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Non Profit Sector Reforms

This Year's Federal Budget slated some very significant reforms for the not-for-profit sector including the creation of a new regulatory body, a statutory definition of a “charity” and changes to the taxation of “unrelated commercial activities” of not for profit organisations.

 

A brief summary of the status of each of these reforms follows.

Not-for-profit Regulator

The Australian Charities and Not-for-profits Commission (ACNC) will be an independent statutory body that will be charged with the responsibility of regulating the entire not-for-profit sector.

 

A taskforce headed up by Susan Pascoe, AM has been set up to work towards the intended commencement date for the ACNC of 1 July 2012.

 

Further information on the ACNC and the taskforce’s activities can be found at:

 

http://acnctaskforce.treasury.gov.au/content/content.aspx?doc=home.htm

 

Definition of Charity

The Government has announced that it will introduce a statutory definition of Charity that will have application across all Commonwealth laws from 1 July, 2013.

 

The definition of Charity is a very important development as amongst other things, it will impact upon a not-for-profit organisation’s ability to access tax concessions.

 

Under the current law, the meaning of Charity is derived from over 400 years of common law and is at times ambiguous. The Government intends to introduce a statutory definition of Charity in the hope that this will provide greater clarity and certainty.

 

The Government has recently released a consultation paper on the statutory definition of Charity on 28 October.  A copy can be found at:

http://www.treasury.gov.au/contentitem.asp?NavId=&ContentID=2161

 

We encourage you to read the consultation paper and to consider making a submission by the closing date of 9 December.

 

Changes to the Taxation of Commercial Operations of NFPs

In the Federal Budget the Government announced an intention to “better target” tax concessions for not-for-profit organisations.

 

In essence, the Government is looking at how to limit tax concessions to altruistic activities of not-for-profit organisations and to tax profits from “unrelated commercial activities” that are not directed back to a not-for-profit’s altruistic purpose(s).

 

We refer you to our previous newsletter for further information on this budget announcement.

 

http://www.cdb.com.au/News/federal-budget-changes-to-the-not-for-profit-tax-concessions.html

 

A consultation paper on this budget announcement was issued in May and closed for comments in July.  There has since been a number of consultation forums and Treasury is now developing implementation options.

 

There will then be ongoing consultation as we move towards the drafting of a Bill and the enactment of legislation.

 

A copy of the consultation paper can be found at:

http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=2056

 

 “In Australia” Special Condition for Tax Concessions

A consultation paper was issued in July and closed for comment in August.

 

The consultation paper deals with the matter of re-stating the “in Australia” condition for tax concession entities to ensure that Income tax exempt not-for-profit organisations and Deductible Gift Recipients (DGRs) must generally be operated principally in Australia for the broad benefit of the Australian community.

 

A number of issues were raised in the consultation process.  The Government has acknowledged that the draft legislation had some issues and has announced that it will consult on a second exposure draft of the legislation later in 2011. 

 

Tax Ruling TR 2011/4 Income Tax & Fringe Benefits Tax: Charities

Whilst the Government is pursuing its reform agenda, the current law continues to apply.  The ATO finalised draft tax ruling TR 2011/D2 as TR 2011/4 in October.

 

This draft ruling replaces TR 2005/21 and reflects recent developments in this area such as the Word Investments and Aid / Watch cases.

 

This ruling deals with the meaning of Charity when seeking to apply the Income Tax and Fringe Benefits Tax exemptions available to not-for-profits under the current regime.

 

A copy of TR 2011/4 can be found at:

http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR20114/NAT/ATO/00001

 

We also refer you to the recently released “Self Governance Checklist” released by the Australian Taxation Office to assist not-for-profit organisations to periodically review their tax concession status.

http://www.ato.gov.au/nonprofit/content.aspx?menuid=0&doc=/content/00292727.htm&page=6&H6

We also attach a link to Treasury’s not-for-profit reform newsletter and encourage you to subscribe in order to keep abreast of developments in this area.

 

http://www.treasury.gov.au/documents/2189/PDF/NFP_newsletter_Issue_1.PDF

 

Should you have any questions regarding any of the above matters, please do not hesitate to contact your usual CDB adviser.