Latest developments in the Charities and Not For Profit sector

Treasury opens consultation for proposed relaxation of ancillary fund distribution rule

What you need to know

• The Department of Treasury is consulting on proposed changes to ancillary fund distribution rules.
• Under the changes, the Commissioner could grant a lower minimum annual distribution rate for up to five years to help fund an identified capital intensive project.
• Under the changes, ancillary funds would be able to transfer some of their assets to other ancillary funds.

What you need to do

• To be involved in Ashurst's submissions on behalf of our clients, direct any comments on the proposed changes to Geoff Mann at geoffrey.mann@ashurst.com by 26 April 2022.
• Send submissions in response of the Department of Treasury's Consultation Paper to charitiesconsultation@treasury.gov.au by 6 May 2022.

The Department of Treasury (Treasury) is canvassing the possibility of relaxing minimum distribution rates for public ancillary funds (PuAFs) and private ancillary funds (PAFs) in an effort to expand the scope of how ancillary funds support deductible gift recipients (DGRs) undertaking charitable work.

Identified Issues

Minimum Distribution Rate

Currently PuAFs must distribute the greater amount of $8,800 or 4% of net assets to DGRs. Likewise, PAFs must distribute the greater of $11,000 or 5% of net assets.

The Commissioner has a discretion to reduce this rate and impose conditions on such a reduction.

Nonetheless, Treasury has identified that a blanket application of these rules would prevent ancillary funds accumulating enough cash to be able to contribute to capital intensive philanthropic projects.

Restrictions on Distribution Recipients

Currently, both PAFs and PuAFs cannot distribute to entities that are not DGRs endorsed by the Australian Taxation Office.

Narrow exceptions apply to this general rule:

• PAFs may convert themselves to PuAFs.
• PAFs may transfer all their assets to PuAFs provided they have already made their minimum distribution.

Treasury has identified that these restrictions largely prevent PAFs distributing to PuAFs, which may be better placed to support particular DGRs or have knowledge about making effective distributions in a philanthropic area. It also prevents a PAF that is being wound up from distributing to a PuAF.

Proposed Changes

An Extended Lowering of the Minimum Distribution Rate

Treasury is considering adding to the Commissioner's power to grant a lower distribution rate. The proposed addition is to allow the Commissioner to approve a lower minimum annual distribution rate for up to five years if the ancillary fund identifies a particular project for which it needs to accumulate funds. The Commissioner would need to consider:

• The purpose of the ancillary fund;
• The likelihood of the project going ahead;
• The ancillary fund's investment strategy and expenses;
• The size of the ancillary fund;
• The compliance history of the ancillary fund; and
• Whether the ancillary fund previously failed to fund projects for which it received a lower minimum distribution rate in prior years.

Flexibility in Transferring Assets Between Ancillary Funds

Treasury is concerned that allowing the transfer of some assets between ancillary funds broadly does not reduce the amount given to DGRs. The proposed change is to allow ancillary funds to transfer some of their assets to another ancillary fund. However, it must first meet its minimum annual distribution rate.

Another proposed alternative would be to allow the transfer between ancillary funds to count towards the benefactor ancillary fund's minimum distribution rate. But the recipient ancillary fund would be required to transfer the amount received to DGRs within 12 months. This distribution would not count towards the recipient fund's minimum distribution rate.

How to Contribute

You can make submissions on these changes and the questions posed in the Consultation Paper directly to Treasury by emailing charitiesconsultation@treasury.gov.au. Submissions are open until 6 May 2022.

Alternatively, Ashurst is drafting a submission on behalf of our clients. If you would like to be involved in our submission, please direct any comments on these changes to Geoff Mann at geoffrey.mann@ashurst.com by no later than 26 April 2022.

ACNC opens two e-learning course to testers working in charity governance

What you need to know

• The ACNC has launched two new e-learning courses for individuals working in charity governance.
• The courses cover how the ACNC assists charities and how to register a charity.
• Testers are sought to give feedback on the clarity and effectiveness of these courses.

What you need to do

• If you are interested in being a tester, contact the ACNC via the contact details below.

ACNC Seeks Course Testers

The Australian Charities and Not-for-profits Commission (ACNC) is seeking testers for two new e-learning courses for those involved in charity governance. The new courses cover how the ACNC helps charities and how to register a charity.

Testers will be asked to complete the courses and give feedback on the clarity of language and video content, ease of use, appropriateness of the images used, and the overall effectiveness of the learning experience.

To register for being a course tester, email Rachel.smith@acnc.gov.au with the following information:

• Name;
• Role (eg future charity board member, current board member, CEO, CFO, charity lawyer or accountant);
• Name of the charity you represent;
• Email address; and
• Phone number.

The ACNC previously tested an e-learning course in 2021 and relied on industry feedback to improve the course. The ACNC has plans to develop a further nine courses.

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