Australia: ATO reconsiders tax exemptions for charities and not-for-profits: draft amendment to taxation
ruling 2005/22 and a new version of the GiftPack is released

The ATO recently released a draft amendment to its public ruling 2005/22 which considers when companies will be income tax exempt under Division 50 of the Income Tax Assessment Act 1997.

The draft amendments to the ruling are a long awaited response to the High Court's Decision in Federal Commissioner of Taxation v. Word Investments Ltd (2008).

In summary, the Word Investments Ltd  case held that an organisation that was conducting business to raise funds for a charity could have a charitable purpose.

Who do the changes affect?

The ruling clarifies the position of the ATO in relation to charities and not-for-profit organisations (NFPs) who control or operate separate tax-exempt entities such as:

1. entities that derive revenue to pass on to charitable or tax exempt NFPs; and
2. entities that provide commercial services or products to charitable organisations at-cost or with significant discounts.

Important things to take from the draft ruling

The changes confirm that the ATO will administer the tax law by allowing organisations that carry out a business for the  sole purpose of giving effect to a charitable purpose to be eligible for tax concessions. It is questionable whether it was the Court's intention in Word Investments for the law to be interpreted in this way.

The ATO has invited comments on the draft ruling. The last date to comment is 5 August 2011.

Gadens Lawyers is able to advise organisations that would like to make a submission.

GiftPack

The ATO recently released a new GiftPack guide.

In summary, the new guide incorporates the following topics:

1. contributions and gifts made to political parties;
2. endorsements as a higher education institution; and
3. volunteer bushfire brigades.

Gadens Lawyers is able to advise organisations seeking endorsement from the ATO as a deductible gift recipient. 

For more information, please contact:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.