ANGLICAN DIOCESE OF MELBOURNE

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1 Background ANGLICAN DIOCESE OF MELBOURNE This policy governs the internal controls placed upon parishes and other entities in the Diocese that wish to avail themselves of the Australian Tax Office (ATO) deductible gift recipient (DGR) status that has been approved to allow building funds to raise tax deductible donations in respect to developments which meet the fund criteria. Application The policy applies to parishes within the Diocese of Melbourne or other entities approved by Archbishop in Council for the purpose of DGR funding having regard for the provisions of the applicable tax rulings and of the Church Funds Act and other policies. Purpose Deductible Gift Recipient (DGR) funding of Approved Education Facilities Policy Approved by Archbishop-in-Council. Effective: 29 May 2010 Compliance with this policy will allow parishes and other entities undertaking developments that have an educational aspect (as defined below) to benefit from the fund approval held by the Diocese, thus: - avoiding many of the compliance costs and timelines associated with ATO approval. - benefitting from the experience of others in establishing and managing public funds / projects. - allowing fund raising to be administered centrally (through Anglican Development Fund) to ensure a high level of compliance with stringent ATO regulations. The use of the centralised DGR and the ADF facilities will enable parishes and other entities to more effectively and confidently raise funds for their education facilities. Given the existence of these arrangements, parishes and other entities will not be granted approval for DGR status funds for education facilitates in their own right. This Diocesan policy should be read in conjunction with the applicable Australian Tax Office Tax Rulings and information guides to ensure complete understanding. Registry can assist parishes or entities in gathering information. 1

2 What is a Deductible Gift Recipient (DGR) Fund? The ATO provides that certain organisations can receive income tax deductible gifts. They are called deductible gift recipients (DGRS). DGR s are available in a number of different categories, one of which relates to school building funds. A school building fund will have deductible gift recipient status if: - it has the characteristics of a school building fund, and - it is endorsed by the ATO as a DGR. What are the characteristics of a School Building Fund? A school building fund has the following characteristics: - the fund is a public fund (see below). - The public fund is established and maintained solely for providing money for the acquisition, construction and maintenance of a building. - the building is used, or is to be used as a school or college, and - the building is used for that purpose by: - a government - a public authority, or - a non profit society or association. What is a Public Fund? A fund will be a public fund if the following requirements are satisfied: - the objects of the fund are clearly set out and reflect the purpose of the fund. - it is the intention of the promoters or founders that the public will contribute to the fund and - they invite such contributions the public or a significant part of it does, in fact, contribute to the fund. - the fund is administered or controlled by persons or institutions that, because of their tenure of some public office or their position in the community, have a degree of responsibility to the community as a whole (except where it is established by a government or quasi governmental authority). - the fund operates on a non profit basis that is, money must not be distributed to members of the managing committee or founders of the fund, except as reimbursement for out of pocket expenses incurred on behalf of the fund or as proper remuneration for administrative services. - gifts and deductible contributions made to the fund must be kept separate from any other funds of the sponsoring organisation (if there is one) a separate bank account and clear accounting procedures are required, and - should the fund be wound up, any surplus money or other assets must be transferred to some other gift deductible fund maintained by the DGR. What is a School or College? The definition of a school or college is one which provides organised instruction or training on a regular or continuing basis. The instruction is generally provided in class form. 2

