Australia: Charities and missions pursuing objectives overseas: at risk of losing your tax exemptions?

The Government has released draft legislation that will change the requirements for international charities and not-for profits to qualify for income tax exemptions in Australia. The changes refer to the special conditions found in Division 50 of the Income Tax Assessment Act 1997 that require charities and not for profits to operate principally in Australia.

The draft was released as a result of recent court decisions that have led to some ambiguity as to the extent of the "in Australia" requirement and the way in which it should be applied.

The current requirement provides that entities cannot obtain income tax exemption unless they are:

1. operated principally in Australia (the 'in Australia requirement');
2. are prescribed as exempt;
3. deductible gift recipients; or
4. fall under the category of "international affairs".

Will my organisation be affected?

The proposed changes will affect:

1. international aid and development organisations seeking to establish local Australian branches;
2. overseas mission agencies and local Australian branches;
3. local Australian branches of overseas charities and not-for-profits.

The changes will not affect organisations that operate under the category of 'international affairs'. These organisations include organisations already approved under the overseas aid gift deductibility scheme.

Summary of changes

The main changes it proposes are in relation to the criteria to be met for organisations to be income tax exempt, namely:

1. entities must be operated principally in Australia and for the broad benefit of the Australian community; and
2. deductible gift recipients must be operated solely in Australia and for the broad benefit of the Australian community.

It is important for affected organisations to consider the implications of the exposure draft together with the recent consultation for reforms to not-for-profit tax concessions (see our update here).

Charities and not-for-profits are invited to comment on the exposure draft bill and explanatory materials. The closing date for submissions is Friday 12 August 2011.

Gadens Lawyers is able to assist organisations making submissions or to understand how the changes will affect them.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.