Govt Targets PAFs & Fringe Benefits Tax

The Abbott Government has announced changes to the way Private Ancillary Funds (PAFs) will be wound up and how the philanthropic funds can distribute their assets.

Assistant Treasurer Josh Frydenberg made the announcement at a Community Council for Australia forum attended by some 60 high profile leaders from the social sector to discuss topics around ‘The Australia We Want’.

Frydenberg said by increasing the “portability” of Private Ancillary Funds (PAFs) red tape costs would be cut considerably.

“PAFs came into existence during the time of the Howard Government and have been quite effective as a means of distributing funds to DGRs,” Frydenberg said.

“So the change that I’m announcing is that in the winding up of PAFs, we will increase the portability to distribute funds to other ancillary funds which then can distribute it onto DGRs. This will mean significant red tape savings because every year there are 20 or more PAFs that are wound up.”

Frydenberg also announced changes in relation to the distribution by PAF shares and managed investments through to charities with Deductible Gift Recipient status (DGRs).

“Currently if a PAF is distributing more than $5,000 worth of shares or managed investment funds that have been held for more than 12 months they’ve had to go to the Tax Commissioner, pay a fee and go through a red tape process of getting a valuation from the Tax Commissioner, even though a lot of that information is publicly available,” he said.

“So we have said no longer will you have to go through an independent evaluation process with the Commissioner of Taxation if you’re a PAF distributing shares or managed investment funds worth $5000 or more, that you’ve held for more than 12 months, onto a DGR.”

Philanthropy Australia Acting CEO, Chris Wootton, welcomed the announcement.

‘Philanthropy Australia is very pleased that the Government will allow PAFs to distribute their assets to other ancillary funds when winding up, and that the process for donating shares to DGRs will be made simpler,” Wootton said.

“We’ve lobbied on behalf of our members for these two changes, and included them in our ‘Early Wins to Grow Philanthropy and its Impact’ submission to the Prime Minister’s Community Business Partnership late last year, so we’re pleased to see concrete outcomes coming out of the Partnership so quickly.”

Frydenberg also said the Government was also seeking submissions on fringe benefits tax exemptions which allow Not for Profits to offer tax-effective salary packages to attract employees.

In addressing other critical issues facing the Not for Profit sector such as the future of the national charity regulator, the ACNC,  and the ‘In Australia’ provision, Frydenberg said the Government would be taking a “watching brief”.

Frydenberg said the Government was still committed to abolishing the ACNC.

“We had a commitment to abolish the ACNC and to repeal the definition of charity and also to move back those responsibilities to ASIC and to the Australian Tax Office and to also set up a Centre for National Excellence,” he said.

“That commitment still stands but after discussing this issue with the Minister Scott Morrison I can say to you that it’s not a priority for us to proceed with that at this time. So the commitment still stands but it’s not a priority to proceed with it at this time.

“As long as the ACNC is there, I mean I’ll leave that to Scott Morrison to answer, but as long as the ACNC is there then there might not be the same pressing need for a Centre of Excellency.”

Frydenberg also said that the Government had decided not to tackle the ‘In Australia’ provision at the moment.

“This came out of the 2008 High Court case between the Commissioner of Taxation and Word Investments. And basically what it meant was that a charity could proceed with its charitable activities if it was providing funds to another charity whose principal activities were overseas,” he said.

“The previous Government said that they would introduce a legislative measure to clarify the situation so that the charities activities had to really be confined, other than a few exceptions, to the benefit of the Australian community.

“Now the Commissioner of Taxation and the ATO have been monitoring this situation since 2010 and they haven’t seen a discernable change in the behaviour of the charities sector as it applies to the tax concessions, so our position, like on the ACNC at this stage, is that it’s not a priority to legislate as the Labor Party had promised to do but had not enacted.

“So on all those issues, the ACNC, as well as the definition of charities as well as the In Australia provision, we will keep a watching brief. Minister Morrison will keep a watching brief on the first issue, I’ll keep a watching brief on the second issue, we’ll continue to engage with the key stakeholders but we’re not moving at this point in time on any of those.”

Acting Commissioner of the ACNC, David Locke, told Pro Bono Australia News that the Not for Profit sector wanted to see the regulator’s future guaranteed.

“The ACNC’s still got an important job to do. We have clear objects in our legislation and we will continue to do our very best to fulfil those objects unless and until Parliament decides otherwise,” Locke said.

“What we do know is that we do get a lot of calls from charities and from directors of organisations asking what the future situation will be and we know that there’s a high degree of uncertainty out there, so of course we would welcome any greater certainty that could be provided because that’s clearly for the advantage of all charities.”