UBIT – what is all the fuss about?

September, 2012

You may have heard the term “UBIT” being thrown around in the sector, but what is all the fuss about?

In 2011, the Federal Government announced that it was going to introduce, what amounts to, a new “unrelated business income tax” (known as UBIT) on the income of not-for-profit organisations.

The basic proposal was that:

1. NFPs will pay tax on any retained earnings not annually remitted and applied to the purposes of the tax concession entity; and

2. existing input tax concessions (such as FBT and GST), would not be available for unrelated commercial activities.

The proposal has caused confusion because there is no clear meaning of “unrelated commercial activities” and it not clear what would be exempt from tax. There has also been concern within the sector that there is the potential for unintended consequences, such as not-for-profit organisations having to restructure so that unrelated commercial activities could be undertaken through a separate entity.

The UBIT was due to be imposed on 10 May 2011 and then the Government postponed the commencement date to 1 July 2012 to allow for more consultation. This date has been and gone but the Government has not provided an update about the UBIT and we understand a lot of the information is confidential and unavailable to the public at the moment. One of the biggest issues now is that there are a number of other government initiatives relating to not-for-profit organisations which are underway and it is not clear how these will effect the UBIT proposal.

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