Question

Identify how the federal government regulates NFPs.

Answer 1

Introduction:-

NFP organisations are regulated by state and federal governments as state governments grant NFPs their legal existence and the federal government grants them tax-exempt status. The source authority for the state government is the department of state or the states attorneys general and others involved in the regulation of the not-for-profit sector of which have collaborated in establishing policies and best practices in the areas of incorporation, investments, solicitation, and volunteers. The source authority for federal governments is the Internal Revenue Service.

This report was commissioned by the Panel for Nonprofit Sector and examines structures where another organisation sets standards for, oversees, accredits or regulates other organisations. It focused on categorising the available models,155 drawing on descriptions of such regulatory entities.  

FORM OF REGULATOR:-

The Final Report concluded that, while a new national NFP regulator would provide the greatest benefits, this required a long process to ensure agreement and cooperation between Australian governments. In the interim, a Commonwealth-only regulator should be established as a separate statutory office within the ATO, reporting directly to Parliament through the Assistant Treasurer. This was envisaged as being ―quick and cost effective‖ and would retain the expertise of the ATO, although the Final Report also expected it to have a ―new organisational culture‖

FEDERAL ISSUES:-

The Final Report did not, however, discuss in detail how a national regulator might operate in the Australian federation. Currently, the Australian states and territories regulate many not-for-profits and related activities such as fundraising, and some tax concessions, while the Commonwealth regulates NFP corporations and provides the most significant tax concessions. The key advantages of a national regulator are centralisation and a one stop shop‘ agency for NFPs. There may be, however, constitutional, political and pragmatic difficulties in a comprehensive national regulator similar to the Charity Commission model used in England and New Zealand. 36 In Canada and the US, the federal tax authority operates as a de facto regulator. However, those examples, while instructive, are not determinative. In Canada, the regulation of charities is, by its Constitution, reserved to the provinces.37 This is not the position in Australia, although there is no distinct head of legislative power that would support charitable regulation by the Commonwealth. The US context is also quite different, as it has many more States and a very large NFP sector, both of which make a national regulator practically very difficult. In any event, the US embraces quite a different regulatory philosophy.

A very large part of a regulator‘s success depends upon its relationship with the sector it regulates. The confidence of the sector may well be undermined by the location of the regulator within the ATO, even if it is a temporary measure. There would also doubtless be concern that, if there is not the will now to establish an independent regulator, there will be even less political will once the impetus for reform has vanished.