Implementing the budget initiatives
To progress the initiatives and reforms announced in the 2011 Federal Budget, the Government will ask the Council of Australian Governments to establish a NFP working group reporting to the Standing Council for Federal Financial Relations. The referral of state and territory powers and revenue negotiations has never proven to be quickly achieved.
To prepare for the launch of the new statutory agency Australian Charities and Not-for-profits Commission (ACNC), the Government will set up an Implementation Taskforce from 1 July 2011. The Taskforce will be responsible for preparations to ensure the ACNC is ready for operation by 1 July 2012.
Tax concessions and commercial activities
Also in the Federal Budget, the Government announced it will reform the use of tax concessions by businesses run by NFP entities. NFP entities will pay income tax on profits from their unrelated commercial activities that are not directed back to their altruistic purpose, ie, the earnings they retain in their commercial undertaking. NFP entities will not be able to use input tax concessions, such as FBT and GST concessions, for their unrelated commercial activities. These reforms will not affect the use of tax concessions to further a NFP entity’s altruistic purpose, even where the charitable operation is conducted commercially. It was also stated that the reforms will not affect NFP entities carrying on small-scale and low-risk activities.
These new arrangements commenced on 1 July 2011 and will initially affect only new unrelated commercial activities that commence after 7.30pm (AEST) on 10 May 2011. NFP entities with existing unrelated commercial activities will initially be able to continue to use their tax concessions to support these activities. NFP entities that have entered into a government service delivery contract as at 7.30pm (AEST) on 10 May 2011 will be allowed to use their tax concessions in support of that contract.
Later in May, the Assistant Treasurer Bill Shorten announced the release of a discussion paper Better targeting of not-for-profit tax concessions, which seeks views on how to implement the Government’s 2011/12 Budget announcement to better target tax concessions for unrelated commercial entities.
The consultation paper provides background information on Commonwealth tax concessions for the NFP sector; outlines the Government’s policy intent and discusses options for implementing the reforms; and seeks views from stakeholders on how the Government should go about phasing out concessions for existing unrelated commercial activities, and whether support to adjust to the new arrangements should be provided.
Consultation about the reforms to tax concessions closed on 8 July 2011.
Challenges now and forthcoming
There may be impacts on viability where tax concessions or funding have been relied upon, a need to consider restructuring to differentiate activity around revised criteria that the Government may establish, as well as cost imposts. Governance, accountants and auditors, as well as other stakeholders, will need to be very alert to current and foreshadowed financial reporting, regulatory and taxation developments.
The challenges are to engage in consultation processes, assess how the changes will impact individual NFP entities, and roll out an implementation plan to address the changes. There are likely to be significant resource and timing constraints given the ambitious timetables of standard-setters and legislators.
