Tax

Disclaimer

The commentary contained in this section is general. All native title claim groups or PBCs should seek legal advice that considers their specific circumstances.

Minimising tax 

Sections 50-59 of the Income Tax Assessment Act (1997) (Cth) (ITAA) provide that native title benefits are not assessable income, and therefore not subject to income tax. The definition of ‘native title benefit’ is broad, covering all compensation from the extinguishment or reduction of native title, Indigenous Land Use Agreements (ILUAs) and settlement agreements.

If a PBC receives other grants or funding or raises income from investing native title these benefits are still taxable. However, there are certain schemes available to reduce the tax liability of Indigenous bodies. To maximise benefits, a PBC should consider whether the PBC is eligible for registration as a:

  • Charity,
  • Public Benevolent Institution (PBI), and/or
  • Deductible Gift Recipient (DGR).

This video was produced by Justice Connect which provides relevant law information for the Not-for-Profit sector.

This table gives a quick overview of possible tax concessions available with more detailed information below:

 

Benefits

Prerequisites for PBCs

Application process

Charity
  • eligible for income tax exemption
  • eligible for GST concession 
  • eligible for FBT rebates
  • can apply for DGR status
  • can apply for PBI status
  • able to use the ‘Registered Charity Tick’ logo
  • listed on the ACNC public register of charities
  • be a Not For Profit (NFP) organisation (with a specified clause in the rulebook)
  • have the purpose of holding or managing Indigenous land rights
  • act lawfully
  • be incorporated (not an individual, a political party or a government agency) have an ABN
  • registration with the Australian Charities and Not-for-profits Commission (ACNC) to become a charity
  • endorsement by the ATO for tax concessions

DGR
  • eligible for all charity benefits  
  • donors are able to deduct gifted amount from their own taxable income
  • the PBC can receive funds from more donors
  • have an ABN
  • meet a ITAA DGR category
  • provide the necessary DGR rules in the rulebook
  • generally be in Australia
  • concurrently with charity application with the ACNC; or
  • via a separate application for endorsement by the ATO

PBI
  • eligible for all charity benefits
  • eligible for all DGR
  • eligible for FBT exemptions (subject to capping threshold)
  • be a registered or registerable as a charity
  • meet the PBI definition
  • concurrently with charity application with the ACNC; or
  • via a separate application for endorsement by the ATO

Charity

Registration

All PBCs should apply to the Australian Charities and Not-for-profits Commission (ACNC) to be registered as a charity. According to the Charities Act 2013 (Cth) (Charities Act) to be a charity the following conditions must be met:

  1. An entity must be a Not-For-Profit (NFP) organisation. This means any profit made can only be used to further the purposes of the entity, rather than shared between members. This requires a NFP clause in the PBC’s rulebook.
  2. An entity must have only charitable purposes for the public benefit. Receiving, holding or managing benefit that relates to native title or traditional Indigenous land rights is sufficient to meet the public benefit purpose requirement (s 9(2) Charities Act).Thereby, PBCs with native title or an ILUA automatically satisfy this criteria.
  3. An entity must not have a disqualifying purpose. e.g. undertake unlawful activities (see s 11 Charities Act)
  4. An entity must not be an individual, a political party or a government agency.
  5. An entity must have an Australian Business Number (ABN). PBCs can apply online for an ABN.

During registration, an entity is assigned to a charity subtype which reflects its specific charitable purpose. PBCs are likely to be categorised within the subtype of ‘advancing social or public welfare’ or/and ‘advancing culture’. Public benevolence is another possible subtype which provides more tax benefits but has more conditions to satisfy.

Tax Benefits

Once registered as a charity with the ACNC, certain tax concessions are available:

Income tax exemption

  • Income tax applies to any taxable income the PBC receives, excluding native title payments.
  • A registered charity can apply for income tax exemption through endorsement by the ATO.
  • Under sections 50-50 and 50-52 of the ITAA, a registered charity will be endorsed for income tax exemption if it:
    • operates within Australia
    • complies with its governing rules
    • utilise income and assets solely for the entity’s established purpose.

Goods and Services Tax (GST) concessions 

  • GST is a tax on 10% of the sale price of goods and services.
  • Registered charities can apply for ATO endorsement for GST concessions.
  • Endorsement merely requires charity registration and an ABN.
  • GST concessions mean that when a PBC purchases goods and services, the GST paid can be claimed back.

Fringe Benefit Tax (FBT) rebates

  • A FBT is a tax paid on any expense-related benefits that an employer gives to their employees, excluding salaries or superannuation. For example, benefits can include using a work car or phone.
  • Registered, endorsed charities can apply for FBT rebate if they meet the definition of an institution.
  • Defined negatively, an institution is not an entity with a small and exclusive membership, controlled and operated by family and friends and carries out limited activities.
  • Successful FBT rebates means the benefits that a PBC gives to its employees for work purposes could be paid back to reduce the amount paid by the employer.
  • Note, the FBT rates change yearly, check the Australian Tax Office for the most recent rate.

