FocusOn - Amendments to Associations Incorporation Act 1981 (VIC)

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The Victorian State Government implemented a programme to reduce red tape for not-for-profit community organisations and to streamline organisations’ interaction with government. Significant changes have now been implemented to the Associations Incorporation Act 1981 Vic (“the Act”), the law that regulates associations. The changes are comprehensive. Amendments to the Act received royal assent on 24 August 2010 and comes into operation on 1 December 2011.

It is important that the governance body consider the changes and how they might impact the association. The number of the amendments may require modifications to your association's rules.

We bring to your attention a few highlights from these amendments.

Statement of purpose

The requirement to have a separate statement of purpose no longer applies. The association’s purposes can be incorporated into their rules. Transitional provisions ensure that current arrangements are valid.

Trading in support of purposes

The restriction on associations trading in pursuance of their purposes has been removed. The prohibition on the distribution of profit or surplus to members and former members remains.

Annual Reporting Obligations - Introduction of tiers

The distinction of “prescribed” and “non-prescribed” associations will be removed and replaced with a three-tiered approach to reporting requirements based on total revenue (excluding income received as capital). This reduces financial reporting requirements for smaller associations.

Duties of Office Holders

Office holder duties have broadly aligned with the Corporations Act duties. The definition of “office holder” has been expanded to include employees who affect significant decisions and the public officer/secretary. The following new duties have been introduced and penalties on office holders of up to $20,000 may apply if breaches occur.

	Duty of care and diligence: This requires that decisions are made in good faith, not in self interest, and made after being reasonably informed. The office holder must also believe that the decision is in the best interest of the association.
	Duty of good faith and proper purpose: Office holders must exercise power in the best interests of, and for the purposes of, the association.
	Duty to avoid trading while insolvent: This applies where the decision to take on a debt makes the association insolvent or where the association is already insolvent when taking on a debt, and the decision maker was aware of the potential problem.

There are also new provisions that make current or former office holders liable for civil penalties if:

	They used information gained by their office to gain personal advantage or to cause detriment to the association or
	They use their position to gain advantage for themselves or to cause detriment to the association.

Indemnity of committee members

The association must indemnify each member of the committee, including the secretary against any liability incurred in good faith on behalf of the association in the course of performing their duties as a member.

Rights and liabilities of members

Among other rights of members, they have the right to inspect the rules of the association and minutes of general meetings. New details on notification and voting by proxy of general meetings have been included in the Act.

Miscellaneous administrative amendments

There are various administrative amendments being introduced, which include details on amalgamation of associations and updates on winding up of associations.

How will this impact your association?

This affects your association only if it was incorporated in Victoria. The changes come into effect on 1 December 2011. As there have been significant changes to the Act, we encourage you to consider the following:

	Review the changes in further detail
	Identify the tier that your association belongs to and clarify your reporting obligations
	Seek further advice if required and take appropriate action
	Update committee members and members of the association regarding the changes

Please note that due to these changes, the Model Rules may be amended. This will impact on your Rules of Association if you rely on these Model Rules. We expect that Consumer Affairs Victoria should notify you with further details on the Model Rules.

If your association is incorporated in another state we recommend that you contact the appropriate department charged with the oversight of incorporated associations as a number of these states are reviewing their legislation.

Other developments that will impact your association

It is also worth noting that the Commonwealth government has announced a new not-for-profit regulator to be known as the Charities and Not for Profits Commission (ACNC) which over time is intended to take over the responsibility for the oversight of not-for-profits.

Charities and Not for Profits Commission (ACNC)

The ACNC, initially in conjunction with the Australian Taxation Office, will take over the administrative function currently being undertaken by the various state jurisdictions (incorporated associations) and most likely the companies limited by guarantee currently under the jurisdiction of the Corporations Act.

The ACNC will also be responsible for determining a not-for-profit entity’s entitlements to tax concessions. The ACNC will also have a significant educational role in assisting the not-for-profit sector.

It is expected that not-for-profit entities will be under close scrutiny as the Commonwealth government consider the appropriateness of tax concessions offered to the various entities through income tax exemption, fringe benefits tax concessions and deductible gift recipient status.

The government has commissioned a number of reviews in relation to the oversight of the not-for-profit sector and the broader taxation system.

Commercial activities undertaken by a not-for-profit entity

The government also announced a number of changes in relation to the treatment of commercial activities undertaken by not-for-profit entities as part of the 2012 budget. The broad intention is to remove the tax concessions for certain commercial activities undertaken by not-for-profit entities.

What action is required?

These changes represent some of the most significant changes we have seen in the not-for-profit sector. The Australian Taxation Office has also increased their audit activity in the not-for-profit sector.

It is critical that not-for-profit entities consider the current tax concessions that they enjoy and ensure that they understand the basis for which they are entitled.

How can we help?

We are able to assist by advising on how these changes will impact your organisation. It is important that you understand and document the basis of the entities tax concessions and that you ensure you continue to be entitled to the status recorded with the Australian Taxation Office.

We would be pleased to discuss these issues with management or committee members.

 

Published : June 2011