Snooze buttonSummary – The Gillard Government has announced that the 2011-12 budget measure “Better Targeting of NFP Tax Concessions” will now commence from 1 July 2014.

On 31 January 2013 the Gillard Government announced that the Better Targeting of Not-For-Profit tax concessions legislation will now commence from 1 July 2014. Assistant Treasurer, David Bradbury MP said “this extension will enable further consultation and engagement with the NFP sector on this measure and ensure there is an opportunity for detailed stakeholder input to be provided.”

The purpose of the legislation is to ensure that tax concessions provided to NFP entities are targeted only at those activities that directly further the NFP’s altruistic purposes. Any activity pursued by a NFP entity that is deemed to be “unrelated” business will not be eligible for the tax concessions that the entity is registered for (including FBT, GST and DGR).

Importantly, any surplus from “unrelated” business activities that is not applied for the altruistic purposes of the entity will be subject to income tax. This proposed tax has commonly been referred to as “UBIT” (Unrelated Business Income Tax).

Initially, the new reforms, if passed into law, were due to commence on 1 July 2011 and were due to apply only to “new” unrelated commercial activities that commenced after 7.30pm (AEST) on 10 May 2011. This commencement date was deferred to 1 July 2012 and, with this latest announcement, the Government has indicated that it will be deferred further to apply from 1 July 2014.

From 1 July 2014 it is proposed that the UBIT will become payable on “new” unrelated commercial activities. A “new” unrelated commercial activity is one that commenced after 7.30pm (AEST) on 10 May 2011. UBIT would be payable only on any surplus that is not applied to the altruistic purposes of the entity.  If a NFP is liable to pay UBIT, the tax will be calculated commencing on the revised commencement date of 1 July 2014.

It is also proposed that from 1 July 2015, UBIT will become payable on any unrelated commercial activities which were commenced prior to 7.30pm (AEST) on 10 May 2011. This will not impact on tax concessions that were used for these activities prior to 1 July 2015.

A further discussion paper and draft legislation will be circulated by the Government for comment and we will advise when this occurs.

Meanwhile, should you have any questions in connection with this please do not hesitate to contact Bill d’Apice or Anna Lewis in our office.