Directors of not-for-profit (NFP) firms, including industry superannuation funds and credit unions, should keep an eye on the sweeping reforms in Australia's $43-billion NFP sector; they are possibly the largest, most important changes in the sector's history.
But for-profit companies should also follow the reform process. Many large investment firms have philanthropic activities or advise wealthy investors in this area. Other firms may advise larger NFP organisations on their investment strategies and executives within the finance industry may volunteer their time on charity or other NFP boards.
Several key reforms are under way, the main one being the establishment of a new independent statutory agency - the Australian Charities and Not-For-Profits Commission (ACNC) - by 1 July 2012.
The federal government said the ACNC would initially be responsible for determining charitable, public benevolent institution and other NFP status for all Commonwealth purposes; providing education and support to the sector; implementing a 'report once, use often' general reporting framework for charities; and establishing a public information portal by 1 July 2013.
It is unclear at this stage - consultation is ongoing - how a public information portal would affect not-for-profit enterprises in the finance sector and whether they would lodge their financial accounts with the ACNC if it takes this form.
The main thrust of this reform is to have a one-stop-shop regulator that can help NFP enterprises and reduce sector inefficiencies by eliminating myriad reporting requirements that NFPs often go through to get government grants.
Comparable, standardised information across NFPs could also boost the philanthropic sector. People might be more willing to give more money if they are more confident donations are used as efficiently and effectively as possible.
Comparable information across charities will also make it easier for philanthropists to direct donations to the most appropriate causes. The ACNC could encourage more giving if it has a strong advocacy role for the NFP sector.
Another key reform is the introduction of a statutory definition of 'charity' across all Commonwealth agencies from 1 July 2013. A clear definition that is eventually also used by state and territory governments could eliminate more than 100 definitions.
The third key change is reform of tax concessions provided to NFP enterprises, which will only apply to profits generated by unrelated commercial activities that are directed back to the NFP entity to carry out its altruistic work.
NFPs will pay income tax on earnings they retain in their commercial undertakings and which are not directed back to the organisation's altruistic purposes. This is potentially a huge problem for NFP enterprises that earn money from unrelated commercial activities and use it to develop the business.
It is unclear how this change would affect finance organisations in the NFP sector, but their directors would be wise to ensure, from a risk-management perspective, that it does not have significant budget implications. They should follow the consultative process. The tax-concession reform is the one that worries some good judges in the NFP sector.
