Consultation on Unrelated Business Income Tax

Churches, Charities other Not-for-Profit Organisations and the Federal Budget

Set out below is a summary of key points from the Budget for Churches, Charities and other Not-for-Profit Organisations, some discussion and some resources that might be useful.

(6 June 2011 – we apologise that some links may be out of date)


The Budget handed down by the Federal Treasurer, Wayne Swan, tonight raised three issues of importance for Churches, Charities, other Not for Profits.

  • The introduction of an Unrelated Business Income Tax. This tax is intended to apply only to profit-making businesses that do not contribute to the altruistic purposes of the charity. It is not intended that this tax apply to simple activities like cake stalls and raffles. It is also not intended to apply to business ventures that contribute to the charity, such as op-shops. Nor is it intended to apply ‘initially’ to existing commercial activities. ‘The 50,000 National Rental Affordability Scheme allocations will be unaffected by the tax changes.’ It is therefore very unclear to what the tax will apply or why it is to be enacted. The tax is contrary to the Henry Review recommendations. Henry recommended that the sector remain untaxed.
  • An Australian Charities and Not for Profit Commission is to be established. It will begin operation on 1 July 2012. Its intention is to provide a one-stop shop for all not-for-profit organisations to report. It is intended to cut red tape. The Commission will be independent of the Australian Taxation Office.
  • A statutory definition of charity is to be introduced applicable to all Commonwealth agencies. It will come into operation on 1 July 2013.  It will be based on the 2001 Report of the Inquiry into the Definition of Charities and Related Organisations.



The US and UK experience suggests that Unrelated Business Income Taxes do not work. There are simply too many ways for churches, charities and other not-for-profit organisations to structure their affairs so as to avoid the tax. Ensuring only the intended organisations are taxed is likely to prove very difficult. This layer of complexity is likely to mean that organisations that conduct commercial activities may now need to take on-going legal and accounting advice. We are concerned, then, that this tax will bring little additional consolidated revenue but will add significantly to admin and running costs.

If the Australian Charities and Not-for-Profit Commission is a true one-stop shop for reporting this is likely to be a constructive development. Shifting responsibility for charity supervision to a Commission with specialist knowledge of the not-for-profits and away from the Australian Taxation Office is also likely to be well received by the sector.  Concerns about the creation of the Commission will arise if the Commission leads to more, or more complex, reporting for organisations – particularly those that presently have little or no reporting obligations.  Much will also depend upon whether or not  the Commission develops a culture that seeks to support and encourage voluntary participation and giving.  We are cautiously optimistic about this initiative. Time will tell.

The definition of charities is problematic. The definition of not-for-profit organisations is not less problematic – just less explored. We consider the 2001 Charities Definition Inquiry recommendation to be a second best option. Ideally a comprehensive definition of the whole sector and subsectors of it will be adopted so that it is clear just what defines the sector and which organisations are entitled to what favours such as exemption and deductibility.

Additional Resources

The relevant text is Budget Paper No.2. See the sections headed ‘Not‑for‑Profit sector reforms — better targeting of not‑for‑profit tax concessions’, and, ‘Not‑for‑profit sector reforms — introducing a statutory definition of “charity”’.

On the Unrelated Business Tax see Recommendation 42 of Henry Review. Bronwyn Dalton has provided a pithy recent summary of concerns about the Unrelated Business Tax in Australia. I gave a five minute radio interview exploring the issues.

For background to the Charities Commission see the Treasury Scoping Paper and my response summarised at page 3.

In relation to the Statutory Definition see the 2001 Charities Definition Inquiry recommendations No 16.  In my 2009 PhD I propose a comprehensive definition of Charities and Not-for-Profit Organisations on pages 377 and 378.

Could my organisation be affected?

Subscribe to our email updates to help determine if your Australian charity or non-profit organisation may have income subject to income tax from 1 July 2011 from activities commenced after 7:30 PM on 10 May 2011.

Additional Resources

Material that might be helpful to anyone writing a submission to the consultation are available here.

In addition a website of resources is developing at the Australian Centre for Philanthropy and Nonprofit Studies.


More Information

More information is available by contacting Matthew Turnour at Neumann & Turnour Lawyers during business hours on +61 7 3837 3600.

DISCLAIMER: This update contains general information only. It is not all inclusive and should not be considered legal advice. You should always obtain legal advice for your specific circumstances before relying on general information.