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Tuesday, 18 September 2012
Page: 10977


Mr McCORMACK (Riverina) (12:57): Currently the Australian tax office is responsible for the regulation of charities and for determining an entity's charitable status, as well as having the responsibility for enforcing the taxation law. Labor has decided to create an independent national regulator, the Australian Charities and Not-for-profits Commission, ACNC, with a greater focus on the specific needs of the not-for-profit sector and having the role of determining a not-for-profit's charitable status. The ACNC is proposed to begin operations on 1 October 2012.

The associated Tax Laws Amendment (Special Conditions for Not-for-profit Concessions) Bill 2012 seeks to restate the 'in Australia' special conditions for income-tax-exempt entities to provide that they must be operated principally in Australia and, it is claimed, for the broad benefit of the Australian community. The bill will standardise the other special conditions entities must meet to become income tax exempt, including complying with all substantive requirements in their governing rules and being a not-for-profit entity. It will also standardise the term 'not-for-profit', replacing the defined and undefined uses of 'non-profit' throughout the tax laws. The bill will also codify the 'in Australia' special conditions for deductible gift recipients, ensuring they must generally operate solely in Australia and pursue their purposes solely in Australia, with some exceptions, including overseas aid funding and some environmental organisations.

The ACNC was initially to come into operation on 1 July 2012 as part of a range of measures proposed for the not-for-profit sector in the 2011-12 budget. However, there was a concerned outcry from the sector regarding the turnaround time, and the government delayed the start date by three months, to 1 October 2012. The coalition believes this unnecessary big new regulator will only increase red tape, treat those in the sector as untrustworthy people, hinder the activities of charities and not-for-profits and discourage involvement in civil society.

Currently there are about 600,000 entities in the not-for-profit sector. Of these, 400,000 may access Commonwealth tax concessions through the Australian Taxation Office endorsement process or by self-assessment. The Australian Securities and Investments Commission currently has a smaller role in the regulation of the not-for-profit sector and is responsible for regulating around 11,000 not-for-profit entities which are incorporated as companies limited by guarantee. ASIC also regulates professional trustee companies as well as some charities which are incorporated as other types of companies. Additionally ASIC oversees the registration of incorporated associations and cooperatives if they wish to operate outside their home jurisdiction.

Currently the states and territories regulate incorporated associations and charitable trusts, as well as fundraising activities, and impose reporting and governance requirements on entities which receive state and territory funding. Not-for-profit agencies have raised concerns about the inconsistency of reporting requirements across the sector, which have become increasingly and excessively burdensome, requiring agencies to divert resources away from delivering services and towards ever-increasing compliance paperwork required from the government.

Therein lies the rub. Once more Labor is putting onerous, unnecessary red tape in place. At least this time it is red tape. Usually it is green tape with this government. Once more, Labor is making things more difficult. Government has a responsibility not to bog society down with bureaucracy, but federal Labor revels in it. If it moves, tax it. If it stands still, put a bureaucrat in charge of it. That is the Labor way.

The not-for-profit sector is also concerned about the lack of a single reference for the not-for-profit sector to access information, education or guidance. For this reason, the coalition does support a small commission to engage in innovation, advocacy and education for the sector. Labor is effectively reversing the current approach and telling the sector it needs a watchdog to promote transparency and trust in the sector. Remember, this is the sector which helps raise awareness of so many important things the community needs to know about. This is the sector which does valuable fundraising, in the name of charity, for all sorts of worthwhile causes.

The community currently trusts the sector and there is no identification by the Labor government of the mischief which warrants the raft of powers which would be granted to the new commissioner. The enforcement powers granted to the ACNC commissioner are modelled on those given to other Commonwealth commissions, such as ASIC, the Australian Prudential Regulation Authority and the Australian Competition and Consumer Commission. The ACNC will be provided with the authority to issue warning notices, issue directions, enter into enforceable undertakings, apply to the courts for injunctions, suspend or remove responsible entities and appoint acting responsible entities. The ACNC commissioner will also be able to use enforcement powers against federally regulated entities. However, the commissioner may revoke the registration of any registered entity. The commissioner's enforcement powers in relation to external conduct standards will apply to all registered entities.

In 2008 the Commissioner of Taxation had an unsuccessful appeal to the High Court in Commissioner of Taxation of the Commonwealth of Australia v Word Investments Ltd [2008] HCA 55. This has been the impetus for the provisions in this bill which amend the 'in Australia' requirement which applies separately to tax-exempt entities and to deductible gift recipients. The government responded to the court's decision in the 2009-10 budget, stating it would amend the 'in Australia' requirement to ensure that parliament retains the ability to fully scrutinise those organisations seeking to pass money to overseas charities and other entities. The 'in Australia' test currently applicable to tax-exempt entities was introduced in 1997.

