Newsletters

Not-For-Profit Newsletter – June 2014

Published on June 2, 2014 by Josephine Heesh, Michael O’Dea KCSG AM and Patricia Monemvasitis

Welcome to our June 2014 not-for-profit law newsletter. As we rapidly approach the end of this financial year, we report on some new developments ahead of the new financial year. They include:

1. The Federal Government’s proposed cut to legal aid funding in its recent budget.
2. Reform in the manner in which payments will be made for aged care services by new residents post 1 July 2014.
3.  Updates on mandatory disclosure obligations and new changes in retirement village contracts for operators.
4. The ever growing Crowd Funding economy and the impact of regulatory reform concerning disclosure in Australia and the US.
5. Ongoing ACNC issues including the controversial issue – will the ACNC Act be repealed?
6. The Hunger Project Case appeal where the decision of the Lower Court was upheld, confirming that there is no technical requirement that the level and nature of delivery of charitable relief by an entity must be hands on, so as to qualify as a Public Benevolent Institution.

In our Good News Section, we report on some good and not so good news for our primary and secondary school communities. Whilst the recent High Court challenge to Commonwealth Chaplaincy Funding has been successful with a finding that Federal Chaplaincy funding is unconstitutional, the Federal Government has expressed its commitment to the continuation of Chaplaincy Funding for schools.

We hope you enjoy our newsletter and wish you all the best in closing off for this financial year and in the new financial year.

The Carroll & O’Dea Not-for-profit Team

Federal Budget 2014 and Funding Cuts to Legal Aid

The Federal Government has announced that it will be reducing Commonwealth funding for Legal Aid nationally by up to $15 million in its most recent budget. The funding changes come at an untimely moment following the Productivity Commission’s inquiry into Access to Justice Arrangements. The proportion of Commonwealth funding for the Legal Aid Commission will now represent 35% of its funding following the changes.

A number of peak legal bodies have expressed concern with the funding changes and their impact on access to justice in Australia.

• President of the NSW Bar Association, Phillip Boulton SC has commented:
  “These cuts will further increase the numbers of unrepresented litigants coming before our courts. It is well established that self-represented litigants increase the demand on time, costs and resources of the court system”.
• The Law Council of Australia has also expressed its concern that the reduction of legal aid funding will not only exacerbate the strain of frontline legal aid staff by imposing more stringent means tests, but will also result in increased downstream costs for the economy and society as a whole. Its President, Mr Michael Colbran QC has called for an increase in the Commonwealth funding, as well as the readjustment of funding arrangements to reflect a 50-50 split between Federal and State/Territory funding of legal aid arrangements.

The funding changes will certainly have an adverse impact on those less well off to fend for themselves at a time of great need. The provision of Pro-bono legal assistance by private firms and solicitors will increasingly be essential to improving access to justice for disadvantaged clients.

Carroll & O’Dea provides legal assistance on a Pro-bono basis in accordance with our Pro-bono policy. We welcome all enquiries.

Authors: Michael O’Dea, Patricia Monemvasitis and Josephine Heesh

Aboriginal Legal service loses funding

The Federal Government recently announced that they will cease funding the Aboriginal Legal Services’ Prisoner ThroughCare program, effective as of 30 June 2014. The purpose of the program, which was implemented at the recommendation of the Royal Commission into Aboriginal Deaths in Custody, is to reduce Aboriginal imprisonment rates by providing those leaving prison with “support”, and assisting with their “rehabilitation and their return to families and communities.”

Explaining the Government’s decision to axe the program that costs $500,000 annually, Minister Scullion said “In a competitive funding environment, the reports indicated the service was not delivering strong enough outcomes on the ground to warrant further government investment”.

The decision came as a “shock” to the Aboriginal Legal Service. Phil Naden, CEO of the Aboriginal Legal Service (NSW/ACT), considers the work done by the Prisoner ThroughCare staff as “vitally important”. Speaking on the Government’s decision, Mr Naden argued that “Cost-saving measures are one thing, but a direct hit to frontline services – losing the whole Prisoner ThroughCare unit – well that’s just disappointing.”

Read the Aboriginal Legal Services’ Media Release here.

Aged care law reform for new residents from 1 July 2014
Changes to accommodation payments effective 1 July 2014

Are you a hostel or nursing home Aged Care Provider? Or a Resident considering entering into such an Aged Care Facility? If so, we alert you to some changes in the Aged Care (Living Longer Living Better) Act 2013, which will become effective for new residents from 1 July 2014.

