The International Journal
of Not-for-Profit Law

Volume 2, Issue 3, March 2000

A quarterly publication of the International Center for Not-for-Profit Law

Table of Contents

Letter from the Editor


Introduction: "Codes of Conduct for Partnership in Governance: Texts and Commentaries"
By Tatsuro Kunugi and Martha Schweitz

On the Establishment of Social Organizations Under Chinese Law
By Ge Yunsong

Australia's Nonprofit Taxation Reforms
By Myles McGregor-Lowndes


Codes of Conduct for Partnerships in Governance: Text and Comments
Edited by Tatsuro Kunugi and Martha Schweitz
Reviewed by Catherine Shea

Case Notes

Central and Eastern Europe: Croatia | Poland | Serbia

Middle East and North Africa: Egypt

Newly Independent States: Azerbaijan

North America:
the United States

South Asia:

Country Reports

Asia Pacific:
| East Timor |
New Zealand
| the Philippines | Vietnam

Central and Eastern Europe: Regional | Kosovo | Romania

Latin America:
Regional | Belize | Brazil | Venezuela

Newly Independent States:
Russia | Ukraine

Middles East and North Africa: Sudan

North America:
| Mexico |
the United States

South Asia:

Sub-Saharan Africa:
Cameroon | Kenya |
Sierra Leone
| South Africa | Tanzania | Zimbabwe

Western Europe:
France | Germany |
the United Kingdom

Self Governance

Law and Governance-- A Lesson in Limits
By Leon Irish and Karla Simon

Trends in Self-Regulation and Transparency of Nonprofits in the U.S.
By Robert O. Bothwell

The Role of Governing Boards in Fostering Accountability
By Crispin Gregoire

Financial Implications Affecting Nonprofit Nongovernmental Organizations Today
By Michael A. Freedman

International Grantmaking

Grantmaking by U.S. Foundations in Canada: A Canadian Lawyer Provides a Plain Language Primer
By Blake Bromley

Community Philanthropy

Community Philanthropy Initiative of the European Foundation Centre

Transatlantic Community Foundation Network

New Website


General | Brazil | Kenya | Russia

- - - - - - - - - -

Editorial Board

Subscription Information

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Australia's Nonprofit Taxation Reforms

By Myles McGregor-Lowndes


The years 1999 and 2000 will come to be regarded as one of the most turbulent tax periods for Australian nonprofit organisations this century. They will have to come to terms with significant shifts in the taxation of nonprofit organisations and gifts.

Some of those changes are:

Goods and Services Tax

Australia is about to introduce a valued added tax known as the goods and services tax (GST) from the 1 July 2000. The tax will be set at a uniform rate of 10% on most goods and services. A political compromise in the Federal Upper House of Parliament has resulted in food being zero rated (GST-free) as well as some transactions by certain types of nonprofit organisations.

To date many nonprofit organisations that were regarded as "charitable" have been outside the income tax system, not being required to pay any income tax or even file an income tax return. They were also outside the Wholesale Sales Tax regime. Even quite unrelated business income which competed directly in the commercial market place was exempt from income tax. This has resulted in most nonprofit organisations having little knowledge or experience with tax accounting and systems and coming to rely on the competitive advantage tax exemption brought.

All nonprofit organisations with a turnover of $100,000 or higher will be required to be a part of the GST through an Australian Business Number. Those under $100,000 may voluntarily register, if they so desire.

Nonprofit organisations will be able to branch their organisations into sub units for the GST and they also have the option of grouping entities together as a GST unit.

GST returns will be netted off against other taxation imposts and accounted to by them to the Taxation Office on a monthly or quarterly basis.

Many nonprofit organisations had enjoyed the status of being sales tax exempt in their purchases of cars and other capital equipment. This could be as high as 22%. Sales tax will be abolished with the introduction of the GST and nonprofit organisations will not retain a similar exemption in respect of the GST. Some nonprofit organisations will be given 'GST-free' (zero rated) status on particular transactions. Such organisations will be able to claim input tax credits (GST paid on goods they purchase) from the Taxation Office, but not have to charge GST on their sales. These organisations include religious institutions for supplies of services (not goods), charities that supply goods and services to others at less than 50% of their market value (or 75% of their market value if it is accommodation), and charities that supply goods or services to others at less than 75% of the direct cost to the charity. Australian charities raise substantial revenues from conducting second hand goods stores, where the goods are donated by their supporters. Sales through such stores of donated second hand goods will also be GST-free (zero rated). Minor charity gambling will also be GST-free.

