| Australian Charities and Not-for-profits Commission (ACNC) Nick Karagiannis, Partner April 2013 Kelly & Co.

| Page 2 The Role of the ACNC  New independent regulator of the charity sector  Charities must now report to and notify of certain changes  The ACNC takes over some functions of the ATO. In particular, it is now responsible for determining an organisation’s charity status (ITE/DGR remain with ATO)  The ACNC has broad investigatory and disciplinary powers

| Page 3 Rationale  Reduce red tape and reporting burdens  Support the not-for-profit sector  Maintain trust in the sector  Increase transparency and accountability

| Page 4 New Definition of “Charity”  The federal government is expected to introduce a new definition of a “charity” by 1 July 2013  This new definition will be consistent across all States  The ACNC will by bound by this definition when it comes into effect  In the interim, the ACNC will continue to apply the existing common law based definition

| Page 5 Charity  Charitable Purpose:  the relief of poverty;  the advancement of education;  the advancement of religion; or  other purposes beneficial to the community  Not For Profit  For the Public benefit

| Page 6 Registration  Registration with the ACNC is voluntary  However, it is necessary to be registered if you want to benefit from Commonwealth charity tax concessions such as:  Income tax concessions  Deductible Gift Recipient status  GST/FBT concessions  The ACNC maintains a register of charities. This register is publicly available online

| Page 7 Registration: Existing Charities  You are automatically registered with the ACNC if your organisation was registered as a charity with ATO before 3 December 2012  However, if you are a religious charity which self-assessed as being income tax exempt, you will need to register  Charities automatically registered have until 2 June 2013 to opt-out

| Page 8 Registration: Classification of Charities  Upon registration the ACNC will classify your charity according to its size:  Small: revenue under $250,000  Medium: revenue $250,000 or more, but less than $1 million  Large: revenue of $1 million or more  The size of your charity will determine the scope of the obligations you owe to the ACNC

| Page 9 Registration: New Charities  The ATO will accept the ACNC’s determination of your organisation’s charity status and determine if you are eligible for any Commonwealth tax concessions  In the same application used to register with the ACNC, you can apply for charity tax concessions with the ATO  The ATO remains responsible for ensuring compliance with other requirements

| Page 10 Obligations of Registered Charities  3 important obligations to the ACNC:  Reporting  Notifying  Compliance with governance standards  The scope of an obligation may depend on the size of your charity  Some obligations do not yet apply

| Page 11 Obligations: Reporting  Registered charities must provide an Annual Information Statement  This is a relatively concise document and contains information about your charity’s:  operations  number of staff  type of beneficiaries

| Page 12 Obligations: Reporting  The Annual Information Statement is due 6 months after the end of your usual reporting period  For example, if your usual reporting period is 1 July 2012 to 30 June 2013, the statement will fall due by 31 December 2013  Guides on how to complete annual information statement are available from the ACNC  The ACNC has issued a consultation paper noting that additional information (mostly financial) will need to be reported in future annual information statements

| Page 13 Obligations: Reporting  From 1 July 2013, medium and large charities will also need to prepare an annual financial report. The nature of these reports vary:  for medium charities: a reviewed or audited annual financial report  for large charities: an audited annual financial report  If your reporting period is 1 July 2013 to 30 June 2014, this statement must be submitted by before 31 December 2014.

| Page 14 Obligations: Reporting  Content requirements of the financial report not yet finalised  Draft regulations suggest charities will be required to provide:  a financial statement for the year;  notes to the financial statement; and  a declaration by the responsible entity about the statement

| Page 15 Obligations: Notification  From 3 December 2012, registered charities must notify the ACNC of changes to its:  Legal name  Address for service  Governing/Executive members  Governing rules  Small charities must notify the ACNC no later than 60 days after it becomes aware of change  For medium/large charities, no later than 28 days

| Page 16 Obligations: Notification  If your charity is established as a company under the Corporations Act 2001 you will no longer be required to report to ASIC on any:  Change to constitution  Change of address  Change of Governing/Executive members  You should instead notify the ACNC of any such changes

| Page 17 Obligations: Governance  From 1 July 2013, your charity must adhere to minimum governance standards and external conduct standards  ‘Governance’ is the set of practices and procedures in place to ensure that an entity operates to achieve its objectives in an effective and transparent manner  Draft regulations currently before Parliament

| Page 18 Obligations: Governance  The Standards are principle-based, specifying the outcome to be achieved, rather than detailing how an entity must meet the Standards: 1. Clear purposes and NFP character of charity 2. Accountability to members 3. Compliance with Australian law 4. Responsible management of financial affairs 5. Suitability of “responsible entities” (i.e. Board/executives) 6. Duties of responsible entities

| Page 19 Obligations: Governance  Your charity will be expected to decide how to best meet the standards  The ACNC Commissioner is expected to release guidance material to assist in meeting these standards  The Commissioner will assume that registered charities are in compliance unless there is evidence to the contrary

| Page 20 Exemptions for Small Religious Charities  If your organisation is classified as a small Religious Charity by the ACNC, certain exemptions will apply  You will not be required to:  provide financial statements  adhere to governance standards  But you must still provide an Annual Information Statement

| Page 21 Liability of Board Members/Executives/Directors  exercising powers with the degree of care and diligence that a reasonable individual would exercise if they were a responsible entity of the charity  acting in good faith in the best interests of the charity, to further the purposes of the charity  not misusing the responsible entity’s position  not misusing information  disclosing perceived or actual material conflicts of interest  ensuring the financial affairs of the charity are managed in a responsible manner  not allowing the charity to operate while insolvent

| Page 22 Liability of Directors  The charity will be accountable to the ACNC for compliance with the governance standards  Directors will liable for any breaches if the:  relevant act was deliberate; or  omission was dishonest, due to gross negligence or recklessness

| Page 23 Liability of Directors  If your charity is unincorporated:  Obligation imposed on the charity is imposed on each director  Any liability of the charity is payable by each director  Directors can avail themselves of the defences of “illness” or “all reasonable steps taken”

| Page 24 Important Dates – Recap  From 3 December 2012:  record keeping  notification of any changes to ACNC  From 1 July 2013:  provide information statement within 6 months  comply with governance standards  From 1 July 2013 (for medium/large charities only)  Provide financial report within 6 months of end of current full financial year

| Page 25 Implications for Charities  You need to be aware of the reporting obligations to the ACNC and observe the reporting and notification deadlines  You will need to keep records sufficient to meet reporting obligations  You need to keep sufficient financial records for the financial reporting obligations

| Page 26 Implications for Charities  You will still need to report at a State level to obtain State charity tax concessions relating to:  Stamp duty;  Payroll; and/or  Land tax

| Page 27 Future Changes  Possible introduction of a “Charity Passport”  Charity Passport would phase out the need the report separately to State and Commonwealth bodies

| Kelly & Co. Lawyers Level 21, Westpac House 91 King William Street Adelaide SA 5000 T: