A reminder to check your School Building Funds’ compliance with the ATO requirements.coinjar

School and College Building Funds may attract the attention of the ATO’s compliance program this year.  The ATO develops and implements its compliance program annually, which identifies key areas for its compliance activities for the financial year.  The compliance program targets areas of risk of non-compliance with taxation laws, which will be subject to greater ATO scrutiny for the year, to encourage greater compliance with taxation laws within the community.  School and College Building Funds have been identified as a potential area of focus for the 2016-2017 ATO compliance program.

In 2013, the ATO, on behalf of the Commissioner of Taxation, released Taxation Ruling 2013/2 which made significant changes to the ATO’s assessment of School Building Funds.  Managers of School Building Funds are encouraged to review their School Building Funds in light of the taxation ruling, and the possible ATO compliance focus this year, to ensure that their funds are complying with the ATO requirements.

Please do not hesitate to contact Bill d’Apice if you would like a review of your School Building Fund and its compliance with TR2013/2.

Click here to read our previous article on the Taxation Ruling and School Building Funds.

Bill d’Apice, Partner | +61 2 9233 9013 | wdapice@makdap.com.au

The ACNC Commissioner has just released the ACNC’s Interpretation Statement on Public Benevolent Institutions. The Interpretation Statement provides guidance on the ACNC’s interpretation of the law pertaining to Public Benevolent Institutions (PBI) and insight into how the ACNC and its staff will assess a charitable organisation’s entitlement for endorsement as a PBI. The Interpretation Statement will be binding on the ACNC staff in making their determinations for endorsement of charitable organisations as PBIs and replaces the out of date, ATO tax ruling TR2003/5.

What is a PBI?

A PBI is a non-profit institution organised for the relief of poverty, sickness, suffering, distress, misfortune, disability, destitution or helplessness that arouses compassion in the community. Charitable organisations which are endorsed as PBIs, and continue to remain entitled to endorsement, enjoy endorsement as a Deductible Gift Recipient (DGR). DGR status is highly sought because it allows donors of the charity to receive a tax deduction for their donation. As a result of DGR status and the other tax concessions available to PBIs (such as FBT exemption), a PBI is a sought after registration for subtype charities.

Not for Profit, for the Public Benefit, and Providing Benevolent Relief

A PBI must be able to demonstrate to the ACNC that it is an institution established and carried on for public benefit, is subject to accountability and public control, and provides benevolent relief to persons afflicted by certain types of hardship recognised at law. The ACNC will consider the breadth of individuals the charity provides with benevolent relief within the identified areas of need. A charity which is broadly understood to assist the community (rather than persons in need) will not meet the threshold for endorsement as a PBI.

The ACNC will also consider whether the charity is accountable and subject to public control.  In its determination the ACNC will consider the number of unrelated responsible persons overseeing the charity’s activities. Whilst the Interpretation Statement is not prescriptive as to how many unrelated responsible persons  are required to satisfy the ‘public control’ element, the guidance provided indicates 3 or more responsible persons can often help substantiate compliance with the public control requirement of a PBI.

The Interpretation Statement indicates that a charity must also provide ‘benevolent relief’ to persons afflicted by hardship, however the charity need not itself directly give or provide the relief. The Commissioner’s Interpretation in this way, confirms the application of law in Commissioner of Taxation v Hunger Project Australia [2014] FCAFC 69 that organisations that provide relief via or in consultation with other organisations or associated entities (which also meet the PBI threshold), including organisations that primarily fundraise for other entities, may qualify for endorsement as a PBI. The provision of benevolent relief must, however, be the dominant objective of the charity. At law, ‘benevolent relief’ is considered relief to persons that would engender community compassion and support for the relief of the hardship or distress. A charity seeking PBI endorsement must be able to demonstrate a causal link between the activities of the charity for providing or coordinating the actual relief of the hardship (e.g. poverty) to the persons assisted by the charity. For more information regarding the Hunger Project case click here.

The ACNC further draws a distinction between PBIs and other charitable organisations which may provide meaningful support to persons who are suffering from ‘ordinary human experiences’.  Appendix A to the Interpretation Statement provides a number of practical examples of charitable activities of organisations, and may assist a number of charities seeking PBI endorsement understand why their meaningful work in the not for profit sector may not meet the specific threshold for PBI endorsement.

If you have any questions about this news item or need assistance with determining whether your charity should seek endorsement as a PBI please do not hesitate to contact a member of our team.

Bill d’Apice, Partner | +61 2 9233 9013 | wdapice@makdap.com.au

Anna Lewis, Associate | +61 2 9233 9031 | alewis@makdap.com.au

As advised in Issue 1: Governance, during the course of advising charities and not-for-profit (NFP) organisations over many years, we have noticed some common issues that are important to our clients. Over the next few months, we will continue to run a series of short summaries of those legal issues that every charity and not-for-profit organisation should consider.

This month we will deal with the topic of charitable tax concessions.

Charities and some NFP organisations may be entitled to receive a range of Federal and State tax concessions. It is important that you are familiar with these so you can take advantage of them. This may enable your organisation to free up capital to spend on your charitable or NFP objectives.

If your organisation is a charity it must be registered with the ACNC in order to be eligible to be endorsed by the ATO for Federal tax concessions.