Pure gifts with no conditions or benefit to the donor will fall outside the GST net. The Taxation Office has taken the view that sponsorships will be subject to a 10% GST, as it is a commercial transaction. Australia has been moving in recent years from a pure philanthropic gift culture to greater use of sponsorships and quid pro quo fundraising. The government has failed to follow Canada and UK in taking small time fundraising and special events outside the GST tax net. GST will also apply to most government grants and subsidies to nonprofit organisations. It will also apply to many grants from Australian Foundations and Trusts.

The Government and the Taxation Office have embarked on a massive education and training program to ensure that the nonprofit sector is ready for the introduction of the new tax. The sector is at present struggling to come to terms with the new arrangements, as it has not previously been within the taxation system in Australia. It also has to cope with all the other taxation reforms mentioned later in this article. The compliance costs of many nonprofit organisations are likely to be high with new accounting systems, computers and programs, training and staff necessary to cope with the introduction of the tax.

Taxation Laws Amendment Bill (No.8) 1999

On 26 March 1999, the Prime Minister, the Treasurer, the Minister for Family and Community Services, the Minister for Communications, Information Technology and the Arts, and the Minister for the Arts and the Centenary of Federation announced income tax measures to encourage greater corporate and personal philanthropy in Australia. The initial announcement can be viewed at

The Bill was introduced into Federal Parliament and can be found on the Commonwealth Parliamentary website, . Schedule 5 of Taxation Laws Amendment Bill (No.8) 1999 sought to amend the Income Tax Assessment Act 1997 (ITAA 1997) and the Income Tax Assessment Act 1936 to implement the Government’s response to the report on philanthropy in Australia by the Business and Community Partnerships Working Group on Taxation Reform.

The amendments sought to:

Proposed Date of Effect

The amendments were to apply from 1 July 1999:

Deductions for donations under the Cultural Gifts Program made on or after 1 July 1999 may be apportioned over a period of up to 5 income years.

However, the Bill was amended in the Senate and returned to the lower house of Parliament. The lower house refused to pass the amendments. The Bill will be further consider in 2000 and has not been passed at the time of writing.

A More Detailed Commentary Based on the Explanatory Memorandum to the Bill

Current law

Gifts or contributions

Taxpayers are entitled to income tax deductions for certain gifts or contributions. The rules relating to these deductions are contained in Division 30 of the ITAA 1997. The structure of the Division is as follows:




Allows deductions for non-testamentary gifts or contributions to specified recipients where certain conditions are satisfied


Lists general and specific recipients of deductible gifts and any special conditions that may apply


Provides rules applying to gifts of property to public libraries, museums or art galleries, the Australiana Fund, Artbank or a National Trust body


Allows a deduction for testamentary gifts of property under the Cultural Bequests Program


Relates to the establishment of a register of environmental organisations


Relates to the establishment of a register of cultural organisations


Index to this Division

Under section 30-15 certain donations made to listed recipients are eligible for tax deductibility. The table in section 30-15 specifies the type of recipient, the type of gift or contribution, how much can be deducted and any special conditions that apply. The type of recipient includes public hospitals, public libraries, public museums and charitable institutions. The recipients are commonly known as ‘gift deductible organisations’.

Cultural Gifts Program

The Cultural Gifts Program encourages gifts of significant cultural items to public art galleries, public museums and public libraries by offering donors a tax deduction. The recipients of deductible gifts under the Cultural Gifts Program are listed at items 4 and 5 of the table in section 30-15.

The Department of Communications, Information Technology and the Arts administers the program with the advice of the Committee on Taxation Incentives for the Arts (an expert Committee appointed by the Minister for the Arts and the Centenary of Federation). The Committee advises the Minister on matters relating to the program, advises the Secretary of the Department on the approval of valuers for the program and examines donations made under the program to ensure they conform with the requirements of the program.

