Deductible Gift Recipient Articles
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Review of Overseas Aid Gift Deduction Scheme
The results of the roundtables and submissions for review of the Overseas Aid Gift Deduction Scheme (OAGDS) are now available on the DFAT OAGDS review website. Two reports are available ...
(From Not-for-Profit Law Notes August 2015) Read more ...
Are you sure your income is tax exempt?
The Australian Taxation Office has recently released TR 2015/1, which sets out the Commissioner of Taxation’s view on what particular special conditions not-for-profit entities must fulfil in order to be exempt from income tax. A copy of the Final Ruling can be found here. It follows the release last year of Draft Ruling 2014/D5.
Conditions
The Final Ruling considers two of the special conditions that a not-for-profit entity must satisfy. The first relates to an entity’s governing rules. The second relates to an entity’s income and assets. These special conditions were introduced by Tax Laws Amendment (2013 Measures No. 2) Act 2013. More specifically, the two special conditions require a not-for-profit entity to:
- comply with all the fundamental requirements in its governing rules; and
- apply its income and assets only for the purpose for which the entity is established.
The Final Ruling came into effect on 25 February 2015 but is applicable to income years prior to this year. Some changes have been made in the Final Ruling, which are discussed below.
Incidental or ancillary purpose
Firstly, those within the sector who made submissions were concerned that the Draft Ruling did not address incidental or ancillary purposes. The Final Ruling has gone someway to remedying this concern, with the legally binding section stating that ‘the income and asset condition will not be breached merely due to an entity having an incidental or ancillary purpose.’ However, whether a purpose is incidental and ancillary to the main purposes or whether it constitutes a separate purpose altogether remains a question of interpretation. In answering this question, past practice suggests that the ATO will rely on reconstructing the entity’s constitution and analysing the entity’s activities.
Accumulations
An area of concern raised in submissions (and within the sector more generally) has been the ATO’s view of accumulations. The legally binding section of the Final Ruling states that ‘an entity that accumulates most of its income over a number of years will need to show on a year by year basis that the accumulation is consistent with the purpose for which the entity is established.’ Entities that are in decline, religious organisations and foundations should ensure that they are able to explain how they satisfy this condition.
Applied funds ‘solely’ to the purpose
Thirdly, the ATO’s understanding of applying funds for a ‘sole’ purpose is very narrow. The non-legally binding section of the Final Ruling explains that only ‘immaterial’ or ‘occasional, unrelated misapplications’ of charitable funds will not breach the provisions.
Queries?
If you have specific questions about how the Final Ruling will affect your not-for-profit organisation, call us on (02) 9267 9800 or send us an email ().
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Beware of exploitive tax schemes
On 4 February 2015, the Federal Court handed down its decision to penalise a group of tax scheme promoters to the tune of $1.5 million. The Court found that the promoters had attempted to exploit and profit from the tax system by generating deductions, associated with donation arrangements, to which donors were not entitled.
The scheme involved the purchasers paying a small percentage of the significantly inflated price of pharmaceuticals, yet claiming tax deductions of 100 per cent. The judge noted at least five grounds why the scheme was not lawful, including that the pharmaceuticals were not actually delivered to the charities concerned!
Follow this link to read the Australian Tax Office media release about the case.
if you have questions about lawful deductions, or establishing and maintaining deductible gift recipient funds.
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New DGR category for ethics classes in government schools
To be endorsed as a deductible gift recipient in Australia, an organisation or fund must fall into one of the categories prescribed by legislation. These categories include public hospitals, higher education institutions, school building funds and animal welfare charities.
The list of categories is a relatively static one so it is of note that legislation has been passed to add a new category. This new category will enable eligible providers of ethics education in government schools to receive tax deductible donations. The new category is now available for organisations who wish to apply for it.
This new category is in addition (but separate) to an existing category which allows a public fund established for the purpose of providing religious instruction in government schools to receive DGR endorsement.
This change will be of particular importance in New South Wales, where government schools are required to provide at least one special religious education class per week to its students. If students elect not to attend the special religious education class, they must attend a special education in ethics class instead.
Previously, there was inequality between organisations external to the government school system which wished to assist with the provision of special religious education versus those which wished to assist the provision of ethics education. The former were entitled to set up a public fund which could apply for DGR endorsement, whilst the latter had to make a special application to the government to be specifically named in the tax legislation. This new legislation redresses this imbalance.
Question about DGR status? .
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