Federal Government responds to ACNC review but no clarity on directors’ duties yet

The Government has finally released its response to the Australian Charities and Not-for-Profits Commission (ACNC) review (published in 2018). Significantly, the Government has highlighted its support to reduce red tape and confirmed that the ACNC is an effective regulator in its view.

However, despite the ACNC review recommending that directors’ duties under the Corporations Act 2001 (Cth) be “turned on” for directors of charities, the Government is proposing to first consult on the merits and risks of doing this. This means there will be a wait before there is clarity for directors on this issue.

The Government also decided not to support recommendations aimed at reducing red tape for fundraising, noting that it should be left to states and territories to harmonise laws.

Background to ACNC review

The ACNC review was undertaken by an independent panel between December 2017 and May 2018.

The Review affirmed broad support of the ACNC and made 30 recommendations, which centred on the ACNC’s objects, functions and powers, the overall regulatory framework and red tape reduction for charities.

The Government has responded to all 30 recommendations. The key governance recommendations relevant for members are set out below.

Key governance recommendations of relevance for directors

• Director' duties: The Government will release a consultation paper on the merits and risks of “turning on” directors’ duties under the Corporations Act for charitable companies. Refer to this AICD article for a summary of the current position and the AICD’s Not-For-Profit Governance Principles.
• Reducing Red Tape: The Government has supported:
  - Adjusting the reporting thresholds for registered charities. The Government is consulting with states and territories on the appropriate level of revenue thresholds for minimum reporting requirements before proceeding with legislative amendment;
  - Streamlining and harmonising the regulatory requirements across all jurisdictions; and
  - Simplifying reporting requirements for small entities.
• Secrecy provisions: The Government has supported a review of secrecy provisions to enable the ACNC Commissioner to disclose greater information about their regulatory activity and even investigations. The Government is proposing to consult on the detail of the change, including the triggers for and bounds of the Commissioner’s discretion.
• Disqualification powers: The Government has supported the ACNC Regulations being changed to disqualify a responsible person if they have certain criminal convictions, including for terrorism, importation or distribution of illicit drugs.

Recommendations not supported by the Government

• Tax exemptions for certain NFPs: The Government has not supported a recommendation that certain NFPs with annual revenue of $5 million or more must be registered with the ACNC to be exempt from income tax and access Commonwealth tax concessions. The Government considers this is best regulated by the Australian Tax Office.

• Fundraising reform:
  - The Government has rejected the recommendation that Australian Consumer Law (ACL) be amended to clarify its application to charitable and NFP fundraising, and a mandatory Code of Conduct be developed.
  - The Government notes that ACL is not an appropriate mechanism to harmonise laws in the NFP sector as it could, among other concerns, leave regulatory gaps.
  - The Government notes that it will continue to support efforts by the states and territories to harmonise fundraising laws.
  - The AICD continues to support fundraising reform as part of the #fixfundraising coalition of bodies, and will be considering next steps following the Government’s response.

Next Steps

It is important to note that the changes supported by the Government will not be immediate as some of the recommendations require legislative amendments, or significant changes to ACNC processes.

The ACNC has announced that it will work closely with the Government to work out the details and implement the recommendations.

In particular, the AICD will be closely involved with consultations regarding directors’ duties being “turned on” and secrecy provision triggers.