Accountants Call for Charity Income Tax Exemptions

A major accounting firm with a long and active history of involvement in the Not for Profit sector has told the Charities Inquiry that it would be simpler to exempt all NFPs from income Tax.

Kimberly Smith Partners says the current interpretation of the types of organisations that fall into the category of ‘charities’ is too restrictive.

Principal, Kimberly Smith in his submission to the inquiry says the income tax exemption would be simpler, provided the definition of ‘non profit’ follows the one proposed in a Policy Paper recently issued by CPA Australia.

The CPA Paper reads: “not-for-profit entity” means any entity in respect of which there is an absence of defined ownership interests that can be sold, transferred, or redeemed, or that convey entitlement to a share of a distribution of resources, including a residual distribution on liquidation of the entity.”

Kimberly Smith says the exemption proposal strengthens a fundamental principle of taxation in Australia – namely that only ‘profits’ should be subject to income tax. A Not for Profit entity may have a surplus, but never a ‘profit’ or return on investment to its ‘owners’.

Smith says this proposal would save the government millions in costs of litigation, by departing from existing narrow definitions and broadening taxation concessions to all Not for Profit organisations;

However he says unrelated business income in Not for Profit organisations in Australia should be subject to income tax, such as profits arising from significant trading activities. Australia is one of the few countries in the developed world where charity ‘businesses’ can operate completely tax-free.

Kimberly Smith Partners has a long history of pro bono work within the Not for Profit sector. Partners and staff serve as board members, honorary treasurers and financial advisers to a large number of charitable and community organisations.

The firm’s submission to the Charities Inquiry says their advice on technical matters such as Taxation and Corporations Law Compliance is highly regarded within the charities sector.

In December 2001 the Institute of Chartered Accountants in Australia completed a survey into the way charitable organisations present their annual financial reports and found the need for a major overhaul.

A review of 56 Victorian organisations focusing on the clarity, consistency and appropriateness of the information presented in their Annual Reports found widespread inconsistencies. The issue received widespread mainstream media attention.

What’s your opinion in the light of this submission to the Charities Inquiry? Let us know and post your opinion on our web site forum at probonoaustralia.com.au