NFP Warning on Henry Report

Mooted changes in the Henry review to Fringe Benefits Tax concessions could have a significant detrimental impact on the ability of thousands of hospitals, schools and charities to retain and recruit quality employees, according to leading accounting firm BDO.

The Henry review is believed to favour removal of the present ability of some Not for Profit employers to provide tax-free benefits of up to $30,000, which potentially amounts to a maximum personal tax saving of $7463 to the employee.

This will leave an estimated 60,000 Australian hospitals, schools and charities with a pay-roll shortfall.

The purported reasons behind the anticipated change are that the current FBT concessions are complex and there is a perceived inequality to the operation of the concessions.

Employees remunerated by way of expense reimbursement or payment are seen as better off tax-wise than employees paid wholly in wages. Further, the direct benefits are received by the employee rather than the employer hospital or charity.

Russell Garvey, BDO Director, Corporate & International Tax, says most Not for Profit bodies have been working with the current concessions in order to stay competitive in the labour market, and that the FBT rules are well accepted and administered across the charitable sector.

The Australia’s Future Tax System Review Panel(known as the Henry Review) was delivered to the Federal Government in December. Early in 2009 it released its consultation paper which considers the main tax concessions available to Not for Profit organisations.

Garvey says the government should increase compliance activity rather than overhauling an entrenched and well-accepted regime.

He says the proposed recommendations are a body blow to a Not for Profit industry that will be left with trying to attract competent staff to carry out their charitable and public benevolent works.

The FBT concessions were originally enacted to address the fact that charitable and public benevolent organisations don’t necessarily have the available funds to pay competitive salaries to staff, and the ability to offer tax-free benefits helped alleviate some of the discrepancies. Hundreds of thousands of low-paid workers of church-run hospitals and nursing homes, welfare agencies and other charities receive top-up payments that allow them to pay for their mortgages, motor vehicles and other fringe benefits.

Garvey says that under the current rules, complying with the legislation essentially requires employees and employers to keep the right documentation, rather than interpreting complex tax provisions.

He says employees can package whatever benefits they like, provided they give their employer a receipt. The benefits are subject to FBT under the same rules as all other organisations, except that qualifying employers reduce their FBT liability with a free kick per employee up to a prescribed level.

The charitable sector may be further impacted by the Federal Government’s push to increase the retirement age and a proposed lowering of tax rates for older Australians. These measures are designed to keep older Australians in the workforce, many of whom would be recruited into the volunteer workforce of charities. This could see many public benevolent enterprises relying solely on a paid workforce that demands competitive pay rates.

BDO’s Russell Garvey questions how the charitable sector would attract a high-quality workforce without FBT.

He says the Henry review reportedly says that government should support charities through a system of direct grants if it feels they need help but it is not known what assistance the Not for Profit sector will be offered going forward.

He says a grant or some other cash rebate system will require a level of ongoing administration and presumably an approval process. The cure could be a more complex and less cost efficient way to administer assistance to this much needed sector of the community.

For more information go to at www.taxreview.treasury.gov.au