Australia's Future Tax System

Consultation Paper Summary

7. Not-for-profit organisations

Overview

Not‑for‑profit (NFP) organisations perform a valuable role in Australian society. They are eligible for a range of tax concessions and receive direct government funding in support of their philanthropic and community‑based activities.

The tax concessions for the NFP sector are complex and applied unevenly.

Gifts are an important source of funding for NFP organisations. The current gift deductibility arrangements impose compliance costs on individuals and provide higher income donors with a greater taxation benefit than lower income donors.

Consultation questions

Q7.1 What is the appropriate tax treatment for NFP organisations, including compliance obligations?

Q7.2 Given the impact of the tax concessions for NFP organisations on competition, compliance costs and equity, would alternative arrangements (such as the provision of direct funding) be a more efficient way of assisting these organisations to further their philanthropic and community‑based activities?

Key messages in submissions

Many submissions express concern over the number of NFP organisations establishing business ventures, suggesting that these tax concessions unfairly disadvantage competing taxable entities. Several submissions note that NFP organisations are servicing commercial markets unrelated to their philanthropic activities, including: turf supplies; insurance; music sales; pizza shops; and breakfast and health foods. However, others suggest that commercial pursuits simply provide these charities with more funds for their philanthropic and community‑based activities.

Several submissions recommend the extension of the mutuality principle to provide a complete tax exemption for member‑based organisations to provide clarity and certainty.

Submissions on the appropriateness of the fringe benefits tax (FBT) concessions for NFP organisations present mixed views. While some favour the abolition of these concessions, others suggest eligibility should be broadened. One submission notes that the value of FBT concessions has been eroded over time.

Submissions note that the gift deductibility arrangements impose compliance costs on individuals, and express concern that the rewards for charitable giving vary depending on the income of the contributor (the higher their applicable marginal tax rate, the greater the benefit).