There’s nothing charitable about these tax dodges THE AUSTRALIAN OCTOBER 07, 2014 12:00AM Judith Sloan Contributing Economics Editor AS the saying goes, people in glasshouses shouldn’t throw stones. So when the Tax Justice Network puts out an error-riddled and highly misleading report about the amount of company tax that isn’t being paid in Australia but should be paid, it’s only appropriate to redirect the torchlight on to the members of the TJN. And who are the members of the TJN? They are a motley crew of various rent-seekers who — wait for it — don’t pay tax, even though some of them undertake substantial commercial activities. They include: Action Aid Australia; the ACTU; Australian Education Union; Baptist World Aid; Caritas Australia; Friends of the Earth; Greenpeace; Oxfam Australia; Save the Children; Social Justice Around the Bay (no, I’m not making this up); Social Policy Connections; Synod, United Church; United Voice; Victoria Trades Hall Council; and World Vision Australia. The trade union United Voice funded the “study”, pretentiously entitled Who Pays for our Common Wealth: Tax Practices of the ASX 200. Of course, these non-taxpayers will quickly point to all the social good they do — which is a matter of opinion — and say it is only appropriate that they do not pay tax. They also receive exemptions for GST and franking credits on their investments, generally pay no land tax, are exempt from capital gains tax and are subsidised by virtue of their deductible gift or tax status. What sort of mean-spirited person, they imply, would count the cost of the tax forgone from this pool of privileges, courtesy of the taxpayer? But there is one form of tax evasion that surely even this group of do-gooders must condemn: the exemption from fringe benefits tax for certain not-for-profit organisations. These include: charities promoting the prevention or control of disease in human beings; public and NFP hospitals; public ambulance services; and religious institutions (certain employees). There is also a FBT rebate for certain NFP, non-government bodies including religious institutions, trade unions and NFP scientific institutions. In case you think this is small beer, the latest tax expenditures statement released by the Treasury estimates the FBT exemption for public and NFP hospitals will cost $1.5 billion this financial year, rising to $1.7bn in 2016-17. And for other public benevolent institutions, the current tax forgone is $1.45bn and $1.63bn in 2016-17. If those figures don’t take your breath away, there is the totally egregious uncapped exemption from FBT for meal entertainment and entertainment facility leasing expenses. The current cost to the taxpayer is $530m, rising to $605m in 2016-17. Adding up these figures, we reach a staggering $3.5bn in FBT tax concessions. Hey, that’s nearly half the annual sum that the TJN claims is not being paid by Australia’s largest 200 companies. (Add in the $1.3bn in deductions claimed by donors for gifts to charities and other NFPs, and the total really looks like serious money.) Another disturbing aspect of the FBT exemptions “rort” is that revenue forgone has been growing at an alarming rate. In the eight years to 2016-17, the total forgone tax will have risen by 50 per cent and nearly doubled in respect of the entertainment FBT exemption. But where is the TJN when you need it? After all, the members claim to “support progressive and equitable taxation, as well as tax compliance and a culture of responsibility”. What is equitable about managers of charities paying much less tax than other workers earning the same salaries in other parts of the economy, or doctors working at several hospitals claiming the FBT exemption several times over, as well as the taxpayer picking up the tab for their daughters’ wedding? There have been numerous calls for the FBT exemption dodge to be shut down. In 2006, the Productivity Commission said “the current system of NFP tax concessions is complex, inefficient and inequitable. There is scope to streamline NFP tax concessions.” In 2010, the Henry tax review advised the concessions be unwound across 10 years by reducing the caps each year. In 2012, the NFP Sector Tax Concessions Working Group recommended an alternative funding arrangement to replace the FBT concessions. It also was suggested that the uncapped entertainment exemption and the eligibility for multiple caps be discontinued immediately. But in all that time there have been no changes to these rules. The tax-minimising salary packaging in the NFP sector is something to behold, yet successive governments have done nothing about the fudging and fiddling. (Whenever I write on this topic, I am inundated by emails from accountants with horror stories.) The tax revenue forgone is likely to escalate as many organisations that will provide services under the National Disability Insurance Scheme will have FBT-exempt status. The NFP sector cannot work out a group position on this issue. The Australian Council of Social Service fights the good fight to close down the FBT exemptions, but many churches, public and NFP hospitals, charities and environmental groups stubbornly resist any change. So here’s my advice, provided without charge and therefore incurring no FBT. Joe, take a good look at this space as a source of additional tax revenue. There is low-hanging fruit, particularly with the entertainment exemption and the multiple caps. And for the TJN, this would be good topic for your next shock-and-awe project. Tell the public just how much tax revenue is lost as a result of these special tax arrangements that apply only to not-for-profit bodies, including the trade unions. Hopefully, this time, the analysis will be rigorous and accurate.
Posted on: Mon, 06 Oct 2014 22:18:51 +0000
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