House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 10 - Endorsement of charities to access relevant tax concessions

Outline of chapter

10.1 Schedule 10 to this bill amends the ITAA 1997, the Fringe Benefits Tax Assessment Act 1986 (FBT Act), the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), and the Taxation Administration Act 1953 (TAA 1953) to require that charities, public benevolent institutions and health promotion charities, be endorsed by the Commissioner in order to access relevant taxation concessions.

10.2 Schedule 10 also amends the A New Tax System (Australian Business Number) Act 1999 (ABN Act) and the TAA 1953 to require the Registrar of the Australian Business Register (Registrar) to make entries in the Australian Business Register (ABR) citing the taxation concessions for which a charity (or public benevolent institution or health promotion charity) has been endorsed.

Context of amendments

10.3 As part of its response to the Report of the Inquiry into the Definition of Charities and Related Organisations, the Government decided that from 1 July 2004, charities, public benevolent institutions and health promotion charities will be required to be endorsed by the ATO in order to access all relevant taxation concessions.

10.4 An organisation endorsed to access these tax concessions will have its status attached to its Australian Business Number (ABN) and this status will be able to be publicly accessed through the ABR. This will allow greater scrutiny of the use of taxation concessions by charities (and public benevolent institutions and health promotion charities) and improve public confidence in the provision of taxation support to the charitable sector.

Summary of new law

10.5 The amendments extend the endorsement processes currently undertaken by the ATO to all the taxation concessions to which charities, public benevolent institutions and health promotion charities, are entitled. Where a charity can currently self-assess its eligibility for a taxation concession, from 1 July 2004, it will be required to satisfy the Commissioner that it is eligible for the taxation concession. Depending on the nature of the entity, the relevant concessions are the income tax exemption as a charity, refundable imputation credits, deductible gift recipient status, the fringe benefits tax (FBT) rebate, the $30,000 capped FBT exemption and GST concessions for charities.

10.6 There is no change to the requirements that charities, public benevolent institutions and health promotion charities have to fulfil to qualify for taxation concessions. The process for endorsement for each taxation concession will now be contained in the TAA 1953.

10.7 To be endorsed, entities must identify themselves to the Commissioner by applying for an ABN and applying for endorsement for tax concessions.

Detailed explanation of new law

Endorsement specific to the type of concession and charity

10.8 Endorsement will be required for each particular concession that a charity wishes to access [Schedule 10, item 38, section 426-5]. This enables the endorsement conditions to exactly mirror the existing conditions that must be met for an entity to be entitled to access a particular taxation concession.

10.9 There are five new categories under which an entity may be endorsed:

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a charitable institution under subsection 176-1(1) of the GST Act;

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a trustee of a charitable fund under subsection 176-5(1) of the GST Act;

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a public benevolent institution under subsection 123C(1) of the FBT Act or for the operation of a public benevolent institution under subsection 123C(3) of the FBT Act;

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a health promotion charity under subsection 123D(1) of the FBT Act; and

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a charitable institution covered by paragraph 65J(1)(baa) of the FBT Act under subsection 123E(1) of that Act.

10.10 These five are in addition to the current categories of:

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a DGR, or as a DGR for the operation of a fund, authority or institution, under section 30-120 of the ITAA 1997; and

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a charity exempt from income tax under section 50-105 of the ITAA 1997.

10.11 The GST Act and the FBT Act are amended to ensure that the relevant FBT and GST taxation concessions apply only to endorsed entities. Apart from the endorsement requirement, the conditions for access to these concessions have not been changed. [Schedule 10, item 4, subsection 29-40(2); item 5, subsection 29-50(5); item 6, paragraph 38-250(1)(a); item 7, paragraph 38-250(2)(a); item 8, paragraph 38-255(a); item 9, paragraph 38-270(a); item 10, paragraph 40-160(a); item 12, paragraph 63-5(2)(a); item 13, paragraph 111-18(a); item 14, section 129-45; item 18, subsection 57A(1); item 19, subsection 57A(5); item 20, subsection 65J(1); item 21, paragraph 65J(1)(b)]

Requirement for endorsement

10.12 Charities (and public benevolent institutions and health promotion charities) will be required to be endorsed to access the income tax exemption as a charity, refundable imputation credits, DGR status, the FBT rebate, the $30,000 capped FBT exemption and GST concessions for charities. Subject to the qualification in paragraph 10.13, other types of entities that can access these concessions are not required to be endorsed. For example, a non-profit society established for the purpose of promoting the development of aviation may continue to self-assess its entitlement to the FBT rebate.

