Background
The ATO convenes a stewardship meeting with NFP sector representatives several times a year to discuss matters of mutual concern relating to nonprofit tax administration.
The November 2018 meeting minutes have just been released and the following issues will be of interest to those responsible for tax compliance of not for profit organisations and charities.[1]
NDIS insights
It was noted that “there was a marked rise in entities entering into the NFP sector as a result of the National Disability Insurance Sector (NDIS).
At September 2018, there had been approximately 7,000 new entrants in the market. There is an expectation that there would be 475,000 participants with $22 billion in planned expenditure by 2020.
The NDIS shifts away from service providers receiving guaranteed funding over a contract period. Members advised that this was causing cash flow problems in the sector with some not being able to remain viable; it raises potential risks for the ATO in terms of Fringe Benefits Tax (FBT) and Good and Services Tax (GST) collections. One may expect that the ATO will increase scrutiny in this area.
The Governance Committee also noted concern around the uptake by NFP entities of registration for Single Touch Payroll (STP) given around 40% of NFP employers had over 20 employees registered. STP is a change to the way employers report their employees’ tax and super information to the ATO.[2] Using payroll or accounting software that offers STP, employers send their employees’ tax and super information to the ATO each time they run their payroll and pay their employees. The information is sent to the ATO either directly from the software, or through a third party.
The Governance Committee also noted concern about revenue risks for Pay as You go (PAYG) and FBT as a result of increased use of labour hire in complex arrangements, including the use of ‘chuggers’. One may expect the ATO to increase scrutiny in this area.
Current areas of focus for the ATO
The ATO also indicated other areas of current focus being:
- Sporting Club tax reviews – They have been placed on hold while the re-write of the public ruling takes places. (see our previous Bulletin on this issue).
- School building funds – The ATO have conducted a number of cases and will be writing to all School Building Funds in 2019 outlining their areas of concern. There is a particular concern with taxpayers understanding of the definition of a “school”.
- Fringe Benefits Tax: The ATO began work in December 2018 on FBT Tax Assurance with a focus on high risk cases.
- Private Ancillary Funds: The ATO is examining related party transactions, funds undertaking commercial activity and compliance with the minimum distribution requirements.
Not-for-profit tax concessions
A small working group of ATO and sector representatives was set up in July 2018 to review the recommendations of the 2012-13 Not-for-profit Sector Tax Concession Working Group.[3]
The 2012-13 working group was limited to proposals to reform NFP taxation that were achievable without costing revenue. The current group’s aim is to keep alive the recommendations worth pursuing, and a number of the recommendations were identified for consideration including:
| Amendment to the not-for-profit threshold | The personal threshold tax mark was set in 1986 at $416 (as was the threshold for NFP) before a taxpayer was liable to pay tax.
The personal threshold has now been raised to $18,200 but the NFP threshold has remained at $416. The recommendation is that the threshold for NFP is also increased to reduce regulatory burden. |
| Reduce the complexity of the valuation rules for donations of property to DGRs | The current property donation rules are complex and may be confusing for those seeking to use them. There is confusion over the types of property that can be donated on a tax-deductible basis and donors face unnecessary costs from the valuation techniques required to obtain a tax-deductible value for specific property types.
The current rules require that donated property be valued by the Australian Valuation Office, part of the ATO. Different rules apply to trading stock, shares listed on the Australian Securities Exchange (ASX) and other types of property held for different periods of time by the donor. There is scope for simplification and rewriting of the rules. |
| Remove the minimum tax-deductible amount | The current minimum tax deduction is $2. This has not been altered since the inception of the provision in 1927.
It is suggested that a higher threshold could reduce the compliance burden currently associated with providing receipts for donations of $2 or more, however the recommendation is to remove the provision entirely, letting organisations set their own level. |
| Remove multiple FBT caps | Medical professionals can be employed by several different employers and access multiple FBT caps. This is seen as unfair.
The Board of Taxation is looking at this as well at present. |
| Allow charities FBT exemptions for entertainment | Employers in the commercial sector are eligible for an exemption from FBT for benefits of up to $300 provided to employees infrequently. This allows employers to provide minor benefits exempt from FBT, such as a Christmas party or gift of flowers upon the birth of a child.
Income tax exempt organisations cannot currently access this exemption in respect of entertainment benefits except in very rare circumstances. This is particularly relevant to employers eligible for the FBT rebate. The policy rationale for limiting the exemption in this way is unclear. The recommendation is that the existing limitation on access to the minor benefits exemption in relation to tax exempt body entertainment benefits should be removed with a view to ensuring equity across the NFP sector and with the commercial sector. |
| Simplify GST fundraising exemption | It was noted that a principles-based approach to the GST fundraising concession would allow certain NFP entities to self-assess whether their particular fundraising event satisfies the requirements.
At present only a limited number of fundraising events are eligible and NFP entities need to seek the Commissioner of Taxation’s approval for non-eligible events. The current provisions are complex, difficult to assess and give rise to uncertainty for many NFP entities, so the ATO guidance on the fundraising concession should be improved. |
Conclusion
If there is a change of federal government in May this year, it will be interesting to see if a new government has any appetite to pursue these cost neutral policy recommendations.
[1] https://www.ato.gov.au/General/Consultation/Consultation-groups/Stewardship-groups/Not-for-profit-Stewardship-Group/#Minutes
[2] https://www.ato.gov.au/Business/Single-Touch-Payroll/
[3] https://ministers.treasury.gov.au/displaydocs.aspx?doc=pressreleases/2012/007.htm&min=mva
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