Adele Ferguson July 28, 2008
CHARITIES and other non-government organisations could lose billions of dollars' worth of tax perks as the Rudd Government's taxation review prepares to examine whether the concessions offered to the $80 billion non-profit sector are justified.
The investigation, by Treasury boss Ken Henry, is expected to meet with resistance from some of the sector's most powerful groups.
Most of the country's religious groups, which make up about $25billion of the sector, run commercial enterprises. Among them is the Seventh Day Adventists' cereal giant Sanitarium, which generates more than $300 million a year.
Many of the operations have little to do with charitable work but are exempt from various taxes including corporate tax and capital gains tax. The Catholic Church has long opposed reforms such as the creation of a national charities commission to regulate the sector, or charging tax on commercial enterprises.
While any changes eventually recommended by Dr Henry may offer the opportunity to bolster Treasury's coffers, it will create a significant political challenge for Kevin Rudd, a devout Christian who has courted the religious vote.
Australian Industry Group head Heather Ridout, a member of the Henry review's committee, said the non-profit sector was a huge part of the economy and so it made sense to look at it as part of the review.
"The agenda is broad and so all types of entities will be looked at in this review," she said. "The non-profit sector is a very big and important part of this, particularly since we have had a lot of changes in welfare benefits and their interface with tax."
Business enterprises run by religious groups range from pizza chains, insurance companies, wineries, farms, schools, hospitals and aged-care facilities. All are exempt from tax. Australia is one of the few countries in the world where religious groups are not forced to pay tax on business ventures.
In the past few years, sports stars such as cricketers Shane Warne and Ricky Ponting and Formula One driver Mark Webber have set up charities to raisemoney under their own names. They receive various tax deductions.
The sector accounts for 8 per cent of GDP and employs more than 600,000 people, but a lack of transparency and poor accounting standards and corporate governance in the financial arrangements of many organisations has long been a concern.
In an era of heavy corporate regulation, most parts of the non-profit sector remain unregulated.
There is no process for the registration of charities, no consistent collection of information about the activities or funding sources of charities and there is little or no monitoring of the activities of charities.
This means that the Australian Government has no way of knowing how big the sector is, or how much Treasury forgoes in tax each year.
The tax review, and a simultaneous inquiry into the accountability and transparency in its use of public and government funds in the sector, by the Senate standing committee on economics, will now put these activities under the spotlight.
The Senate inquiry is currently accepting submissions into the disclosure regime for charities and not-for-profit organisations. Submissions close on August 29 with a report to be released in November.
World Vision head Tim Costello described the non-profit sector as in dire need of reform. "We don't have a single regulatory system or uniform accounting standards and so it makes it confusing for the public to know who to trust, or who is efficient," he said. "There are 700,000 not-for-profit organisations and the latest fad today is under-30s wanting to start their own not-for-profit equivalent of what in my day was starting a rock band.
"There are also a lot of celebrities and sports stars setting up charities in their own name or naming it after their child. These have a lot of overheads and it isn't fair on the ATO to have to regulate this.
"I would much prefer the Warren Buffett way, who decided to put his money in with Bill Gates. To me that is much more impressive than someone having their own name on a charity."
He also said with the growing number of charities raising money for similar things, it was becoming confusing to the public and there was a risk of "passion fatigue", particularly as petrol prices hit record highs and the economy gets tough.
Peter Shergold, the former secretary of the Department of the Prime Minister and Cabinet, who recently set up the new Centre for Social Impact at the University of NSW with initial funding of $12.5 million from the federal Government to educate the non-profit sector, said he welcomed any review. "There needs to be a review of the sector because it lacks transparency and the accounting standards need to be streamlined," he said.
"There are 700,000 organisations in the non-profit sector. It is too many. You have 2000 charities that have at least one of their goals tackling breast cancer. This is inefficient and so I think the idea of a charities commission should be explored.
"I feel positive about a standard regulatory regime."
Dr Shergold said some organisations received a lot of money from governments in the form of grants and subsidies and yet there was a lack of transparency.
"We need to look at taxation for charities - who does and doesn't get the gift recipient status," he said.
Source: http://www.theaustralian.news.com.au/story/0,25197,24086963-2702,00.html
Note: Bolds and Highlights added for emphasis. Blogman.