10.13 Where an entity qualifies for a concession as both a charity and another type of entity, the entity may only claim the concession if the entity is endorsed as a charity. This applies to the FBT rebate and GST concessions, which may be claimed by several types of entities. For example, where an entity is both a charitable institution and a non-profit society established for community service purposes, the entity must be endorsed as a charity for the entity to be entitled to access the FBT rebate. The entity may not bypass the requirement of charitable institutions to seek endorsement for the FBT rebate, by instead self-assessing their entitlement to the FBT rebate as a non-profit society established for community service purposes. [Schedule 10, item 4, subsection 29-40(2A); item 6, subsection 29-50(6); item 7, subsection 38-250(3); item 8, subsection 38-255(2); item 9, subsection 38-270(2); item 10, subsection 40-160(2); item 11, subsection 48-15(1); item 12, subsection 63-5(3); item 13, subsection 111-18(2); item 14, subsection 129-45(2); item 22, subsection 65J(1A)]

10.14 The Commissioner is required to endorse a specific entity for a specific taxation concession if it has applied for endorsement, has an ABN and is entitled to that endorsement [Schedule 10, item 15, section 176-1; item 22, sections 123C to 123E]. There is no change to the requirements a charity must meet in order to be entitled to a concession.

10.15 While an entity will have to meet specific conditions relating to each particular concession to be endorsed, the procedural provisions relating to application for endorsement and revocation of endorsement are the same for each category of endorsement. To avoid repetition in the legislation, procedural rules relating to endorsement for all relevant tax concessions are provided in Division 426 of Schedule 1 to the TAA 1953 rather than in each separate tax Act.

Process of endorsing

Applying for endorsement

10.16 In applying for endorsement, the entity must apply in a form approved by the Commissioner (signed or containing the entity's electronic signature if lodged electronically). The application must be lodged at, or posted to, an office or facility designated by the Commissioner as a receiving centre for an application of that kind. [Schedule 10, item 38, section 426-15]

10.17 While endorsement is beneficial to charities (and public benevolent institutions and health promotion charities) as it allows them to access certain taxation concessions, it is possible that some entities may be entitled, but not wish to be endorsed. The requirement that an entity apply for endorsement preserves the right of the entity not to be endorsed if they so choose.

10.18 The process for endorsement may be streamlined by allowing the Commissioner to approve a single form that would cover applications for multiple endorsements. Entities may have the option of indicating on the form either the specific endorsement or endorsements they wish to apply for, or that they wish to apply for all of the endorsements without being required to separately identify each endorsement. [Schedule 10, item 38, subsection 426-15(3)]

10.19 The Commissioner must give the applicant written notice as to whether they are endorsed or refused endorsement. [Schedule 10, item 38, section 426-25]

10.20 The Commissioner must specify a date of effect of endorsement. The date may be any date including a date before the application for endorsement was made and a date before the applicant had an ABN. [Schedule 10, item 38, section 426-30]

Refusal of endorsement

10.21 The applicant may object against a refusal of endorsement in the manner set out in Part IVC of the TAA 1953 [Schedule 10, item 38, section 426-35]. Part IVC applies to taxation objections, reviews and appeals.

10.22 An applicant may treat their application as refused, by giving the Commissioner written notice of that fact, if the Commissioner has not given the applicant written notice of a decision by the later of:

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the end of the 60th day after the application was made; or

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the end of the 28th day after the last day on which the applicant gives the Commissioner further information or documentation as requested.

[Schedule 10, item 38, subsection 426-20(2)]

10.23 If the applicant gives such a notice, the review of refusal of endorsement operates as if the Commissioner had refused the application on the day on which the notice is given. [Schedule 10, item 38, subsection 426-20(4)]

Checking entitlement to endorsement

10.24 The Commissioner may require that an endorsed entity provide information relevant to its entitlement for continued endorsement. The entity must comply with that request [Schedule 10, item 38, section 426-40]. Failure in this obligation may attract prosecution under section 8C of the TAA 1953 and loss of endorsement [Schedule 10, item 38, paragraph 426-55(1)(b)].

10.25 An entity must give the Commissioner written notice before, or as soon as practicable after, it is no longer entitled to be endorsed [Schedule 10, item 38, section 426-45]. Failure in this obligation may also attract prosecution under section 8C of the TAA 1953.

10.26 The Commissioner may revoke an entity's endorsement if that entity:

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is no longer entitled to be endorsed;

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has not provided requested information relevant to its endorsement; or

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has not ensured that the required things are stated on receipts issued for gifts (only relevant for DGRs).

