CHARTING NEW HORIZONS: GOVERNANCE WITH PASSION AND PURPOSE Victor Hamit B.Ec (Acc), LLB, FAICD, CTA. Wentworth Lawyers Level 40 140 William Street MELBOURNE.

CHARTING NEW HORIZONS:GOVERNANCE WITH PASSION AND PURPOSE

Victor Hamit B.Ec (Acc), LLB, FAICD, CTA.Wentworth LawyersLevel 40140 William StreetMELBOURNE 3000Email: admin@wentworthlawyers.com.au

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Disclaimer: This presentation is of general nature only. Legal advice should be obtained in relation to any specific circumstances.

Protecting Your Income Tax Exempt Status: Two New Additional Tests and the ATO View.

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Scope

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Our discussion is limited today to the 2 new additional special conditions introduced into the Income Tax Assessment Act 1997 (the “Tax Act”) for NFP entities to satisfy in order to qualify for income tax exemption.

New Special Conditions:-

1. Governing Rules Condition

2. Income and Assets Condition

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Background

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June 2013, the Federal Labor Government introduces legislation for 2 additional special conditions for NFP entities to satisfy for income tax exemption status.

• Tax Laws Amendment (2013 Measures No. 2) Act – “An Act to amend the law relating to taxation and the Tax Agent Services Act 2009 and other purposes”

• Schedule 11 – “Miscellaneous amendments”

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Why?

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Entities Covered

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• Registered Charities• Scientific Institutions• Public Educational Institutions• Funds for scientific research by or in conjunction with a public

University or Public Hospital• Societies, Associations or Clubs for the encouragement of science• Societies, Associations or Clubs for community service purposes

(except political or lobbying purposes)• Employee or Employer Associations• Trade Unions• Hospitals (Public and NFP Society or Associations)• Societies, Associations or Clubs for Animal Racing, Sport, Music

and Musical purposes.

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What are the new Conditions?

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The entity must:

1) comply with all the substantive requirements in its governing rules (the “Governing Rules Condition”); and

2) apply its income and assets solely for the purpose of for which the entity is established (the “Income and Assets Condition”)

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1. Governing Rules Condition

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• What are the governing rules?

Constitution Law Other

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• What are the substantive requirements?

The Rules that define the rights and duties of the entity such as:

give effect to the object or purpose of the entity; relation to not for profit status; set out the powers or duties of the Directors and

Officers of the entity; require an entity to maintain a register of members;

and relate to winding up of the entity.

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• Contrast substantive to procedural rules.• Procedural rules are those which prescribe the method or manner in

which the rights and duties of the entity are carried into effect, and where applicable enforced. Administrative processes are typically procedural requirements. For example the following are procedural requirements:-

rules regarding the process for granting membership of the entity; the format in which the register of members is maintained; how a particular meeting is to be conducted (including requirements

for a quorum); and the rules setting out how a member may vote at a meeting by proxy.

• “All year”.

Governing Rules Condition (cont)

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• apply solely for the purpose;

• purpose = purposes;

• Accumulations;

• “immaterial amount”, “one-off” or “occasional unrelated misapplication”; and

• “all of the year”.

2. The Income and Assets Condition

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Review Action

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Further Information

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• Taxation Ruling TR 2015/1 (www.ato.gov.au);

• Income Tax Assessment Act 1997, particularly Division 50 (www.austlii.edu.au); and

• Updated – ATO Putting NFP’s to the Test: Two Additional Tests for Income Tax Exemption(http://betterboards.net/)

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Q&A

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Thank You

Victor Hamit

Wentworth Lawyers Pty Ltd Tel:(03) 9607 8380 Email: admin@wentworthlawyers.com.au

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