There may be some unforeseen tax consequences for religious institutions with the passing of the Australian Charities and Not-For-Profits Act 2012 (ACNC Act).

Religious institutions (e.g. Dioceses, Parishes and Orders) are generally considered to be unincorporated associations in civil law.  An unincorporated association does not have a distinct legal status separate from its members.

Because it has no separate legal status, an unincorporated religious institution will typically act through a trustee corporation for legal matters.  The trustee corporation does not generally take an active role in the conduct of the ministry except in its capacity as trustee of the Diocese, Parish or Order.

Typically, these trust corporations have obtained an Australian Business Number (ABN) and are endorsed for tax exemptions through the Australian Taxation Office (ATO) and were automatically registered as charities with the Australian Charities and Not-For-Profits Commission (ACNC).

Unlike their trust corporations, many unincorporated religious institutions do not have an ABN, are not endorsed by the ATO and are not registered with the ACNC.

Prior to the ACNC Act, a religious institution could self-assess its entitlement to tax exemption.  Therefore, it did not need a separate ABN or endorsement as a tax concession charity.

As a consequence of the ACNC legislation, the tax laws were changed so that religious institutions can no longer self-assess their entitlement to tax exemptions. They are now required to be registered with the ACNC to obtain tax exemption if they are in receipt of income which may be considered to be taxable.

Under this new regime, we recommend that unincorporated associations (eg Dioceses, Parishes and Orders) obtain an ABN separate from their trust corporation, separately register with the ACNC and separately seek endorsement from the ATO as a tax concession charity if they have not already done so.  This should be done before 3 December 2013 to take advantage of the transitional provisions backdating the registration to the commencement of the ACNC (3 December 2012).  We recommend this for the sake of caution to ensure that Dioceses, Parishes, Orders and other religious institutions do not inadvertently attract a tax liability.

Financial transactions do not need to be included in the Business Activity Statement (BAS) of the newly endorsed unincorporated association if they are accounted for through the trust corporation’s BAS (and vice versa).

Should you wish to discuss this further, please do not hesitate to contact Mr Bill d’Apice or Ms Anna Lewis of our office.