Significant changes relating to eligibility for tax concessions were announced, together with new administrative arrangements, in the Not-For-Profit ("NFP") sector.

 The suite of measures includes:

• Removing tax concessional treatment for commercial activities conducted by charities where the commercial activities are “unrelated” to the altruistic purposes of those charities;
• Introducing a statutory definition of “charity” to be used across all Commonwealth agencies from 1 July 2013; and
• The establishment of a new Australian Charities and Not-for-profits Commission ("ACNC") to regulate the NFP sector.

The establishment of the ACNC is forecast to generate revenue of $41m over the four years to 2014-15. One of the ACNC’s roles will be to “re-assess the charitable status of entities on the basis of the new statutory definition”.

Under the existing law, provided an entity qualifies as a charity all of its profits are exempt from income tax.

The new rules will limit tax concessional treatment for profits from commercial activities that are “unrelated” to the charity’s (or other NFP’s) altruistic purpose to profits that are directed back to the entity to carry out its altruistic work. Profits retained in the commercial operation will be subject to income tax.

Other tax concessions, including FBT, GST, or deductible gift recipient status, will be similarly limited.

There will be exceptions for “small scale and low-risk” unrelated commercial activities conducted by a NFP entity.

The new rules will apply from 1 July 2011, subject to transitional measures that will be negotiated for existing unrelated commercial activities.

Whilst the ATO will continue to administer the tax concessions for NFPs, the ACNC will be responsible for determining the eligibility for those concessions from the time of its commencement on 1 July 2012.