No Change for NFPs in Henry Tax Review

Australian Not for Profits can breath easier after Federal Government pledges not to implement any of the Henry Tax Review recommendations affecting the Third Sector including a reconfiguring of the FBT tax and lifting the gift deductibility threshold from $2 to $25.

The Not for Profit sector was warned it could lose its fringe benefit tax concessions and be forced to lay off staff if the Government accepted the recommendations of the Henry Review.

In the Treasurer's lengthy response to the 138 recommendation the Federal Government rejected out of hand what it describes as changes to the tax system that harm the Not for Profit sector, including removing the benefit of tax concessions, raising the gift deductibility threshold or changing income tax arrangements for clubs.

Government advised that it will not implement these recommendations at any stage.

The Government also rejected a Henry report recommendation that was also recommended by the Productivity Commission report – the establishment of a National Charities Commission.

The Henry report said in its report that consistent with the recommendations of previous inquiries, a national charities commission should be established to monitor, regulate and provide advice to all NFP organisations (including private ancillary funds).

It said the charities commission should be tasked with streamlining the NFP tax concessions (including the application process for gift deductibility), and modernising and codifying the definition of a charity.

The Henry Report said in its 1500 page report that Not for Profit organisations make a highly valued contribution to community wellbeing and receive government and community support for their activities.

It pointed out that much of the support provided to the NFP sector comes from tax concessions, including income tax exemptions, GST credits and exemptions, capped exemptions from (or rebates of) fringe benefits tax, and tax deductible gifts.

However it said this system of tax concessions is complex, and does not fully reflect current community values about the merit and social worth of the activities it subsidises.

It said the income tax and GST concessions generally do not appear to violate the principle of competitive neutrality where NFP organisations operate in commercial markets. However, the fringe benefit tax concessions provide recipient organisations with a competitive advantage in labour markets.

It said where NFP clubs operate large trading activities in the fields of gaming, catering, entertainment and hospitality, the rationale for exempting receipts from these activities from income tax on the basis of a direct connection with members is weakened.

It recommended that these issues could be addressed through: the establishment of a national charities commission to monitor, regulate and provide advice to all NFP organisations; reconfiguring the FBT concessions to alleviate competitive neutrality concerns while retaining government support for the NFP sector; and better targeting the application of the mutuality principle.

The Rudd Government rejected this as well as any future study or community discussion on a tax on bequests.

It did accept to keep the status quo on GST concessions.

The Henry Report recommended that categories of NFP organisations that currently receive income tax or GST concessions should retain these concessions and NFP organisations should be permitted to apply their income tax concessions to their commercial activities.

The Australia's Future Tax System Review was established by the Rudd Government in 2008 to examine Australia's tax and transfer system, including state taxes, and make recommendations to position Australia to deal with the demographic, social, economic and environmental challenges of the 21st century.

For more information go to: http://taxreview.treasury.gov.au/content/Content.aspx?doc=html/pubs_reports.htm