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Australia’s Future Tax System: impacts for not-for-profits

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As a result of the review, on 2 May 2010 the Federal Government announced their agenda for Australia’s Future Tax System. Described as the ‘first wave’ of reforms, the agenda for the tax system targets resources, company and small business taxes and superannuation.

Federal Treasurer Wayne Swan said that a second term agenda will be announced over the coming months and will address how to make tax simpler for everyday Australians, improving incentives to save and improving the governance and transparency of the tax system.

There were a number of recommendations in the review which would impact the not-for-profit (NFP) sector, some of which have influenced the Government’s decision to implement reforms detailed in Australia’s Future Tax System.

Resource Super Profits Tax

As part of the agenda for Australia’s Future Tax System, the Government has proposed a Resources Super Profit Tax (RSPT), which will apply a 40 per cent tax to profits from resource projects after allowing for extraction costs and recouping capital investment.

Minister Swan said that the RSPT, to apply from 1 July 2012 will “be a better way to tax resources because it only taxes profits and fully recognises the large investments made in resource projects.”

Consultations will be conducted over the year to resolve detailed design issues, in particular the transition for existing projects. This will include the establishment of a Resource Tax Consultation Panel. The Panel will undertake targeted consultation with industry and other stakeholders.

As part of the reform the Government will also introduce a resource exploration rebate (RER) from July 2011 to promote resource exploration. Under the RER, companies can receive a refundable tax offset for their exploration expenditure.

Australian Petroleum Production and Exploration Association (APPEA) Chief Executive Officer Belinda Robinson said that the industry has welcomed the Australian Government’s reforms, however she also voiced concerns of the material impact the RSPT could have on the economic viability of Australia’s proposed coal seam gas (CSG) to LNG projects.

Recommendations for tax concessions

A number of other recommendations were listed in the Review of Australia’s Future Tax System concerning tax concessions for NFP organisations, but have not, at this stage, been incorporated into the new agenda for tax reform.

The review stated that the system of tax concessions for NFPs is complex, that NFP organisations face inconsistent state and federal regulation, and that the environment for NFPs does not fully reflect current community values about the merit and social worth of the activities it subsidises.

It also reported on the matter of competitive neutrality as a result of tax concessions, finding that income tax and GST concessions generally do not appear to violate the principle of competitive neutrality where NFP organisations operate in commercial markets.

However, it did find that FBT concessions provide recipient organisations with a competitive advantage in labour markets.

It recommended that these issues could be addressed through:

  • The establishment of a national charities commission to monitor, regulate and provide advice to all NFP organisations
  • The reconfiguration the FBT concessions to alleviate competitive neutrality concerns while retaining government support for the NFP sector
  • Better targeting the application of the mutuality principle.

Minister Swan emphasised that these recommendations are not government policy.

“We have called for a mature tax debate and expect the other recommendations to be the subject of much discussion in the coming years,” he said.

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