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From 1 July 2011, the low-income tax offset no longer reduces tax payable on unearned income for children (under 18 years of age).Examples of unearned income include the following:

• destribution from discretionary trusts
• interest
• dividends
• rent
• royalties

The low-income tax offset will continue to reduce tax payable on earned income of children that includes:

• employment income
• taxable pensions or payments from Centerlink
• income from their own business or partnership in which the child was an active partner
• a compensation, super or pension fund benefit
• income from a deceased person’s estate
• income from property transferred to a child as a result of another’s death or family breakdown
• income from investment of amounts referred to above.

These changes will not impact the income of children who are orphans, disabled, or engaged in full-time occupation at the end of the income year.

As a result of these changes, children must lodge a tax return if their taxable income exceeds $416 (previously $3,334).

A personal superannuation fund is a simple and cost effective means of structuring your superannuation holdings, and will give you benefits that managed funds cannot.

The Australian Taxation Office is the government body that supervisors the small fund superannuation industry. These funds are called Self Managed Superannuation Funds. (SMSF)

The Australian Taxation Office has published guidelines for the formation and operation of SMSF’s and these can be found at:

http://www.ato.gov.au/content/downloads/spr46427n11032.pdf

The primary reason for establishing a personal superannuation fund is the far greater influence it gives to a member over the investments of their retirement savings. The members are the trustees of the fund and can determine, within prescribed guidelines, where the monies in the fund are invested.

Further, the SMSF can invest in commercial property which may be used in the members own business. This gives a helpful source of capital to small business to enable them to secure business premises to operate from.

Other issues including the commencement of pensions and the treatment of contributions can be tailored to the circumstances of individual members in a convenient manner.

With such a large reform agenda for the NFP sector it is easy to lose sight of the aim of reform, and how individual reforms relate to each other. As we gear up for the establishment of the ACNC, it is a good time to examine the relationship between each of the reforms.

Exposure Draft:  Australian Charities and Not-for-profits Commission Bill

An exposure draft of legislation to establish the ACNC, along with related explanatory materials, was released on 9 December 2011 following almost a year of detailed consultations and discussions. The closing date for submissions is now 27 January 2011.

The ACNC Bill will establish the ACNC as a Commonwealth statutory office, legislate the ACNC’s overarching objective and responsibilities, set out the regulatory responsibilities of registered NFP entities, and the powers required by the ACNC to fulfil its overarching objective and responsibilities. The ACNC will operate from 1 July 2012.

Better Targeting of NFP Tax Concessions

In the 2011-12 Budget, the Government announced the measure to better target NFP tax concessions. The aim of the measure is to protect the integrity of the NFP sector and the revenue base by ensuring that valuable tax concessions are utilised in direct furtherance of the purposes for which they were provided, rather than to support unrelated businesses operated for the purpose of raising money. The measure is applicable from 1 July 2011 for unrelated commercial activities that commenced after 10 May 2011 and transitional arrangements will apply for pre-existing unrelated commercial activities. The ATO will be responsible for administering the changes.

The measure will affect the way in which the tax system applies to certain NFP entities.  It will not, however, alter the ACNC’s consideration of whether an entity is a charity or other NFP entity.

Further consultation on this measure is proposed for early 2012.

Introducing a statutory definition of charity

A statutory definition of charity will be introduced for all Commonwealth purposes, effective from 1 July 2013. It will contain the current key common law principles of charity. The definition will provide a clear framework for both the public and regulatory agencies for recognising entities as charitable, and greater clarity and certainty to the sector. The definition will be administered by the ACNC, which will be responsible for registering charities.

Consultation on a discussion paper closed on 9 December. An exposure draft of a proposed definition will be released for public consultation around mid-2012.

The ATO will accept an ACNC determination of charity status. The ATO will then apply the special tax specific conditions (such as the ‘in Australia’ conditions) before endorsing a charity for access to tax concessions.

Review of governance arrangements

The Government announced in the 2011-12 Budget a number of reviews of aspects of the regulation of the NFP sector, including a review of the governance obligations appropriate for NFP entities.

The intent of the governance review is to centralise and simplify the existing arrangements in order to reduce red tape and minimise compliance burdens for the sector. The Government is currently consulting on what the core organisational governance principles applying to registered NFPs should be. The outcomes of the governance review will help form the governance requirements for registered entities in the ACNC legislation, starting from 1 July 2012.

The consultation paper was released on 8 December 2011. Submissions on the consultation paper close now on 27 January 2012.

Reducing regulatory duplication review

Commonwealth agencies are currently undertaking a review of all NFP regulation at the Commonwealth level. This review is exploring mechanisms to minimise any duplication of regulatory responsibilities between existing regulators and the soon to be established ACNC, to ensure that the ACNC is created as a ‘one-stop shop’ regulator for the NFP sector.

Restating and standardising the special conditions for tax concession entities

The former Assistant Treasurer released for public consultation an exposure draft of legislation to restate the ‘in Australia’ 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, and that deductible gift recipients generally must be operated solely in Australia and for the broad benefit of the Australian community.

The exposure draft also standardises the term ‘not-for-profit’, replacing the defined and undefined uses of ‘non-profit’ throughout the tax laws. Consultation closed on 12 August 2011. A second exposure draft for consultation is expected in early 2012.