Proposed voluntary Transparency Code for charities responding to natural disasters

What you need to know

• The Treasury has released a consultation paper in collaboration with the charity sector seeking feedback on the development of a voluntary code to improve transparency around the use of charitable donations made during, and in response, to natural disasters (Transparency Code).
• The proposed Transparency Code will be voluntary, and will be targeted towards those charities which are involved in responding to natural disasters and which receive substantial public donations.
• A Working Group of charities and Treasury officials has been established to develop the key features of the Code and to report to the Commonwealth Government.
• The consultation paper seeks feedback on five potential features identified by the Working Group.

What you need to do

• The Treasury is inviting interested parties to respond to the consultation paper up until 13 August 2021.
• If your organisation would like to comment on the proposals outlined in the consultation paper, we will take comments and submit a consolidated response to the Treasury. See our contact details below.

The Transparency Code

The proposed introduction of a Transparency Code follows criticisms faced by the charity sector arising out of the Black Summer bushfires in late 2019 and early 2020, particularly in relation to the emergent mismatch between the obligations and capabilities of charities to use the funds they received in line with their charitable purposes, and the expectation of donors and the general public. The guiding premise behind the development of the Code is that greater transparency by charities about their funds and operations will enhance public understanding of charitable fundraising. It is hoped that this will strengthen public trust in the sector which will in turn drive continued donations.

The consultation paper states that the key aims of the Transparency Code are to:

• improve accountability to donors and the general public;
• provide the public with a detailed understanding of how and why donations are distributed for disaster response activities; and
• minimise reporting burden on the charities sector.

In working to develop the Transparency Code, the Working Group (which consists of Treasury officials as well as the Australian Red Cross, BlazeAid, the Minderoo Foundation and RSPCA Australia), has identified the following potential features, each of which it considers will be key to achieving the aims outlined above:

• signatories to the Code must publish an "appeal intent" on their websites and social media platforms when they become involved in a natural disaster response, which outlines how donated funds will be utilised;
• the Code will prescribe the information on which signatories must report, and may include a standardised and inclusive definition of 'administrative costs';
• signatories must meet minimum reporting frequencies, which are proposed to be triggered by a national emergency declaration by the Commonwealth Government;
• the Code will be voluntary and will target charities that are involved in responding to a natural disaster and that receive in excess of $3 million in public donations for a particular appeal; and
• compliance with the Code will be driven by the signatories themselves, while the Commonwealth Government's role will be limited to incentivising participation in, and take-up of, the Code's regime.

The consultation paper outlines a number of questions for interested parties and seeks general feedback on what the Working Group should consider in developing a proposal for the Transparency Code. Charities involved in natural disaster relief that receive substantial public donations should consider the proposed elements of the Transparency Code with a view to assessing the workability of the reporting and compliance obligations. The consultation paper can be accessed in full here.

The Treasury is accepting responses and feedback up until 13 August 2021.

Avenues for reform in the charities and not-for-profits sector

The Tax Institute and the Australian Tax Research Foundation have released a new paper, 'The Case for Change', to prompt discussion on tax reform and the future of Australia's tax system. The paper is accessible in full here. The paper also canvasses three potential avenues for reform in the context of charities and not-for-profits (NFPs):

• harmonising state and federal definitions and regulations to reduce administrative complexity;
• providing all registered charities and NFPs with deductible gift recipient (DGR) endorsement; and
• introducing concessional treatment for social ventures.

Standardised definition of "charity" and deductible gift recipient reforms

The paper acknowledges the complexity of the regulatory environment in which charities and NFPs operate. It proposes that the taxation environment surrounding NFPs and charities should be simplified to better enable these organisations to achieve their objectives.

The paper highlights the lack of harmonisation between state and federal requirements for tax concessions as the most pressing issue for the NFP sector, and proposes that charities which are registered with the Australian Charities and Not-for-profits Commission (ACNC) should be deemed eligible for state concessions in all jurisdictions. It is suggested that this would mitigate the need for NFPs to undertake burdensome state-by-state processes.

The paper also examines recent legislative reforms to the DGR regime (which require DGRs that are charities to be registered with the ACNC), and suggests that the policy implicit in these reforms mirrors the policy behind charity endorsement, which is to provide concessions where public benefit and social contribution are present. In light of this, the paper proposes that the DGR framework should be further reformed in light of this policy such that all charities should automatically be eligible for endorsement as a DGR.

In any case, the paper suggests that proposed the reforms to remove the registers and public fund requirements should be progressed as a matter of priority, while the gift rules should also be modernised and clarified.

Concessional treatment for social ventures

The paper also considers the use of social impact bonds (SIBs) as a means to facilitate fund raising for philanthropic initiatives. SIBs pool resources from the public, private and voluntary sectors to enable organisations to deliver outcomes which address social inequities, and make funding contingent on meeting certain targets. For example, those that invest financially might only receive a return on that investment upon the achievement of certain measurable outcomes (such as the establishment of a particular number of shelters).

The paper outlines two models for SIB tax concessions. Under one approach, investors could claim an upfront deduction for any amounts invested in an SIB, and could then be taxed at standard rates on returns ultimately derived. Alternatively, investors could forego the upfront deduction but could enjoy future tax concessions on returns derived once the measurable outcomes have been achieved. These concessions could take the form of a tax exemption on income derived, or a tax offset.

Authors: Geoffrey Mann, Partner; Bronwyn Kirkwood, Counsel; and Elizabeth John, Graduate.