Additional Comments by Nick Xenophon
Independent Senator for South Australia
Introduction
It should be acknowledged at the outset the enormous and
valuable contribution the charities and not-for-profit (NFP) sector makes to
the Australian community. Its value to the social and economic fabric of the
nation is difficult to adequately measure – however, without it governments
would find it impossible to meet the shortfall of the activities and benefits
derived from this sector.
The need for greater regulation in the Australian charity
andNFP sector has been evident for some time – appropriate regulation will
strength public confidence in the sector and hold to account those few
organisations that are not scrupulous. It is encouraging that the Federal Government
has taken steps to establish an Australian Charities and Not-for-Profits
Commission (ACNC) in order to educate, regulate, monitor, and - where
appropriate - take disciplinary action against Australian charities and NFPs. I
am concerned that the effectiveness of such a Commission, in its present
proposed form, is seriously at question.
Public knowledge of how contributions are spent and the
public benefit these charities and NFPs bring to communities must be improved.
The amount of forgone revenue from the inappropriate application of income tax
exempt status needs to be addressed as a matter of urgency.
The Australian Bureau of Statistics have stated the level of
foregone revenue from income tax exemptions for charities and NFPs is currently
“unquantifiable”,[1]
however Treasury estimate it to be in the order of $1 billion per year.[2]
The Australian Tax Office believes the introduction of the
ACNC will result in additional tax revenue of approximately $41 million over
four years due to “increased compliance activity to ensure that not-for-profit
tax concessions are used only as intended”.[3]
Greater transparency in the way in which funds are used by
charities, and in particular NFPs such as community clubs with poker machines,
must be achieved. A recent study by Dr Charles Livingston revealed that in New
South Wales and Victoria, community contributions by poker machine operators
amounted to only 1.3 per cent and 2.4 per cent respectively of total poker
machine losses for the past year.[4]
The public must be equipped with the information necessary to see through the
claims of clubs that they are organisations that operate for the benefit of the
community.
The establishment of the ACNC should be used to scrutinise
entities whose classification as a charity or NFP is questionable. This is
particularly so for entities that purport to be advancing a religion, such as
the Church of Scientology. Former members of this organisation have asserted
the organisation serves only itself to the detriment of the community.[5]
Many would argue this is inconsistent with their current charitable status in
Australia and the tax exemptions that flow on from that.
In 1999 the Charity Commission for England and Wales refused
to grant the Church of Scientology charitable status because the Commission was
not satisfied Scientology was a religion within the meaning of English law.
Furthermore the Commission held that no public benefit arising from the
practices of Scientology had been established.[6]
This was based on the Commission’s conclusion that the private nature of
Scientology’s auditing, training and practices resulted in a private benefit to
its members only, rather than a benefit to the public. Therefore, it is
imperative the framework within which the ACNC Commissioner will work will
enable the Commission to examine the purposes for which an entity purports to
act, and whether those purposes result in a net public benefit.
It is also important that the Federal Government take this
opportunity to achieve wider reaching reform of the social economy sector,
including improving access to capital for charities and NFPs. The ACNC should
work together with the Social Finance Taskforce proposed by the Senate Standing
Committee on Economics in order to develop and promote a capital market for the
social economy sector.[7]
Registration
I fully support the requirement that charities must register
with the ACNC before they are eligible for any tax concessions. However, that
registration – in the current Bill - is initially only required for tax endorsed
charities, rather than all charities and NFPs, is of serious concern. It
appears this is contrary to the Federal Government’s original intention that
the ACNC Commissioner:
...will initially be responsible for determining the legal
status of groups seeking charitable, public benevolent institution, and other
NFP benefits on behalf of all Commonwealth agencies.[8]
Although the Australian Charities and Not-for-Profits
Commission Bill 2012 contains the regulatory framework for extending
registration requirements to all charities and NFPs in the future, no time
frame for this extension has been established.[9]
The requirement that all charities and NFPs register with
the ACNC will also address concerns that charities and NFPs that self assess
their income tax status can operate completely unknown to the ATO and therefore
without any monitoring of their activities. If the Federal Government is
serious about achieving meaningful savings in foregone tax revenue then all
charities and NFPs should be required to register with the ACNC within a
reasonable time frame – say 12 months.
Recommendation
The Australian Charities and Not-for-Profits Commission
Bill 2012 be amended to require all charities and NFPs register with the ACNC
within 12 months in order to receive any tax concessions.
