Archive for May, 2009
Government response to Word Investment case
Government announces its interim response to the High Court’s decision in the Word Investment case in budget papers
The Hon Chris Bowen MP, Assistant Treasurer and Minister for Competition, Policy & Consumer Affairs announced last night the Government’s interim response to the High Court decision in the Word Investments case at the end of last year.
As the Minister’s media release (No. 043) points out in relation to the High Court decision, 2 issues were resolved in favour of the taxpayer and contrary to long standing ATO tax rulings; namely:
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“commercial businesses with charitable objects that direct their profits to charities are eligible for endorsement by the ATO as tax concession charities and therefore have access to a number of tax concessions; and
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charities are considered to be pursuing their objectives principally ‘in Australia’ if they merely pass funds within Australia to another charity that conducts its activities overseas“.
The key aspect of Word has of course been the commercial activities conducted by charities. In that respect the Minister notes the competitive neutrality issues around the case of charitable organisations being able to run businesses for a profit whilst enjoying the various tax concessions of a tax concession charity.
However, the Minister said that the Government intends to await the outcome of the Henry review into Australia’s future tax system and the Productivity Commission’s inquiry into the contribution of the not-for-profit sector before responding to the Court’s decision.
The Government has taken the view that it would be pre-emptive for it to determine the best reform for the charitable sector while specialised reviews are expected to examine the issue in detail and obtain community views.
In relation to the aspect of Word dealing with the passing of funds to overseas charities, the Minister’s media release states the following:
“The Government will amend the ‘in Australia’ requirements 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. This measure will have effect from the date of Royal assent of the amending legislation.”
The measure will reverse the decision that charities and other income tax exempt entities can direct funds to overseas projects outside current restrictions.
Apparently the proposed changes will be subject to public consultation in coming months.
Paul Paxton-Hall
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