A new draft Bill has now issued following the withdrawal late in
2011 of the first drafting.
For Income Tax Exempt Entities
The new definition of "In Australia" states that if an
entity pursues its objectives by conducting activities that
directly advance those purposes – the entity is not
entitled to be income tax exempt unless it operates
principally in Australia.
If, as part of its operations, an entity gives money or property
(to further its purpose) to other entities that are not income tax
exempt, the use of those funds by the other entity will be taken
into account when determining whether or not the donor entity has
met the "In Australia" special condition (ie a look
through test). One of the conditions of the "In
Australia" test for all income tax exempt entities is that the
entity must comply with its substantive governing rules, ie
continue to pursue the purposes that are expressed.
How will the test affect a religious order which sends funds to
their overseas branches?
There has been a change from an expenditure test to an activity
The new test would require that:
The local order undertakes its activities in Australia.
Has property in Australia.
Is managed from Australia.
Is resident in Australia.
Has employees in Australia and
Incurs its expenditure principally in Australia.
The regulator will look to these indica to determine if the
"In Australia" test has been met and the entity can send
funds overseas without any risk to its local income tax
For those religious orders whose central administration is
overseas and whose main presence in Australia may be for the
purpose of remitting funds back to their "mother house",
income tax exemption may not be available: it may be necessary for
such local groups, as a minimum, to incorporate an Australian body
and otherwise have a clear presence in Australia, to prevent being
The new test, however, does not apply to any distributions
overseas, made by local charities, of funds received as government
grants, bequests or money gifted from donors where a tax deduction
has not been provided. To benefit from that exemption, the local
have strong governance arrangements in place for the proper
monitoring of how the money is used overseas;
establish that this is an effective use for the local
entity's purposes; and
establish there has been full compliance with Australian and
foreign laws, international treaties and the high reputation of
Australia's not for profit sector
The new "In Australia" test modifies the concept of a
not for profit entity by now allowing that entity to distribute any
surpluses to members provided those members' purposes are
similar. A distribution from one charity
to another charity is considered "similar": For example,
a charitable entity involved in the work of "provision of
support services eg insurance or human resources" is not
precluded from making a distribution to an entity involved in the
"advancement of education".
For Deductible Gift Recipients (DGR)
The test is stricter than for income tax exempt entities because
the DGR must:
operate solely in Australia; and
pursue its purposes solely in Australia.
Overseas aid funds and developed country relief funds are exempt
from this test.
Fund entities on the Register of Environmental Organisations are
There is also a look through test for a DGR which gives property
or benefits to a non-DGR to further its purposes: how the non-DGR
spends those funds will be taken into account to determine whether
the DGR meets the "operates solely in
Australia" special condition.
Eligibility for franking credits will need to satisfy the new
"In Australia" test, ie an activities based test with the
organisation needing to prove it operates and pursues its purposes,
(rather than simply its expenditure) principally in Australia.
Eligibility for Fringe Benefits Tax rebates or exemption must
also now satisfy the new "In Australia" test. It will be
necessary for FBT concession recipient charities to establish that
their objectives must be pursued principally in Australia.
ABN: Australian Business Number
ACNC: Australian Charities and Not-For-Profit
ASIC: Australian Securities and Investments
ATO: Australian Tax Office
DGR: Deductible Gift Recipient
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.
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