What are related party transactions?
From the 2023 Annual Information Statement onwards, charities are required to report on their related party transactions. What is this transaction though? What must charities report on? And why was this introduced?
Why have related party transactions?
A charity’s financial decisions must be made in its own best interests, and not in the interests of those that are closely connected to it, i.e., related parties. Therefore, to protect the charity and ensure there are no conflicts of interest, deals between these parties must be made transparent to maintain accountability. The ACNC has standards for ensuring the behaviour of a Responsible person of a charity is appropriate, such as acting honestly and fairly, and not misusing their position for their own gain. These new reporting requirements were introduced to uphold and strengthen these standards.
Although not required, it is recommended that policy be implemented to deal with such transactions, so they are reported appropriately.
What are related parties?
The meaning of related parties differs between small, and medium and large, charities.
Small charities:
A small charity has an annual revenue of under $250,000. For small charities, a related party is a person or organisation that is connected to the charity and has significant influence over the charity, strategically or financially. This may include:
- a charity’s Responsible People and their close family members
- a charity’s senior management and their close family members
- other people or organisations that can influence a charity’s decision-making.
Medium and large charities:
Medium charities have an annual revenue of $250,000 or more, but under $1 million, and large charities have an annual revenue of $1 million or more. Related party transactions for these charities are defined under the Australian Accounting Standards Board (AASB), under s124 Related Party Disclosures; both this and the ACNC website provide a comprehensive outline of what a related party is for medium and large charities.
What does a transaction constitute?
A transaction means more than a financial payment. It can mean the transfer or exchange of all resources and goods, such as property, loans, guarantees, investments, etc.
Exceptions to these requirements
Exceptions to these reporting requirements apply to Basic Religious Charities, Ancillary Funds and Companies. For Basic Religious Charities, they are not required to answer financial information questions in the Annual Information Statement or submit financial reports. Therefore, they do not have to report related party transactions. The Ancillary Fund Guidelines prohibit certain related party transactions, and for companies, there may be additional related party transaction requirements they must report. For more detail, see the ACNC website.
For more information
For more details regarding related party transactions, the ACNC website has a comprehensive overview of all the aspects involved in it, including a template for registering related party transactions.
