(More) Tax Changes For Charities Ahead?

TN Rachel

Dr Matthew Turnour & Rachel Sloper (15 October 2014)

It’s been a busy few weeks for not-for-profits and charities, with several reports released and some key legal developments. In fact, there’s so much to talk about that this update is one of two. The second update will come out next week, covering the research reports recently released by the ACNC, and a new paper from the UK’s law reform committee.

New proposed changes to income tax legislation: reversing Cancer and Bowel Research Association

Feeling worn out by the uncertainty and the pace of change in the area of tax concessions and exemptions? Unfortunately, there looks to be no relief in sight. The Federal Government has released an exposure draft of yet more changes to the Income Tax Assessment Act 1997, this time to reverse the effects of the 2013 Full Federal Court case Commissioner of Taxation v Cancer and Bowel Research Association Inc (as trustee) [2013] FCAFC 140.

That case decided that, under the present law, the ATO Commissioner cannot retrospectively revoke endorsement for periods of past non-compliance if a tax-exempt entity is entitled to endorsement in the present.

The proposed changes are intended to ‘clarify’ that the Commissioner does have this ability.

The view expressed in the Explanatory Memorandum is that if this ‘defect’ in the law is not corrected, ‘non-complying entities can frustrate the Commissioner’s actions to revoke endorsement…by changing its [sic] behaviour when it [sic] gets notice of an audit or compliance action.’

The ability to revoke for retrospective non-compliance would begin on the day the changes received Royal Assent after passing through Federal Parliament.

The Commissioner would also get new powers to suspend rather than revoke endorsement.

Submissions can be made to Treasury on the exposure draft until 22 October, here.

The proposed changes are especially important because of the special conditions for income tax exemption introduced in 2013 which were the subject of the recent draft ruling TR 2014/D5. The draft ruling set out the ATO’s view that charities and not-for-profits to which the conditions apply will be liable for income tax for any period where they are not complying with the conditions.

Submissions closed on draft income tax exemption Tax Ruling

Submissions have now closed on Draft Taxation Ruling TR 2014/D5, which relates to the relatively new special conditions on income tax exemption for not-for-profits and charities introduced in 2013.

Many in the sector have voiced the opinion that the special conditions are unnecessary, and we understand that some have approached Josh Frydenberg, the Parliamentary Secretary assisting the Prime Minister with red tape reduction, to ask that the conditions be repealed entirely.

The Draft Ruling sets out the ATO’s view on what it means for entities to:

  • comply with all substantive requirements of their governing rules (including incorporating legislation such as the various Associations Incorporation Acts); and
  • apply their income and assets solely to the purpose for which they were established.

The ATO’s draft states that charities and not-for-profits to which the conditions apply will be liable for income tax for any period in an income tax year where they are not complying with the conditions.

Dr Matthew Turnour’s views on the future of the ACNC

Dr Matthew Turnour, in his capacity as Chair of the Queensland Law Society’s Not-for-Profit Law Committee, has published an opinion piece in the Law Society’s monthly magazine, Proctor, about the future of the ACNC. You can access a copy of the article here.

ACNC advises penalties soon to apply for late-lodging charities

The ACNC has flagged that it will shortly be imposing penalties on registered charities which have not yet lodged their 2013 Annual Information Statement. If your charity is one of the 18% in this position, contact the ACNC as soon as possible to avoid a fee. We are able to assist with Annual Information Statements if you are finding the requirements difficult to understand.

 UQ Freedom of Religion conference

The University of Queensland’s TC Beirne School of Law is hosting a one-day conference on the topic Freedom of speech, conscience and association in a religiously tolerant society later this month on 31 October 2014. Speakers include the Commonwealth Attorney-General, George Brandis QC.