Tax Cap on Charity Expenses Too Low - Submission

The Community Council for Australia has called on the Federal Government to urgently review the proposed cap on tax concessions for entertainment expenses affecting charities and Not for Profits before finalising the legislation, describing the cap as too low.

The call comes in a draft submission to Federal Treasury on limiting Fringe Benefit Tax Concessions for salary packaged entertainment expense to $5000 per year.

CCA said the proposed changes need to be more comprehensively reviewed because of sector concern over the low level of the cap, how additional costs to charities and Not for Profits will be met, and the potential loss of quality staff.

“CCA has acknowledged there is a need to address the situation where a small minority of highly paid employees are using the FBT concessions for entertainment expenses to package very significant amounts of tax free income, well beyond what most people would consider reasonable,” CCA’s submission said.  

“At the same time, CCA has consistently argued that any measures to address this issue need to be part of broader reform including reviewing current Deductible Gift Recipient status and other charity and Not for Profit taxation arrangements.”

The CCA draft submission said the sector had not seen any modelling showing the impact of a $5000 cap, a $10,000 cap, or a $15,000 cap on the tax system, the income of charities or the income of individual beneficiaries.

“Without this modelling, it is difficult to understand why such a relatively low cap was chosen,” the submission said.

“CCA believes the level of the proposed cap needs to be reviewed prior to finalising changes to the FBT concessions for entertainment expenses.  A cap of $10,000 seems more reasonable and less damaging.”

CCA said while it believes there is some merit in the policy position of capping FBT entertainment expense concessions, the way this proposed change has been developed and announced has undermined the willingness of the sector to support the changes.

“There has been little consultation with the sector.  The rationale for arriving at such a low cap figure has not been made available to the sector. The need for additional reporting and the lack of any clear intention to reinvest savings into the sector are also seen as negative by CCA members,” the submission said.

CCA CEO David Crosbie said that given the importance of the charities and Not for Profit sector to the economy and the community, he was disappointed that such a major policy change had been implemented in this way.

“The charities and Not for Profit sector has a long history of being proactive and being prepared to engage in wide ranging discussions about reform to taxation and regulation of the sector.  This eagerness to improve the sector and be part of the national policy conversation has not always been reciprocated,” Crosbie said.

“CCA has for some time acknowledged the need to introduce changes to the FBT concessions available to employees of public benevolent institutions, health promotion charities and employees of public and  Not for Profit hospitals and public ambulance services, especially given the ability of some more highly paid employees to package tax free benefits in excess of $100,000 per annum.”

Crosbie said CCA has also argued that any capping of this concession needs to take into account its impact on the broader charities and Not for Profit sector, and to redirect savings achieved back into more effective ways of supporting the sector.  

“Unfortunately, the proposed changes achieve neither of these goals,” he said.

The Submission also pointed to a new reporting requirement as part of the FBT changes.

“CCA finds it difficult to comprehend why this change necessitates the imposition of new reporting requirements.  The employee receiving the benefit of a tax concession to the value of less than $3000 is unlikely to distort the purpose or the amounts involved, especially given the benefit is so small,” it said.

“Any employee making legitimate and claimable expenses already needs to justify their claims at the employer level and this should suffice.  Making this level of documentation available to the ATO seems a step too far in compliance costs.”

Crosbie said it was important to note that in all the recent CCA budget submissions, CCA has proposed measures where the savings from introducing a cap on FBT concessions for entertainment expenses could be applied in building a stronger charities and  Not for Profit  sector, and providing greater benefits to the community.

“CCA is disappointed that the savings from this proposed new measure will effectively represent a loss of investment into the charities and Not for Profit sector, a loss that will have to be made up in some other way,” he said.

“CCA would be more supportive of this measure had it been developed with a view to better using the savings from capping the FBT concession in support of the sector rather than just reducing government expenditure.”