38. Testamentary charitable trusts: annual ACNC reporting obligations

Australia is one of the most philanthropic countries in the world and it is not surprising to see a growth in the number people leaving philanthropic gifts via a testamentary charitable trust.

Current at 1 January 2022

38. Testamentary charitable trusts: annual ACNC reporting obligations

Australia is one of the most philanthropic countries in the world and it is not surprising to see a growth in the number people leaving philanthropic gifts via a testamentary charitable trust.

Current at 1 November 2021

This article outlines the annual reporting obligations of these special purpose trusts.

AUSTRALIAN CHARITIES AND NON-FOR-PROFITS COMMISSION

The Australian Charities and Not-For-Profit Commission (ACNC) is the national body charged with the regulation of the not-for-profit sector (including testamentary charitable trusts). The role of the ACNC is largely to ensure public confidence in the sector.

Most charities must lodge an Annual Information Statement with the ACNC for each reporting period. The Annual Information Statement is a snapshot summary of the financial position of a charity and provides additional information about those to whom the charity provides benefits.

The Annual Information Statement is published on the ACNC website as a public record of the charity’s operations unless there are specific grounds for this information to be withheld. The Annual Information Statement is due within 6 months of the end of the charity’s reporting period. For most entities this will be 31December, unless the entity has elected a substituted accounting period with a year-end date that is not 30 June.

The size of a particular charity will determine the charity’s annual reporting obligations.

HOW DO I KNOW WHAT SIZE MY CHARITY IS?

A charity can be small, medium or large for Annual Information Statement purposes, depending on its ‘revenue’. Regulations that determine the size of a charity were changed with effect for the 2022 and later reporting periods. The table below shows how to determine the size of a charity:

Charity Size2021 (and earlier) AIS period2022 (and later) AIS period
SmallRevenue under $250,000Revenue under $500,000
MediumRevenue of $250,000 or more, but under $1 millionRevenue of $500,000 or more, but under $3 million
LargeRevenue of $1 million or moreRevenue of $3 million or more

WHAT IS REVENUE

Although each charity’s operations must be assessed, amounts likely to be considered revenue are grants, donations (including volunteer time), sales and investment income such as interest and dividends.

Gains from the sale of non-current assets are not considered revenue and can be excluded from the revenue test . This also holds true for unrealised gains.

If a charity receives a one-off bequest that changes its size from small to medium, an application can be made to retain the small charity reporting obligations for that year.

WHAT ARE THE FINANCIAL REPORTING OBLIGATIONS?

Small Charities

Small charities must answer the financial questions on the Annual Information Statement however they are not required to submit a financial report. Submission of the financial report is optional. Small charities are also not required to have their financial statements reviewed or audited for ACNC purposes.

Medium Charities

Medium charities are required to answer the financial questions on the Annual Information Statement and also submit their financial report.

If a charity is a reporting entity, [1] general purpose financial statements will be required but may be prepared under a reduced disclosure regime. This involves compliance with the relevant accounting standards for a reporting entity.

If a charity is not a reporting entity you may choose either special purpose or general purpose financial statements. In choosing special purpose the ACNC has minimum mandatory accounting standards which must be complied with. The financial report must be reviewed or audited.

Large Charities

Large charities are required to answer the financial question on the Annual Information Statement and also submit the financial report.

If a charity is a reporting entity, general purpose financial statements will be required but may be prepared under a reduced disclosure regime. This involves compliance with the relevant accounting standards for a reporting entity.

If a charity is not a reporting entity you may choose either special purpose or general purpose financial statements. In choosing special purpose, the ACNC has mandatory accounting standards which must be complied with. The financial report must be audited.

Also, for the 2021-22 financial year onwards, large charities with two or more key management personnel will be required to report remuneration paid to Responsible Persons, such as directors, and senior executives on an aggregated basis in their 2022 and later Annual Information Statements.

REPORTING FOR THE 2022-23 AND LATER YEARS

All charities will be required to report related party transactions in their 2023 and later Annual Information Statements. This will increase transparency of transactions with related people or organisations that pose a higher risk of conflicts of interest.

DO I NEED TO REGISTER FOR GST?

Your non-profit organisation must register for GST if the GST turnover is $150,000 or more. Those under this threshold may choose to register voluntarily. As a charity, there are GST concessions which deem certain types of income to be GST-free. To be eligible you must apply for endorsement. In some instances, this can provide the charity with access to a sizeable amount of input tax credits that ordinary businesses are not entitled too.

DO I NEED TO LODGE A REFUND OF FRANKING CREDITS CLAIM?

If your charity is endorsed for income tax exemption you may be entitled to a refund of franking credits. This is only going to be relevant where you receive franked distributions or dividends but can result in significant refunds.

HOW CAN WE HELP?

BNR Partners has over 15 years’ experience in the charity & not-for-profit sector. We can assist you with all the following aspects of running your charity:

  • Registration as a charity including income tax exemption, ABN, PAYG and GST
  • Preparation of financial statements and/or management accounts
  • Lodgement of your Annual Information Statement with the ACNC
  • Preparation of business activity statements
  • Preparation of refund of imputation credit claims
  • Preparation of ancillary fund returns
  • Applications for private binding rulings

 

[1] Statement of Accounting Concepts SAC 1 Reporting entities are all entities (including economic entities) in respect of which it is reasonable to expect the existence of users dependent on general purpose financial reports for information which will be useful to them for making and evaluating decisions about the allocation of scarce resources.

 

 

Feel free to contact our team should you want to discuss this topic further and potentially have clients who may be in this situation.

 

 

This publication is not intended to be and should not be used as a substitute for taking taxation advice in any specific situation. The information in this publication may be subject to change as taxation, superannuation and related laws and practices alter frequently and without warning.  Neither BNR Partners Pty Ltd, our employees or agents are responsible for any errors or omissions or any actions taken or not taken on the basis of this publication.