Capital Gains and Losses

Taxpayers can only make a capital gain or capital loss if a CGT event happens in relation to a CGT asset. The types of CGT assets that potentially may be donated include land, buildings, shares, collectables (for example, artwork) and personal use assets (for example, property that is used or kept mainly for personal use or enjoyment). The capital gain or capital loss is disregarded or reduced when an exemption applies.

Subdivision 118-A of the ITAA 1997 deals with general exemptions from CGT. Collectables are exempt assets if the collectable was acquired for $500 or less (subsection 118-10(1)) and personal use assets are exempt assets if acquired for $10,000 or less (subsection 118‑10(3)). Gifts of property that are made under the Cultural Bequests Program do not give rise to a capital gain or capital loss under section 118-60.

Deduction for Gifts of Property Valued At More Than $5,000

Gifts to Certain Funds, Authorities and Institutions

Schedule 5 of this Bill amends the table of deductible gifts or contributions in section 30-15 of ITAA 1997. The proposed amendments will allow a tax deduction for gifts of property valued by the Commissioner of Taxation (the Commissioner) at more than $5,000 to recipients listed at items 1 and 2 of the table. The deduction will apply to gifts made on or after 1 July 1999.

Item 1 of the table relates to recipients that are funds, authorities or institutions listed by name or by type in subdivision 30-B. Item 2 of the table relates to public funds; broadly, funds that are open for subscription by the public and to which the public contributes. The Commissioner’s view of what is a public fund is contained in Taxation Ruling TR 95/27.

The type of gift that may be tax deductible is amended to include property valued by the Commissioner at more than $5,000. The amount deductible is the value of the property as determined by the Commissioner. Where the property is valued at more than $5,000 and is purchased within the 12 months before making the gift, the existing rules apply; that is, the amount deductible is the lesser of the market value of the property and the amount paid for the property.

An amendment is made to the special conditions relating to gifts to recipients listed at Items 1 and 2 of the table. For gifts valued by the Commissioner at more than $5,000 to be tax deductible, the valuation requirements of new section 30-212 must be satisfied.

Valuations by the Commissioner of Taxation

New section 30-212 provides valuation rules for gifts valued by the Commissioner of Taxation at more than $5,000. Valuations for these gifts must be made by the Commissioner for a tax deduction to be allowable. The Commissioner may charge a valuation fee for the service in accordance with the Income Tax Assessment Regulations.

The Australian Valuation Office, which forms a part of the Australian Taxation Office, will advise the Commissioner of appropriate property valuations.

Example 1

Alexis donates her farm in the Australian Capital Territory (ACT) to the Royal Society for Prevention of Cruelty to Animals (ACT) Incorporated on 1 September 1999. She has owned the property since 1979. She has the farm valued by the Commissioner at $200,000. She is entitled to a deduction for the amount of the valuation, that is, $200,000.

Example 2

Enrico donates his 4-wheel drive vehicle to Amnesty International. The Commissioner values the vehicle at $35,000. Enrico has a friend who is a car salesman and he says that the value of the vehicle is $33,000. Enrico is entitled to a deduction for the amount of the Commissioner’s valuation of $35,000.

Gifts and Contributions to Political Parties

Schedule 5 also amends the deductions for political contributions and gifts to allow deductions for property valued by the Commissioner at more than $5,000. A deduction will be allowable for contributions or gifts made on or after 1 July 1999.

The Taxation Laws Amendment (Political Donations) Bill 1999 (Political Donations Bill) rewrites the provisions relating to political donations that are currently listed in the table in section 30-15. New section 30-242 of the Political Donations Bill replaces and modifies Item 3 of the table. Subsection 30-242(2) is amended by this Bill to allow a contribution or gift of property valued by the Commissioner at more than $5,000 to qualify for a deduction.

