Does charity begin and end at home for tax exemptions?

Charitable organisations have remained exempt from income tax in Australia since the first comprehensive state income tax legislation in 18841 through to the current Income Tax Assessment Act 1977. The charitable exemption was also part of the English income tax legislation from its inception in 1799. The Federal Treasurer has released exposure draft legislation which seeks to remove taxation exemptions from some tax exempt organisations that perform any of their activities outside Australia or make trust distributions overseas. The proposed legislation is in response to alleged tax avoidance arrangements which involve tax exempt organisations and charitable trusts. The paper begins by describing the current charity tax exemption provisions under the Income Tax Assessment Act (ITAA). It then turns to tracing the background policy history of the amendments which appear to be at odds with the form and intent of the proposed provisions. The proposed amendments and their practical consequences are then closely scrutinised and found wanting in a number of respects. Alternative strategies are suggested to arrive at an equitable solution to the avoidance mischief.

"Money pouring out of its ears" : on the taxation of really profitable nonprofit organisations in Australia

Under current law Australia appears to be a tax haven for certain non-governmental institutions. Millions of ordinary business income may go untaxed and the deductibility for donations is unlimited - both are very generous tax measures in an international context. The basic problems of most Australian nonprofit organisations are not taxation; they are just that: nonprofit. Anybody interested in the non-governmental sector should be willing to face the question: What is an equitable tax treatment? The short-term tactic of ducking the question may not be the best or most beneficial long term strategy.

Australia - taxation of trusts – the problem of aligning concepts of income

The Australian government is currently considering options for the rewrite and reform of the current provisions which apply to the taxation of trust income. This article provides a discussion of the current regime and the proposed reforms. It is suggested that a major revamp of taxation of trust income in Australia is problematic and a simpler approach may be to leave the law as is, with modification where necessary to address key issues as and when they arise.

Taxation determinations as de facto regulation : private equity exits in Australia

The Australian Taxation Office (AT)) attempted to challenge both the private equity fund reliance on double tax agreements and the assertion that profits were capital in nature in its dispute with private equity group TPG. Failure to resolve the dispute resulted in the ATO issuing two taxation determinations: TD 2010/20 which states that the general anti-avoidance provisions can apply to arrangements designed to alter the intended effect of Australia's international tax agreements net; and TD 2010/21 which states that the profits on the sale of shares in a company group acquired in a leveraged buyout is assessable income. The purpose of this article is to determine the effectiveness of the administrative rulings regime as a regulatory strategy. This article, by using the TPG-Myer scenario and subsequent tax determinations as a case study, collects qualitative data which is then analysed (and triangulated) using tonal and thematic analysis. Contemporaneous commentary of private equity stakeholders, tax professionals, and media observations are analysed and evaluated within a framework of responsive regulation and utilising the current ATO compliance model. Contrary to the stated purpose of the ATO rulings regime to alleviate complexities in Australian taxation law and provide certainty to taxpayers, and despite the de facto law status afforded these rulings, this study found that the majority of private equity stakeholders and their advisors perceived that greater uncertainty was created by the two determinations. Thus, this study found that in the context of private equity fund investors, a responsive regulation measure in the form of taxation determinations was not effective.

A summary view of government cost recovery policies in Australia and New Zealand relating to the supply of public sector information

Researching administrative history is problematical. A trail of authoritative documents is often hard to find; and useful summaries can be difficult to organise, especially if source material is in paper formats in geographically dispersed locations. In the absence of documents, the reasons for particular decisions and the rationale underpinning particular policies can be confounded as key personnel advance in their professions and retire. The rationale for past decisions may be lost for practical purposes; and if an organisation’s memory of events is diminished, its learning through experience is also diminished. Publishing this document tries to avoid unnecessary duplication of effort by other researchers that need to venture into how policies of charging for public sector information have been justified. The author compiled this work within a somewhat limited time period and the work does not pretend to be a complete or comprehensive analysis of the issues.----- A significant part of the role of government is to provide a framework of legally-enforceable rights and obligations that can support individuals and non-government organisations in their lawful activities. Accordingly, claims that governments should be more ‘business-like’ need careful scrutiny. A significant supply of goods and services occurs as non-market activity where neither benefits nor costs are quantified within conventional accounting systems or in terms of money. Where a government decides to provide information as a service; and information from land registries is archetypical, the transactions occur as a political decision made under a direct or a clearly delegated authority of a parliament with the requisite constitutional powers. This is not a market transaction and the language of the market confuses attempts to describe a number of aspects of how governments allocate resources.----- Cost recovery can be construed as an aspect of taxation that is a sole prerogative of a parliament. The issues are fundamental to political constitutions; but they become more complicated where states cede some taxing powers to a central government as part of a federal system. Nor should the absence of markets be construed necessarily as ‘market failure’ or even ‘government failure’. The absence is often attributable to particular technical, economic and political constraints that preclude the operation of markets. Arguably, greater care is needed in distinguishing between the polity and markets in raising revenues and allocating resources; and that needs to start by removing unhelpful references to ‘business’ in the context of government decision-making.

