David Bradbury (Lindsay, Australian Labor Party, Assistant Treasurer ) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

This bill restates and standardises the special conditions for tax concession entities by ensuring that income tax exempt entities generally must be operated principally in Australia and for the broad benefit of the Australian community, subject to some exceptions. Further, the bill provides that deductible gift recipients (DGR) generally must be operated solely in Australia and for the broad benefit of the Australian community, subject to some exceptions.

The measure standardises the special conditions that apply to income tax exempt entities, making them easier for not-for-profit entities to apply.

Restating the special conditions provides support to the anti-avoidance measures in the tax law, which limit income tax exempt entities expending money offshore and ensure tax supported funds remain in Australia.

This bill also standardises the definition of 'not-for-profit', replacing the various definitions of 'non-profit' currently used throughout the tax laws, and applies it consistently across the tax laws.

The government announced in the 2009-10 budget that it would amend the 'in Australia' special conditions in division 50 of the Income Tax Assessment Act 1997 to ensure that parliament retains the ability to fully scrutinise those organisations seeking to pass money to overseas charities and other entities.

The announcement was prompted by the High Court's decision in the case of Federal Commissioner of Taxation of the Commonwealth of Australia v Word Investments Limited, which held that charities may be pursuing their objectives principally 'in Australia' where they merely pass funds within Australia to another charitable institution that conducts its activities overseas.

This finding was inconsistent with the Commissioner of Taxation's interpretation and with the policy intent underlying the special conditions.

Traditionally, entities cannot be income tax exempt unless they are operated principally in Australia, are prescribed as exempt in the Income Tax Assessment Regulations 1997 or qualify as a deductible gift recipient (DGR). While both income tax exempt entities and DGRs are subject to 'in Australia' special conditions, they are subject to different thresholds, with the threshold for DGRs being stricter than that for income tax exempt entities.

The rationale for this is that publicly funded tax concessions are intended to be used for the broad benefit of the Australian community, with some exceptions. In addition, without appropriate oversight, there is a risk of funds being misdirected to inappropriate and unauthorised activities outside Australia, such as money laundering and terrorist financing.

There are a number of exceptions to the application of special conditions in the case of DGRs, allowing certain organisations to undertake overseas activities. These include:

These schemes are an exception to the longstanding policy of successive governments that DGRs should operate only in Australia, for the benefit of the Australian public. The government recognises that although organisations in this category are not operating in Australia, it is considered that helping these overseas aid objectives contributes to providing a broad public benefit to Australia.

The general DGR categories that provide for overseas projects, such as the OAGDS, have appropriate integrity requirements in place to ensure that this taxpayer funded concession is directed to the causes that it was donated for, and not at risk of being misdirected to other purposes that are inconsistent with Australia's charitable tax law. These integrity requirements are supported by special administrative arrangements because of the difficulties associated with monitoring activities undertaken outside of Australia.

The government undertook extensive consultation on this measure. The government has revised the bill in a number of ways in response to stakeholder feedback.

The bill has been revised to provide more clarity in the case of organisations, such as public benevolent institutions (PBI), which may operate a fund that is exempt from the special conditions.

The bill will not remove whole-of-entity PBI status for organisations that have a fund approved to operate overseas. The organisation would only need to consider its other operations (ignoring the approved overseas component) when assessing its activities against the special conditions.

The bill has also been revised to provide a regulation-making power to allow certain medical research institutions to be listed in the regulations, reflecting that medical research is an activity dependent on international collaboration. Listed medical research institutes will still be required to be established in Australia but will be exempt from the remainder of the 'in Australia' special conditions.

A review will be undertaken within three years to examine options for the development of a permanent DGR category for medical research institutions that undertake a significant part of their activities overseas.

Some arts organisations undertake activities overseas. In many cases, these overseas activities are merely incidental to the operation and pursuit of the entity's purposes in Australia, or the overseas activities are minor in extent and importance when considered with reference to the operations and pursuit of the entity's Australian activities. In these circumstances, their DGR status will be retained.

Given the Australian Chamber Orchestra Pty Ltd and the Sydney Dance Company are 'designated international touring organisations', the bill provides that these organisations will be exempt from the 'in Australia' special conditions. However, the overseas activities of these organisations must remain under 25 per cent of their overall activities.

I commend the bill to the House.

Debate adjourned.