The amount of the deduction that is allowable for political contributions and gifts is also amended (new section 30-243 of the Political Donations Bill). Where a contribution or gift of property is valued by the Commissioner at more than $5,000, the deduction allowed is $1,500. The deduction is limited to $1,500 rather than the value of the property as determined by the Commissioner because deductions for political contributions and gifts cannot exceed $1,500.

The valuation requirements of new section 30-212 also apply to political contributions and gifts of property valued by the Commissioner at more than $5,000.

Deduction for Gifts to Private Funds

Schedule 5 to this Bill amends section 30-15 of the ITAA 1997 to allow deductions for gifts made to specified private funds from 1 July 1999. This is achieved by extending the application of item 2 in the table to prescribed private funds. Item 2 of the table deals with gifts to public funds established and maintained under a will or trust instrument solely for:

5.25 To be eligible to receive gift deductible donations, prescribed private funds will need to comply with most of the requirements of public funds (see Taxation Ruling TR 95/27 on

What is a Public Fund?

Public fund is not defined in the ITAA 1997 but the decision in Bray v FC of T 78 ATC 4179; 8 ATR 569 (available on establishes that a fund will be ‘public’ where:

Therefore, a public fund is one to which the public is invited to contribute and in fact does contribute. The fund must be controlled or administered by persons or institutions with a degree of responsibility to the community as a whole.

What is a Prescribed Private Fund?

Prescribed private funds will not have to comply with the requirement of public funds to seek and receive contributions from the public, but will have to comply with all the other requirements of a public fund. This means that individuals and corporations will be able to establish funds for philanthropic purposes without advertising for public contributions.

Prescribed private fund is defined in subsection 995-1(1) to be a fund that is prescribed by the Income Tax Assessment Regulations but does not include a fund that is declared in writing by the Treasurer not to be a prescribed fund. Private funds seeking to be prescribed in the Regulations will need approval from the Government. Where a prescribed private fund no longer complies with the requirements, the Treasurer may declare in writing that the fund is not a prescribed private fund. From the date of declaration, donations to that fund will not be tax deductible under section 30-15.

Apportionment of Donations Made Under the Cultural Gifts Program

New Subdivision 30-DB is inserted in Division 30 of the ITAA 1997 to allow apportionment of deductions for gifts made under the Cultural Gifts Program over a maximum of 5 income years. The apportionment applies to deductions for gifts made on or after 1 July 1999.

The Cultural Gifts Program is administered by the Department of Communications, Information Technology and the Arts. The program encourages the donation of significant cultural gifts to the recipients of deductible gifts listed at Items 4 and 5 of the table in section 30-15. These recipients are:

New Subdivision 30-DB is structured as follows:

New Section



Outline of the new Subdivision


Making an election


Effect of election

Making an Election

New subsection 30-247(1) provides that a taxpayer may elect to spread a deduction for a gift made under the Cultural Gifts Program over up to 5 income years. If the taxpayer makes this election, the apportionment must commence in the income year in which the gift is made and cannot exceed 100% of the original deduction.

When a taxpayer makes an election, they must specify the percentage, if any, to be deducted in each income year.

The election must be made before the taxpayer lodges the income tax return for the income year in which the gift was made.

A copy of the election must be given to the Arts Secretary by the taxpayer prior to lodging the income tax return for the year in which the gift was made.

New subsection 30-247(5) provides that the taxpayer may vary the election at any time. The variation will apply to the percentage of the original deduction that is to be claimed in income years for which an income tax return has not yet been lodged. The taxpayer must give the Arts Secretary a copy of the variation before lodging the income tax return for the first income year to which the variation applies.

Under new subsection 30-247(6) the election and any variation must be made in a form approved in writing by the Arts Secretary.

The Arts Secretary is defined in subsection 995-1(1) to mean the Secretary of the Department administering the National Gallery Act 1975. The responsible department is currently the Department of Communications, Information Technology and the Arts.

Example 1

Sarah donates a Norman Lindsay painting to the National Gallery of Australia in April 2000 under the Cultural Gifts Program. Sarah decides to spread the deduction over 5 income years. The first income year in which she can claim a portion of the deduction is the 1999‑2000 income year.

