Summary - Earnings derived from "new"
activities that do not directly support the NFP organisations
altruistic purposes are now subject to tax.
We thought it appropriate to provide an update on the proposals
for taxation of unrelated business activities (commonly referred to
2011-12 Federal Budget the government announced it will reform
the tax concessions provided to not-for-profit (NFP) organisations
to tax the earnings after 1 July 2011 generated by 'unrelated
commercial activities' of NFP organisations. Earnings
derived from activities that do not directly support the NFP
organisations altruistic purposes are now subject to tax.
Approach to Taxing Unrelated Commercial Activities
Until the exposure draft of the legislation is released, slated
for October 2012, it is not clear how earnings from unrelated
commercial activities will be taxed. The government has however
considered a number of possible approaches in its public
consultation paper released in May 2011.
Makinson & d'Apice forwarded a
submission to the government in response to this consultation
Start Date for Reforms
The start date for the reforms has now been deferred to 1 July
2012 and will only apply to "new" unrelated commercial
activities that commenced after 7.30 pm (AEST) on 10 May 2011.
Existing unrelated commercial activities that commenced prior to
that date will continue to be covered by transitional arrangements
as announced in the 2011-12 Budget.
ATO Guidance on Administrative Treatment
On 9 July 2012 the ATO released guidance on the administrative
treatment for the taxation of NFP organisations in anticipation of
the changes that will be included in new reforms.
The ATO will accept tax returns, business activity statements
(BAS) and fringe benefits tax (FBT) returns as lodged up until the
proposed reforms are passed by parliament and until then, the
following retrospective arrangements will be available:
NFP organisations that chose to anticipate the changes and did
so correctly, do not need to do anything more.
NFP organisations that did not anticipate the changes correctly
may need to seek an amendment to their earlier BAS, FBT or income
If an NFP organisation has acted reasonably in anticipating the
changes, there will be no tax shortfall penalty and, if they
actively seek to amend within a reasonable time, the ATO will remit
the general interest charge (GIC) attributable to the amendment to
If an NFP organisation lodges their BAS, FBT or income tax
return in accordance with the law as it was before the measure was
passed, they should seek an amendment.
For further information please click
here. We will be in touch with a further update when the next
exposure draft of the UBIT legislation is released.
Specific Questions relating to this article should be addressed directly to the author.