Taxing times for NFPs

The Federal Government has released a discussion paper about taxation in Australia titled Re:Think which has caused some ripples in the not-for-profit (NFP) sector.

The discussion paper acknowledges the benefits the NFP sector provides for the community and briefly canvasses the current tax concessions that are available exclusively to  it.  The fact that many entities in the sector do not lodge tax returns means that estimating the value of the tax concessions is difficult. Despite this, the government estimates that the fringe benefits tax (FBT) exemption for NFP employees alone is worth around $3.3 billion.  The other major concession is the tax deductibility of gifts, which is estimated at equivalent to $1.1 billion in foregone revenue.

The concerns canvassed by the discussion paper, apart from revenue foregone, seems to be mainly the effect of FBT concessions where the NFP is in a competitive market with non-NFPs and that tax concessions may provide a competitive advantage for the NFP. Also, the tax-exempt status for some associations and clubs is openly described as having “no clear rationale underlying this exemption”.

In discussing deductible gift recipient status (DGR), the emphasis would appear to be the complexity and difficulty of obtaining DGR status rather than revenue foregone.

The discussion paper is calling on submissions that address the following questions:

  • Are the current tax arrangements for the NFP sector appropriate? Why or why not?
  • To what extent do the tax arrangements for the NFP sector raise particular concerns about competitive advantage compared to the tax arrangements for for-profit organisations?
  • What, if any, administrative arrangements could be simplified that would result in similar outcomes, but with reduced compliance costs?
  • What, if any, changes could be made to the current tax arrangements for the NFP sector that would enable the sector to deliver benefits to the Australian community more efficiently or effectively?

Submissions and suggestions on the discussion paper can be made at the website until 1 June 2015.