The Federal Government has reformed tax concessions that are available to the Not-For-Profit (NFP) sector, as announced in the Federal Budget.
The new arrangements commenced on 1 July 2011 and are aimed at ensuring that only those activities that directly further a NFP’s altruistic purposes are eligible to the tax concessions. These new arrangements initially affect only new, unrelated commercial activities that commenced after 10 May 2011.
The new arrangements will operate so that NFP entities will pay income tax on any profit generated from their unrelated commercial activities where the profit is not directed back to their altruistic purpose, but is retained in their commercial undertaking.
Further, NFP entities will not have access to the FBT exemptions or rebate, GST concessions, or deductible gift recipient support in relation to such unrelated commercial activities.
However, it should be noted that these new arrangements in no way impact on the availability or utilisation of the tax concessions to further a NFP entity’s altruistic purpose, even in circumstances where the charitable operation is conducted commercially. Examples of these types of commercial activity include not-for-profit hospitals, op-shops that sell second-hand household items and clothing at discounted prices to those in charitable need, NFP childcare centres, and businesses whose purpose is to provide meaningful employment to disabled persons.
In addition, commercial activities that further a NFP’s benevolent purposes, and small-scale and low-risk unrelated commercial activities, are also not affected by the new arrangements.
NFP entities undertaking existing unrelated commercial activities at 10 May 2011 can initially continue to use the tax concessions in order to support these activities. However, this eligibility is not proposed to continue. The Federal Government will consult on transitional arrangements to apply to these existing activities with the intention of phasing out access to the tax concessions over a period of time.
NFP entities that have entered into a government service delivery contract as at 10 May 2011 will be allowed to use their tax concessions in support of that contract.
Likewise, the 50,000 National Rental Affordability Scheme allocations will be unaffected by the tax changes.
The new arrangements and likely compliance activity are aimed at ensuring that NFP tax concessions are only available and used as originally intended, to support the NFP entity’s altruistic purpose. NFP entities should consider the impact, if any, of these new arrangements on their unrelated commercial activities.