Under the bill, the 'in Australia' test will require a tax-exempt entity to operate principally in Australia and to pursue its purposes principally in Australia. A number of stakeholders have concerns regarding the requirement that money, property or benefits must be used in Australia. World Vision believes that it is too onerous and unclear and should be removed or, alternatively, provisions should be more tightly drafted to identify mischief and allow reliance on statements that funds will not be applied offshore. The Australian Baptist Ministries believes that donations of funds to another organisation should not jeopardise tax exempt status. The in-Australia test under the bill will also require deductible gift recipients to operate solely in Australia and pursue their purposes solely in Australia. Conduit arrangements will put the deductible gift recipient's endorsement at risk where the donor entity itself uses the money, property or benefits outside Australia.

The coalition believes these bills will increase the regulatory burden being placed on charities and not-for-profits, many of which are already struggling to meet the demands of government in this area. Furthermore, unless the states and territories agree to hand over their powers to the Commonwealth regulator, and harmonise their laws, these bills will had yet another layer of red tape to the sector already struggling to meet with ever-increasing bureaucratic demands. The coalition through the course of the inquiry by the House Economics Committee, and discussion with stakeholders, understands that there has been no real progress made by the Labor government in its attempt to have the states and territories agree to harmonise their laws. We also believe, based on our discussion with relevant state ministers, it is likely that they are going to submit to handing over their powers in this space to the Commonwealth in the foreseeable future.

For the ACNC to function smoothly, it is dependent on a number of Commonwealth departments agreeing to either hand over their regulatory powers to the ACNC or to harmonise their regulatory requirements within the new commission. This is of particular concern to independent schools, which will be required to report much of the information to the ACNC which they currently report to the Department of Education and Workplace Relations, as well as to state education authorities. If an information sharing agreement is reached between the ACNC and the department, the ACNC will serve as an additional regulation layer for independent schools which are already drowning in compliance. Red tape should be a priority issue where any reform for the not-for-profit sector is concerned. The coalition believes these bills will have a detrimental impact on achieving this objective.

Stakeholders have voiced their concerns about the power and the penalties contained in these bills as being heavy-handed and that they may deter members of the public from taking up voluntary roles within the sector. Sector agencies have also raised issues about the reporting requirements, governance standards and the enforcement powers of the commission as being inconsistent with or overlapping the common law of trusts and state and territory trustee legislation; inconsistent with, or overlapping with the Australian Tax Office's guidelines on public and private auxiliary funds; inconsistent or overlapping the Corporations Law and ASIC's regulatory role; and possibly inconsistent with the Australian Constitution. Of particular concern is the information gathering, monitoring and sanctioning powers, including the ability of the ACNC commissioner to remove a director. David Gonski, of the Australian Institute of Company Directors, raised the issue that Australia may be the first country in the world to—and these are his words—make being on a not-for-profit as a director more onerous than being on a for-profit.

Key stakeholders have continually voiced their concerns about the consultation process for this commission as having been excessively secret and unnecessarily rushed, with not-for-profit agencies being provided as little as nine working days, in some cases, to make submissions. Haven't we heard this before from this Labor government: rushing through policy, giving key stakeholders little or no time to actually get their compliance right, to actually get their compliance in place so that the legislation, once enacted, can then be forced upon them in a rather onerous way and in a way in which, if they do not comply, they are going to be hit hard with penalties.

The charitable sector in Australia is an important part of our community and organisations provide a diverse range of services. The government has increasingly reached into the affairs of these agencies over the past two decades, imposing additional contractual and reporting requirements. These requirements are costing agencies significant sums to administer. The coalition supports transparency and accountability in the use of taxpayers' funds. We also support simplicity and efficiency. The civil sector has a long history of responsible governance and management and the coalition will respect and trust this.

The coalition believes in working with the sector, not directing the sector and treating it as an extension of the state. We believe those working in the sector, not bureaucrats in Canberra, are best placed to tell government how we can work together to ensure we are making life for instruments of the civil sector easier, not more difficult. The coalition would seek to retain the regulatory powers which already exist in the ATO and ASIC. Assuring simplicity and an easy understanding of the regulatory framework is not being helped by complicating powers and duties of key Commonwealth regulators. The coalition believes the government should not be putting up roadblocks in the way of civil society and should allow them to do what they do best: helping the people of the community, helping society, helping you and me. We trust the voluntary sector and trust those working in charitable endeavours. We do not support the government's initiative, which will hinder the work of these valuable agencies.

The government intends moving amendments because, as usual, Labor failed to think this policy through. Haven't we heard that all too often this parliament? This bill as it stands will affect church organisations as well as cultural, service and sporting clubs. I am deeply concerned about the impact it will have on clubs and charity groups within my electorate of Riverina. These organisations in many ways prop up communities. They provide the moral, social and in some cases financial support to help many in society, especially those who most need it, especially those who are the most vulnerable members of society. This bill will place unnecessary pressure on these groups and on these people already reeling under the strain of high cost-of-living demands, rising power bills, the carbon tax and so many other imposts of life under Labor. So much regulation, so little time to comply. The cost of compliance places too much of a burden on charities and this is why this bill stands condemned. If it ain't broke, why fix it? Why, Labor, why?