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New Amendment Shores Up NFP Payroll Tax Loophole


25 July 2012 at 2:52 pm
Staff Reporter
New tax laws have come into effect in Victoria to stop charities trying to take advantage of a loophole created by a Federal Court decision on payroll tax exemptions.

Staff Reporter | 25 July 2012 at 2:52 pm


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New Amendment Shores Up NFP Payroll Tax Loophole
25 July 2012 at 2:52 pm

New tax laws have come into effect in Victoria to stop charities trying to take advantage of a loophole created by a Federal Court decision on payroll tax exemptions.

From 1 July 2012 Section 48 of the Payroll Tax Act 2007, which deals with the treatment of wages in Not for Profit organisations, was amended by the State Taxation Acts Further Amendment Act 2011.

The previous law provided that wages were exempt from payroll tax if they were paid by a religious institution, a public benevolent institution or a Not for Profit organisation with a dominant charitable, benevolent, philanthropic or patriotic purpose.

Stephen O’Flynn, Tax Director at Moore Stephens Melbourne says that under the previous provision, for wages to be exempt it was required that those wages were paid by a charitable organisation to a person engaged exclusively in a work performed in connection with the charitable purposes of the organisation.

“The intent behind this requirement being to limit the exemption to persons engaged exclusively in the charitable purpose of the organisation. If the institution or organisation conducted both charitable activities and unrelated commercial activities, only wages paid to persons engaged in charitable activities would receive the exemption.”

Following the High Court of Australia’s decision in Commissioner of Taxation v Word Investments Ltd, the common law definition of charitable organisation was expanded to include Not for Profit organisations that conduct unrelated commercial activities to fund their charitable purposes or donate their profits to another charity.

“The previous provisions under section 48 captured this decision, rendering wages paid to a person engaged exclusively in work ordinarily performed in connection with the unrelated commercial activities as exempt,” O’Flynn said.

“From 1 July 2012, the amendment to Section 48, will restore the pre-Word Investment position, where wages paid to a person engaged in commercial activities that are unrelated directly to a charitable organisation’s charitable purposes are not exempt.

“The effect of the amendment is to ensure that only wages paid to people engaged exclusively in work of a charitable nature for the institution are exempt.”

O’Flynn says he is not aware of any charities taking advantage of the Word Investment decision however some charities had asked questions about eligibility. 



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