Tax Reform Update

The recent Commonwealth Budget and other announcements over the last 3 months herald further taxation changes for charities and their supporting donors.

Deductible gift recipients will be able to claim a rebate of imputation credits attached to company dividends received after 1^st July 2000. This new benefit would apply where the organisation has an investment in Australian shares or managed investments which invest in Australian shares.

The financial impact of the benefit means the organisation will achieve the "grossed up" return from company dividends they receive. In general terms this means a tax credit for the 36% tax (from 1999 – 2000) paid by the company on its profits prior to distributing dividends.

The rebate removes a prior disincentive to invest in Australian shares. When combined with the implementation of the "prudent person rule" for trustees, this measure should see more organisations adopting a longer term, growth oriented investment strategy with increased investment in the Australian sharemarket. For more online information visit www.treasurer.gov.au and view Press Release No. 024.

A cap of $17,000 in the "grossed up" value of tax free fringe benefits was to apply from 1^st April 2000 for employees of not for profit organisations. This cap will increase to $30,000 from 1^st April 2001, except in the case of hospitals where the current cap will remain and government funding will be increased to compensate. For more online information visit www.treasurer.gov.au and view Press Release No. 022.

The above incentives will generally only be available to organisations which have obtained tax deductibility status under the new ROGATE provisions (see Philanthropy Summer 1999 (41) p20 for an excellent article on this subject).

Alternatively, for online information visit http://www.taxreform.ato.gov.au/busihome/index.htm and view the Guide to Registering for The New Tax System. Section 4.5 Charities and deductible gift recipients outlines the new endorsement procedure.

This registration will also be beneficial from a GST perspective (see www.givewell.com.au and click on our Bulletin Board for details a specialist GST support service for not for profit organisations).

Deductible gift recipients will enjoy further benefits when the Entity Tax Regime is introduced from 1^st July 2001. See http://www.givewell.com.au/survey_oct99.asp for a previous Givewell article on this topic.

The tax incentives for gifting package to take effect from 1^st July has now been passed through Parliament. The only change is the inclusion of the option of 5 year amortisation of the value of gifts to environmental organisations, similar to that which applies for cultural gifts.

See http://www.givewell.com.au/survey_apr99_2.asp for a previous Givewell article on these new incentives.

It should be noted again that the reforms to halve the capital gains tax rate which took effect from 25^th September 1999 also reduce the cost of gifting assets which are subject to GST. This is simply because the rate of CGT falls but the tax rate on the deduction for the value of the gift does not. See http://www.givewell.com.au/survey_oct99.asp for a previous Givewell article on this topic. (Technical Note: Online access to a second Givewell Survey is only available to subscribers who login to our site with their User Name and Password).

Donations are to be GST free but many other types of fundraising activity will be subject to the new GST. Certain grants which involve the provision of a "taxable supply" from a GST registered not for profit organisation will attract the GST. For more online information visit http://law.ato.gov.au/atolaw/ and search for GSTR 2000/11 Grants of Financial Assistance.

Sponsorships are also taxable as are the sale of goods and services which comprise an ongoing commercial activity on the part of a GST registered not for profit organisation. The Treasurer has also recently announced that the Commissioner of Taxation will be empowered to issue guidelines to specify fundraising events of GST registered charities which can be treated as input taxed.

For more online information visit www.treasurer.gov.au and view Press Release No. 037 as well as the Givewell Bulletin Board for details of a specialist service providing GST support for not for profit organisations.

Finally, we trust this information helps those with responsibility for tax matters in the not for profit sector keep abreast of the latest developments.