Australian Catholic Bishops Conference
                General Secretariat

30 July 2011
The Manager
Philanthropy and Exemptions Unit
Personal and Retirement Income Division 
The Treasury
Langton Crescent
PARKES   ACT 2600

Email: NFPReform@treasury.gov.au

Dear Mr Leggett

Tax Laws Amendment (2011 Miscellaneous Measures) Bill (No. 1) 2011
Submission in response to the Exposure Draft

The Australian Catholic Bishops Conference (ACBC) is the permanent institution of the Australian Catholic Bishops, which deals with the Catholic Church’s national representations and initiatives.
The Catholic Church in Australia (the Church) comprises many thousands of individual not-for-profit (NFP) entities, which provide services to the Catholic and wider community in these areas: religious worship and pastoral care (parishes, churches, shrines, chapels and chaplaincy services); health (public and private hospitals, clinics and medical research centres); aged care (residential and non-residential services); overseas aid and development; social welfare and community services; including child-care and education (pre-school, primary, secondary and tertiary).  
The Church welcomes the opportunity to comment on the Government’s Exposure Draft – ‘In Australia’ Special Conditions for Tax Concession. The Church looks forward to continuing to participate in discussions about important issues raised in this and other reports and papers about Not-For-Profit Organisations (NFPs).
Some sectors of the Church, for example, the Church missionary agencies, may make additional sector-specific responses to the Exposure Draft.
We offer the following general comments and then some specific comments by reference to the numbered paragraphs in the exposure draft.
1.	As a matter of policy the Church understands and accepts the principle that income tax exempt entities generally must be operated principally in Australia and for the broad benefit of the Australian community; and deductible gift recipients (DGRs) generally must be operated solely in Australia and for the broad benefit of the Australian community.

It is understood that since the level of support with respect to DGRs is greater a stricter test should be applied. Support for worthy causes overseas by DGRs should be undertaken within the regime that applies to overseas aid agencies.
2.	It should be noted that for some agencies of the Church there is a mix of donations to which the DGR rules apply and other donations for which the donors do not seek any tax deductibility. Many members of the Church seek to support worthy causes in other countries as an expression of their solidarity with church communities in those places. It should be possible for such agencies to remit these funds for which no tax deductibility is sought to worthy overseas causes without being concerned that they would fail an ‘in Australia’ test.

By way of example: Some parishes will form partnerships with parishes overseas eg in East Timor, to which funds are remitted. Similarly Catholic schools have partnership with schools in developing countries. The Society of St Vincent de Paul has a programme of twinning with its overseas Conferences. Religious congregations in Australia will sometimes be part of a Province which includes countries overseas. In each of these cases it will seek to remit some funds to support those overseas initiatives. People ought to be free, from their post-tax resources, to contribute to such initiatives without the constraint this legislation proposes.

Some of the recipient entities will not be recognised as exempt under the local tax law or even have separate legal identity. 
The Catholic Church seeks to support people not only within national boundaries but all human need wherever it may occur. The ACBC certainly wishes to respect national law but this should allow for some flexibility to allow these broader relationships and the expenditure of funds that do not involve tax deductibility. 
3.	The Church understands and accepts the importance of ensuring that funds remitted overseas (whether through the recognised overseas aid regime, or in any other way) are not used for improper purposes. The Church has in place systems for ensuring that any funds remitted to worthy causes overseas are done so through the network of the embassies of the Holy See, or the offices of the local Bishops Conference, or Diocesan Bishop, or other Church Authority. The Church respectfully suggests that the application of the ‘In Australia’ limitation, and any application for inclusion in regulations should recognise the internal governance arrangements of the Church.

.4.	Paragraphs 1 to 8
	The Church suggests that the limitation in the proposed section 30-18 (3) should be qualified as to only apply to funds appropriated by the DGR for which tax deductibility has been given. This would allow some DGRs that receive donations for which they have not been asked to provide a tax deductible receipt to expend those funds for worthy causes that are not themselves DGRs.

