Tax-deductible opportunities for Indigenous charities

Date: September 21, 2018
Author: Harriet Warlow-Shill
Posted in: Insights

Following a recent application submitted to the Australian Charities and Not-for-profits Commission (ACNC), a private school located in a remote part of Australia was approved to be a Public Benevolent Institution (PBI). 

The school, focused upon educating Aboriginal members of its local community, was previously registered as a charity for the purpose of advancing education.

Becoming a PBI has huge implications for any organisation, especially those employing a large number of staff. The school therefore becomes exempt from Fringe Benefits Tax (FBT) for benefits provided to each employee up to a total grossed-up value of $30,000. The school also becomes a deductible gift recipient (DGR), therefore ensuring that donations of over $2.00 to the school can be tax-deductible. Importantly, these funds can be used by the school for all of its operations and not just e.g. for scholarships or building maintenance.

This incredible tax benefit which is not enjoyed by most schools in Australia is due to the ACNC’s definition of PBI. Regularly, schools are not PBIs. However, the ACNC Commissioner’s interpretation statement regarding PBIs clarifies, at paragraph 5.3.2 that:

“An organisation with a purpose of addressing Indigenous disadvantage will ordinarily be considered to be providing assistance to “people in need”. To qualify as a PBI, the organisation must provide services targeted at those needs.”

A further ACNC interpretation statement regarding Indigenous charities confirms that the ACNC

“recognises the unique situation of Australia’s Indigenous peoples and recognises their disadvantage.”

For the purposes of eligibility to be registered as a charity, “an organisation with the purpose of addressing Indigenous disadvantage is accepted as coming within the first head of charity: relief of poverty or impotence, depending on the circumstances.” An organisation is able to address this disadvantage through providing services such as health, welfare or education services. Specifically, the interpretation statement confirms that disadvantage may be addressed in the form of a bi-lingual school.

The implication of the current regime is that organisations that are working specifically with Aboriginal peoples or Torres Strait Islanders may be able to become PBIs and enjoy the consequent tax benefits. This situation may arise for organisations, such as schools, that may not be recognised as PBIs for work performed with other communities.

We are happy to advise any organisation working with Aboriginal peoples or Torres Strait Islanders who may wish to maximise the potential tax benefits that they can receive in order to enhance and improve their operations. For more information please contact Yoni Ungar or a member of or Charities and Not-for-Profit team.

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