Australia's Future Tax System

Final Report: Detailed Analysis

Chapter B: Investment and entity taxation

B3. Tax concessions for not-for-profit organisations

Key points

Not-for-profit (NFP) organisations make a highly valued contribution to community wellbeing and receive government and community support for their activities.

Much of the support provided to the NFP sector comes from tax concessions, including income tax exemptions, GST credits and exemptions, capped exemptions from (or rebates of) fringe benefits tax, and tax deductible gifts.

  • This system of tax concessions is complex, and does not fully reflect current community values about the merit and social worth of the activities it subsidises.

NFP organisations face inconsistent state and federal regulation, which may deter them from undertaking legitimate fundraising activities and may undermine public confidence in the sector.

The High Court of Australia's 2008 decision in the Word Investments case has significantly increased the scope for NFP organisations to undertake commercial activities.

  • The income tax and GST concessions generally do not appear to violate the principle of competitive neutrality where NFP organisations operate in commercial markets. However, the fringe benefit tax concessions provide recipient organisations with a competitive advantage in labour markets.

Where NFP clubs operate large trading activities in the fields of gaming, catering, entertainment and hospitality, the rationale for exempting receipts from these activities from income tax on the basis of a direct connection with members is weakened.

These issues could be addressed through: the establishment of a national charities commission to monitor, regulate and provide advice to all NFP organisations; reconfiguring the FBT concessions to alleviate competitive neutrality concerns while retaining government support for the NFP sector; and better targeting the application of the mutuality principle.