There was great news for the not-for-profit (NFP) sector in the Federal Government’s release of the final report of the Australia’s Future Tax System Review and their initial response yesterday afternoon. The Government ruled out removing the benefit of tax concessions for the NFP sector, which was one of the recommendations by the Review Panel. Some of the announcements in relation to superannuation are also of interest to the NFP sector.

Review Panel’s NFP recommendations and Federal Government response

According to the joint media release from Prime Minister, The Hon Kevin Rudd MP, and Treasurer, The Hon Wayne Swan MP,:

In the interests of business and community certainty, the Government advises that it will not implement the following policies at any stage ….. Do any changes to the tax system that harm the not-for-profit sector, including removing the benefit of tax concessions, raising the gift deductibility threshold or changing income tax arrangements for clubs

The Review Panel’s recommendations for NFP organisations were:

1. The establishment of a national charities commission to regulate and advise organisations, streamline tax concessions and to modernise and codify the definition of a charity
2. Capped FBT concessions to be phased out over 10 years and replaced with direct government funding, as the Panel concluded that existing FBT concessions provide NFP organisations with a competitive advantage in labour markets.
3. Retention of income tax and GST concessions for NFP organisations currently in receipt of these concessions, including any commercial activities conducted by such organisations, as the Panel concluded that such concessions do not violate the principle of competitive neutrality.

Of the Review Panel’s recommendations, the only one that was not taken off the tax reform agenda by the Government was the final recommendation above. However, it has not been expressly accepted by the Federal Government in its initial response and we look forward to hearing the Government’s position on this recommendation as this will indicate their support (or otherwise) for the High Court of Australia’s decision in Federal Commissioner of Taxation v Word Investments Limited (regarding the impact of commercial activities on charitable institutions).

Moore Stephens commends the Federal Government for providing the NFP sector with certainty that there will be no ‘harmful’ tax changes for the sector.

Superannuation

The superannuation measures that are of particular relevance to the NFP sector are:

1. A gradual increase in superannuation guarantee (SG) rate to 12 per cent by 1 July 2019, commencing with initial increments of 0.25 percentage points on 1 July 2013 and 2014, followed by annual 0.5 percentage point increments on 1 July 2015 - 2018.
2. An increase in the entitlement age for the SG Charge (SGC) from 70 to 75 years of age.  This will commence from 1 July 2013 and aligns the SGC cut-out age with the age limit for voluntary and self-employed contributions.

Author:  Allan Mortel, Moore Stephens Sydney

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