The taxation benefits available to some not-for-profit organisations in Western Australia may be affected by recent federal and state legal decisions.
The taxation benefits available to some not-for-profit organisations in Western Australia may be affected by recent federal and state legal decisions.
Earlier this month, the full Federal Court ruled that charities should be exempt from paying company tax on money raised through business operations, provided their motive for making a profit was to fund charitable works.
The court’s decision involved charity Wycliffe Bible Translators, which set up a separate business entity called Word Investments to raise money for its activities.
The Australian Taxation Office argued that some of the services offered by Word Investments, including a funeral business, were not in keeping with the organisation’s charitable activities.
However, the court found that Word Investments was not a taxable business, as its profits were directed into charitable activities.
It also found that Word Investments could not be separated from its parent entity.
Add Ministry Inc director Noel Harding, who advises not-for-profit clients on accounting and taxation issues, said the Federal Court’s decision reversed the ATO’s position on charitable tax exemption, which it had formalised in 2005.
“The ATO’s position has consistently been that an application for a charitable tax concession by an organisation must stand on its own,” Mr Harding said.
“The ATO said if a charity is in competition with the business sector, it has to pay tax like any business.”
He said many large charities with business entities such as op shops would not be affected by the new ruling because they were often classified as public benevolent institutions.
However, there a number of organisations that would be likely to reassess their activities.
“I’m aware of several quite big charities which have developed an activity that they are using for their internal benefit, but to make it economical, they have started selling that service to other charities,” Mr Harding said.
He said he believed the court’s ruling would be contested by the ATO.
“I would be surprised if the ATO doesn’t try for the High Court, but looking at the judgment, I don’t like their chances,” Mr Harding said.
Meanwhile, a decision by the Supreme Court of Western Australia earlier this month found the Yungngora Association should not be exempt from paying rates on land operated by the Noonkanbah Pastoral Company.
The State Administrative Tribunal had earlier ruled in favour of the Yungngora Association by granting it charitable status rates exemption.
However, the Supreme Court found that, because the association’s land use was not exclusively for charitable purposes, in that it generated income from cattle sales, the rates exemption was issued in error.
WA Local Government Association president Bill Mitchell said the ruling would not affect other charities because the decision largely applied to land owned by indigenous organisations.
However, he said the question of whether charitable agencies should pay rates on land where they make a commercial gain was a grey area.
“At the moment, it’s determined on a case-by-case basis, but that’s not useful to councils,” Mr Mitchell said.
He said that, although charities providing subsidised independent living units would be required to pay rates on their properties after 2015, the state government was yet to make a decision on other commercial properties operated by charities.
