From the 138 recommendations made in the Review, 5 are specifically directed at the not-for-profit sector.
Recommendation 13 – gift deductibility should be retained, with the threshold raised from $2 to $25.
Dr Henry made this recommendation on the basis that it would be easier for both not-for-profit organisations and their donors not to have to worry about the administration of small donations. This was a sensible change given that the incentive of a $2 tax deduction is unlikely to drive charitable giving. Unfortunately, it has been ignored by the government.
Recommendation 41 – A national charities commission should be established to monitor, regulate and provide advice, to all not-for-profit organisations. The charities commission’s responsibilities should include streamlining the tax concessions available to the sector including gift deductibility and modernising and codifying the definition of charity.
The establishment of a national body to regulate and administer the sector is in line with recommendations from the Productivity Commission and the Senate Standing Committee on Economics. The streamlining of reporting requirements and simplification of the taxation regime would be a welcome change for the sector. The government is yet to make an explicit commitment to this reform but it can only benefit the sector. It is to be hoped that this proposal is finally adopted in line with the commitment to no harmful changes.
Recommendation 42 – Not for profit organisations should be allowed to apply their income tax concessions to their commercial activities.
The review panel has not recommended legislation to reverse the High Court’s decision in the Word Investment case as was feared. That case, detailed in our January 2009 Alert significantly increased the scope of not-for-profits to undertake commercial activities. It was concluded by the review panel that income tax and GST concessions do not impact on the relative competitiveness of the for-profit and not-for-profit sectors and therefore, those concessions should be allowed to extend to commercial activities undertaken by not-for-profit organisations.
Recommendation 43 – FBT concessions should be phased out over 10 years and replaced with direct government funding.
The review panel reached a different conclusion in relation to FBT concessions finding that they do provide not-for-profit organisations with a competitive advantage in labour markets. The 10 year period allowed for removing those concessions is to allow sufficient time for recipients to adjust the prices they charge for services and to renegotiate employment contracts and funding models.
The recommendation is to replace the FBT concessions with direct government funding with all not-for-profit organisations receiving tax concessions to be eligible to apply for funding for specific projects or to assist with the costs of recruiting specialist staff. Organisations already struggling with the vagaries of government funding decisions will understandably be sceptical of this proposal.
Recommendation 44 – Tax arrangements for clubs with large trading activities in gaming, catering, entertainment and hospitality should be simplified.
This recommendation is aimed at dealing with apparent unfairness between club and commercial gaming and entertainment enterprises but has also not been adopted by the government.