Existing residents will remain governed by their current Agreements with their Aged Care Provider.

The summary of the changes:

• Aged Care Providers are now required to advertise their accommodation on the MyAgedCare website, their own website (if they have one) and in written documents given to the Resident. The advertisement must be published in advance and identify the key features of rooms, price and the payment options for the Resident.
• Aged Care Providers will now have to seek written approval from the Aged Care Pricing Commissioner where the prices advertised for the accommodation exceed $550,000.00.
• Aged Care Providers will no longer withhold retention amounts from accommodation bonds.
• There are now three types of Aged Care Facility accommodation payments which will apply regardless of whether the accommodation is high care or low care. The three options available to new residents for payment are:

1. A lump sum payment known as a “Refundable Accommodation Deposit” (previously known as an accommodation bond).
2. A periodic payment known as a “Daily Accommodation Payment”.
3. A combination of both the Refundable Accommodation Depositand Daily Accommodation Payment.

• Residents will have up to 28 days after entering the Aged Care Facility to decide the method of accommodation payment they wish to use.
• There is now a cap on the amount of interest that can be charged by an Aged Care Provider on any unpaid fees. This is known as the Maximum Permissible Interest Rate (MPIR) and is published by the Department of Social Services every three months.
• There are new means testing arrangements to assess Residents who may be eligible for the Government’s accommodation supplement.
• Fees for services (a Basic Fee and a Means Tested Fee Subsidy) are also payable, the actual sum varying for each resident depending upon their income and assets.

Aged care providers should now ensure that all of these changes are recorded in all Resident Care Services Agreements intended for signing after 1 July 2014.

If you require any assistance with reviewing your standard agreements we can assist.

Authors:Josephine Heesh and Jessica Lobow

Disclosure requirments for Retirement Village Contracts

Since 1 October 2013, Retirement Village operators have been required to issue certain mandatory disclosure documents to incoming Residents, being:

• the standard form retirement village contract,
• a general inquiry document; and
• a Disclosure Statement.

These mandatory documents have been developed by NSW Fair Trading and can be adapted by operators, so long as any additional terms do not conflict with the Retirement Villages legislation or regulations. Penalties may be imposed on operators who do not adhere to these mandatory requirements.

Retirement Village Operators who have not as yet implemented these changes should be reviewing their disclosure practices.

Following are some further mandatory changes to retirement village contracts that will need to be recorded in agreements post 4 July 2014:

1. The date from which Residents are found to be “registered interest holders” should be changed to the actual date they acquired the interest, for example, the date of a Lease, (a registrable interest), and not the date the Lease is registered. This date is relevant to calculate any capital gain or capital loss to which the Resident is entitled.
2. Alteration of the definition of “capital gain” to provide clarity, so that sales costs are no longer associated with the payment or calculation of the capital gain.
3. Alteration of the definition of “prescribed CPI Variation” in respect to the date at which the rate of CPI is calculated. The amendment now requires the applicable rate of CPI will be the CPI published most recently before the date that was 12 months before the date of the proposed variation.
4. Removal of the words “following the sale of the premises” from s.180 of the Act and replacing them with “under a village contract” means now that a Retirement Village Operator must repay an ingoing contribution within 14 days where an event arises in accordance with that section e.g. departure, death, termination of the Agreement, and this obligation should be specified in all Retirement Village Contracts going forward.

Authors: Josephine Heesh and Jessica Lobow

Crowd Funding – Regulatory Requirements

In the Business Matters newsletter of September 2012 we identified that crowd funding was a popular practice where people could use the internet to fundraise tapping into extensive contacts “known” via the internet. We then commented that ASIC had, until then, tolerated that practice but had warned that there may be some breaches of regulatory laws if the model strayed beyond a simple exchange of a reward or a product for money donated for example, a CD or the object of the fundraising exercise.

Crowd funding could potentially breach the following:

• The financial services licensing and disclosure requirements;
• Advertising for financial products requirements;
• Fundraising disclosure regimes; and
• Management investment schemes laws.

Further to issues raised in our earlier article, we report comments in an article by Daniel Goldberg and Ryan Doherty, Law Society Journal, Volume 50, October, 2012. They expanded upon the discussion by noting foreign fundraising platforms should become particularly alerted to crossing the jurisdictional boundary and creating or rather delivering a financial service to Australian residents.  If a reward is of a financial character, for example, a share in a new business or a chance to receive royalties from a musical or film offering, then that return may be classified as a financial product.

