Harsh Restrictions on NFPs “Snuck” into Draft Tax Legislation

New draft tax legislation puts additional harsh restrictions on all Not for Profits, according to a Melbourne taxation expert.

Accounting firm, Moore Stephens has written a submission responding to the draft legislation regarding the “In Australia” requirement for Not for Profits, saying the new restrictions have snuck into the changes.

The submission was lodged with Treasury on 12 August 2011.

Stephen O’Flynn, Tax Director at Moore Stephens Melbourne, met with Department of Treasury (DoT) representatives on Wednesday 17 September to discuss the “Implementation issues related to Better Targeting of Tax Concessions”.

O’Flynn says while Treasury indicated that they were not wedded to the ‘In Australia” requirement there would have to be strong grounds for change.

As a result O’Flynn says Not for Profits need to urgently make submissions to the Government.

He says one of the principle issues with the draft legislation is that the definition of a Not For Profit does not allow distributions to be made to “particular entities” including owners and members.

O’Flynn says this potential change overrides the Federal Court decision in the Word Investments case and may result in loss of NFP status for some NFPs should the legislation be passed.

As well, he says the strict requirement for a NFP to comply with all requirements of its governing rule is his second concern with the draft legislation.

He says this change would mean that even a minor breach of the governing rules would pose a risk to the entity’s tax exempt status.

O’Flynn says Moore Stephens updated submission has also highlighted that a NFP entity will be required to ‘use its income and assets solely to pursue the purposes for which it was established’. It is not clear what is meant by ‘solely to pursue the purposes'.

On 27 May 2011 Treasury released a consultation paper on better targeting of NFP tax concessions.

The Legislation is expected to be finalised by December, 2011.

The full submission can be downloaded here.