1 Taxation of Not-For-Profits Ann O’Connell Melbourne Law School 20 May 2009

2 Henry Review – Chapter 7 Q7.1 What is the appropriate tax treatment for NFPs, including compliance obligations? Q7.2 Given the impact of the tax concessions for NFPs…is there a more efficient way of assisting philanthropic and community based activities?

3 Do we as a society want to support the work of charities and other NFPs? Is the tax system the best way to do that? If we do want to provide concessions, what is the most appropriate way to do it?

4 The NFP sector and tax concessions Large and diverse sector (PILCH submission) –Quantitative and qualitative contribution –Range from very small to very large General community support Cost of providing tax concessions – see AFTS Consultation Paper p 161 Current tax concessions and eligibility →

5 Income tax exemption – charitable institutions and funds + 13 other categories + some named entities DGR status – 44 categories (including PBIs) + named entities + PPFs (more than 750) FBT concessions –Exemption: PBI, health promotion charities, some hospitals, public ambulance service –Rebate: 14 categories of NFP including charitable institutions (that are not PBIs) GST concessions – charitable institutions and funds, gift-deductible entities and government schools Other concessions

6 Problems with existing concessions Too complex Not targeted Word Investments → raises issues about trading activities and off-shore activities nb Budget announcements ATO as gate-keeper nb Senate Report on “Disclosure Regimes for Charities and NFP Organisations” (December 2008)

7 Alternatives (Q7.2) Direct funding: –better targeting –likely to favour large, well organised entities Tax concessions –issues relating to eligibility –issues relating to nature of concession

8 Appropriate tax treatment (Q7.1) Income tax exemption – eligibility; types of income? Fundraising support – eligibility; tax concessions for donor or charity? Other concessions

9 Suggestions for reform Adopt a statutory definition similar to UK Reduce complexity Make choices about which types of NFP entities should be entitled to which concessions Eligibility determined by external body