Income tax exemption and other tax concessions can be attractive to many social enterprises. They could be the difference between the success and failure of a venture.
However, they usually come with strings attached. One common “string” is an obligation to register with the Australian Charities and Not-for-profits Commission (“ACNC”), and with that comes an obligation to lodge Annual Information Statements and Financial Reports (depending on the size of the organisation). These documents then become freely available to the public on the ACNC register.
For some social enterprises, this creates a dilemma. It may mean that competitors will have access to commercially sensitive information.
There are a few strategies that social enterprises can adopt to deal with this issue. Here are two examples:
The ACNC may withhold information from the ACNC register if it is commercially sensitive, and if it has the potential to cause detriment to an organisation. This is provided for in the legislation establishing the ACNC.
However, it depends on the Commissioner exercising discretion, and there are a number of things that the ACNC will take into account. These are set out in a Commissioner’s Interpretation Statement on Commercially Sensitive Information (CIS 2016/01). They include:
The starting presumption of the ACNC is that it is in the public’s interest to disclose information and not withhold it – so the onus falls on the business to show why it should be withheld.
We can help you with an application for withholding information from the ACNC register if you have concerns about this issue.
Some social enterprises operate using a group structure that comprises both for-profit and not-for-profit structures. This is known as a hybrid structure.
This is one way to utilise taxation concessions, as well as keep some information private. Profits can be generated in a for-profit entity (where the information is private), and then distributed to the Not for Profit entity (where there are tax concessions, and information is published).
There are several factors that you need to consider before adopting a hybrid structure, such as putting in place mechanisms to ensure that everything is “above board” and that there is not improper use of Not for Profit or charitable assets for private benefit or business purposes. However, it can provide a means to protect information and utilise valuable taxation concessions.
If you would like assistance with establishing a hybrid structure, or evaluating whether it is appropriate for your organisation, please contact us to discuss. We would be pleased to assist.