Disclosure requirements for any type of fundraising within Australia require extensive information about the nature of a venture, its start up time, the amount of money being borrowed, the delay in any returns being generated and the nature of any security that the donor has for participating in the scheme.  This type of arrangement could also constitute a managed investment scheme which again is highly regulated and needs to be registered and approved.

Any promise on a crowd funding website should not mislead or deceive potential donors.

Another aspect of the crowd funding model of note to be determined in this new economy is the role of the platform operator in terms of the perceived level of participation of such a platform operator and its compliance obligations. The platform promoter takes no role in the activity.

Law reform will be needed if more sophisticated financial returns are guaranteed to contributors but for the time being, the social media community has adopted the model to fund projects with non-financial rewards on a relatively small scale and are relying on previous reports from other members to identify any unacceptable promoter who might be attempting fraud.

The crowd funding system has moved on and regulation has been imposed in some jurisdictions to require some disclosure by promoters.  In Australia, for small not-for-profit organisations, the concept is ideal but we alert them to watch for regulatory development to ensure compliance. The US model provides a good example of what we might expect to see here.

Where you do not keep abreast of developments in the law, it is very easy to inadvertently breach regulations and attract the attention of the ASIC watchdog. Charities can run a fundraising appeal provided they hold a fundraising licence, in NSW, under the Charitable Fundraising Act, 1991(exceptions apply for religious organisations).

Where a charity, without a licence, collects funds from members, this activity may represent delivery of financial services: again requiring a licence, this time a financial services licence.

There is an exemption for charitable organisations which seek to raise funds from donors or members who are willing to deposit funds with the organisation to advance the objects of that organisation, but even securing such an exemption requires the preparation of a document which acts to disclose to donors how their money will be used and the terms upon which it will be repaid if at all.

We would be happy to discuss with you further your fundraising models and the applicable disclosure requirements.

Authors: Josephine Heesh, Troy Rollo, and Charles Harrison

ACNC Update

The charity passport system is now up and running. ACNC can now pass on to other government agencies:

• information which furthers the purposes of the ACNC Act, for example, by reduction of red tape duplication; and
• where ACNC agrees the information will assist the other agency to exercise its functions and powers

The information will have been placed on the ACNC register by the usual registration or updating process, and through filing of annual information statements and financial reports usually online by the charity using the charity portal.

Author: Josephine Heesh

The question everyone is asking: Will the ACNC Act be repealed? (What doe we need to do in the meantime?)

After considering more than 150 submissions, the Senate committee investigating the Bill to revoke the ACNC Act, have delivered a majority report, favouring the repeal of the ACNC Act.

This has created significant objection from the ACNC, the chair of the Advisory Committee, Robert Fitzgerald, and many charities who made submissions: over 80% of the submissions were in support of retaining the ACNC.

We now await passing or defeat of the Bill repealing the ACNC Act , and if the Bill is passed, the legislation to establish a National Centre of Excellence, will be the next material to review. During July and August the Department of Social Services will consult with charities and civil society organisations on the proposed replacement arrangements for the ACNC. Submissions will be invited on a proposed options paper which will deal with translating various functions to ATO and ASIC.

Until the Bill’s fate is determined, all charities must continue to observe the ACNC Act, and ensure:

• First annual information statements (AIS’s) are lodged by 30 June 2014 (if their year end was 31 December), or sooner lodgement, for charities whose year end was 30 June, as those AIS’s were due 31 March 2014.
• First annual financial reports (AFS’s) are lodged by 31 December 2014 (if year end is this 30 June) and for charities whose year end is this 31 Dec, first AFS’s are due 30 June 2015. It is possible to lodge an AFS before these deadline dates if the accounts have been done.
• If you have not lodged your AIS, and have not heard from ACNC, you may be on a list of “lost charities” held by ACNC.  If contact was not made with ACNC before 24 June 2014 deregistration would occur.

Author: Josephine Heesh

The Hunger Project – Appeal – Good news for charities, funding providers of charitable relief commissioner of Taxation v Hunger Project Australia [2014] FCAFC 69.

On 13 June 2014, the Full Federal Court decided against the Commissioner in his appeal from Perram J’s decision. More information about Perram J’s decision can be found here.