3 It includes people assembling for regular study of some area of knowledge or activity and extends to religious as well as secular instruction. Factors that are relevant in deciding whether there is a school or college include: - courses provided - subjects taught - method of assessment used and certificates awarded - teaching qualifications required of instructors, and - number of pupils. If the dominant function is not instruction or training, it is not a school or college. Bodies that have been accepted as schools or colleges include: - Sunday schools - adult religious education centres - Bible study centres - pre school kindergartens that are not primarily for child minding. What is a building used as a School or College? The term building includes one building, a group of buildings, and a part of a building or additions to a building. The building should be a permanent structure, usually with walls and a roof. It can include such things as: - an indoor swimming pool (surrounded by walls and a roof), provided that this is an integrated part of a school facility. - an assembly or meeting hall. - a multi purpose facility, where at least 50% of time is spent in educational pursuits as defined above. Items which are not buildings are: - tennis courts, playing fields, covered playing areas, car parks and landscaping. - land acquired for the reason of providing recreational space, such as a sports ground. - furniture, training equipment and computers, unless they form part of the fixtures of the building (in other words a permanent part of the building itself). Use is important: The ATO provides for an example of how its rules on use of the building can affect its classification. For example, a building used as a school or college every weekday and a place of worship on Sundays will qualify as a school or college building. However a hall used for religious instruction of Sundays only and for community and social activities on other days of the week would not be a school or college building. It is therefore important to consider the following: - the use of the space overall (both planned educational activities and other uses). 3

4 - the percentage of time devoted to educational activities to ensure that it easily exceeds the 50% threshold. - The percentage of the building devoted to such activities. For example, education may take place in 75% of the meeting rooms. These would qualify (subject to other factors) and further consideration could be given to ancillary facilities such as kitchens, toilets and break out space. Such consideration could not exceed that determined for the education space itself. What can a school building fund pay for? A school building fund is solely for providing money for acquiring, constructing and maintaining the school or college buildings. It cannot be used for any other purpose. Expenditure on capital improvements and maintenance, as well as installing and maintaining fixtures, are accepted outlays of a school building fund. Costs payable from a school building fund include: - purchase of land where there are definite plans to construct a building to be used as a school or college. - construction and purchase expenses and associated financing costs. - painting and general maintenance of school buildings and building insurance. - expenditure on carpets that are fixed the floor of the school building. - administration costs of the fund, including bank fees, accounting costs and fund raising expenses. The relationship between the Diocese, Parish or Entity and the ATO: The ATO has approved the Diocesan DGR School Building Fund to lift the administrative burden and cost from parishes and other entities that are developing education facilities which meet the requirements. This approval by the ATO, allows Archbishop in Council (AiC) to approve eligible developments, thus removing the need for parishes and other entities to separately apply to the ATO. Importantly though, this approval places a compliance burden upon the Diocese to ensure that applications received comply fully with the provisions of the Tax Act. Additionally this approval does not in any way lessen the requirements on parishes or other entities to ensure the highest level of compliance and administration. All will be subject to regular and thorough audit processes by the ATO. The role of local founders within the Parish / entity: The ATO regulations governing the operation of a DGR facility calls for suitably qualified local founders to administer the DGR and ensure its ongoing compliance. The ATO refers to these founders as trustees. This policy uses the expression founders to ensure a distinction between the role of founders and that of the Trustees of the Melbourne Anglican Trust Corporation, who carry ultimate responsibility to the ATO. Local founders should: 4

5 - ideally have some background in education. - have standing within the congregation and ideally be independent from wardens and vestry or such other governing bodies as may be appropriate. - be prepared to oversight and certify the operation of the DGR fund from both a financial and education perspective. - ensure that the operation of the education facility is open, transparent and in line with the documented curriculum and objectives of the the public fund. - be able to represent the parish / entities interests in discussions with the ATO and be accountable whenever an ATO audit of the DGR fund is undertaken. The local founders have the role of administering the DGR fund at the local level and ensuring is compliance with ATO and Diocesan Policy. Because of the obligations outlined above the following aspects of policy will be strictly enforced. 1 Administration of DGR Funds - Approval of individual projects for DGR status will only be made following application to the Registry. - Parishes or other entities are to seek approval of Archbishop in Council to establish DGR status for their school building fund (see submission requirements below). - All school building funds are to be administered through an account held with the Anglican Development Fund. All receipts of donation and payments are to be made through this account. - Parishes or other entities making submissions to AiC are to be guided by the ATO requirements. A submission for consideration by AiC should include certification by an approved accounting firm that the application submitted complies with all known ATO requirements. Such certification is to be obtained prior to submission to AiC. The cost of this certification is to be borne by the parish or entity making the submission 1. Submissions to AiC should include the following information: - Background to the building development being undertaken. - Description of the nature, purpose and amount of funds to be raised using the DGR status. - An application for DGR status (addressed to the Finance Committee) in the same format as that required by the ATO signed by the wardens (or equivalent) and the proposed founders to the fund (see below). - Explanation and Plans showing the Education components of the development. - A Quantity Surveyors certification as to the build cost of the educational component of the development. This should be separately certified by the Quantity Surveyor rather than derived from broader estimates documentation. - Details of the curriculum plan, teaching schedule, student numbers and qualifications of those teaching / instructing. - Details of the local founder arrangements including background of the local 1 If the application is successful, these costs can be met from the fund itself 5

