Call For Tax Incentives to Encourage Philanthropy

More tax support for donations of property, living bequests and tax discounts on ‘bargain sales’ are just a few of the recommendations of a discussion paper looking at measures to increase philanthropy in Australia.

Allen Consulting prepared the discussion paper for a coalition of conservation groups including the Australian Bush Heritage Fund, Greening Australia and Trust for Nature (Victoria).

Gifts of money, and more recently, property to eligible organisations are tax deductible in Australia however, our tax support is relatively low by international standards, particularly in relation to imposing capital gains tax on gifts and the lack of support for ‘part’ gifts and ‘gifts with retained rights’.

Back in 2001, the Federal Government announced that it would investigate further tax options to promote philanthropy. Accordingly the discussion paper focuses on measures to strengthen community organisations and Not for profit bodies.

The paper says there is considerable scope for providing recognition and tax support for types of gifts that are currently included, while ensuring that these gifts are genuinely philanthropic.

Currently the Australian Cultural Gifts Program provides a valuable tool for organisations seeking donations of specific types of property. It provides capital gains tax relief as well as a tax deduction for the market value of the gift.

However the discussion paper recommends extending this approach to all gifts of property would assist community organisations to attract additional gifts, strengthening the sector and its ability to serve the wider community.

Additional tax support would also assist conservation groups wanting to protect environmentally significant land.

The paper says there is also an emerging group of people who want to make a significant one-off donation in their later years but are not interested in the ‘normal’ approach to bequests.

The paper says however that most potential donors are not aware that ‘living bequests’ are possible but raise a number of technical taxation issues.

The paper recommends the Federal Government encourages these bequests by clarifying that they are deductible or rebatable under the income tax gift provisions and that any taxable capital gain at least excludes the value of ‘retained rights’ or benefits.

While it is much easier now to receive recognition of gifts of property under the income tax law, many individuals are not in a position to make an outright donation of a valuable item such as real estate. Often is not appropriate to just sell the property and share the proceeds.

The paper says such circumstances have been recognised overseas through the introduction of ‘bargain sale’ provisions.

Bargain sale provisions allow a donor to sell property to an eligible Not for Profit organisation at a discount, and have the discount recognised as a gift for tax purposes. Many jurisdictions, including the UK and USA, also provide significant capital gains tax relief.

The discussion paper has called on the Federal Government to recognise the philanthropic support offered through bargain sales. This could be achieved by allowing a deduction for the difference in the market value of the property (as determined by the Australian valuation Office) and the sale price.

Other recommendations include:
 An income tax deduction for management costs incurred in relation to land subject to a conservation covenant.
 The Government explore options for providing tax support for funds invested in social enterprises and other ‘public good’ activities.

If you would like an electronic version of this discussion paper called “Building a Stronger Social Coalition” send us an e-mail to corpnews@probonoaustralia.com.au.