Public Benevolent Institution (PBI)

Registration

A PBI is one of the charity subtypes. A PBI must have demonstrate specifically that their main purpose is public benevolence, which means to relieve poverty or distress. Application to become a PBI is also made to the ACNC. To be registered as a PBI:

  1. A PBC needs to be registered with the ACNC as a charity; and
  2. the PBC needs to meet the definition of a PBI.

Given there is no singular test for what constitutes a PBI, the second step requires various action based on your PBC’s goals and function. The Commissioner’s Interpretation Statement (CIS 2016/03) helps identify what the ATO considers to assess if an entity is a PBI:

  • governing documents
  • responsible persons (composition of board, committee of management or trustees)
  • policies and procedures
  • operational, strategic or business plan
  • annual report (if any)
  • financial statements (for an existing entity) or budget (for a new entity)
  • relationship and agreements with other entities
  • website and other communications
  • activities.

Overall, the ATO focuses on the entity’s purpose, rather than its structure or activities. A PBI’s purpose should reflect that it is a charitable institution with a main purpose of providing benevolent relief to people in need. More specifically, this considers whether the charity is:

  • public: considers factors like the extent of persons the entity benefits, funding, community responsibility and accountability
  • benevolent: addressing Indigenous disadvantage through promotion of Indigenous culture is generally sufficient
  • an institution able to demonstrate concrete plans to operate on the basis of its founded purpose within one year of establishment.

See the Commissioner's statement on Indigenous Corporations for how these elements are considered for PBCs.

If your PBC wishes to apply to be a PBI, the purpose contained within the PBC rule book should be consistent with these elements. The wording of the rule book concerned in Northern Land Council v Commissioner of Taxes (2002) NTCA 11 was approved and can offer guidance. This case stated that clear specification of the corporation’s charitable purpose, focussing on the role in aiding disadvantage experienced by Aboriginal groups in the region, helped to demonstrate PBI qualities. However, different language can be used.

Tax Benefits

PBIs have greater tax benefits than other charity subtypes. These include:

  • FBT exemptions.
    • PBIs can apply for FBT exemptions. Beyond rebates, exemption means that the PBI is exempt from paying the FBT for up to $30,000 of certain benefits for each employee per year.
    • The PBI must be endorsed by the ATO to be exempt, via an application.
  • All tax concessions available to charities.
  • Registered PBIs automatically have DGR status (see ITAA s 30-45).

Deductible Gift Recipient (DGR) status

Having DGR status means that a PBC can receive gifts or contributions from donors that are tax-deductable from the donor’s personal tax assessment. This can range from financial donations to taking part in fundraising. For more on how this works for a donor, see the ATO's guidance on making tax deductible gifts and contributions. It also means a PBC can receive funds from donors who are only able to give to DGRs. The main way to obtain DGR status is to be endorsed by the ATO. Similarly to PBI status, you can apply for DGR endorsement at the same time as charity registration with the ACNC. Otherwise, a pre-existing registered charity can apply directly to the ATO with an application form. To be endorsed as a DGR:

  1. A PBC must have an ABN.
  2. A PBC falls or has a fund which falls within a general DGR category as set out in the tax law.

There are about 50 categories specified in the ITAA. The cultural entity category is likely to be most fitting for PBCs (s 30-300 ITAA, a cultural organisation is a corporate body with promotion of culture, including Indigenous culture, as its principle purpose. It also must maintain a public fund (see s 30-130 for the specific requirements of such a fund) and be a NFP.

An entity can be endorsed to be DGR as a whole, whereby donors can claim all gifts. Partial endorsement is also available over a specific fund, where only the gifts to the fund are deductable.

The ITAA may require a separate gift fund to be established by the PBC specifically to receive tax deductible donations. The gift fund account must only be used or applied for purposes that are consistent with the aims and objectives of the PBC and separate records must be maintained to receive and spend moneys from that account. ORIC provides an information sheet with exemplar gift fund rules to include in a rule book.

  1. A PBC must provide for the transfer surplus gifts and contributions upon winding up or revoked endorsement in the rule book.
  2. A PBC must comply with record keeping requirements:
  • A DGR must keep a record of all transactions relevant to its status as a DGR. These must be in English, or easily convertible to English, and maintained for at least five years after the completion of the transactions or acts to which they relate. The records must show all gifts or contributions given were only used for the PBC’s DGR purpose.
  • See the ATO’s record keeping guide to ensure proper compliance.
  1. A PBC must generally operate within Australia.

The ATO webpage on determining DGR eligibility is a useful resource for more information. The Secretariat of National Aboriginal and Torres Strait Islander Child Care’s (SNAICC) guide to applying for DGR status provides useful information for Indigenous specific entities.

This page was written by Tim Wishart, Principal Legal Officer Queensland South Native Title Services Ltd (updated 7.10.2020).

Further resources

Examples and practical information:

Reading:

Tags
Business
ILUA (Indigenous Land Use Agreement)
NFP (Not-For-Profit)
ORIC
PBCs (Prescribed Body / Bodies Corporate)
Rule book