In the Lower Court, Perram J had determined that an entity like Hunger Project Australia, which was not directly involved in charitable aid activities like relief of poverty, (instead being substantially involved in fundraising operations for such activities), could nonetheless qualify as a Public Benevolent Institution (PBI).

On appeal the Commissioner tried to argue that:

1. The ordinary meaning of “public benevolent institution” is “an institution that gives or provides relief directly to those in need” based on passages from Perpetual Trustee (1931) 45 CLR 224.
2. Statutory interpretation of the Fringe Benefits Tax Assessment Act 1986 (Cth) and Estate Duty Assessment Act 1914 – 1928 (Cth) supports a view that there is a distinction between direct provision of aid (qualifying for PBI status) and indirect provision of aid (which does not qualify).
3. Decided cases such as Perpetual Trustee Co Ltd v Federal Commissioner of Taxation (1931) 45 CLR 224, Australian Council of Social Service Inc v Commissioner of Pay-roll Tax (NSW) (1982) 13 ATR 290, and Commissioner of Taxation (Cth) v Royal Society for Prevention of Cruelty to Animals [1993] 1 Qd R 571 consistently point to the distinction being utilised to restrict PBI status to only those entities directly providing the charitable aid.
4. The primary judge erred in relying on Word Investments Federal Commissioner of Taxation v Word Investments (2008) 236 CLR 204 where the statutory expression “charitable institution” has a technical meaning different to the ordinary meaning that determines the concept of “public benevolent institution”.)

The Full Federal Court (Edmonds, Pagone and Wigney JJ) rejected all four of the Commissioner’s arguments ruling that there was no authority to suggest that there is a single or irrefutable test or definition for what constitutes the ordinary meaning of a PBI. The Court specifically noted the distinguishable factual considerations in cases that seemed to support the directness requirement like ACOSS (where the entity was merely providing advice, research and information rather than dispensing relief) as opposed to the provision of funds raised for the use of those funds by others.

The appeal confirms that there is no technical requirement that to qualify as a PBI, an entity must be directly engaged in the provision of aid or other relevant charitable relief and that  there is no basis to exclude an institution like Hunger Project Australia, (a fundraiser) from being a PBI. This decision provides greater flexibility to charities operating via more modern structures involving global networks with operational divisions.

Authors: Josephine Heesh and Kim Leontiev

Good News

Abbott Government committed to National School Chaplains Program

The Abbott government has reaffirmed its commitment to funding the National School Chaplains Program notwithstanding the High Court’s ruling that the legislation supporting the funding agreements was unconstitutional. See link to judgment: Williams v Commonwealth of Australia [2014] HCA 23.

The High Court decision was made in relation to proceedings challenging the funding agreement for chaplaincy services between the Commonwealth Government and the Scripture Union of Queensland (“SUQ”). The proceedings were originally brought in 2010 by Ronald Williams a father of four children attending the Queensland school which was receiving chaplaincy funding. Mr Williams challenged the executive power of the Commonwealth to fund the program under Section 61 of the Constitution. In 2012, the High Court ruled in favour of Mr Williams prompting the then Gillard government to enact legislative amendments (Financial Framework Legislation Amendment Act (No 3) 2012 (Cth) (“FFLA Act”) seeking to provide legislative support for the funding. The current ruling relates to the fresh proceedings brought by Mr Williams challenging the FFLA Act, this time as an invalid exercise of legislative power under the Constitution.

The High Court unanimously decided that the FFLA Act provisions were not, in their relevant operation, supported by a head of legislative power under Section 51 of the Constitution. The court identified that providing the services of a chaplain or welfare worker for the purposes described in the Financial Management and Accountability Regulations 1997 (Cth) (“FMA Regulations”) could not constitute a provision of “benefits to students” within the meaning of Section 51 xxiiiA of the Constitution. The Court observed that although “benefit” could comprise a service rather than only a grant of money, the benefit sought to be provided by the Chaplains Program was not a benefit providing material aid to provide for human wants of students in the sense established by the Alexandra Hospital Case.

The Government has promised to review the judgment carefully, which (according to academic commentators), potentially jeopardisestribution within 14 days where aams: Link and to make an appropriate response.

Their Honours noted that importantly, the benefit was not directed to a consequence of being a student in that while all students may use this benefit, and perhaps some should, none must use it.

It is expected that the Government will seek to continue the School Chaplaincy Program by provision of the funding through State grants under Section 96 of the Constitution to those schools that welcome this program.  We await this action, else we might more appropriately call this development the “Not so Good News”?