACNC
- bligations which has caused the
entity to stop being NFP. ACNC governance standards also relate to maintenance of NFP status. Must be and maintain its status as a NFP. Comply with substantive requirements in governing rules. ‘NFP’ likely to have largely similar content for tax and ACNC purposes. Substantive requirements would include NFP provisions. Bargwanna is an overlap example.
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The University of Western Australia
Scope Comparison – Circumstances for Enforcement
Proposed
ACNC Requirement Tax Endorsement Conditions Comment Maintain status as a charity. Notify significant contravention
- f ACNC obligations which has
caused entity to stop being a charity. ACNC governance standards also relate to acting in accordance with charity status. Comply with substantive requirements in governing rules. Apply income and assets solely for the purpose for which the entity was established. Not all rule breaches or misapplications of assets will result in an entity ceasing to be a charity, so there may not always be overlap with ACNC charity status obligations. However, ACNC governance standards likely to require on- going administration in accordance with core rules, such as use of funds for charitable purposes = overlap.
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The University of Western Australia
Scope Comparison – Circumstances for Enforcement
Proposed
ACNC Requirement Tax Endorsement Conditions Comment
Comply with ACNC governance standards. Comply with substantive requirements in governing rules. ACNC governance standards not yet determined, but likely extensive duplication. ACNC governance standards focus on the systems an entity has to govern its
- perations to reduce maladministration and
enable it to carry out its purposes. ‘Substantive requirements’ in governing rules look to ‘rules of core importance to the
- peration of [an] entity’ such as ‘those related
to an entity’s object and purpose’ and its ‘not- for-profit status’.
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The University of Western Australia
Enforcement Outcomes
- Aloe Wishes (AW) enters into a related party transaction.
- The terms of the transaction contravene the ACNC Act.
- AW has not yet completed the transaction.
- Prior to this, AW has never contravened the ACNC Act.
- ACNC Commissioner decides to issue a direction to AW
not to perform the transaction - in circumstances where AW appears not to wish to take voluntary action.
Based on Example 3.16 ACNC Revised Explanatory Memorandum
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The University of Western Australia
Enforcement Outcomes
- Charity controllers acted honestly, but carelessly
- Charity breached governing rules by misapplying funds for non-
charitable purpose, resulting in personal benefit to controllers
- Charity breached governing rules by mixing charity funds with
the money of others and failing to obtain interest
- Controllers indirectly attempted to rectify breaches by repaying
misapplied amounts plus compensation
- Over the relevant years, charity had distributed to other charities
between 25 and 40% of the funds it received or generated
One interpretation of the facts in Bargwanna
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The University of Western Australia
Problems and Possible Solutions
Divergent strength of compliance tools used for same circumstances
- Yet, significance of tax concessions
as motivation for ACNC registration
- Plus, uncertainty over ATO response
Problem
ACNC role as independent statutory regulator of NFP sector is undermined by tax endorsement requirements that involve the ATO separately determining NFP status and on-going compliance with charity status Leave tax endorsement special conditions largely in current form.
- Limits duplication
- May not adequately protect revenue
Solution?
Enact proposed endorsement special conditions, but:
- Confirm ATO discretion over revocation
- Require ATO to consider ACNC regulatory
action in exercising it
- Publicly state principles upon which ATO is
to cooperate with ACNC, preferably in TAA
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The University of Western Australia