ACNC releases reports on the charity sector

ACNC releases reports on the charity sector

What you need to know

• The ACNC has released its report covering the state of the charity sector in 2020
• The ACNC will continue to investigate a selection of registered charities over the course of 2022 to verify their entitlement to registration

What you need to do

• Ensure the information you submit to the ACNC and that is recorded on the Charity Register accurately reflects your charity's entitlement to registration as a charity

Australian Charities Report

The Australian Charities and Not-for-profits Commission (ACNC) releases annually the Australian Charities Report (Report) on the charities sector.  The ACNC collates information it receives from charities in their Annual Information Statements.  As charities have different reporting periods, the 8th edition of the Report covers July 2019-December 2020.

Sources of Funding in the Charities Sector

2020 saw government funding of the charities sector rise 13.7% to $88.8 billion as a result of JobKeeper payments and certain tax-free cash payments made directly to charities.  Government funding accounted for 50.4% of the sector's total revenue.

Overall donations also rose by 8% to $12.7 billion across 2020.  This was a smaller percentage increase than in the 2019 reporting period (+12%).

Charities Sector Expenses

Overall sector operating expenses increased marginally more than revenue producing a sector total net income decrease of 10.5% from 2019 figures.

Despite 51% of all operating charities not reporting any paid staff, employee expenses are the largest expenditure across the charities sector.  This expense increased 9.1% in 2020.  The extra costs largely came from charities with revenue greater than $10 million which responded to significant decreases in volunteers induced by the pandemic by shedding casual staff and hiring part-time and full-time staff.

The other large category of expenditure is grants and donations made by charities.  These expenses increased 3% to $9.2 billion.

The full text of the Report can be accessed here.

An interactive dataset from the Report can be found here.

Integrity of the Charity Register Investigation

During the 2020-21 financial year, the ACNC began an investigation into the integrity of the charity register by reviewing the entitlement to registration of a selection of charities.

DGR Findings

The ACNC reviewed 303 charities with DGR endorsement.  It resulted in 19% of those charities having their registration revoked.  Two thirds of these revocations were voluntary.

Entitlement to Registration Findings

The ACNC conducted a detailed review of 53 charities' entitlement to registration.  A third of these resulted in the charity's registration being revoked, mostly as a consequence of a voluntary revocation.

Charity Register Information Review

The ACNC also reviewed the prevalence of the following defects in information provided by charities:

• cancelled ABNs;

• incorrect reporting as a Basic Religious Charity (BRC);

• lack of an appropriate governing document; and

• information withheld from the Charity Register.

The ACNC identified:

• 543 charities with a cancelled ABN;
• 96 charities incorrectly reporting as BRCs;
• 2,470 charities without a governing document; and
• 2,513 charities which had invalidly requested to withhold information from the Charity Register.

The full review can be found here.

Ashurst makes submission on ancillary fund distribution guidelines

Recently, the Department of Treasury (Treasury) held a public consultation on the possibility of relaxing minimum distribution rates for public ancillary funds (PuAFs) and private ancillary funds (PAFs).  Ashurst made a submission to this consultation which we set out in brief below.

Ancillary Funds Accumulating

Treasury put forward a proposal to grant the Commissioner a discretion to allow ancillary funds to accumulate for capital intensive projects by reducing the minimum annual distribution rate for several years.  This power could give rise to a situation in which the ancillary fund accumulates but ends up not funding the project.  Ashurst submitted that the best proposal to remedy this situation was not the imposition of an administrative penalty but a requirement for the fund to make a distribution equal to the minimum annual distribution rate during the years it accumulated funds.

Transfers Between Ancillary Funds

Ashurst submitted that transfers between ancillary funds should only satisfy the transferor fund's minimum annual distribution rate if, on a look through basis in relation to the same year, the transferee fund distributes an amount equal to the transfer to a type 1 deductible gift recipient (DGR).  This ensures any transfers between ancillary funds do not reduce the overall amount distributed to type 1 DGRs.

Transfers from PAFs to PuAFs

Treasury is concerned that transfers between ancillary funds might enable PAFs to access the lower minimum annual distribution rate applicable for PuAFs.  Ashurst recommended that the minimum annual distribution rate should be equalised between PAFs and PuAFs to alleviate this concern.

Transfers from PuAFs to PAFs

Ashurst submitted that transfers from PuAFs to PAFs not be allowed because it enables money donated by the public to come under the control of a private entity that manages the PAF.  Funds donated by the public ought to be applied to type 1 DGRs as donors would have expected.

Authors: Geoffrey Mann, Partner; Bronwyn Kirkwood, Counsel and Charlie McMillan Summons, Graduate.