Tax Laws Amendment (2007 Measures No. 2) Act 2007

The Tax Laws Amendment (2007 Measures No. 2) Bill received Royal Assent on 21 June 2007.  This Act has made technical amendments and corrections to the way the income tax law applies to exempt entities. The ATO has stated that the Act “will ensure that Public Ancillary Funds or Prescribed Private Funds do not lose their income tax exempt status if they distribute money to Commonwealth, State or Territory bodies which are exempt from tax and also deductible gift recipients”. The Act also includes provisions to extend the thresholds for deductible contributions to fundraising events, and to allow a tax deduction for donations of listed shares to deductible gift recipients.

It is important for trusts and not-for-profits not to act on this legislative change at this stage, as there are a number of steps that will need to be undertaken first and the details have not yet been finalised. Philanthropy Australia is currently seeking further details on how the Act will apply to grants made by our members and on guidelines for members wishing to take advantage of the new provisions. In the meantime, the Bill and its explanatory memorandum can be viewed on the Parliament of Australia website at http://www.aph.gov.au/bills/index.htm. Select Current Bills (by Title), scroll through the list to Tax Laws Amendment (2007 Measures No. 2) Bill 2007 and select it.

Changes to Minor Benefits Measure (2006)

Minister for Families, Community Services and Indigenous Affairs, Mal Brough and the Minister for Revenue and Assistant Treasurer, Peter Dutton MP, recently announced improvements to taxation deductibility provisions that affect fundraising charity dinners and events.

The Minor Benefits Measure seeks to permit a tax deduction for a payment to a charity where a benefit is received by the taxpayer provided that the value of the benefit received does not exceed the designated percentage of that payment. Deductions allowed under this measure are separate to deductions currently allowed for gifts.

The changes will reduce the minimum contribution threshold to $150 (previously $250), which will allow a greater number of charities to use the measure for fundraising. The value of the minor benefit allowed will be increased to 20 per cent of the gift - or ticket price - but not exceeding a value of $150 (previously 10% not exceeding $100).

The changes to the Minor Benefits Measure will apply from 1 January 2007.

You can view the text of the press release of this announcement on the ATO web site at - http://ato.gov.au/nonprofit/content.asp?doc=/content/81719.htm

Information regarding the changes to Deductions for contributions with Associated Minor Benefits will be incorporated on the Partnership and Australian Taxation Office websites (www.partnerships.gov.au and www.ato.gov.au) after 1 January 2007.

Charitable Trusts Amendment Bill 2006 - NSW

Members will be pleased to know that the Charitable Trusts Amendment Bill 2006 in NSW recieved Royal Assent on 27 November 2006. The text of the Bill, along with explanatory notes and second reading speeches, can be downloaded from the NSW Parliament website at - www.parliament.nsw.gov.au/prod/parlment/nswbills.nsf/0/DCFE5E2C7CE8CBC7CA257211001CB974

Again, we remind members that it is important not to take any actions based on these State-based laws at this stage, as trustees will still need to follow correct procedure to opt-in to the law and must also ensure compliance with Commonwealth tax law.

The Bill can be downloaded from the NSW Parliament Website by clicking here.

Charities (Amendment) Act 2006 - Victoria

Both Houses of the Victorian parliament recently passed the Charities (Amendment) Bill 2006, and after receiving Royal Assent from the Governor of Victoria on 10 October it was enacted as the Charities (Amendment) Act 2006. The new law will apply retrospectively for those trusts that choose to opt-in

The Act gives trustees of Victorian trusts the legal power to make grants to those entities which are deductible gift recipients, but which are not considered charities in law only because of their link to government. The legislation contains provisions that will validate such grants made by foundations before the legislation takes effect. It also requires those trusts who wish to take advantage of its provisions in relation to distributions made by trusts after the legislation takes effect, to make a declaration that they choose to opt in.

Members are reminded that trusts will still need to take steps necessary to opt-in to the law, and must also ensure compliance with Commonwealth tax law. The Act does not affect the definition of a charity or confirm that government-linked DGRs are charitable at law, because it has no power to do so. Nevertheless, this is an encouraging first step and we hope that similar legislation will be enacted in other States and Territories.

Philanthropy Australia will be working with the Victorian Government, the ATO and the Commonwealth Treasury to develop clear guidelines for trusts and foundations, and in due course information sessions will be held. We will keep you informed of further progress on the issue.

Income Tax Issues

John Emerson, Partner, Freehills, has kindly provided Philanthropy Australia with two papers on income tax issues for charitable institutions and trusts, available to download:

• Charitable Institutions and Trusts - income tax issues (PDF)
• Ancillary funds and prescribed private funds - ascertaining eligible recipients (PDF)

Prescribed Private Funds

Prescribed Private Funds (PPFs) are a category of tax deductible fund established as a result of the Taxation Laws Amendment Act, No.2 (2000).

• The ATO's introductory page on Prescribed Private Funds is here.
• Guidelines and a model trust deed for PPFs are available from the ATO's website here.

John Emerson of Freehills has written two papers on PPFs, available to download:

• Introduction to Prescribed Private Funds (PDF)
• Prescribed Private Funds Technical Outline (PDF)

Environmental Tax Concessions

The Prime Minister announced on 20 August 2001 a further taxation measure to encourage philanthropy; the allowing of income tax deductions to land holders who enter into perpetual conservation covenants for no consideration with deductable gift recipients. This measure from the CSIRO/Ian Potter Foundation Report, Sustaining the Land, was recommended by the Community Business Partnership's taxation working group. Click here for the Prime Minister's announcement.

Deductible Gift Recipient

A DGR (deductible Gift Recipient) is a fund or organisation which is entitled to receive tax deductible gifts. There are many categories of DGR, and separate DGR registers for cultural and environmental organisations as well as overseas aid funds and harm prevention charities. Some kinds of philanthropic trust are also DGRs.

The ATO website on DGR status is located here.