Entities in the Not-for-Profit (NFP) sector may qualify for certain income tax, FBT and GST concessions. Unfortunately, determining whether these concessions actually apply to NFPs is easier said than done.

Some NFPs must be endorsed, some NFPs must be listed by name in the tax legislation, while other NFPs must self-assess whether they qualify for tax concessions. Furthermore, all types of NFPs do not necessarily qualify for the same tax concessions. This complexity and inconsistency places an unnecessary compliance burden on NFP entities when working out if they qualify for any tax concessions.

The Federal Government has embarked on a road of reform for the sector. This has further muddied the waters.

The reforms presently being undertaken include:

  1. The establishment of the Australian Charities and Not-for-Profits Commission (ACNC) which is designed to apply a consistent approach to regulate NFP entities while ensuring that concessions reach the intended NFP recipients without too much red tape. The ACNC commenced operation on a limited basis late 2012.
  2. The Government recently released a discussion paper on how tax concessions can be improved for NFP entities. The final report is due later this month.
  3. The government has announced that it will seek to introduce a statutory definition of a ‘charity’. Currently, common law principles determine whether a NFP entity is a ‘charity’. This approach often causes uncertainty and the Government is keen to adopt a revised definition.
  4. Currently, NFPs only qualify for income tax exemption if they incur expenditure and pursue their objectives principally in Australia. It is believed that this measure prevents NFPs from shifting untaxed funds overseas. The government is proposing a more holistic approach to determine if the “in Australia” conditions are satisfied by looking at where the entity principally operates (as opposed to where the entity principally incurs expenditure)
  5. The government has announced that commercial activities undertaken by a not-for-profit enterprise will be taxable from July 2014.
  6. According to the proposals, income from related commercial activities (for example hospitals running child care centres or churches running religious bookstores) will remain income tax exempt because these activities form part of a NFP’s altruistic purpose. Small scale commercial activities such as lamington drive fundraisers and school fetes will not be affected by these proposals and will also remain tax free. Just how these laws will be implemented remains to be seen.

It is an unnerving time for the NFP sector with a lot of changes lying in the wind. If you are involved in the NFP sector, it is paramount that you are aware of these proposed changes that can potentially shake up the NFP landscape once they are enacted.

If you have any questions please contact Murray Howlett from our Taxation Services Division on (07) 3023 1300 or [email protected]