Assistant Treasurer, Mr Josh Frydenberg, has made various notable announcements relevant to the Not-For-Profit (NFP) sector. The announcements were made as part of a recent address to a Community Council of Australia forum.
Future of the ACNC
The Minister has confirmed the Government’s previously announced commitment to abolish the ACNC is not a priority at this time. Moreover, it was suggested by the Minister that there may not be a need for the proposed Centre of Excellence while the ACNC remains in existence.
Therefore charities should expect the ACNC to continue for the foreseeable future. Charities with outstanding Annual Information Statements should lodge them as soon as possible.
"In Australia" Amendments on hold
Most charities must meet the “in Australia” test in order to be income tax exempt. As previously advised, the High Court held in the 2008 Word Investments decision, that this test could be met even if charities merely operate to pass funds within Australia to another charity that conducts its activities overseas. The Government considered this to be a loop hole through which tax avoidance and other inappropriate conduct could be conducted and therefore intended to introduce legislative amendments to overcome these concerns.
However, the Minister has advised that these proposed legislative amendments to the “In Australia” provisions have been put on hold for the time being. Mr Frydenberg stated that the ATO has been monitoring the situation since 2010 and has not seen a discernable change in the behaviour of the charities sector. Consequently the proposed amendments are not a priority.
Charities should continue to ensure that they comply with the existing “in Australia” provisions in order to maintain their income tax exemption and DGR status, if applicable.
Private Ancillary Funds
The Minister has also announced the Government’s intention to reduce administrative burdens for Private Ancillary Funds (PAFs).
This includes making it possible for a PAF being wound up to distribute its funds to other ancillary funds and simplifying the process of distributing shares from a PAF to a DGR in certain circumstances.
The Government’s Tax Discussion Paper was released on 30 March 2015. It includes a section on the Not-for-profit sector.
The paper considers the government revenue forgone as a result of the tax concessions available to NFP entities. It particularly highlights the FBT exemption for public benevolent institutions, health promotions charities, public hospitals, non-profit hospitals and public ambulance services. The revenue forgone from the FBT exemption is increasing significantly over time. The paper states, “This concessional treatment is particularly problematic where the NFP competes with for-profit providers, in particular in the hospital sector.”
The paper notes that employees with more than one employer are able to receive benefits with multiple caps. In addition, while there are capping thresholds on this FBT concession, meal entertainment and entertainment facility leasing benefits are excluded from the caps and are unlimited.
The discussion paper asks for responses on whether the current tax arrangements for the NFP sector are appropriate. It also asks to what extent do the tax arrangements for the NFP sector raise particular concerns about competitive advantage compared to the tax arrangements for for-profit organisations.
Mr Frydenberg said the Government was seeking submissions on the FBT exemptions. If your charity currently utilises the FBT exemption capping thresholds, we suggest you consider making a submission to the discussion paper. Submissions are due by 1 June 2015. Read the discussion paper...