Budget Measures Affecting Not for Profits

The Federal Government has announced several measures in the recent Budget that are relevant to the Third Sector.

Here’s a snap-shot:
Fringe Benefits Tax — exemption for donations to deductible gift recipients
The Government will amend the fringe benefits tax (FBT) law to ensure that donations to deductible gift recipients (DGRs) made under salary sacrifice arrangements do not result in an employer incurring an FBT liability, with effect from the 2008-09 FBT year.
The changes will align the tax outcome of donations to DGRs made under salary sacrifice arrangements with donations made personally by employees or under Workplace Giving arrangements.

Philanthropy — additional prescribed private funds
Since the Mid Year Economic and Fiscal Outlook 2008-09 (MYEFO), the Government has approved 17 funds for prescription as prescribed private funds (PPFs), and one fund has been declared no longer to be a PPF. PPFs allow businesses, families, and individuals to establish and donate to a charitable trust of their own, for the purposes of disbursing funds to a range of other deductible gift recipients.

Philanthropy — Australian disaster relief funds
The Government has extended the general deductible gift recipient (DGR) category for Australian disaster relief funds to allow a Treasury minister to declare an event to be a disaster for tax purposes. In addition, public benevolent institutions, which must normally operate for direct relief efforts, will also be able to establish Australian disaster relief funds for longer-term recovery and community reconstruction efforts.
Taxpayers may claim an income tax deduction for certain gifts of money or property to DGRs.

Philanthropy — reforming the ‘in Australia’ requirements that apply to tax exempt entities
The Government will amend the ‘in Australia’ requirements in Division 50 of the Income Tax Assessment Act 1997 to ensure that Parliament retains the ability to fully scrutinise those organisations seeking to pass money to overseas charities and other entities. This measure will have effect from the date of Royal Assent of the amending legislation.

A recent High Court of Australia decision held that charities may be pursuing their objectives principally ‘in Australia’ even where they merely pass funds within Australia to another charitable institution that conducts its activities overseas.

The measure will reverse the decision that charities and other income tax exempt entities can direct funds to overseas projects outside the current restrictions. The measure will reinstate the principles underlying the current integrity rules.

Philanthropy — triennial review of the deductible gift recipient registers
The Government will provide a mechanism to conduct a triennial review of the guidelines for, and organisations on, the four deductible gift recipient (DGR) registers, with effect from the 2009-10 income year.

The reviews will provide a mechanism for the Government to ensure the continued relevance and benefits of the Government’s policy objectives for the registers. The review is designed to bring the governance of the registers in line with those DGR’s that are endorsed and accountable to the Australian Taxation Office.

The registers list those eligible cultural organisations, environmental organisations, harm prevention charities and overseas aid organisations which can receive tax deductible donations, and are jointly administered by the Minister of the relevant department and a Treasury Minister.

The Government will also make a minor change to the taxation secrecy disclosure rules to ensure that participating agencies can share any necessary information in support of the reviews.

Philanthropy — updating the list of deductible gift recipients
Since the Mid-Year Economic and Fiscal Outlook 2008-09, 11 organisations have been approved as deductible gift recipients (DGRs):

In addition, there were also:
• 25 admissions to the Register of Environmental Organisations
• 71 admissions to, and 10 removals from, the Register of Cultural Organisations
• 4 admissions to the Register of Harm Prevention Charities
• 5 admissions to the Overseas Aid Gift Deduction Scheme.

Taxpayers may claim an income tax deduction for certain gifts of money or property to DGRs.

Improving fairness and integrity in the tax system — better targeting the income tax exemption for employment income earned by Australians working overseas
The Government will better target the income tax exemption for foreign employment income, with effect from 1 July 2009. The exemption will apply to income earned as an aid worker, a charitable worker, under certain types of government employment or on projects that are in the national interest.
The measure forms part of a package of measures to improve fairness and integrity in the tax system.

Currently, certain foreign employment income earned by Australians working overseas for a continuous period of 91 days or more is exempt from income tax. The original intent of this measure was to relieve double taxation, however, in practice little foreign tax may actually be paid on the foreign income concerned.
Instead, foreign employment income will generally become taxable and taxpayers will be entitled to a foreign income tax offset for foreign tax paid on the foreign employment income. This will relieve double taxation for those individuals.

GST — Government response to Board of Taxation report: GST administration
The Government will implement most of the Board of Taxation’s (Board’s) recommendations from its review of the legal framework for the administration of the goods and services tax (GST), with most significant changes taking effect from 1 July 2010.

The package of reforms will reduce the compliance costs of the GST, achieve greater standardisation between the GST and income tax regimes, reduce anomalies and streamline the GST administrative framework.

In addition, the Treasury will review the ‘margin scheme’ GST provisions affecting property transactions and the GST financial services provisions to determine if reforms can be made to simplify the provisions whilst maintaining the intended effect of current policy. The Government has also asked the Board to review the cross-border provisions of the GST law with a view to simplifying the current law and reducing the number of non-residents required to register for GST. Those components of the package that are a change to the GST base are subject to the unanimous agreement of the States and Territories.’

One of the recommendations to be implemented relates to Not for Profit sub-entities. The recommendation is that the GST law should be amended to ensure that Not for Profit sub-entities are able to access the same GST concessions as their parent entity.

For more information go to www.ato.gov.au