The Commission identified issues that will be familiar to most NFP organisations:

• The sector makes a significant contribution to the Australian economy. In 2006/07 that contribution was $43 billion and 8 per cent of employment and it is growing at an average rate of 7.7 per cent each year.
• The general community has a limited understanding of the sector’s role and contribution.
• The regulatory framework in which the sector operates is complex, lacks coherence and transparency and is unnecessarily costly to NFP organisations.
• Jurisdictional differences between the states and between the states and the commonwealth as well as differences between various government agencies create multiple reporting requirements. This creates a lack of consistency and additional costs for organisations.
• Funding legislation also differs significantly between jurisdictions adding further cost burdens to the sector.
• Revenue sources need to be expanded and this can, in part, be achieved through extending eligibility for deductible gift recipient status to all recognised charitable institutions and funds.
• The sector needs greater access to alternative funding sources through debt financing for social investment.
• Organisations are facing increasing workforce pressures with wage gaps making it difficult to secure and retain staff and the administrative costs of using volunteers affecting the viability of their engagement.
• For those organisations delivering services on behalf of government, the contracting process is severely affecting the efficiency and effectiveness of their operations because it:
• Is overly prescriptive;
• Increases micro management;
• Requires surplus funds to be returned; and
• Often uses inappropriately short-term contracts.
• Implementation of government and sector reforms will be best facilitated by a central policy and implementation unit within the Australian government.

The Commission’s report sets out recommendations for improving the regulation and funding of the sector, as well as for increasing the productivity of the sector and its effectiveness in driving social innovation. The most significant of those recommendations are:

• The establishment of a National Registrar to:
• Consolidate Commonwealth regulation for the incorporation of NFP companies
• Register and endorse NFPs for tax concessions;
• Register fundraising organisation; and
• Provide a single portal for corporate and financial reporting.
• A similar recommendation was made by the Senate Standing Committee on Economics in 2008 and would appear to be an obvious solution to the problems the Commission identified as resulting from having an overly complex regulatory and reporting regime.
• Separating the power to grant endorsement for tax concessions from the power to dis-endorse for breaches of taxation law. The Commission was of the view that this separation of powers will create greater transparency in the taxation system. The new National Registrar would have the power to grant endorsement but the ATO would have responsibility for enforcing taxation compliance.
• Changes to the Corporations Act 2001 to create separate laws dealing with NFP companies limited by guarantee. These changes should include reduced compliance burdens on NFP companies. This would be a welcome change as companies limited by guarantee are currently dealt with under the Corporations Act in the same manner as other public companies. The Commission noted that such a change would encourage more NFPs to incorporate at a national level.
• For those NFPs who choose to remain as incorporated associations under state based legislation, the Commission recommended that states and territories:
• Standardise financial and corporate reporting requirements;
• Introduce standardised legislation to reduce impediments to NFPs changing their legal structure; and
• Standardise fundraising legislation through the adoption of a model Act.
• An expansion of deductible gift recipient (DGR) status to all charitable institutions and funds endorsed by the new National Registrar. This would do away with the current confusing system of having different requirements for securing DGR status depending on which DGR category applies to the NFP’s activities. It would also mean that there would only be one authority making determinations on DGR status rather than the current system where again, depending on which DGR category applies, the endorsement decision is made by the ATO or some other department such as the Department of Environment, Water, Heritage and Arts for environmental charities.
• The Commonwealth government to enact a statutory definition of “charitable purpose” that would broaden the scope of the legal definition to reflect modern society. Australian taxation law is still based on a definition of charitable purpose that dates from legislation passed by the English parliament in 1603 and even the English have adopted a new definition to modernise their laws. This change is long overdue and it is imperative that Australia’s laws reflect the needs of its community and the organisations that serve it.
• Introduce a system that allows mandatory vetting requirements (such as police checks) for people working with children and vulnerable people, including in aged care, to be streamlined and portable across jurisdictions. This would remove the current problem that exists for aged care providers who have a co-located retirement village. Under the Aged Care Act 1997 they have to obtain a police check for employees working in their aged care facility but current state laws prevent them from using those same police checks for employees working in the retirement village.
• Government funding contracts should explicitly state at the tender and negotiation stages whether they intend to fully fund a service or only make a contribution. The Commission also recommended that government funding decisions take into account the long-term viability of organisations delivering services on behalf of government. These measures are intended to enable NFPs to engage in improved forward planning and to ease workforce pressures.
• Establish an Office for NFP Sector Engagement within a Commonwealth agency. The role of this Office would be to drive the reform agenda and the Commission sees this proposal of a means of avoiding what has happened in the past when reports have made recommendations for reform that have never again seen the light of day.

These are the more significant recommendations made by the Commission. A full copy of the Commission’s extensive report is available from its website www.pc.gov.au.

Joanne O'Brien
CARNE REIDY HERD LAWYERS

Brian Herd
CARNE REIDY HERD LAWYERS