Clements Dunne & Bell Melbourne

Federal Budget - Changes to the not-for-profit tax concessions

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.

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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