Impact of 2011 Budget on Churches, Charities and Not-for-Profit Companies
Impact of 2011 Budget on Churches, Charities and Not-for-Profit Companies
The 2011 Budget has announced several changes that will affect Not-for-Profit (NFP) Sectors in Australia.
Australian Charities and Not-for-profits Commission (ACNC)
Over a period of four years, the Government proposes to provide $53.6 million for the establishment of an independent statutory agency, the ACNC. The ACNC will determine whether entities have a charity or not-for-profit status and implement a ‘report-once use-often’ reporting framework for charities. The Commissioner of Taxation will remain responsible for administering tax concessions.
Statutory definition of charity
From 1 July 2013, the Government is proposing to change the meaning of the term “charity”, taking into consideration the 2001 Report of Inquiry into the Definition of Charities and Related Organisation and recent case law, such as Aid/Watch Incorporated v Commissioner of Taxation. The Australian Taxation of Office has now withdrawn Taxation Ruling TR 2005/21 and released a new Draft Ruling TR 2011/D2 (2011 Ruling) which explains the Commissioner’s interpretation of the meaning of ‘charity’. You can access the draft tax ruling at this link http://law.ato.gov.au/pdf/pbr/tr2011-d002.pdf, see paragraph 10 for the technical meaning of ‘charitable’ and paragraph 13 for a definition of ‘deemed charitable purposes’. For examples, see also paragraphs 80-82, Examples 5 and 6.
Not-for-profit tax concessions
NFP will be entitled to tax concessions on profits made from unrelated commercial dealings, which are put towards its altruistic purposes. Where the NFP does not put the profits towards its altruistic purposes however, it will need to pay income tax, and will not have access to fringe benefits tax exemptions or rebate, goods and services tax concessions, or deductible gift recipient support. Activities that advance the entities altruistic purposes and small scale activities, like op shops and raffles, will not be affected.
The 2011 Ruling provides commentary on the accumulation of funds. For example, where an NFP retains profits it must do so in context of applying those funds to its charitable purpose. Accumulation of funds over a course of years without applying such monies to its charitable purpose may be heavily scrutinised by the Tax Office in the future.
These matters will commence on 1 July 2011 and will initially affect unrelated activities that take place after 10 May 2011.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. This publication is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.