The Not-for-profit Sector Tax Concession Working Group (Working Group) has released a discussion paper on tax concessions for the not-for-profit (NFP) sector, 'Fairer, simpler and more effective tax concessions for the not-for-profit sector'. The discussion paper can be accessed here.

The stated purpose of the discussion paper is to stimulate debate and feedback on federal tax concessions available to not-for-profit entities. The discussion paper is not intended as a position paper and does not make any recommendations to Government.

 

What is the discussion paper about?

 

The Discussion Paper seeks feedback on 57 specific questions about existing tax concessions, including:

• the categories of and eligibility criteria for income tax exemption (including for State owned entities) and entitlements to refundable franking credits;
• the deductible gift recipient categories and criteria, and asks whether the current system should be replaced by alternative options such as a fixed tax offset system or clearing house linked to the Australian Charities and Not-for-profits Commission;
• eligibility for Fringe Benefits Tax concessions and the extent to which they should be available (for example, whether the concessions should be limited to non-remuneration benefits);
• Goods and Services Tax concessions; and

· the common law principle of mutuality and whether it should be replaced with legislative rules.

The questions are broad and sweeping. They require careful consideration, as any review raises the potential for a reduction of benefits, particularly in an era of fiscal tightening. The review also provides an opportunity to iron out arbitrary anomalies in the current law.

 

For example, some organisations with varied activities may currently not qualify for DGR status under any one DGR category due to the strictness with which those categories are currently applied. As a result, they are forced to establish multiple entities to achieve their purposes if they wish to access DGR benefits. It is arguable that such entities should be able to combine their activities and operate through a single entity without jeopardising their DGR status. There are many other anomalies in the current law that are begging to be fixed.

 

The discussion paper does not discuss other announced reform measures, such as the proposal to tax earnings from the unrelated commercial activities of not-for-profits and the proposed statutory definition of charity.

 

What is next?

 

Interested parties are invited to comment on the discussion paper. Written submissions are requested by 10 am on Monday 17 December 2012. The Working Group is due to provide a report to the Government by March 2013.

 

Sourced from: Minterellison