NFP’s and the 2011 Federal Budget- What is changing?

July, 2011

Establishment of the Australian Charities and Not-for-Profits Commission

The Government will provide $53.6 million over four years for the establishment of a new independent statutory agency, the Australian Charities and Not-for-Profits Commission (ACNC), and related structural changes required to the Australian Taxation Office (ATO).

The ACNC is to be operating by 1 July 2012. An implementation taskforce will be set up from 1 July 2011 to ensure the ACNC is ready for operation.

The Commissioner of the ACNC will have sole responsibility for determining charitable, public benevolent institution, and other not-for-profit status for all Commonwealth purposes. The ACNC will also initially be responsible for providing education and support to the sector; implementing a ‘report-once use-often’ general reporting framework for charities; and implementing a public information portal by 1 July 2013.

The Commissioner of Taxation will retain responsibility for administering tax concessions for the not-for-profit sector.

The Government will also undertake negotiations with the States and Territories on national regulation and a new national regulator for the sector, with the aim of minimising reporting and other regulatory requirements through coordinated national arrangements.

Targeting Commercial Activities

From 1 July 2011, the Government will reform the tax concessions provided to not-for-profit (NFP ) entities to ensure they are targeted only at those activities that directly further a NFP’s altruistic purposes. The new arrangements will initially affect only new unrelated commercial activities that commence after 10 May 2011. Under this measure, the NFP income tax concessions will only apply to profits generated by unrelated commercial activities that are directed back to a NFP entity to carry out its altruistic work. This means NFP entities will pay income tax on profits from their unrelated commercial activities that are not directed back to their altruistic purpose (that is, the earnings they retain in their commercial undertaking).

NFP entities, in respect of their unrelated commercial activities, will also not have access to the fringe benefits tax exemptions or rebate, goods and services tax concessions, or deductible gift recipient support in relation to those activities.

Commercial activities that further a NFP entity’s altruistic purposes, and small scale and low risk unrelated commercial activities, will not be affected by the reforms.

NFP entities with existing unrelated commercial activities will initially be able to continue to use their tax concessions to support these activities. The Government will consult on transitional arrangements for these existing activities, with the intention of phasing these out over time.

Statutory definition of ‘charity’

The Government will consult on and introduce a statutory definition of ‘charity’ for all Commonwealth laws to take effect from 1 July 2013. It will be based on the 2001 Report of the Inquiry into the Definition of Charities and Related Organisations, taking account of the findings of recent judicial decisions, such as Aid/Watch Incorporated v Commissioner of Taxation.

The Government will also consult with the states and territories with the intention of developing and introducing a definition of ‘charity’ that can be adopted by all jurisdictions.

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