Not-for-profit tax concessions under review


The Not-for-Profit Reform Council has released its discussion paper on reform of tax concessions available to not-for-profit (NFP) and charitable organisations. The paper is the initial response to the federal government’s brief to the Council’s Tax Concession Working Group to review NFP tax concessions.

The brief

The Terms of Reference given to the Working Group were very general – essentially, to investigate how the current NFP tax concession regime could be made more efficient and responsive to the real needs of the sector. (The Unrelated Business Income Tax was not included in the brief.)

It is important to note that the Working Group was not asked, nor is it proposing, to find ‘savings’ in by stripping back tax concessions. Given current budgetary constraints, however, any new or expanded support must be funded by reductions to other concessions.

Announcing the paper the Minister said: ‘The purpose of the paper is to stimulate discussion, debate and feedback to the NFP Sector Tax Concession Working Group.   It is not a position paper and the options canvassed are not recommendations’.

Overall message of the paper

The Working Group has used its broad instructions to produce a wide-ranging paper which addresses all the current tax concessions available specifically to NFPs: income tax, deductible gift recipient (DGR) status, fringe benefits tax (FBT) rebates and exemptions, GST exemptions and mutuality.

While the Working Group provides a number of options for consideration, the paper is more focused on setting out principles which should guide government and the sector in choosing a solution, and encouraging input from those who will be affected by any changes.

Options are assessed on their fairness, contribution to social benefit, equality, simplicity, competitive neutrality and clear rationale.

Speaking generally, the Working Group appears interested in linking as many concessions as possible to a main criterion of charitable status.

Key proposals

The bulk of the paper concentrates on suggestions for income tax, DGR and FBT reform. In particular, the Working Group suggested that extending DGR status to all charities could be ‘paid for’ by including meals and venue hire in the FBT cap. This would double the number of organisations able to access DGR.

The other area criticised by the Working Group was the ‘mutuality’ exemption from income tax. This is where a club or society’s income from its members is considered tax free.

Currently, clubs can offer very nominal memberships and access the exemption for significant profits from sales of gaming, catering and hospitality services. The Working Group suggested removing these services from the exemption, replaced with a high tax free threshold and concessional tax rate.

The key income tax options

  • Requiring all entities to be endorsed for income tax exemption, rather than allowing some to self-assess
  • Increasing the tax-free threshold for NFP companies

The key DGR options


  • Expanding eligibility for DGR status to all organisations with income tax exemption and/or charitable status. This would involve some exceptions and restrictions, either at the entity level (whole categories of entity excluded) or activity level (all entities included, but some activities for particular purposes excluded – for example, advancement of religion).
  • Changing to a fixed rate of tax deduction for DGR donations, rather than the current variable rate, to increase the incentive for lower income taxpayers to donate
  • Setting up a donation portal on the Australian Charities and Not-for-Profits Commission (ACNC) website, where the public could donate to any ACNC-registered charity directly
  • Removing the requirement to have a public fund for charities registered with the ACNC
  • Increasing the threshold for a tax deduction for DGR gifts from $2 to $25

The key FBT options


  • Revising which entities are eligible for exemptions and rebates
  • Including meals and venue hire in the FBT cap
  • Remove the ability for employees to access a separate FBT cap at multiple NFP employers
  • Over the long term, abolish FBT concessions entirely and replace with a more direct form of support – for example, paying a tax offset directly to NFP employees, or a higher tax free threshold, as an incentive to work in the sector.

What this means for you

The effects of the proposals in the paper will be different for every organisation. The proposals outlined above are only an overview of the discussion paper. There are other elements which may affect you or your organisation’s activities.

The Working Group has indicated a significant willingness to be directed by the response by the sector. We encourage those who may be affected by changes in the NFP tax concession regime to make their opinion known. Submissions can be made until Monday 17 December 2012.

We are assisting organisations in making submissions to the Working Group. If you are interested in engaging our firm to prepare submissions for you, please contact us before 10am on Monday 19 November 2012.


Disclaimer: This update should not be considered to be legal advice. You should always obtain legal advice for your specific circumstances before relying on general information.