NFP Tax Cap Legislation Introduced

The Federal Government has moved a step closer to capping tax concessions for entertainment expenses affecting charities and Not for Profits, introducing its legislation into Parliament in a move set to make $295 million in tax savings.

Part of the Government’s Tax and Superannuation Laws Amendment Bill makes amendments limiting Fringe Benefit Tax Concessions for salary packaged entertainment expense to $5000 per year.

The Minister for Small Business and Assistant Treasurer, Kelly O’Dwyer told Parliament in the legislation’s second reading that Schedule 3 would introduce a separate single grossed-up cap of $5000 for salary sacrificed meal entertainment and entertainment facility leasing expenses for employees of certain Not for Profit organisations.

“All use of these salary sacrificed entertainment benefits will become reportable,” O’Dwyer said.

“The charitable and Not for Profit sector in Australia is vitally important to the strength of our community. Each year the Federal Government provides billions of dollars in support to the sector in the form of various tax concessions.

“These include income tax exemptions, deductible gift recipient status, applying a higher threshold for GST registration and fringe benefits tax concessions.

“Employees at a public benevolent institution or a health promotion charity are ordinarily entitled to fringe benefits tax exempt benefits up to $30,000 a year and employees in public hospitals, Not for Profit hospitals and public ambulance services up to $17,000 a year.

“In addition to their $17,000 or $30,000 cap, an employee will also be entitled to spend an unlimited amount on entertainment benefits without being subject to the fringe benefits tax. These uncapped benefits can include meals, alcohol, cruises, holidays overseas and birthday parties.”

The Minister said the use of these concessions had moved beyond its original intention.

“However, as the Government recognises the ongoing importance of these concessions in the  Not for Profit sector, this bill imposes a cap of $5000 grossed up on these benefits rather than removing them altogether,” she said.

“A cap improves fairness and is further evidence of the government's commitment to the integrity and sustainability of the Australian taxation system. This change is expected to raise $295 million over the forward estimates.”

In August the Community Council for Australia had called on the Federal Government to urgently review the proposed cap describing it as too low.

A CCA submission to Federal Treasury said the proposed changes need to be more comprehensively reviewed because of sector concern over the low level of the cap, how additional costs to charities and Not for Profits will be met, and the potential loss of quality staff.

“CCA has acknowledged there is a need to address the situation where a small minority of highly paid employees are using the FBT concessions for entertainment expenses to package very significant amounts of tax free income, well beyond what most people would consider reasonable,” the CCA submission said.  

The debate on the legislation has been adjourned.