Australia’s Largest Christian News Site

Religious leaders are urging Labor to exempt faith-based charities from its new 30 per cent discretionary trust tax, warning the reform could severely cut philanthropic funding for vulnerable Australians.

Religious leaders across the country are pressuring Anthony Albanese and Jim Chalmers to ensure that trusts giving donations to faith-based groups will be exempt from Labor’s tax overhaul, and not just those giving money to secular charities.

More than a dozen religious leaders, from Catholic Archbishop Anthony Fisher to Australian National Imams Council’s president Shadi Alsuleiman, have raised concerns that the government’s trusts tax plans will hurt the work that religious charities do throughout the community, helping the most vulnerable.

Billions in Charitable Giving at Risk

Under current rules, charities receive an estimated $2.9bn from pre-tax distributions out of discretionary trusts, but under the proposed new laws, those trusts will be hit with a minimum 30 per cent tax, likely drying up ­philanthropy to charities and not-for-profits.

In a submission to Treasury and the Treasurer, the religious leaders say they could be deliberately left out because of a recommendation from the Product­ivity Commission in its 2024 report on philanthropy.

The commission’s recommended changes that would save human rights groups, and charities focused on advocacy and public interest journalism, but left community and sporting groups, educational bodies and religious groups out. Various submitters to Treasury consultation process on proposed trust taxation have called upon the government to adopt the PC recommendation that expands the categories of charities that can claim the status of deductible gift recipients.

If charities and not-for-profits receive DGR status, they would likely retain the same net tax status of discretionary trusts, preserving current levels of philanthropy.

Three Ways to Fix the Gap

The key request from the religious leaders is “to not only implement the reform proposed by the Productivity Commission but to expand DGR to certain charities to include gifts made by discretionary trusts and companies (not private individuals) to all non-DGR charities (not just those recommended by the PC) and self-assessing NFPs,” the statement said.

The tax on family discretionary trusts is forecast to reap $4.5bn over the next five years for federal government. However, the budget papers do not identify what impact the measure will have on philanthropic giving to charities and income tax-exempt not-for-profits (NFPs), the religious leaders said in their submission.

“The budget papers do not identify the burden the reform will place on governments and society, who will be called upon to fill the service gap left by the withdrawal of the charity and NFP sectors.

“We submit that the government should adopt one of the options proposed to ensure that philanthropic giving through discretionary trusts is not ­adversely affected by the ­proposed taxation changes, so that charitable institutions are able to continue to provide support to vulnerable Australians in need.”

Among three options posed, the first is to allow distributions made by discretionary trusts to charities and income tax-­exempt NFP entities to be excluded from the proposed 30 per cent tax on trust income.

“For those businesses operated through discretionary trusts that do rollover to companies, grant a further ability to claim a refundable tax offset to those charities and NFPs that receive distributions from a discretionary trust that becomes a shareholder in the company.”

The second option is not only to implement the reform proposed by the commission, but to expand DGR to certain charities. A third option involves a permitting discretionary trust to convert into a hybrid trust ­structure.

Charity law specialist Mark Fowler said the changes should not disadvantage religious groups or add to compliance.

“Legislating this reform in a way that preserves current levels of Australian philanthropy while also avoiding additional red-tape burden for charities will prove a very difficult needle to thread,” Mr Fowler said.

“While the available evidence concerning religious giving is to a degree anecdotal, it suggests that, in terms of its overall impact on philanthropy to religious ­institutions, this could well prove to be the most significant tax reform affecting those institutions since Federation.”

___

Republished with thanks to the Australian Prayer Network.