[Schedule 10, item 38, section 426-55]

10.27 The Commissioner must give the entity written or electronic notice if its endorsement is revoked. The revocation date is the date specified by the Commissioner but cannot be before a date on which the entity first ceased to be entitled. [Schedule 10, item 38, section 426-55]

10.28 The entity may object if it is dissatisfied with the revocation of its endorsement. [Schedule 10, item 38, section 426-60]

Partnerships and unincorporated bodies

10.29 The obligations, mentioned above, to comply with the Commissioner's request to provide information relevant to an entity's entitlement to endorsement or informing the Commissioner when the entity has ceased to be entitled to be endorsed, are imposed on each partner in a partnership and each member of the committee of management of association. The obligation may be discharged by any of the partners or any of the members of the committee. [Schedule 10, item 38, subsections 426-50(1) and (2)]

10.30 Where the obligations are not met, there will be an offence under section 8C of the TAA 1953. However, this bill does not, on its own, create any offence. Nor does it reverse the onus of proof set out under section 8C. For example, it is still incumbent upon the Commissioner to prove that the person was capable of providing the required information.

10.31 Because of the need to extend the information obligations to cover each member of a partnership or each member of a management committee of an unincorporated association (to attach to the legal persons behind such entities), this bill provides an additional safeguard to those members. Essentially, the proposed defence provided by subsection 426-50(3) ensures that no offence will have occurred where the person proves that they did not knowingly fail to give information. Of course, this defence will not be necessary if the Commissioner cannot prove that the person was capable of providing the required information.

Government entities

10.32 Section 426-10 ensures that 'government entities' are treated like entities for the purpose of endorsement as a DGR.

Recording an endorsed entity on the Australian Business Registrar

10.33 Entities will have their endorsement displayed on the ABR. To facilitate this, it will be necessary for all endorsed entities to have an ABN. [Schedule 10, item 3, paragraph 26(3)(ga)]

10.34 The endorsed entity does not have to apply to be recorded on the ABR. The Registrar will enter a statement on the ABR that the entity is endorsed. [Schedule 10, item 38, section 426-65]

Application and transitional provisions

10.35 Items 39 and 40 provide a start date of 1 July 2004 for the amendments made by Schedule 10 to the GST Act and the FBT Act.

10.36 Most of the entities that are already endorsed as an income tax exempt charity or a DGR would likely have applied to be endorsed for all the concessions to which they were entitled had endorsement been required at the time they applied. The Commissioner will endorse such entities under any category to which they are entitled providing that the entity is already endorsed as an income tax exempt charity or DGR before 1 July 2004. Such entities need not apply to be endorsed, but may apply to the Commissioner if they do not wish to be automatically endorsed. [Schedule 10, item 360]

10.37 Item 42 provides a seamless transition to the new processes. For example, the TAA 1953 (as in force on and after the commencement of this item) applies as if:

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an application made before the commencement of this item under section 30-130 or 50-115 of the ITAA 1997 was made under section 426-15 in Schedule 1 to the TAA 1953;

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a request made before the commencement of this item under subsection 30-135(1) or 50-120(1) of the ITAA 1997 was made under subsection 426-20(1) in Schedule 1 to the TAA 1953;

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a notice given before the commencement of this item under subsection 30-135(2) or 50-120(2) of the ITAA 1997 was given under subsection 426-20(2) in Schedule 1 to the TAA 1953;

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a notice given before the commencement of this item under subsection 30-140(1) or 50-125(1) of the ITAA 1997 was given under subsection 426-25(1) in Schedule 1 to the TAA 1953;

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an objection made before the commencement of this item in accordance with section 30-150 or 50-135 of the ITAA 1997 was made in accordance with section 426-35 in Schedule 1 to the TAA 1953;

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a request made before the commencement of this item under subsection 30-155(1) or 50-140(1) of the ITAA 1997 was made under subsection 426-40(1) in Schedule 1 to the TAA 1953;

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a revocation made before the commencement of this item under subsection 30-170(1) or 50-155(1) of the ITAA 1997 was made under subsection 426-55(1) in Schedule 1 to the TAA 1953;

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a notice given before the commencement of this item under subsection 30-170(4) or 50-155(4) of the ITAA 1997 was given under subsection 426-55(4) in Schedule 1 to the TAA 1953; and

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an objection made before the commencement of this item in accordance with section 30-175 or 50-140 of the ITAA 1997 was made in accordance with section 426-40 in Schedule 1 to the TAA 1953.

Consequential amendments

10.38 Consequential amendments relating to providing an entry in the ABR make it clear that section 426-65 requires the Registrar to make entries in the ABR about entities that are endorsed. [Schedule 10, item 3]