Budget Impact on Not-For-Profits
The budget measures announced by the Federal government on 10 May 2011 propose several significant changes to the regulatory landscape of the not for profit sector. NFPs employ around 900,000 people and contribute $43 billion to the Australian economy, and the budget approach reflects the importance of this growing area.
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A single national regulator
The government will provide $53.6 million over four years for the establishment of a new statutory agency, to be named the Australian Charities and Not-for-profits Commission (ACNC), similar to the Charity Commission in the UK. The ACNC will commence operation from 1 July 2012, and is intended to be a ‘one-stop shop’ for charities, reducing red tape and saving charitable organisations $500 million in compliance costs. The commission will take over responsibility for determining the charitable status of organisations from the ATO, and a Commissioner will be appointed reporting directly to Parliament via the Assistant Treasurer. Among other functions, the ACNC will implement system changes, provide education and support to the sector, assist in the establishment of a new statutory definition of charitable and establish a public information portal by 1 July 2013. -
Unrelated Business Income Tax
Tax concessions will no longer be available for commercial activities that do not directly further a NFP’s altruistic purposes. This means that any profits from unrelated commercial activities that are not directed back to the NFP to carry out altruistic work will be subject to income tax. Other existing tax concessions, such as fringe benefits tax exemptions and rebates and GST concessions will be similarly limited.
It is not intended that commercial activities furthering an entity’s altruistic purposes, and small scale and low-risk unrelated commercial activities (such as cake stalls and school fetes) will be affected. Nor will they affect ventures where profits are directed back into the charity, such as op-shops.
The new arrangements will commence on 1 July 2011, and initially will only affect new unrelated commercial activities that commence after 7.30 pm EST, 10 May 2011. NFPs with existing unrelated commercial activities will be permitted to continue to apply their tax concessions while consultation is undertaken regarding transitional arrangements and concessions will be gradually phased out. -
Statutory definition of charity
A new definition of ‘charity’ will be introduced for all Commonwealth laws from 1 July 2013. The definition is to be based on the 2001 Report of the Inquiry into the Definition of Charities and Related Organisations and recent case law such as AidWatch.
$2.9 million of funding is to be provided to the ACNC to guide this effort to synthesise hundreds of years of common law judicial development and numerous statutes.
This announcement accords with ongoing calls for the modernisation of the law in this area, and in particular the recommendation of the Productivity Commission in its report Contribution of the Not-for-Profit Sector (2010). Consultation will also be undertaken with the states and territories to seek to introduce a nationally consistent definition across all jurisdictions.
We note also that NFPs in Queensland may be eligible for concessional loans from the government of up to $650,000 where it can be demonstrated that they suffered extreme damage during the Queensland Floods.
Holman Webb’s comments:
Holman Webb is generally pleased with the budget outcomes, particularly the introduction of a single national regulator independent from the ATO. This reform confirms the view expressed in our submission to the Treasury Department as part of the consultation process for the Scoping Study for a Not-For-Profit regulator in Febuary 2011 which you can read here:
http://www.treasury.gov.au/contentitem.asp?NavId=066&ContentID=1983
The unrelated business tax may prove controversial. The removal of concessions has been implemented against the recommendation of Ken Henry in his comprehensive taxation review last year, and despite the current treasurer explicitly stating the government would not do so. Similar taxes in the United States and the United Kingdom have proved largely unsuccessful in raising additional revenue, as organisations may simply restructure in order to avoid the tax. While the government has budgeted nil revenue for the forward estimates period in relation to this measure, we can only hope that this measure does not operate to restrict the delivery of important services to the community.
The budget measures are a good first step to providing “certainty around the higgeldy-piggeldy of developments around not-for-profits for over 100 years of federation”, as Assistant Treasurer Bill Shorten observed. Holman Webb will monitor these changes carefully as they are rolled out and will provide further updates and we invite you to contact us about any of these issues.
Jonathan Casson
Partner
T: +61 2 9390 8316
E: jonathan.casson@holmanwebb.com.au