Not for Profit proposed reforms – 2011 Federal Budget

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The 2011 Federal Budget saw a number of announcements impacting upon the Not for Profit sector. In summary they are:

1.       Taxing unrelated business income

We have written about this in a separate paper in our Legal Resource Centre, Federal Government to move to shut the “Word Investments” gate and tax charities on unrelated business income.

2.       Adoption of a statutory definition of Charity

This will be a difficult exercise but if done carefully will hopefully result in some greater certainty and ease for not for profit bodies being able to determine if they are charitable or not.

3.       Establishment of a new Australian Charities and Not‑for‑profits Commission

This is a welcome move provided that the culture of the Commission is one of equipping and encouragement of the sector.

Given that the budget paper announces that this measure (presumably combined with the statutory definition of charity) is expected to result in increased tax revenue of $41 million over four years, this indicates that the government intends to narrow the scope of charitable activity in its definition of Charity and have the Commission take a hard line. This does not seem to encourage a culture of “equipping and encouragement” from the new Commission.

We also query the wisdom of corporate services to the new commission being provided by the ATO. Independence from the ATO is an essential ingredient.

The text from the budget papers is set out below:

“Not‑for‑profit sector reforms – Australian Charities and Not‑for‑profits Commission – establishment

Expense ($m)

2010‑11

2011‑12

2012‑13

2013‑14

2014‑15

Australian Taxation Office

8.6

14.8

10.0

10.1

Related revenue ($m)
Australian Taxation Office

8.0

10.0

10.0

13.0

Related capital ($m)
Australian Taxation Office

1.0

9.1

The Government will provide $53.6 million over four years for the establishment of a new independent statutory agency, the Australian Charities and Not‑for‑profits Commission (ACNC), by 1 July 2012 and related structural changes required to the Australian Taxation Office (ATO).

An implementation taskforce (headed by the expected Commissioner of the ACNC) will also be set up in Treasury from 1 July 2011 to ensure the ACNC is ready for operation by 1 July 2012.

The Commissioner of the ACNC will be appointed by the Government and report to Parliament through the Assistant Treasurer. The Commissioner will have sole responsibility for determining charitable, public benevolent institution, and other not‑for‑profit status for all Commonwealth purposes. The ACNC will also initially be responsible for providing education and support to the sector; implementing a ‘report‑once use‑often’ general reporting framework for charities; and implementing a public information portal by 1 July 2013.

From 1 July 2011, the ATO will structurally separate its role of determining charitable status from its role of administering tax concessions, in preparation for the establishment of the ACNC. The Commissioner of Taxation will retain responsibility for administering tax concessions for the not‑for‑profit sector.

The ATO will provide corporate service support to the ACNC in the form of information technology services, human services, financial services and other related functions.

The Government will also undertake negotiations with the States and Territories on national regulation and a new national regulator for the sector, with the aim of minimising reporting and other regulatory requirements through coordinated national arrangements.

The measure is expected to result in additional tax revenue of $41.0 million over four years as a result of increased compliance activity to ensure that not‑for‑profit tax concessions are used only as intended.

Source: http://www.finance.gov.au/publications/commonwealth-budget/2011-12/2011-12/content/bp2/html/bp2_expense-22.htm

Not‑for‑profit sector reforms – introducing a statutory definition of ‘charity’

Revenue ($m)

2010‑11

2011‑12

2012‑13

2013‑14

2014‑15

Australian Taxation Office

Related expense ($m)
Australian Taxation Office

0.7

1.6

0.6

The Government will consult on and introduce a statutory definition of ‘charity’ for all Commonwealth laws to take effect from 1 July 2013. It will be based on the 2001 Report of the Inquiry into the Definition of Charities and Related Organisations, taking account of the findings of recent judicial decisions, such as Aid/Watch Incorporated v Commissioner of Taxation. This measure is not expected to have an impact on revenue.

The Government will also consult with the states and territories with the intention of developing and introducing a definition of ‘charity’ that can be adopted by all jurisdictions. The adoption of a consistent definition across all jurisdictions would considerably assist the sector.

The Government will provide the proposed Australian Charities and Not‑for‑profits Commission with $2.9 million over four years to develop new guidance for the sector, implement system changes, and re‑assess the charitable status of entities on the basis of the new statutory definition.

This measure is part of the Government’s commitment to Not‑for‑profit sector reforms, which aim to deliver smarter regulation, reduce red tape and improve transparency and accountability of the sector.

This reform progresses another recommendation of the Australia’s Future Tax System Review, and continues the process of tax reform started in May last year with the release of the Government’s Stronger, Fairer, Simpler package of reforms.”

Source: http://www.finance.gov.au/publications/commonwealth-budget/2011-12/2011-12/content/bp2/html/bp2_revenue-07.htm

Independent views

These views are the views of the partners of Corney & Lind Lawyers a law firm that specialises in advising the Not for Profit sector on a daily basis and is contributed to the public debate at our cost and not at the behest of any client or group of clients.

This article was written by Graham Corney, Andrew Lind and Alistair Macpherson (11 May 2011).