It is vital that Boards and management committees keep up to date on the changes and plan well ahead for their ramifications. You can rely on Saward Dawson to help you understand the changes required to ensure ongoing compliance by your organisation.
In Australia Test
In order to access the tax concessions, including income tax exemption, most charities are required to meet an “in Australia” test. This test requires the entity to have a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia.
There is also an “in Australia” test for most deductible gift recipients (DGRs).
The Commissioner of Taxation has issued a draft ruling on the meaning of these “in Australia” tests. A copy can be found at https://www.ato.gov.au/law/view/document?docid=DTR/TR2018D1/NAT/ATO/00001
A charity will have a physical presence in Australia if it conducts physical operations in Australia. It will pursue its objectives principally in Australia if it conducts more than 50% of its operations in Australia. In determining whether expenditure is incurred in Australia, the ATO provides a number of factors to consider:
- Where the decision to make the expenditure is made
- Where the expenditure is made
- Where the recipient of the expenditure is located, and
- If the expenditure relates to goods and services, where those goods or services are consumed
The draft ruling also confirms the ATO’s view that the DGR “in Australia” test requires the entity to be established and operated in Australia. However, this does not mean that the charity’s beneficiaries must be in Australia. In determining the location of an entity, the ATO is of the view that you should consider the entity’s day-to-day management and operations.
Although some of the examples in the draft ruling are helpful, it is hoped that they will be expanded in the final ruling.
Benefits provided to Religious Practitioners
The ATO recently issued draft taxation ruling (TR 2018/D2) which explains when certain benefits provided by registered religious institutions to religious practitioners will be exempt from FBT. (Note: This draft ruling is a rewrite of taxation ruling TR 92/17, which was withdrawn on 11 July 2018.)
The updated ruling essentially includes some updates to reflect:
- A requirement for the provider of benefits to maintain a registration with the ACNC with a charity subtype of “advancing religion” and
- Changes in the nature of contemporary religious practice which have taken place since the previous ruling was originally issued.
In August 2018, Treasury released a Consultation Paper on the Deductible Gift Recipient (DGR) Reforms. The proposal recommends the following:
- All non-government DGRs must be registered with the Australian Charities and Not-for-profits Commission (ACNC). DGRs which are not charities will have 12 months to comply with the ACNC requirements.
- The requirement for a majority of the management committee to be responsible persons (eg doctors, lawyers, accountant, ministers of religion, school principals, etc) will be abolished.
- The four DGR registers currently administered by other government departments will be administered by the ACNC (overseas aid funds, cultural organisation, environmental organisations and harm prevention charities)
- Alter the public fund requirements
New legislation to effect the above amendments has not yet been released. The changes were originally planned to take place from 1 July 2019. The government has now deferred the start date until 1 July 2020.