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If you have a 30 June year end, lodgement of your 2015 Annual Information Statement (AIS) is due by 31 January 2016, which is fast approaching. For charities with substituted accounting periods, the 2015 AIS is due six months after the end of the reporting period.

The AIS can be completed by logging onto the ACNC Charity Portal. The 2015 AIS will also include the requirement to provide basic financial information, with the exception of basic religious charities. There will also be differences for your financial reporting requirements depending on the size of your charity. If you are unsure of your financial reporting requirements, you may wish to refer to the links below, which will take you to guidelines on the ACNC website.
bulletSmall charities (annual revenue of <$250,000)
bulletMedium charities (annual revenue between $250,000 and $1,000,000)
bulletLarge charities (annual revenue >$1,000,000).

Please note that prior year AISs are now overdue. It is important that charities lodge their outstanding AISs as the ACNC has advised that penalties may apply. In some cases, failing to lodge may result in the revocation of a charity’s entitlements to various tax concessions or even revocation of their charitable status. If you require any assistance in meeting these reporting obligations, please do not hesitate to contact us.

Public and Private Ancillary Fund Guidelines – Draft Amendments

The Treasury has released draft amendments to the Private Ancillary Fund Guidelines 2009 and the Public Ancillary Fund Guidelines 2011, which are proposed to commence on 1 July 2016.

These amendments will make a number of changes, including: (1) responsible persons (2) introducing portability, (3) reduced compliance requirements for smaller funds, (4) updating the investment strategy rules, (5) loan guarantees and (6) changes to the minimum annual distribution rate.

Responsible Persons
Responsible persons will now include a person before whom a statutory declaration can be made. This includes nurses, pharmacists, dentists, chartered accountants, a marriage celebrant, full time teachers and a government employee with 5 or more years of continuous service.

The amendments will give private ancillary funds the ability to transfer their net assets to other private ancillary funds. This option is already available for public ancillary funds. The private ancillary fund must obtain approval from the ATO, transfer all its net assets, and the assets of the fund must not have been received from another ancillary fund during the two previous financial years.

Reduced Compliance Requirements
Small private ancillary funds with both revenue and assets of less than $500,000 will be able to seek a review of their financial reports and compliance with the guidelines rather than a full audit. This should reduce compliance costs and audit fees.

Updated Investment Strategy Rules
The ATO has become aware that some ancillary funds hold substantial investments with related parties. Their investments tend to be undiversified. The ATO is concerned that the investments may have been structured to increase tax deductions available to donors rather than representing a prudent investment strategy.

Accordingly, the amendments will tighten the investment strategy rules to better ensure that trustees manage perceived or material conflicts of interest in holding particular investments. Trustees must consider the status of the fund as a registered charity and any perceived or actual material conflicts of interest in holding particular investments, including those relating to individuals involved in the decision making of the fund.

Loan Guarantees
The proposed amendments will allow a public or private ancillary fund to provide a loan guarantee over its assets for the sole benefit of a deductible gift recipient.

Minimum Annual Distribution Rate
Lastly, the minimum annual distribution rate is being amended to provide greater flexibility in unexpected economic conditions. The amendments propose that the minimum annual distribution rate is calculated as the lesser of:
bulletthe average of the Reserve Bank of Australia’s target for the cash rate over the previous financial year
bulletthe fund’s prior year net investment return less any reasonable expenses.

It appears that the last proposed change is a result of concerns about lower investment returns. Currently the minimum annual distribution rates are 5% for private ancillary funds and 4% for public ancillary funds of the market value of the fund’s net assets as valued at the end of the previous financial year. Due to low investment returns, these minimum rates could mean that the fund’s capital is reduced over time, resulting in smaller grants in the future.

However, some in the sector believe that the rates should remain unchanged. Some are happy with the proposed prior year net investment return, but believe that the average cash rate (currently 2%) is too low a target. Lower minimum distribution rates could certainly have negative funding consequences for some charities, particularly in the short term.

If you have any concerns regarding the proposed amendments, we encourage you to submit your comments by the closing date for submissions of 12 February 2016. Read the Treasury’s full exposure draft and explanatory statement


Vicki Adams

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