5.	Paragraph 23: section 50-50
This proposes a new Section 50-50.
Section 50-50(2)(c) 
The provisions in proposed section 50-50(2)(c) as drafted present a problem. This provides that the entity is not permitted to donate money to any other entity unless it is an exempt entity. “Entity” is a broad expression and could mean individuals. This would stop donations to poor individuals which is a commonplace activity of many Church organisation which are not DGRs (and therefore covered by the proposed section 50-51(3)(a)) but still seek to serve the poor.
It is also quite possible that a number of Church entities would look to make payments to other entities in furtherance of its objects and that recipient entity may not be endorsed as an exempt entity (even though he/she/it may be an Australian activity). If this were the case, the Church entity’s status may be compromised. For example a Church entity may make a grant by way of an annual prize to a tax paying entity that has done some outstanding work in furtherance of the Church’s purposes. Another example, could be payment of a scholarship to a tax paying educational institution to allow enrolment of students with special needs. A third example could be modest grants to community organisations in furtherance of the Church’s purpose. 

Section 50-50(3)(a) 
Under proposed section 50-50(3)(a) an entity is required to comply with its ‘Governing Rules’ otherwise it loses entitlement to exemptions. Failure to comply would disqualify the entity from entitlement to tax exemption. There are many Church entities, such as dioceses and parishes, which do not have separate formal governing rules. They are established under internal Church law. 
An exemption from this provision should be included in section 50-51 or there should be arrangements for a broad inclusion in regulations under 50-51(3)(b) (ii).

Section 50-50(3)(b) 
Section 50-50(3)(b) requires income or assets to be used solely to pursue in the entity’s purposes. This is very harsh and impractical. Taken literally, use of any income or assets other than for the purposes of the NFP will disqualify it from exemption. This can be a problem where an entity’s endorsed purposes are narrowly defined. 

An example: There is an entity which has as its purpose the provision of accommodation to indigenous persons in need. On a particular occasion, and perhaps inadvertently, a person who presents for accommodation and who is not indigenous is assisted. As the section stands the entity might lose this exemption as it would be applying its assets other than solely for the stated purpose. A more practical provision, which  will still satisfy the general policy intent is to only require that the income and assets are substantially used to pursue the purposes, or to allow some minor use for other incidental or closely related purposes.
See 30-18(2) which allows for minor and incidental activity outside the nominated purpose should apply to all Tax Concession Charities
Section 50-50(3)(b) refers to ‘the purpose for which it was established’ (emphasis added). Taken literally, this would mean that the purposes could not change following establishment of the entity. Perhaps the expression should be ‘for which it is endorsed’ or something similar.

6. 	Paragraph 26: section 207-117
The proposed section 207-117 provides that an exempt institution would not be entitled to franking credits, unless it satisfied conditions at all times during the income year. This seems harsh and may cause problems for entities which are in fact set up during the course of the year in question. Perhaps “at the time that the franked dividend is received” may be fairer and more appropriate.

7. 	Paragraph 27: section 995-1(1)
The definition of ‘not for profit entity’ is critical, not only entitlements to exemption under the Income Tax Act, but also under other tax acts, such as A New Tax (Goods and Services Tax) Act and the Fringe Benefits Tax Assessment Act. 
The definition is fundamentally flawed and should allow for distributions to the entities owner/members where they are all themselves not for profit entities. This is consistent with the previous policy intent, as reflected in the former TR 2205/21 and TR2005/22 including the draft addendum. 
Furthermore the policy intent of the proposed unrelated business income tax itself envisages remittance of surpluses to the purposes of the entity that is carrying out the activity.
The Church respectfully suggests that the provision of paragraph 46 of TR 2011/D2 should inform this definition of ‘not for profit entity’.
What should be prohibited is any remittance to individual people, or entities that are not themselves not for profit entities. 
An example: a group of charities join together to undertake a project that has charitable purpose. They are the members of a special purpose vehicle, which is incorporated and is endorsed as a Tax Concession Charity. During the project surpluses are generated beyond the needs of the particular project and these are returned to the charity members. When the project is concluded the remaining assets are likewise paid to the members. The special purpose entity should be regarded as a not for profit entity.
There are a number of Catholic Church entities that are a joint effort of other established entities, such as St Vincent’s and Holy Spirit Health.. The law should allow for distributions back to the parent not for profit entities.

Church representatives are available to discuss these comments further with relevant Treasury officers.

For further information please contact:

Fr Brian Lucas
General Secretary

G.P.O. Box  368    
CANBERRA 2601    
gensec@catholic.org.au 

p 02 6201.9845
f 02 6247.6083