The State Government of Western Australia is seeking to restrict the availability of an exemption for state taxes for organisations established and carried on for the promotion of trade, industry or commerce.
In this Alert, Special Counsel Justin Byrne and Senior Associate Rosalie Cattermole discuss how the State Government has sought to restrict the availability of exemptions for state taxes in response to the 2012 decision of the WA State Administrative Tribunal in Chamber of Commerce and Industry of Western Australia Inc v Commissioner of State Revenue [2012] WASAT 146. In that case, the Tribunal held in favour of the taxpayer and determined that the Chamber of Commerce and Industry of Western Australia (CCI) was carried on mainly for a purpose beneficial to the community under the so-called 'fourth limb' of charitable purposes. Interestingly, the CCI is currently a registered charity for Commonwealth purposes for other purposes beneficial to the general public under the Charities Act 2013 (Cth).
Key points:
- The availability of an exemption for pay-roll tax, land tax and stamp duty in Western Australia will be further restricted for certain charitable organisations.
- Currently exempt organisations may no longer be eligible for state tax exemptions.
- Affected organisations may be eligible to apply to the Minister for the reinstatement of their exempt status.
The Commissioner of State Revenue (Commissioner) had rejected CCI's application for exemption liability to pay-roll tax on the basis that it was a "charitable body or organisation" within the meaning of section 41 of the Pay-roll Tax Assessment Act 2002 (WA) (Pay-roll Tax Act). The Commissioner argued that the main (or at least equally important) purpose for which CCI carried on its operations was to provide services to its members rather than any purpose which was directed to the benefit of the public generally.
Under a Bill currently before the Legislative Council in Western Australia, organisations established and carried on for the promotion of trade, industry or commerce would only be entitled to an exemption for stamp duty, land tax and payroll tax if the sole or dominant purpose of the organisation is the relief of poverty, the advancement of education or the advancement of religion.
Importantly, with one exception, the Bill provides that a "professional body" having as one of its objects and activities the promotion of the interests of its members in any profession (which would be the case for most professional bodies) will not be eligible to apply for an exemption. This is because it will be characterised as a "relevant body". A professional body can however apply for an exemption for state taxes if the Minister and Treasurer determine that the organisation is a "beneficial body" for the purposes of the relevant state tax legislation.
How will the proposed changes affect your organisation?
If the Bill is passed in its current form, it will operate prospectively from the date of Royal Assent.
An organisation that is currently exempt may receive a notice from the Commissioner advising that the Commissioner has formed a preliminary view that it is a "relevant body" and as such the organisation's exemption may be revoked. The Commissioner must then decide whether to revoke the organisation's exemption.
Organisations that may be impacted by the proposed changes under the Bill should immediately review their governing documents, whether in the form of rules, a constitution or trust deed to ensure that they accurately reflect the organisation's objects and purposes.
For example, an organisation that promotes trade, industry or commerce may well have as its dominant purpose the advancement of education. If this is the case, the organisation should ensure that this is reflected in the written documentation for the body and not simply generally understood to be the case by group members and the broader community.
If your organisation is firmly within the scope of the proposed tightening of the exemption for charities, then it should consider making an application to the Minister for a "beneficial body determination". Importantly, such an application will only be possible in limited circumstances and once the taxpayer has exhausted its other options.
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