Sarah decides to apportion her deduction for the painting in the following manner:











Example 2

Thomas donates rare manuscripts written by Captain Cook on his voyage on the Endeavour to the National Library of Australia in September 2000. Thomas elects to apportion the deduction over 3 income years. The first income year in which Thomas will be able to claim a deduction is the 2000-2001 income year. Thomas apportions his deduction in the following manner:











Effect of Election

The effect of this election is that the taxpayer must claim the deduction in the manner specified in the election. By making an election, the taxpayer forgoes the opportunity to claim the full amount of the deduction in the income year in which the donation was made.

CGT Exemption for Gifts of Property Made Under the Cultural Gifts Program and Testamentary Fifts of Property to Gift Deductible Organisations

Currently, under section 118-60 of the ITAA 1997, gifts of property made under the Cultural Bequests Program are exempt from CGT; that is, a capital gain or a capital loss made from the gift is disregarded. Schedule 5 of this Bill amends section 118-60 to extend the exemption to:

Capital gains and capital losses will be disregarded on gifts donated under these circumstances on or after 1 July 1999. To ensure that this measure is not abused, an anti-avoidance provision has been included in the amendments.

Testamentary Gifts

New subsection 118-60(1) provides that a capital gain or capital loss made from a testamentary gift to a gift deductible organisation is disregarded. The amendment is designed to encourage people to make testamentary gifts to the recipients listed in section 30-15. Under the current law, there is no tax concession available for testamentary gifts because testamentary gifts are specifically excluded from gift deductibility by subsection 30-15(2).

New subsection 118-60(4) provides that if a testamentary gift is reacquired for less than market value by either:

then the rules relating to the effect of death on CGT assets apply (section 128-15). This treats the asset in the same way as if it had been bequeathed directly to the beneficiary or associate. That is, instead of the beneficiary or associate having a cost base for the asset of the amount that they paid for it, the first element of the asset’s cost base will be either:

Cultural Gifts

New subsection 118-60(2) provides that a capital gain or capital loss made from a gift of property to the recipients covered by items 4 and 5 of the table in section 30-15 is disregarded. Items 4 and 5 relate to the Cultural Gifts Program. Income tax deductions are available for gifts of property to these recipients, except for a gift of an estate or an interest in land or in a building or part of a building. The amendments will provide additional incentive for gifts of property under the Cultural Gifts Program and will align the program more closely with the Cultural Bequests Program.

Under new subsection 118-60(3), the CGT exemption will not apply when the person who donated the gift under the Cultural Gifts Program reacquires the property for less than market value. Similarly, when an associate of the donor reacquires the property for less than market value, the CGT exemption will not apply to the original donor.

Date of Effect

The amendments will apply from 1 July 1999:

Deductions for donations under the Cultural Gifts Program made on or after 1 July 1999 may be apportioned over a period of up to 5 income years.

Taxation Laws Amendment (Political Donations) Act 1999

The new policy of the Government in respect to donations to political parties and independent candidates was announced by the Special Minister of State's press release on 8 April 1998 and formally announced in the 1998-99 Budget, 12 May 1999. The Taxation Laws Amendment (Political Donations) Bill 1999 was passed in December 1999. The treatment of political parties is generous when compared to nonprofit organisations.

The amendments implemented part of the Government's response to the Report of the Joint Standing Committee on Electoral Matters (JSCEM) on the 1996 Federal Election and will complement the arrangements for the public funding of elections under the Commonwealth Electoral Act 1918.

The estimated cost to the revenue of the measure is $18 million in 1999-2000, $12 million in 2000-2001, and $15 million in 2001‑2002.

The existing arrangements for tax deductibility of political contributions will be altered by:

The minimum gift value of $2 remains and testamentary gifts or contributions will not qualify for donation deductibility status.

There are two matters in the amended provisions which are often overlooked because they are peculiar to these provisions. The first is that deductible gifts can be made to a person, not just organisations or funds. The second is the use of the word "contribution", rather than "gift". This will include a membership subscription to a party (Taxation Determination TD 92/114).

The amendments will apply to contributions and gifts made from 1 July 1998.

