Special Edition COVID-19 update for registered charities and NFPs
We understand that like most other businesses, charities and NFPs are currently being bombarded with information about various changes arising from the COVID-19 pandemic and the economic downturn associated with it.
However, it is important for charities and NFPs to understand the various forms of financial and operational relief which are now available to them as they face adverse economic conditions, and probably also an increase in demand for their services. These include:
- Jobkeeper payments for charities and NFPs
- ATO cash flow boosts
- Relief from insolvent trading provisions
- Relaxation on restrictions on operations outside a charity’s usual purposes
- Extension of time for lodgement of Annual Information Statements and audited financial reports
- Indulgences for delaying or not holding Annual General Meetings
We have prepared a summary of these changes and how they impact on charities and NFPs in particular. To understand more about these changes and how we can help you, please click on the link below.
Jobkeeper payments for charities and NFPs
Charities that are registered with the Australian Charities and Not-for-profits Commission (ACNC) will be eligible for the Federal Government’s $130 billion JobKeeper Payment if they have suffered a 15 per cent decline in turnover as a result of COVID-19.
The JobKeeper payment will provide workers a flat payment of $1,500 per fortnight through their employer, for a period of up to six months. It will apply to workers employed as at 1 March 2020 who continue to be employed by their employer. This includes employees stood down due to the effects of COVID -19 prior to the announcement of the JobKeeper payment
The $1,500 payment is the equivalent of around 70 per cent of the national median wage.
The purpose of the payment is to allow:
- employers to cover wages of employees while businesses continue to be impacted by COVID-19;
- employees to retain their jobs and make it easier to restart once the impacts of COVID-19 (such as self-isolation and social distancing) are over;
- employees to continue to earn an income even though their hours have been reduced.
Other businesses, including not for profits, will only be eligible for the scheme if they have suffered a 30 per cent decline in turnover. The reduced threshold for charities to benefit from the scheme, as compared to other NFPs and other businesses will support a sector which is expected to have a significant increase in demand for its services as a result of COVID-19.
If a charity or not for profit considers it may be eligible for the JobKeeper payments, it should register its interest with the Australian Taxation Office at https://www.ato.gov.au/Job-keeper-payment/.
ATO cash flow boosts
The Federal Government has also enacted laws to provide temporary cash flow support to small to medium businesses, charities and NFPs that employ staff during the economic downturn associated with COVID-19.
The Australian Tax Office (ATO) will provide tax-free cash flow boosts of between $20,000 and $100,000 to eligible businesses, delivered through credits in the activity statement system, when eligible businesses lodge their activity statements. Businesses must lodge activity statements to receive the cash flow boost.
To be eligible, NFPs (excluding registered charities) must have:
- held an active ABN on 12 March 2020; and
- have an aggregate annual turnover of less than $50 million; and
- made payments to employees.
Charities registered with the ACNC are eligible, regardless of when they were registered, if they meet the other eligibility requirements. The ATO will use the aggregated annual turnover in the most recent previous year’s tax return to determine eligibility.
If an NFP or charity is not required to lodge a tax return, it may still be eligible if the ATO is satisfied that its aggregated annual turnover is under $50 million.
The initial cash flow boosts will be delivered as credits in the activity statement system from the Government’s announced date of 28 April 2020.
If charities/NFPs lodge quarterly, they will be eligible to receive the credit for quarter 3, March 2020 (lodgement due date 28 April 2020) and quarter 4, June 2020 (lodgement due date 28 July 2020). If they lodge monthly, they will be eligible to receive the credit for the periods March 2020 (lodgement due date 21 April 2020) through to June 2020 (lodgement due date 21 July 2020).
Eligible charities/NFPs that withhold tax on their employees' salary and wages will receive an initial credit (cash flow boost) equal to 100% of the amount withheld, up to a maximum of $50,000. The minimum credit will be $10,000, even if the amount required to be withheld is zero.
Charities/NFPs which receive initial cash flow boosts will also receive additional cash flow boosts, for the periods June to September 2020, equal to the total amount of initial cash flow boosts received. This will be delivered in either two or four installments depending on reporting periods.