The automatic registration by the ACNC of charities already
endorsed by the ATO as income tax exempt is also of concern. The ACNC should
conduct a review of all such automatic registrations to ensure those charities
with income tax exempt status are continuing to meet the obligations necessary
to be awarded such status.
A public benefit test
The seven subtypes of charity as defined by the legislation
should be expanded to include a requirement that the charity meet a public
benefit test. This is consistent with the Senate Standing Economics Legislation
Committee recommendation in the inquiry into the Tax Laws Amendment (Public
Benefit Test) Bill 2010 that a public benefit test should be contained in
legislation.[10]
Australia should adopt a public benefit test for charities and NFPs in line
with reforms in England, Wales and Scotland.[11]
A public benefit test should weigh up both detriments as
well as benefits an organisation provides to the community. Tax free status in
effect provides a subsidy by all Australian tax payers to such an organisation.
If, for example, an organisation was found to have failed to deal appropriately
with allegations of abuse (for examply by not reporting such allegations to the
police) there ought to be sufficient powers for the Commissioner to compel the
organisation to explain its conduct. A repeated and systematic failure to deal
with serious allegations of criminal activity within an organisation ought to
be considered as part of any public benefit test. This should be an ongoing
requirement.
Recommendation
The legislation be amended to include the requirement
that an entity must satisfy a public benefit test before being defined as a
charity or NFP in order to receive tax free status. This requirement ought to be
a continuing one.
The Register
Information contained in the Australian Charities and
Not-for-profits Register will go a long way to assuring the public the entity
they are choosing to support is operating according to good governance and
accounting standards. The publication of information potentially adverse to an
entity, such as enforcement action taken by the ACNC Commissioner, is an
important step to making entities accountable to their contributors.
Enforcement Powers
The Committee received conflicting views regarding the
appropriateness of the enforcement powers bestowed upon the ACNC Commissioner
but did not express a view itself on this point. It is imperative that the
Commission be given a set of effective powers in order to discipline those
entities who have contravened Australian law.
To that extent, it is concerning the Commissioner’s primary
duty appears to be providing “education and guidance” to assist entities to
meet their obligations under law. Furthermore, the Bill and Explanatory
Memorandum contain no specific education or advisory functions that the ACNC
Commissioner will utilise. It is very concerning the ACNC Commissioner
currently has no defined mechanisms in order to achieve their primary duty.
The ACNC Commissioner must have duties beyond education and
guidance as proper regulation will only be achieved if the Commissioner can
exercise effective enforcement powers. The sector must be put on notice that
non-compliance with the legislation will be effectively and fairly dealt with.
Given the enforcement powers are modelled on the current
powers of ASIC and the ATO, the ACNC Commissioner should not be discouraged
from using their powers despite the apparent lack of enforcement by other
agencies charged with regulating industries.
The Structure and role of the ACNC Commissioner
The ACNC Commissioner will be advised by the ACNC Advisory
Board. However, the Bill provides that the Commissioner will only receive
advice from the
ACNC Advisory Board upon request. The Green Institute made
the following recommendation, with which I agree:
The ACNC Advisory Board should have the power to provide
advice and make recommendations on its own initiative, not only when requested
by the Commissioner.[12]
Recommendation
The legislation be amended to expand the ACNC Advisory
Board’s function to include the provision of information to the Commissioner at
the Commissioner’s request and on the initiative of the Board.
Thresholds
The size of the entity will determine the extent of its
reporting obligations. Although there were some concerns regarding the revenue
thresholds for small, medium and large entities, I agree with the Committee
that these thresholds are appropriate. However, evidence presented to the
Committee suggests that the information requirements of reports are not
onerous.[13]
While it is important that smaller and less resourced entities are not required
to submit complex and time consuming reports, this needs to be balanced against
the need to ensure charities and NFPs are providing the ACNC Commissioner and
the public with the information necessary to assess their activities.
The establishment of the ACNC is an important first step to
improving regulation and transparency in the charities and NFP sector. However
it is important that the ACNC Commissioner is given a robust set of powers, and
that regulation applies to all entities in the sector, not just a select few.
Entities applying for charitable and NFP status must be scrutinised to ensure
their activities are deserving of such status and the taxation benefits that
follow. The legislation should reflect this through an appropriate set of
amendments. Otherwise, there is a concern this legislation will not address the
fundamental concerns for greater transparency and accountability of the NFP
sector.
Recommendation
The bills be passed with the appropriate amendments to
strengthen its intent and purpose.
Senator Nick Xenophon
South Australia
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