Mukti Australia Inc

Submission regarding Exposure Draft – ‘In Australia’ Special Conditions for Tax Concession Entities

August 2011

Mukti Australia Inc. (Mukti) was incorporated to provide aid and relief in a holistic manner to needy persons in India a developing country as declared by the Australian Minister for Foreign Affairs.  With the aim to relieve poverty, suffering, distress and misfortune we work with abandoned and destitute girls and women in communities around India, providing:

•	health services, including a hospital, mobile medical clinic and dental clinic, to deliver affordable medical and dental treatment to Mukti residents and the surrounding communities;

•	educational services, including a primary school, high school, special needs school and computer training school, which provide affordable, quality education to Mukti residents and children from surrounding communities, as well as a library service to increase the literacy levels of the community;

•	vocational training in areas such as tailoring, handicraft and jewelry making and cooking to provide girls and women with the skills needed to develop a sustainable livelihood in order to support themselves and their families;

•	family group homes for destitute and abandoned women and girls who have little prospect of surviving on their own without turning to prostitution or begging.

Our Concerns

Loss on income tax exemption
The ‘In Australia’ Special Conditions for Tax Concession Entities contained in the Exposure Draft of the Tax Laws Amendment (2011 Miscellaneous Measures) Bill (No.1) 2011: tax exempt body “in Australia” requirements raises particular concerns for Mukti Australia.

Although incurring most of its expenditure and pursuing its objectives outside Australia Mukti is a member of Australian Evangelical Alliance Inc (Missions Interlink), and is therefore currently exempt from income tax under s50-50(d) of the Income Tax Assessment Act 1997 (ITAA).  The exemption for s50-50(d) prescribed organisations is not preserved in the exposure draft so we understand that we will become a taxable entity.

This appears to be a departure from the intent of the draft as noted in item 1.13 of the explanatory material.

Increased Administration Costs
The loss of income tax exempt status will result in Mukti paying income tax on both earned income and donations.  As a charitable organisation, we do not generate significant profits.  Yet even if the income tax expense is small, the associated costs will quickly add up such as the cost of engaging experts such as tax accountants to help us ensure compliance.   Taxation will also add complexity to our financial accounts that require auditing each year, a further cost increase.

Loss of Income
Furthermore we anticipate that we would lose donors as a result of these amendments.  

Individual donors show their commitment to Mukti’s activities by giving to non-tax deductible projects with their after-tax income.  They are keen for as much of their donations as possible to make a difference in India.  Should Mukti lose income tax exemption, these donors may arrange for funds to be sent directly to India in order to avoid double taxation.   The direct transfer of funds removes a level of accountability that a reputable organisation such as Mukti can demand but smaller donors cannot.  We contend that reducing accountability in this way is not a desirable outcome.  

Under the Exposure Draft, if Mukti loses its income tax exempt status, then any other tax-exempt organisation that makes a donation to Mukti will lose their own tax exemption.  Each year Mukti Australia receives significant donations from churches and schools all around Australia.  We expect that all of these donations will cease under the proposed changes.

For many of these institutional donors, these gifts are an incidental part of their own operations however there is no discretion in the legislation to even allow incidental giving.  

Reduced ability to fulfill our charitable aims and purposes
Increased costs and decreased income are ultimately to the detriment of our beneficiaries in India.  In the past Mukti has funded larger projects such as development of the Manorama Memorial Girls Junior College to provide girls in and around Kedgaon village with the opportunity to obtain higher level education within a safe environment.  We expect that this would no longer be possible should these changes to the ITAA 1997 be adopted.  Instead we will be forced to focus on far smaller projects which have a lesser impact on the community, or indeed reassess whether our operations continue to be feasible.  

Our Recommendations
We would ask that 
•	the new law retain the income tax exemption for all prescribed institutions covered by s50-50(d) of the ITAA 1997;
•	a minimum threshold for donations to entities without income tax exempt status should be introduced into the legislation;
•	the Commissioner be granted some discretion to retain income tax exemption for unintentional or minor infringements.

Mukti Australia Inc.  5 Court Street, Box Hill, Vic 3128   (03) 9890 0211   www.mukti.org.au