Australia's Future Tax System

Final Report: Detailed Analysis

Chapter B: Investment and entity taxation

B3. Tax concessions for not-for-profit organisations

B3–1 Why tax concessions are available to NFP organisations

Not-for-profit (NFP) organisations make a highly valued contribution to community wellbeing in the areas of community and welfare service, religion, education, sport and recreation, environmental protection and animal welfare. The defining feature of NFP organisations is that they are constituted to distribute surpluses in accordance with their objectives, and are precluded from returning profits or surplus assets to members.

NFP organisations receive government and community support for their activities, in recognition that:

  • NFP organisations supply goods and services with broad public benefits that may not otherwise be provided by private businesses. These benefits may be direct (such as providing legal advice to the homeless) or indirect (such as organising community sporting activities).
  • NFP organisations are often more effective service providers than government or for-profit organisations, given their unique relationship with the community. An increasing number of traditionally government activities are being outsourced to NFP organisations.
  • The activities of NFP organisations often supplement, or complement, existing government programs.

Much of the support provided to the NFP sector is delivered through tax concessions. These concessions are an important and longstanding source of financial support for the NFP sector, and assist NFP organisations to further their philanthropic activities and objectives.

Principle

Tax concessions for NFP organisations should be simple and transparent, reflect community needs and values, and encourage activities that provide broad public benefits. They should not undermine competitive neutrality where NFP organisations operate in commercial markets.