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Tuesday night’s Federal Budget included an announcement that
profits derived from unrelated commercial activities of Not-for-profits (NFPs)
will not be shielded under the income tax exemption with effect from 1 July
2011 stating that:
Under this measure, the NFP income tax concessions will only
apply to profits generated by unrelated commercial activities that are directed
back to a NFP entity to carry out its altruistic work. This means NFP entities
will pay income tax on profits from their unrelated commercial activities that
are not directed back to their altruistic purpose (that is, the earnings they
retain in their commercial undertaking).
Initially, the changes will affect only those unrelated
commercial activities commencing after 7.30pm on 10 May 2011. It is envisaged that the changes will have
application to pre-existing unrelated commercial activities after a
transitional period of unspecified duration.
At present, there is very little information available on the
detail of this change. The Government
has simply announced that it will "consult to determine the most
appropriate model for delivering these reforms".
As such, there is considerable uncertainty as to what
activities the changes will apply to and how.
Clements Dunne & Bell have historically advised NFP
clients in line with the legislation and existing case law, including the High
Court decision in the Word Investments case.
At this time, it appears that changes will reflect the Word
Investments precedent and as such, it would appear that these changes may not
have a significant impact on any NFPs operating in accordance with that
precedent. That is, our experience with
our NFP clients is that all income generated from commercial activities is
directed back to the altruistic purposes of the organisations.
Certainly, it appears clear that the carrying on of unrelated
commercial activities will not jeopardise a NFP’s entire tax exempt
status.
However, we must now await the legislation before we can
properly assess the impact. Rest assured
that we will keep you informed as to the progress of this matter.
As such, our advice for NFPs is to simply await the release
of further detail before conducting a review of their affairs.
As for any NFPs planning to commence activities with a
commercial element, we recommend that you contact our office to discuss your
specific circumstances.
In other budget related news, the Government has announced
that it will establish the “Australian Charities and Not-for-profits Commission”
(ACNC) to regulate the sector. It is
intended that the ACNC will commence operations from 1 July 2012.
The Government also intends to introduce a statutory
definition of ‘charity’ with effect from 1 July 2013. This statutory definition may affect a NFPs
eligibility to access tax concessions among other things.
Further information will be provided on these measures as it
is made available by the Government.
Please refer to the following website address for a copy of
the Treasurer’s press release on these measures.
http://assistant.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2011/077.htm&pageID=003&min=brs&Year=&DocType=
As always, please feel free to contact our office
should you wish to discuss these measures or the Federal Budget more
generally.
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