Tax Changes for NFPs

Some of the reforms targeting Not for Profit tax concessions flagged in the Federal Budget come into force from July 1st.

The reforms relate to the use of tax concessions by businesses run by Not for Profit (NFP) entities.

NFP entities will pay income tax on profits from their unrelated commercial activities that are not directed back to their altruistic purpose, that is, the earnings they retain in their commercial undertaking.

NFP entities will not be able to use input tax concessions, such as FBT and GST concessions, for their unrelated commercial activities.

The Federal Government says these reforms will in no way affect the use of tax concessions to further a NFP entity's altruistic purpose, even where the charitable operation is conducted commercially.

Examples of this type of related commercial activity include Not for profit hospitals, op-shops that sell second-hand household items and clothing at discounted prices to those in charitable need, NFP child care centres, and businesses whose purpose is to provide meaningful employment to disabled persons.

The reforms also won't affect NFP entities carrying on small-scale and low-risk activities, such as lamington drive fundraisers, school fetes and leasing out of church halls.

The Government says these new arrangements will commence on 1 July 2011 and will initially affect only new unrelated commercial activities that commence after 7.30pm (AEST) on 10 May 2011.

NFP entities with existing unrelated commercial activities will initially be able to continue to use their tax concessions to support these activities.

The Government says it will consult on transitional arrangements for these existing activities, with the intention of phasing these out over time.

NFP entities that have entered into a government service delivery contract as at 7.30pm (AEST) on 10 May 2011 will be allowed to use their tax concessions in support of that contract.

Likewise, the 50,000 National Rental Affordability Scheme allocations will be unaffected by the tax changes.

The Assistant Treasurer, Bill Shorten says the Government strongly supports the provision of welfare, education, sports, arts, worship, culture and community services provided by NFPs through access to significant tax concessions.

But, he says the Government believes it is important that charities use their tax concessions only to assist disadvantaged people and not for unrelated commercial activities.

Bill Shorten recently released a discussion paper – Better targeting of not-for-profit tax concessions – seeking public views on how to implement the Government's 2011-12 Budget announcement to better target Not for Profit (NFP) tax concessions for unrelated commercial entities.

John Emerson, a private sector expert in the tax laws applicable to charities and member of the Board of Taxation, has agreed to provide the Government with advice on these reforms.

As announced in the 2011-12 Budget, an Implementation Taskforce for the Australian Charities and Not-for-Profits Commission (ACNC) will also start work on 1 July 2011 to ensure it is ready for operation by 1 July 2012.

From 1 July 2012, the Australian Charities and Not-for-Profits Commission will initially be responsible for determining charitable, public benevolent institution, and other NFP status for all Commonwealth purposes; providing education and support to the sector; implementing a 'report-once use-often' general reporting framework for charities; and establishing a public information portal by 1 July 2013.

The Implementation Taskforce will also engage with state agencies to negotiate use of the portal as a 'one stop shop' for reporting to state agencies.

Consultation about the reforms to tax concessions is open for six weeks, closing Friday, 8 July 2011, and further information can be found at www.treasury.gov.au.