Changes to NFP tax concessions deferred

The Government has announced that it will extend the start date for its changes to Not For Profit tax concessions from 1 July 2011 to 1 July 2012 for new unrelated commercial activities that commenced after 7:30 pm (AEST) on 10 May 2011.

Existing unrelated commercial activities that commenced prior to that date will continue to be covered by transitional arrangements as announced in the 2011-12 Budget.

Under the changes income tax concessions will only apply to profits generated by the unrelated commercial activities of NFPs, if they are directed to the NFP’s altruistic purpose. This means an NFP entity will pay income tax on those profits that are not directed back to its altruistic purpose (that is, the earnings it retains in its commercial undertaking).

An NFP entity will also not have access to a fringe benefits tax (FBT) exemption or rebate, goods and services tax (GST) concessions or deductible gift recipient (DGR) support in relation to their unrelated commercial activities.

Initially only new unrelated commercial activities that commenced after 7:30 pm (AEST) on 10 May 2011 are subject to the new arrangements.

NFP entities with existing unrelated commercial activities at that date will initially be able to continue to use their tax concessions to support these activities. At the end of the transition period an entity operating an existing unrelated business activity will, depending on the model selected, need either to transfer the activity to a new taxable entity or pay tax on income from the activity if profits are retained.

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