In a press release dated 13 May 2014 and issued by the Acting Assistant Treasurer, the Government announced that it would not be implementing the previous government’s better targeting of not-for-profit tax concessions measures.
What were the better targeting of not-for-profit tax concession measures?
The better targeting of not-for-profit tax concession measures, originally proposed by the former Labor government leading up to the 2011-2012 Budget, were aimed at ensuring that tax concessions were only provided to not-for-profit (NFP) organisations that could demonstrate that their activities were directed at furthering the NFP’s altruistic purposes.
The proposed amendments sought to distinguish between those activities which were:
- related to the NFP’s altruistic purpose; and
- unrelated to the NFP’s altruistic purpose.
NFP’s activities deemed to be unrelated business would not be eligible for the tax concessions that the NFP was otherwise entitled to, such as fringe benefits tax, good and services tax and deductible gift recipient status. Further, those funds generated by an unrelated business activity, which were not applied to the altruistic purpose of the NFP would also be subject to income tax. This proposed tax was commonly referred to as the unrelated business income tax (UBIT).
The Government previously indicated an intention to consider alternatives to the above measures. However, it has now made it clear that the measures will not be implemented in their current form, or in any amended form. See the Government’s press release here.
What does this mean for you?
The Government’s announcement is positive for the NFP sector and, practically speaking, means business as usual.
Based on the High Court decision of Word Investments (2008) 236 CLR 204, a NFP organisation can undertake commercial activities that are not in and of themselves related to its altruistic purpose, so long as any profits derived are applied towards the NFP’s altruistic purpose. Where this is the case, a NFP organisation’s tax concessions, such as fringe benefits tax, good and services tax and deductible gift recipient status, will continue to apply to those unrelated commercial activities.
Structuring of NFP’s commercial activities requires care as there are other factors to consider such as:
- operating through ‘for profit subsidiaries’;
- accessing franking credits;
- problems with non-charitable trust structures; and
- access to WA state tax concessions.