Donations and the Local Member of Parliament

The Australian Taxation Office has issued a tax ruling (TR 1999/10) especially for Australian politicians (whether Federal or State). The eighty-four page document has some slightly interesting consequences for nonprofit organisations. Perhaps it might be of some use in getting a donation from a politician?

In paragraph 127 the ruling states a politician may deduct the cost of membership fees to a community group if they can show that involvement with the community group is for work-related purposes and the fees are not of a private nature.

Apart from the usual gift deduction provisions to Public Benevolent Institutions, paragraph 154 notes that:

"a deduction is allowable under section 8-1 for the cost of:

donations - such as trophies, books and sporting equipment;

gifts - such as flowers and cards for birthdays, anniversaries, funerals and the like and ad hoc emergency monetary assistance to constituents; and

contributions to organisations - such a guides, scouts, church organisations and sporting clubs

within the Member's electorate, where the outgoings are directly connected to work-related activities, and they are not private or domestic in nature."

Paragraph 260 relates to deduction for expenses incurred by a Member of Parliament being a patron of an organisation. It gives the example of a member who is the patron of a local youth group in his electorate. The member is able to claim as a deduction both his travel expenses in getting to the youth group meeting and his donation to the youth group despite it not being a Public Benevolent Institution.

The ATO ruling also notes that members often get the hard word to buy charity raffle tickets (paragraph 267). If the raffle is conducted by a charity in the member's electorate, then the cost will be an allowable deduction. However, if the member buys a raffle ticket from a charity outside the supermarket after doing their grocery shopping or from their office staff who are raising money for their children's school, it is not deductible. The ruling is so comprehensive that it even covers the position of when a member actually wins a raffle prize. The member does not have to declare the value of the prize as part of their income, but the ATO warns that there may be capital gains tax implications!

Rogate Overview

Amendments to the Income Tax Act will have a significant effect on the community welfare sector. A New Tax System (Tax Administration) Bill 1999 was introduced on 2 September, 1999 into Federal Parliament to enable the Registration of Gift Deductible Entities and Income Tax Exempt Charities (ROGATE) and passed into law in December 1999. This Act provides for:

This measure was announced before the last election by the Government in its A New Tax System policy statement. The stated policy objective is to ensure the integrity of the taxation system in respect of deductible gift recipients and income tax exempt charities.

The Australian Business Number assigned to these charitable institutions, funds and gift deductible recipients will be used as identification for all government purposes (State and Federal). Donor taxpayers will be able to check the Australian Business Register to ensure the deductible gift status of the recipient.

The number of deductible gift recipients presently recorded by the ATO is approximately 30,000. It is expected that there will be in excess of 200,000 registrations.

The Bill has been passed by Parliament and is now law.

Issues for Deductible Gift Recipients

From 1 July 2000, donors will only be able to claim a tax deduction for a gift to Gift Deductible Recipient (GDR) that has been registered by the ATO and assigned an Australian Business Number (ABN). This means that virtually all institutions and funds that believe they have gift deductibility status will have to register. The actual mechanics of the registration process is described below.


The only exceptions are political parties or specifically named funds in the tax legislation such as Amnesty International or Nursing Mothers' Association.

Own ABN or Under Another's ABN

The Bill allows for two registration options. The first is that a fund or institution will have its own ABN (if it is a legal entity in its own right, eg, a separately incorporated welfare group) and be registered under that ABN. The second is for a legal entity (eg., a Church or religious order) that operates or includes funds and institutions to be registered.

Are You Really What You Assume You Are?

It is important for Deductible Gift Recipients to ensure that they still qualify as such and are able to promptly supply documents to the ATO, if requested, to establish such a claim. A letter concerning such matters from the ATO or listing on the ATO Gift Register is helpful, but not determinative of the matter. The taxation legislation has required for some time yearly self assessment of income tax exemption and deductibility status.

Self assessments should be carried out at the beginning of each taxation period and properly documented. This is a prime due diligence issue for governors, boards and committees of such Deductible Gift Recipients. The ATO has power to check such status in the future and has power to request documents from the fund or institution. Similar provisions in place for environmental organisations with gift deductibility have lead to a routine audit every two years, but it is not known what the ATO plans to do in this particular instance.

