Dr Matthew Turnour & Rachel Sloper (26 February 2015)
Final Ruling released for special conditions on income tax exemption
Following Draft Ruling 2014/D5 last year, the Australian Taxation Office has released TR 2015/1, which sets out the Commissioner of Taxation’s view on particular special conditions that a not-for-profit entity must satisfy to maintain entitlement to income tax exemption. These are the requirements introduced in the Tax Laws Amendment (2013 Measures No. 2) Act 2013, which require a not-for-profit organisation:
- to comply with all the substantive requirements in its governing rules (‘the governing rules condition’), and
- to apply its income and assets solely for the purpose for which the entity is established (‘the income and assets condition’).
The date of effect for the Ruling is 25 February 2015 but applies to income years prior to the current year. The ruling can be found here. The page includes a link to a Compendium for the Ruling, which addresses issues and comments raised in response to the Draft Ruling.
Those within the sector who made submissions to then-Parliamentary Secretary Josh Frydenberg last year seeking a full or partial repeal of these conditions, will be disappointed. It is unlikely that the ATO would have issued the final ruling if it anticipated that the relevant part of the legislation would be repealed.
A number of improvements from the draft ruling can be identified.
Incidental or ancillary purpose
One of the more significant concerns was that the draft ruling did not address incidental or ancillary purposes. This ruling sets out in the legally binding section the following words: ‘the income and asset condition will not be breached merely due to an entity having an incidental or ancillary purpose.’ This is consistent with the law of charity.
On the other hand, it will remain a question of interpretation as to whether a purpose is incidental and ancillary to the main purposes or whether it constitutes a separate purpose unto itself. In our experience with the ATO, this is generally the result of construction of the drafting of an organisation’s constitution, combined with an analysis of the organisation’s activities.
In the recent NSW Land and Environment Court decision in Community Housing Limited v Clarence Valley Council, which we examined in a previous update (available here), the structure of the objects clause led the Court to conclude that the purpose of providing training and education was not ancillary or incidental to the poverty-relieving purpose, but a separate purpose.
An area of increasing concern within the sector has been the ATO view of accumulations. In the legally binding section of the ruling the following words appear: ‘an entity that accumulates most of its income over a number of years will need to show on a year by year basis that the accumulation is consistent with the purpose for which the entity is established’. Organisations that are in decline, religious organisations and foundations might wish to give careful consideration to ensuring that they are able to explain how they satisfy this condition if called upon to do so by the ATO.
Applied ‘solely’ to the purpose
The ATO’s understanding of applying funds ‘solely’ to the purpose appears to be very strict. Only ‘immaterial’ or ‘occasional, unrelated misapplications’ of charitable funds will not breach the provisions.
If you have particular concerns about how the new Ruling will affect your organisation, call us on (07) 3837 3600 or send us an email at email@example.com.
NSW opposition pledge to align state charity reporting with ACNC
The NSW Opposition has announced a policy to allow charities registered with the ACNC to access charity concessions in NSW without any further reporting or registrations. The NSW state election is due to be held on 28 March 2015.
Senate Inquiry into abuse of people with disabilities in residential care
On 11 February 2015, the Senate referred an inquiry on violence, abuse and neglect against people with disability in institutional and residential settings to the Senate Standing Committee on Community Affairs. The terms of reference are available here.
Submissions are due by 10 April 2015 and the Committee is due to report to the Senate by 24 June 2015. It should not be confused with the Committee’s inquiry into the adequacy of residential care arrangements for young people with disabilities, which is running concurrently.
The context in which this inquiry is announced would seem to suggest that there will be an ongoing spotlight for the next few years on the activities of organisations working with people with disabilities:
- the rollout of the NDIS
- the ongoing Royal Commission into Institutional Responses to Child Sexual Abuse;
- a promise by both major parties in Victoria prior to the November 2014 state election to hold a parliamentary inquiry into abuse of people with disabilities;
- a promise of the NSW Opposition ahead of the March 2015 state election to hold a parliamentary inquiry into preventing abuse and neglect of people with disabilities accessing community services; and
- allegations of abuse at one of Australia’s largest disability services providers, Yooralla.
Organisations should consider how they would respond if an allegation of abuse is made against them.
Senate Inquiry into procedure for awarding Department of Social Services funding
The Senate has also commissioned an inquiry by the Senate Standing Committee on Community Affairs into the effects that the funding and tendering processes used by the Department of Social Services have on the efficiency, sustainability and quality of services actually delivered by funded providers, and whether these processes can be improved.
The terms of reference can be found here. Of particular interest are the requirement for the Committee to consider whether consultation processes, timeframes and notice periods and clarity of information given to applicants have been adequate, and to determine the types of organisations which have been most likely to receive or to be refused funding.
Submissions are due to the Committee by 20 March 2015, with the Committee due to report by 26 March 2015.
Greens introduce Bill for ‘Australian Centre for Social Cohesion’
The Greens have introduced a Bill into the Senate to establish an ‘Australian Centre for Social Cohesion’, to coordinate efforts to build social cohesion and prevent extremism developing in the Australian community, particularly amongst young people, as part of a holistic response to the issue of terrorism in Australia. You can read the Bill here.
DISCLAIMER: This update contains general information only. The information is not all inclusive and should not be considered to be legal advice. You should always obtain legal advice for your specific circumstances before relying on general information.