Relief from insolvent trading provisions
Changes to the Corporations Act provide a temporary, six-month period of relief for directors from their personal liability to prevent insolvent trading if a relevant debt is incurred:
- in the ordinary course of business;
- during the period of 25 March until 25 September 2020, and
- before any appointment of an administrator or liquidator.
In applying this approach, the ACNC requires a charity to:
- ensure that its Responsible People (including directors and board members) are aware of the issue and have an achievable aim for their charity to return to viability when the COVID-19 crisis has passed; and
- inform its members and the ACNC if it is trading insolvent.
The ACNC will apply this approach to all charities registered with it, including associations incorporated under various state and territory laws, and not only charities that are structured as companies limited by guarantee. However, charities which are incorporated associations, and other charities that are not companies limited by guarantee, must continue to meet the requirements of the state and territory laws which also apply to them. These laws may not provide such relief.
Other duties still apply
It must be emphasised that directors and board members of charities must continue to mitigate the risks of falling into insolvency by taking reasonable steps to inform themselves about the charity’s current and ongoing financial viability as well as assessing the impact of incurring any further debts.
They must also think carefully about their duty to act in the best interests of the charity (including the interests of creditors when approaching insolvency), and whether undertaking new activities or incurring additional liabilities would be a prudent course of action, and consistent with their obligation to act with due care and diligence and in furtherance of the purposes of the charity.
Operating outside a charity’s purpose
A charity is required to pursue its purposes as set out in its constitution or other governing document, and may only undertake activities which align with those purposes, or are incidental or ancillary to those purposes. Although a charity may have expertise or resources that can assist with the response to COVID-19, its purposes may not allow it to provide this assistance.
However, for activities undertaken from 25 March until 25 September 2020, the ACNC will allow a charity to apply a broad interpretation to its purposes, as long as the charity is acting in good faith to assist in the response to COVID-19. The ACNC will regard an activity which assists with a COVID-19 response as aligning with a charity’s purpose if the charity:
- can reasonably show that its members would approve of the activity, and
- documents how it believes the relevant activity aligns with its purpose prior to undertaking the activity.
Before undertaking a new activity that assists the COVID- 19 response, a charity should review its purposes as set out in its governing document, and if the activity does not align with those purposes even allowing for a broad interpretation, the charity must amend its governing document to include that activity within its purposes.
Annual Information Statements
Many charities may find it difficult to lodge their 2019 Annual Information Statement (and, if required, their annual financial report) by their due date. This may be due to the inability to hold an AGM, or because of difficulties preparing or auditing their financial accounts.
The ACNC has determined that charities with AIS due dates between 12 March 2020 and 30 August 2020 now have an extension until 31 August 2020. This extension also applies to bushfire-affected charities that had previously been granted an AIS submission extension to May 2020.
No doubt this extension will be pushed back beyond 31 August should the impact of COVID-19 continue towards the end of this year.
It is important to note that this extension does not affect the obligations on charities which are incorporated associations to continue to report to their respective state and territory regulators. This includes many associations which are incorporated outside South Australia.
Charity meetings and AGMs
The ACNC has determined that if a charity delays or postpones its AGM because it cannot conduct it safely due to COVID-19, it will not take action against the charity unless there is evidence of wider non-compliance.
If a charity cancels its AGM due to social distancing requirements and an inability to hold it electronically, it should implement alternative ways of providing accountability to members. These might include sending newsletters or other communications to members and/or posting information on a member only portal on the charity’s website.
If the charity’s governing document does not provide for holding AGMs using technology, or allow for delays to the holding of AGMs, directors and board members should ensure that a proper record of a decision not to proceed with or delay the AGM (together with reasons for the decision) is recorded.
The ACNC is speaking to state and territory regulators to ensure they take a similar position for associations if an AGM is postponed due to COVID-19.
Need more help?
For more information and assistance in relation to the matters raised in this publication, please contact Johanna Churchill at email@example.com, Christina von Muenster at firstname.lastname@example.org or Steven King at email@example.com.