Charities

Legislative Amendments for Charities and Tax Exemptions

Amendments to the Duties Act 1999, the Taxation Administration Act 1999, the Payroll Tax Act 2011 and the Rates Act 2004 regarding charitable tax exemptions commenced on 25 November 2015. The amendments exclude a narrow set of organisations from accessing tax exemptions available under the Duties Act 1999, the Payroll Tax Act 2011 and the Rates Act 2004.

The amending Act can be found on the Legislation Register here:  http://www.legislation.act.gov.au/a/2015-48/default.asp.

This legislation provides certainty and protection of the charitable taxation exemption across ACT government taxation legislation, bringing the legal definition into line with the more traditional definition of what makes an organisation a charity.

Background

Recently, a number of decisions in Commonwealth and State courts have widened the common law meaning of charity under the ‘fourth limb’ of the charitable definition. Charities now include several kinds of bodies that would not be considered charities in the popular sense. These include chambers of commerce, commercial and industry peak bodies and professional organisations.

These legal developments have significantly affected the scope of what is considered charitable, and therefore what organisations are eligible for tax exemptions, to include those engaging in political lobbying as well as peak professional bodies.

What is an ‘excluded organisation’?

The Taxation Administration Act 1999 defines the following types of organisation as ‘excluded organisations’, which cannot obtain charitable tax exemptions:

- political parties;
- industrial organisations (trade unions);
- professional organisations; and
- organisations that promote trade, industry or commerce.

The first and second types of excluded organisations are political parties and unions. These types of bodies are not considered charitable under the current law, but this legislation prevents them from obtaining tax exempt status in the future, should the common law definition expand to cover them.

The third and fourth types are professional associations and organisations promoting trade, industry or commerce. These organisations are generally made up of members, such as individual professionals or fee paying businesses. These organisations engage in significant public advocacy, including government lobbying, to secure policy outcomes that will benefit their particular industry or profession.

This application is incompatible with community views about acceptable charitable activities. This is not to say that these organisations never engage in beneficial community activities. Rather, the Government considers they exist mainly to serve their members’ interests, not the community’s.

Are genuinely charitable organisations affected by these amendments?

This legislation only affects professional organisations, peak industry bodies, political parties, industrial organisations, and organisations that promote trade, industry or commerce.

Organisations with recognised predominantly charitable purposes (the relief of poverty, the advancement of education, the advancement of religion, or other beneficial purposes) will not be affected by these amendments. For these genuinely charitable organisations, the usual assessment, reassessment and refund process will apply.

The amendments are only targeted at bodies that can be characterised as ‘excluded organisations’ through one of their purposes. In other words, the amendments will not affect organisations which were classified as charitable before the courts’ widening of the definition.

More information can be found in Revenue Circular GEN010 Charitable Organisations [RTF, 300Kb], [PDF, 616Kb]

Can an ‘excluded organisation’ still receive charitable status?

As a safeguard against the risk of the amendments inadvertently excluding a more traditional charity, the Commissioner for ACT Revenue (the Commissioner) will be able to make a beneficial organisation determination (a ‘BOD’) to regrant tax-exempt status to some organisations.

Only professional organisations or organisations that promote trade, industry or commerce are able to apply for a BOD. Political parties and industrial organisations are not eligible.

The Commissioner must be satisfied that the organisation has a predominantly charitable purpose, and that its excluded objects or activities are not significant to its overall purpose, before making a BOD. The organisation must also have a purpose that benefits the general community, rather than just a smaller class of people.

More information can be found in Revenue Circular GEN010 Charitable Organisations [RTF, 300Kb], [PDF, 616Kb]

Organisations will retain the right to seek a BOD, to lodge an objection through the regular procedures, and have an objection decision reviewed in the ACT Civil and Administrative Tribunal (ACAT) and other courts, subject to the restrictions on reassessment outlined below.

Can ‘excluded organisations’ get refunds of any previous tax paid?

For organisations where a BOD has been made in respect of the organisation, the usual reassessment process will apply. That is, genuinely charitable organisations and organisations who obtain a charitable status determination from the Commissioner will be tax exempt in future and may be able to receive refunds of any previous tax paid.

For excluded organisations, a transitional provision will prevent the Commissioner making a reassessment under the Taxation Administration Act 1999 under the state of the law that was in place prior to the commencement of the amendments.

This limitation applies regardless of whether the organisation made a submission to the Commissioner or the ACAT (including an objection or appeal) about the matter. It is restricted to situations where the reassessment’s purpose is to give effect to a decision that a now excluded organisation was or is a charitable organisation (and its tax liability was therefore nil or negligible).

As excluded organisations have the right to lodge late objections to tax assessments, there is a risk that they will be able to legally claim refunds for past periods, if they were considered charities under the common law up to the point of commencement.

However, this restriction does not apply if the organisation has applied for and obtained a BOD from the Commissioner. In such cases, the organisation with a BOD will be able to receive the refund on the same basis as a regular charitable organisation.

Retrospectivity is necessary to maintain a sustainable tax exemption for all charities. Without this element, affected organisations could still dispute their past liabilities, placing millions of dollars of collected tax at risk.

Useful Links:

Revenue Circular GEN010 Charitable Organisations [RTF, 300Kb], [PDF, 616Kb]
Revenue (Charitable Organisations) Legislation Amendment Act 2015
Revenue (Charitable Organisations) Legislation Amendment Bill 2015 – Explanatory Statement
Treasurer Andrew Barr MLA Media Release