[co-author: Cristian Minale]
The Federal Government has announced that it will continue its program of cutting red tape and onerous regulations within the charity and not-for profit section in accordance with the Australian Charities and Not-for-profits Commission (the ACNC) Legislative Review. New changes will significantly reduce the financial reporting obligations for around 5,000 small to medium Australian charities.
The changes, which are to be introduced from 1 July 2022, were agreed to by the Council on Federal Financial Relations and significantly increase the financial reporting thresholds to the ACNC for small to medium sized charities.
From 1 July 2022 the thresholds will increase as follows:
- Small charities: Increased from AU$250,000 to AU$500,000
- Medium charities: Increased from AU$250,000-$1 million to AU$500,000-$3 million
- Large charities: Increased from AU$1 million+ to AU$3 million+
The threshold increases will result in around 2,700 medium charities becoming re-classed as small charities, meaning that they will no longer be required to produce audited financial statements. This will save around AU$3,000 per year in accounting expenses according to the ACNC.
In line with recommendations 14 and 15 of the ACNC Legislative Review, several other changes are scheduled to be introduced from the 2021-2022 financial year onwards.
From 1 July 2022, large charities (defined as those which report an annual revenue of over AU$3 million and have two or more key management personnel) will be required to report the remuneration paid to responsible persons and senior executives in their Annual Information Statements.
In addition, from the 2022-2023 financial year onwards, all charities regardless of size status will be required to report all related party transactions in their Annual Information Statements. Related parties include nominated Responsible Persons, people and organisations that have significant control over a charity or not-for-profit, or family members of key management personnel.
These changes are designed to increase the transparency within the sector and reduce the risk posed by conflicts of interest.
Charities and not-for-profits should be prepared for these incoming changes, which will apply to this current financial year. Whilst charities and not-for-profits should welcome the increasing of the thresholds and the associated financial savings, they should be prepared for the implementation of measures which will increase the transparency of the sector as a whole.