Tax Initiatives for Charities

The Prime Minister has announced the details of two new tax initiatives to encourage greater corporate and personal philanthropy in Australia.

These initiatives are based on the work of the Government’s Community Business Partnership’s Taxation Working Group, chaired by David Gonski.

In his statement announcing the initiatives, the Prime Minister says they confirm the leadership provided by the Partnership in making Australia’s taxation system friendlier to individuals and companies who want to give.

The first measure will make it more attractive for individuals or businesses to donate property by allowing income tax deductions for all donations of property to deductible gift recipients to be spread over five years.

This measure extends the package announced in March 1999 that allows, among other things, the apportionment of deductions for certain gifts to cultural, environmental and heritage organisations.

The Government says extending eligibility to all deductible gift recipients will encourage property donations for other worthwhile activities such as health, medical research and education.

Apportionment, or allowing income tax deductions to be spread over five years, will assist potential donors of property who might otherwise be unable to realise the full benefit of the income tax deduction in a single year.

Donations of property valued at more than $5,000, as determined by the Commissioner of Taxation, will qualify. The new arrangements will apply from 1 July 2002 and involve an estimated revenue cost of $2 million in the first year, rising to $10 million per year from 2007-08 onwards.

The second measure is the release by the Government of guidelines for Prescribed Private Funds which will become a new form of charitable trust
enjoying tax deductibility for donations made to it.

These guidelines are part of a model trust deed.

These new trusts will allow businesses, families and individuals a greater flexibility to start their own trust funds for philanthropic purposes.

Funds that comply with the guidelines and the model trust deed will be prescribed in Regulations as gift deductible entities so that donations made to the funds will be tax deductible.

Prime Minister Howard says this measure will open up a new vehicle for private philanthropy, similar to that existing in the United States, so that families and individuals can donate to a trust of their own, which then disburses funds to a range of other gift-deductible recipients.

The PM says by creating opportunities for private philanthropy, the Government is building up the social coalition, in which government, business, community organisations and individuals work together on social issues.

The guidelines specify the criteria by which private funds will be prescribed in the regulations as gift deductible. They also prohibit any payments from the funds that directly or indirectly benefit the donor to the fund.

Limits will apply to the accumulation of money within the fund, such that investment income can only be accumulated at a rate equivalent to the CPI, with the rest disbursed to public philanthropic funds.

In addition, funds will be required to provide a simple annual return to the Tax Office outlining the source of funds, and the payment of funds to various gift-deductible public funds as well as the extent and recipients of management fees.

Prime Minister Howard says these guidelines will ensure that tax deductibility will only be given where private charitable funds are used for the purposes for which they are intended – providing money for philanthropic purposes.

He says the guidelines and model trust deed strike the right balance between maintaining the integrity of the tax system, at the same time as providing tax incentives for private giving.

If you would like a copy of the guidelines for Prescribed Private Funds please e-mail us at probono@probonoaustralia.com.au

And if you have any comments on these initiatives why not post them on our forum site at probonoaustralia.com.au.