Receipts for gifts will also change. When a Deductible Gift Recipient issues a receipt for a gift, it must state the name of the fund or institution to which the gift is being made, the entity’s ABN and the fact that the receipt is for a gift. Failure in this requirement provides cause for the ATO to revoke the registration. Other Tax Rulings about similar matters require a receipt to also include the date of the gift and signature of a person authorised to act on behalf of the fund or institution.

The Act appears to add a new condition on gift deductible institutions and funds (despite the Explanatory Memorandum claiming this has always been an implicit requirement). The new condition is that a "gift fund" account be maintained by each institution or fund and essentially quarantine any donations in such a fund.

The Act states:

"Maintaining gift fund

(4) The entity must maintain for the principal purpose of the fund, authority or institution a fund (the gift fund):

  1. to which gifts of money or property for that purpose are to be made; and
  2. to which any money received by the entity because of such gifts is to be credited; and
  3. that does not receive any other money or property.

Limits on use of gift fund

(5) The entity must use the following only for the principal purpose of the fund, authority or institution:

  1. gifts made to the gift fund;
  2. any money received because of such gifts."

There is concerned that this represents a major shift in the ability of institutions and funds to use donations for any purpose within their constitutional objects, not just the principal purpose for which gift deductibility was granted. It is expected that this will have budgetary implications.

Clarification is necessary of what the ATO will regard as a "principal purpose of the fund or institution", that is whether it includes administration and to what extend any ancillary purposes are included. Some guidance might be taken from similar requirements in respect of Public Funds (Taxation Ruling 95/27), School Building Funds (Taxation Ruling 96/8) and guidelines issued by the Environment Department for tax deductibility of environmental organisations.

Issues for Tax Exempt Entities

The Act requires the follow organisations to register:

  1. charitable institutions,
  2. funds established for public charitable purposes by will before 1 July 1997,
  3. trusts covered by paragraph 50-80(1)(c) Income Tax Assessment Act 1997 which involves a fund described in 2 above that has received assets since 1 July, 1997, and
  4. funds established in Australia for public charitable purposes by will or instrument of trust, and not covered by items 2 and 3.

Many activities will qualify as a "charitable institutions". Some such as hospitals, schools and welfare activities may be able to fall within several tax exemption categories specified in Division 50 of the Income Tax Assessment Act 1997.

Those that believe they are charitable institutions should adopt the same approach as described for self assessment of gift deductibility status. The definition of "charity" and "institution" do not have a legal meaning which corresponds with these words ordinary usage. The ATO has similar powers to those granted to it with DGRs to audit and de register tax exempt entities.

The Registration Process

What Registration

Registrations as a gift deductible recipient or tax exempt charitable entities will proceed through a registration process. The ATO refers to it as "endorsement".

Applying for Registration

In applying for registration, the legal entity must apply in a form approved by the ATO (signed or containing the entity’s electronic signature if lodged electronically). It will be important that some evidence of posting the form and the date on which it was posted is kept because certain review and appeal actions depend on this date.

It may also be prudent not to leave the filing of the registration form until the last moment before 1 July 2000. Sufficient time should be allowed to get a reply back from the ATO, so that there is continuity of taxation status. If a rejection is a possibility and an appeal process pursued, then even more time should be allowed.

The ATO must give the applicant written notice whether the applicant is endorsed or refused endorsement.

If a decision cannot be made whether an applicant is entitled to be endorsed, the ATO may request further information.

The ATO must specify a date of effect of endorsement.

If Registration is Late

Where, for whatever reason, an application for endorsement is not filed on time, so that the entity is not a deductible gift recipient from 1 July 2000, the ATO has the ability to backdate the endorsement to the date the legal entity first became entitled to endorsement.

Refusal of Registration

A refusal of registration can be appealed. This will involve the Administrative Appeals Tribunal and the Federal Court.

If the ATO does not give the applicant written notice of a decision by the later of:

then, you can treat the application as refused and engage the review process.


Copyright 2008 The International Center for Not-for-Profit Law (ICNL)
ISSN: 1556-5157