The abridged version

Income Tax Exemption for Religious and Charitable Institutions

Current Legislation

Broadly speaking, the current income tax legislation prescribes that religious and charitable institutions are income tax exempt if they:

  • have a physical presence in Australia and, to that extent, incur expenditure and pursue objectives principally in Australia; or
  • are an institution with deductible gift recipient status

The legislation also contains specific lists of organisations that are exempt from the above requirements under two categories:

  1. Non-resident organisations exempt from income tax in their country of residence (Prescribed Foreign Residents)
  2. Australian organisations pursuing objectives principally outside Australia.  (Prescribed Australian Residents)

These specific organisations are known as “prescribed” organisations.  Missions Interlink Australia is currently listed as a Prescribed Australian Resident, and as a result all members of Missions Interlink have access to income tax exemption regardless of whether their objectives are within Australia or not.

Proposed Bill

The draft legislation (s50-50) extends income tax exemptions to religious and charitable institutions that are at all times:

  • not for profit entities
  • operating principally in Australia
  • pursing purposes in Australia
  • only donating money other exempt entities
  • compliant with all governing rules
  • using income and assets solely to pursue the purpose for which they were established

Exemptions (s50-51) have been made for

  • Deductible Gift Recipients
  • Prescribed Foreign Residents (first category of prescribed organisations in current legislation)

Section 114 of the exposure draft makes sure that the current lists of prescribed organisations will carry forward to the new legislation however it appears that this does not ensure Prescribed Australian Residents retain income tax exemption because they do not meet the exemption conditions above.

For Prescribed Australian Residents the best case scenario is that this omission is an oversight and will be rectified in a future of the bill.  The worst case scenario is that this is an intentional move from Treasury and that these organisations will lose tax exempt status 12 months from Royal Ascent of the bill.

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