Federal Budget 2013
The NFP sector is on alert waiting for the Government’s response to the NFP Sector Tax Concession Working Group’s report. The timing of the release of this report and the Government’s response is, however, uncertain.
Grant Thornton Tax Partner, Elizabeth Lucas, was appointed by Treasury to the Working Group, which was established to report on fairer, simpler and more efficient ways that tax concession support can be provided to the NFP sector.
A discussion paper was released by the Working Group in November 2012, which outlined some possible reforms and sought feedback and other ideas. Some of the options it canvassed would have far reaching implications for the sector.
Some of the issues raised are discussed below:
Fringe benefits tax and salary packaging
- Should FBT concessions be phased out and be replaced with direct support from the government? This is perhaps the sector’s biggest fear. Over recent years, the sector has very clearly indicated that it does not want to move to a system where it is reliant on government grants and has to face all the uncertainty and processes that go along with that.
- Who should be eligible for what level of concession? As the range of entities eligible for the FBT exemption or rebate has evolved over time, the Working Group canvassed whether a more principled approach would be preferable. Gaining or losing an FBT concession would have a huge impact on a NFP’s ability to offer salary packaging to its staff – and thus potentially impact employees’ take-home pay.
- Should meal entertainment and entertainment facility leasing benefits be included within the cap’s? The ability to salary package these costs on an unlimited basis was an unintended consequence of a measure designed to reduce compliance costs. Whilst no one would disagree with this, many NFP employers have come to rely on this offering to attract and retain highly valued staff. Therefore, any removal or capping of this benefit could have far reaching effects.
- Should access to multiple caps be removed? Employees working for more than one NFP employer at a time can currently access annual caps for FBT concessions at each employer. Whilst restricting employees to one total capped amount per FBT year sounds sensible, the practical implementation of this might not be so straightforward – for instance, when an employee leaves one employer and moves to another.
- Are the current categories of income tax exemption appropriate and what criteria should be used to determine income tax exemption? Obviously, gaining or losing income tax exemption would have a huge impact on an organisation. The paper did not flag any particular types of organisations that the Working Group considered to be classified incorrectly, but rather, focussed on the ad hoc manner in which the exemptions have grown and favoured a principled approach.
- Should the threshold for income tax exemption for taxable NFP clubs, associations and societies be increased and if so to what level? Increasing the existing $416 threshold would significantly simplify the compliance burden for many small NFPs.
- Should all charities be DGR’s? Extending DGR status to all charities would have a significant budgetary cost, so the concern here is what measures would be used to pay for this?
- Should the threshold for deductible gifts be increased from $2 to $25 (or some other amount? The impact on philanthropy, and in particular, small donations, might be more of an issue than the tax and compliance issues relating to the threshold figure chosen.
Should the mutuality principle be legislated to provide that all income from dealings between entities and their members is assessable? Taxing income from members of various clubs and other mutual organisations would be a huge change to the status quo where the entity does not otherwise qualify for income tax exemption. The proposal to increase the tax free threshold for NFP’s would eliminate the problem for the smaller entities, but not so the large ones. The main concerns raised by the Working Group in its discussion paper included tax avoidance through temporary memberships, social policy concerns around gambling and hospitality, competitive neutrality and administrative complexity.
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