State and territory governments should refer their charitable reporting functions to the Australian Charities and Not-for-Profits Commission (ACNC) to avoid the very real possibility of ballooning charity red tape.

Catholic Health Australia, the nation's largest group of not-for-profit hospitals and aged care services, welcomed the scaling back of powers for the ACNC revealed in legislation released late Friday. The legislation will be examined by a Parliamentary Inquiry.

CHA chief executive officer Martin Laverty said the Parliamentary Inquiry "needs to develop options for state and territory governments to retain their regulatory oversight of charities while consolidating their reporting functions under the national umbrella of the ACNC".

"States and territories could retain authority but have the ACNC manage reporting on their behalf. If the Council of Australian Governments (COAG) doesn't deliver on this possibility, duplication will occur and red tape will increase," Mr Laverty said.

The Parliamentary Inquiry should debate the Government's proposal that future governance standards for not-for-profit bodies be announced by way of regulation. It should also determine the legal intent of the legislation's proposal to regulate "public trust and confidence", Mr Laverty said.

"The Government has sensibly proposed new governance standards be developed by way of consultation, instead of rushing untested laws through the Parliament in the next few months. Boards of directors of not-for-profits will be relieved," Mr Laverty said.

"Proposing governance rules be made by regulation creates challenges. Not-for-profit governance is prescribed by acts of parliaments, mainly through the Commonwealth Corporations Act or State and Territory Association Acts. This provides certainty.

"If governance rules are to be made by regulation, they are then easier to change. If governance rules are easier to change, not-for-profit governance could become more uncertain. This is a matter the Parliamentary Inquiry should consider.

"The Inquiry should also consider the legal meaning of 'public trust and confidence'. The commissioner will be given powers to warn, give directions to and deregister not-for-profits for breach of 'public trust and confidence'. We need to a clear understanding of what that means before it becomes law," Mr Laverty concluded.

Click here to read CHA's submission.

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