A closer look at related party reporting for charities
Not-for-profit organisations and charities registered with the Australian Charities and Not-for-profits Commission (ACNC) often engage in agreements and arrangements with individuals or entities with whom they share pre-established connections or a common interest, particularly when starting out.
What is a related party transaction?
Related parties are individuals or organisations that are connected to the charity and have (or could have) significant influence over the charity. This can include a charity’s directors, board members responsible persons and close family members.
A related party transaction usually involves a transfer of resources, services, or obligations between the charity and related parties.
Public companies limited by guarantee are regulated by both the Corporations Act 2001 (Cth) (Corporations Act), as well as the ACNC. However, it is important to note that the Corporations Act only captures related party transactions that involve a ‘financial benefit’ to a related party (such as a director, spouse or certain relatives). In contrast, the ACNC has a broader reach and regulates the transfer of resources, services and obligations from registered charities to a related party.
Charities may enter related party transactions for various reasons which include business efficiency and convenience, resource sharing and access to discounted goods or services. Related party transactions we frequently observe include:
loans to/from a related party;
purchases, sales or donation of goods or services to/from a related party;
fees paid to a related party for the provision of goods/services (including at a discount);
salary/wages paid to a related party’s relative(s);
transfer of charity property or assets to a related party;
Managing your related party transactions
Improperly managed related party transactions pose a governance risk to charities. Specifically, such transactions can often lead to potential, perceived or actual conflict of interest which may compromise the integrity and conduct of the charity.
Related party transactions are not necessarily prohibited or illegal. However, it is increasingly important to manage them well and have appropriate strategies and mechanisms in place to ensure compliance with both the ACNC’s ‘Governance Standards’ as well as the Corporation Act 2001 (Cth) (for charities that are public companies limited by guarantee).
Reporting reminder
From July 2023, registered charities (except Basic Religious Charities) must report on related party transactions as part of their Annual Information Statement.
Charities who fail to abide by such requirements are at risk of having their ACNC registration revoked.
As with all reporting, having a robust and well-understood policy and maintaining good records will put you in the best position to report accurately.
If you require assistance or wish to obtain further advice regarding related party transactions compliance and management, please contact Paul, Hugo or Ben.
Paul Gray
Principal
T: 03 5225 5231 | M: 0414 195 886
E: pgray@ha.legal
Hugo Le Clerc
Associate
T: 03 5225 5213
E: hleclerc@ha.legal
Ben Smith
Graduate Lawyer
T: 03 5225 5262
E: bsmith@ha.legal