Charity law, advocacy and the aid/watch decision : compatibility of charitable purposes and political objects — the view from Australia

Introduction In 1952 the Nathan report stated that: Some of the most valuable activities of voluntary societies consist, however, in the fact that they may be able to stand aside from and criticize State action or inaction, in the interests of the inarticulate man in the street. Some 60 years later it remained the case that if a voluntary society wanted to gain or retain charitable status then, contrary to the Nathan report, the one thing it could not do was set itself up with the purpose of criticizing State action or inaction. This legal position was adopted by the authorities in Australia with the Australian Taxation Office (ATO) noting in Taxation Ruling TR2005/21: 102. An institution or fund is not charitable if its purpose is advocating a political party or cause, attempting to change the law or government policy, or propagating or promoting a particular point of view. So, why, if it is such a valuable activity, have governments steadfastly refused to allow charities to have as their purpose the freedom to advocate in this way and how has this situation been affected by the recent High Court of Australia decision in Aid/Watch v Commissioner of Taxation? This article proposes to address such questions. Beginning with some background history, it explains that, initially, the current constraints did not apply. Then it looks at the nature of these constraints: how does the law define what constitutes the type of political activity that a charity must not undertake? What is the rationale for prohibition? How has the judiciary contributed to the development of the law in this area in recent years? This will lead into a consideration of the Aid/Watch case and the implications arising from the recent final decision. The article concludes by reflecting on what has changed and why the view on this contentious matter now looks different from Australia.

Cellulosic ethanol from sugarcane bagasse in Australia : exploring industry feasibility through systems analysis, techno-economic assessment and pilot plant development

Overcoming many of the constraints to early stage investment in biofuels production from sugarcane bagasse in Australia requires an understanding of the complex technical, economic and systemic challenges associated with the transition of established sugar industry structures from single product agri-businesses to new diversified multi-product biorefineries. While positive investment decisions in new infrastructure requires technically feasible solutions and the attainment of project economic investment thresholds, many other systemic factors will influence the investment decision. These factors include the interrelationships between feedstock availability and energy use, competing product alternatives, technology acceptance and perceptions of project uncertainty and risk. This thesis explores the feasibility of a new cellulosic ethanol industry in Australia based on the large sugarcane fibre (bagasse) resource available. The research explores industry feasibility from multiple angles including the challenges of integrating ethanol production into an established sugarcane processing system, scoping the economic drivers and key variables relating to bioethanol projects and considering the impact of emerging technologies in improving industry feasibility. The opportunities available from pilot scale technology demonstration are also addressed. Systems analysis techniques are used to explore the interrelationships between the existing sugarcane industry and the developing cellulosic biofuels industry. This analysis has resulted in the development of a conceptual framework for a bagassebased cellulosic ethanol industry in Australia and uses this framework to assess the uncertainty in key project factors and investment risk. The analysis showed that the fundamental issue affecting investment in a cellulosic ethanol industry from sugarcane in Australia is the uncertainty in the future price of ethanol and government support that reduces the risks associated with early stage investment is likely to be necessary to promote commercialisation of this novel technology. Comprehensive techno-economic models have been developed and used to assess the potential quantum of ethanol production from sugarcane in Australia, to assess the feasibility of a soda-based biorefinery at the Racecourse Sugar Mill in Mackay, Queensland and to assess the feasibility of reducing the cost of production of fermentable sugars from the in-planta expression of cellulases in sugarcane in Australia. These assessments show that ethanol from sugarcane in Australia has the potential to make a significant contribution to reducing Australia’s transportation fuel requirements from fossil fuels and that economically viable projects exist depending upon assumptions relating to product price, ethanol taxation arrangements and greenhouse gas emission reduction incentives. The conceptual design and development of a novel pilot scale cellulosic ethanol research and development facility is also reported in this thesis. The establishment of this facility enables the technical and economic feasibility of new technologies to be assessed in a multi-partner, collaborative environment. As a key outcome of this work, this study has delivered a facility that will enable novel cellulosic ethanol technologies to be assessed in a low investment risk environment, reducing the potential risks associated with early stage investment in commercial projects and hence promoting more rapid technology uptake. While the study has focussed on an exploration of the feasibility of a commercial cellulosic ethanol industry from sugarcane in Australia, many of the same key issues will be of relevance to other sugarcane industries throughout the world seeking diversification of revenue through the implementation of novel cellulosic ethanol technologies.

The allocation of taxing rights of ship and aircraft leasing profits under Australia's tax treaties

The Australian Federal Commissioner of Taxation recently released Draft Taxation Ruling TR 2008/D3 with the stated purpose of clarifying ‘what profits derived from the leasing of ships or aircraft fall within the ship and aircraft articles of each of Australia’s tax treaties’. In particular, TR 2008/D3 explains the taxing rights over different types of leasing profits, such as a full basis lease in respect of any transport by a ship operated in international traffic and bareboat leases which are ancillary to the lessor transport operations of ships in international traffic. This article outlines the Commissioner’s views on the application of the standard ships and aircraft articles in the tax treaties to which it is a party as well as considering the major variations on the standard adoption. In doing so, guidance is provided as to the allocation of taxing rights of ship and aircraft leasing profits under Australia’s tax treaties.

The implementation of social and economic policy through the tax regime : a review of Australia's tax expenditures program

Each year the Australian Federal Treasury releases its Tax Expenditures Statement providing details of concessions, benefits, and incentives delivered through the tax regime to Australian taxpayers. The current Tax Expenditures Statement, released on 25 January 2008, lists approximately 300 tax expenditures and reports on the estimated pecuniary value in terms of revenue foregone, estimated to be a total of $50.12 billion for the 2006-07 financial year. Apart from the annual Tax Expenditures Statement, and despite the recurring fiscal impact, there is very little other scrutiny of Australia’s Federal tax expenditures program. This is despite tax expenditures often being seen as an alternative to direct expenditures with similar impact on the Federal budget. The object of tax expenditures is to provide government assistance and meet government objectives, and, as such, tax expenditures are departures from the revenue raising aspect of the tax regime. Within this context, this article examines the fundamental concept of tax expenditures as contrasted with direct expenditures and considers the role they play in the current tax regime.