6 founders, their responsibilities and an undertaking that they will comply with all ATO provisions in addition to supplying an annual financial and compliance report to the Diocese (Finance Dept). - Details of the administration of the fund and the interaction between the parish or entity and the ADF, where the funds will be administered. - All brochures / material that is proposed to be used in the gathering of donation under the DGR. - Certification from a suitably qualified consultant (CA or CPA) that in their opinion the information provided meets the requirements of the ATO in respect to an application for DGR status. Such certification must be submitted with the application 2. All applications should be accompanied by evidence of Regional Council approval (minutes of the applicable meeting) and should be endorsed by the Regional Bishop. It is expected that a prior condition of any application will be the approval of the Building and Property Committee s of the Diocese to the building redevelopment. In the case of applications from parishes, it is important to note that AiC approval of a DGR facility under this policy, does not also mean that the granting of an Approved Building Fund. Approved Building Funds are subject to separate policies and criteria. Provided that the project meets the criteria for an Approved Building Fund, AiC endorsement for both the DGR status and Approved Building Fund can be sought simultaneously. Should the project not meet the requirements for an Approved Building Fund it may still be eligible for DGR status. An application for DGR status can still be made in such circumstances. 2. Annual Reporting Requirements Within 60 days of each Annual General Meeting of the parish / entity following the establishment of a DGR fund, the local founders are required to furnish the following: Financial Report: This report should detail the income and expenditure for the prior year including details of: - Total donations received - Detailed expenditure statement - Profit and Loss Statement - Balance Sheet for the fund The Financial Reports should also include verification by the founders that the fund has been audited by an appropriately qualified auditor. 2 The Registry Office can assist in the identification of such suitably qualified consultants 6

7 Compliance Report: This report should detail compliance with the curriculum plan, teaching schedule and other significant components that underpin the granting of the DGR status. It should also detail any curriculum development, enhancement and significant changes during the period. Where a parish has during the period been subject to an external audit by the ATO, details of the audit, any findings and recommendations must also be included. The report should be signed by the founders who in doing so acknowledge their responsibilities in terms of compiling with the relevant ATO legislation. Failure to comply with requirements: Unfortunately failure to comply with these requirements could result in the DGR status of the Diocese being withdrawn by the ATO, a position that would impact all such projects across the Diocese. To avoid such circumstances arising, should these requirements not be met, and upon notice of the need to comply no response is forthcoming, the Registry will recommend to the Finance Committee and AiC that DGR status for the parish or entity be revoked. This will have the effect of removing the DGR status for donors to the fund and of potentially exposing the fund for Parish Assessment purposes. Application of this policy: This policy is applicable as at 30/4/2010 following endorsement by the Finance Committee and adoption by AiC. The policy does not apply retrospectively to parishes which have been granted DGR status in the past (i.e.: not under the blanket DGR now in force), although the provisions of the policy are strongly recommended to all parishes as best practice. Review Date The policy is to be reviewed one year following approval or beforehand if deemed necessary. 7