In order to make sure your organisation is registered and endorsed for all the tax concessions that it is entitled to we recommend you consider the following:

Have you checked which Commonwealth tax concessions your organisation is currently endorsed to receive?
Click here for the ABN lookup.

Is your organisation registered as a charity with the ACNC? If so, it may be eligible to be endorsed for:
* Income tax exemption
* Goods and Services Tax (GST) concessions
* Fringe Benefits Tax (FBT) rebate
We recommend that all charities seek the above tax concessions.

Is your charity or NFP entitled to be endorsed for Deductible Gift Recipient (DGR) status?
DGR status is not available to all registered charities, only some limited categories of charities and NFP organisations are eligible to be endorsed to offer DGR receipts to donors. This is a very sought after tax status that is worth investigating. Click here to view ATO’s DGR table.

If your charity or NFP is endorsed with DGR status, is it entitled to receive and registered for FBT exemptions?
We note these are more lucrative than the FBT rebate.

Is your charity or NFP entitled to receive State, Territory or local government tax concessions? 
These are in addition to Federal tax concessions and may include stamp duty (a tax paid on some financial and property transactions), payroll tax (a tax on wages which exceed a certain threshold), land tax, and rates concessions (for local government council rates).

Your charity or NFP organisation may also be entitled to receive other tax concessions so please do not hesitate to contact us with any queries related to tax concessions that you might have.

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The ACNC has recently released a register of charities that have not responded to communication from the regulator (i.e. no known address/contact details or correspondence has been returned to sender). Charities on this database risk losing their entitlements to charity tax concessions and have until 30 June 2014 to update their details and contact the ACNC. If these charities do not contact the ACNC, the ACNC will commence the process of revoking their registration as charities. If a charity’s registration with the ACNC is revoked it will not be entitled to charity tax concessions from the ATO.

Continue Reading Missing charities could lose tax concessions

The Hunger ProjectEarlier today the Full Federal Court handed down its judgment regarding the Hunger Project Australia case and rejected the Commissioner of Taxation’s appeal (Commissioner of Taxation v Hunger Project Australia [2014] FCAFC 69). The court has unanimously held that Hunger Project Australia (HPA) does not need to directly give aid in order to be endorsed as a Public Benevolent Institution (PBI). Furthermore, the Court rejected all four arguments presented by the Commissioner and came to the following conclusion:

In our opinion, whilst there is no single or irrefutable test or definition, the ordinary meaning or common understanding of a public benevolent institution includes (to adapt the words of Starke and Dixon JJ in Perpetual Trustee) an institution which is organized, or conducted for, or promotes the relief of poverty or distress. To adapt the words of Priestly JJ in ACOSS, such an institution conducts itself in a public way towards those in need of benevolence, however that exercise of benevolence may be manifested” [para 66].

This finding provides important guidance regarding what is a PBI and is likely to provide comfort for many charities who were awaiting the outcome of this appeal.

Should you have any questions in relation to this judgment, whether you charity is eligible for endorsement as a PBI or any other matters please do not hesitate to contact Bill d’Apice or Anna Lewis in our office.

UBIT is deadJust weeks before the intended commencement of the “Better Targeting of NFP Tax Concessions” measure, the Acting Assistant Treasurer has issued a press release stating “the Government has considered alternatives to the previous government’s better targeting of not-for-profit tax concessions measure. We have concluded that they are not required at this time”. This news will be welcomed by many charities and not for profit organisations.

The Better Targeting of NFP Tax Concessions, commonly known as the unrelated business income tax (or UBIT), was introduced as part of the 2011-2012 budget and had been delayed for a number of years.

Continue Reading The Unrelated Business Income Tax is (finally!) dead

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).

Continue Reading UBIT start date deferred … again!!

Tax PuzzleSummary – Submissions in response to the Not-For-Profit Sector Tax Concession Working Group’s discussion paper are currently being sought.

Submissions in response to the Not-for-profit Sector Tax Concession Working Group’s discussion paper, Fairer, simpler and more effective tax concessions for the not-for-profit sector released on Friday 2 November by the Assistant Treasurer, the Hon David Bradbury MP, and the Minister for Social Inclusion, the Hon Mark Butler MP, are currently being sought.

The Tax Concession Working Group was established in February 2012 by the then Assistant Treasurer, the Hon Mark Arbib, and the Minister for Social Inclusion, the Hon Mark Butler MP. Its goals are to consider ideas for better delivering the support currently provided through tax concessions to the Not‑For‑Profit sector, and it is intended to stimulate discussion, debate and feedback.

Continue Reading Tax Concession Working Group submissions now open

Australian notesSummary – The High Court handed down its decision in Commissioner of Taxation v Bargwanna on 29 March 2012 ruling that trust funds in a charitable trust must be applied for the purpose of the charitable trust, and not just “substantially” or “on the whole”.

On 29 March, the High Court handed down its decision in the long running case of Commissioner of Taxation v Bargwanna allowing the appeal by the Commissioner of Taxation.

Mr and Mrs Bargwanna were the trustees of the “Kalos Metron Charitable Trust”.  Between 2003 and 2007, the trustees distributed a total of $293,914.55 to numerous charitable cases.

Continue Reading Trust Funds for Charitable Purposes – the High Court Rules