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The upper house of the WA Parliament passed a Bill on 3 December that will reduce State government support by way of stamp duty, pay-roll tax and land tax concessions for a range of charities operating in WA.

It is expected that the lower house of Parliament will agree to the Bill when it sits again in February.  The Taxation Legislation Amendment Bill 2014 (WA) was motivated by the 2012 decision that the Chamber of Commerce and Industry (WA) is a charity and hence entitled to pay-roll tax concessions.  However, the measures in the Bill are likely to impact on a wider range of charities than Chambers of Commerce and Industry.

For instance, they will affect some charities that focus on helping some of the most disadvantaged members of the Western Australian community.  Charities that have a purpose of promoting economic development to address Indigenous or regional disadvantage, provide examples.  Many charitable agricultural cooperatives will also be affected.

The need for legislation to address the CCI(WA) decision is clear, as it had a significant budgetary impact, with the government estimating a bill of around $56 million in refunds to the CCI(WA) and several other organisations with the purpose of promoting trade, industry or commerce, plus an on-going annual cost of approximately $11million.  However, the Legislative Council Legislation Committee recently conducted an inquiry into the Bill, the Report for which highlights the potential scope for unintended consequences.

As identified in the Report, the Bill takes the approach of excluding a number of classes of charities from State tax concessions by way of identifying them as ‘relevant bodies', with the possibility of applying for re-inclusion by means of a ‘beneficial body' determination by the Finance Minister.

Assistant Professor Ian Murray of the University of Western Australia Law School appeared as an expert witness before the Committee.  As discussed in Assistant Professor Murray's submissions and oral evidence to the Committee , there are real risks that the exclusion provisions set the net too wide so that significant numbers of charities may be excluded and would then have to reapply.

For instance, Indigenous charities that are intended to address the disadvantages faced by Indigenous people in a particular area by way of economic development and support for social and cultural conditions.  There are many such charities in WA, especially in the context of receiving and managing native title payments from mining.  In addition, there are a range of Regional Development charities that focus on development in various rural and regional areas of WA, which would also likely be affected.

The cost of land ownership and the cost of employment may not be increased for such charities that are also public benevolent institutions (PBIs), since there are separate pay-roll tax and land tax concessions that might be accessed.  However, not all such organisations are PBIs as many have charitable purposes that are too broad.  Further, there is no PBI exemption from stamp duty on property transfers, which would mean that even if such organisations are PBIs, they may have an added stamp duty impost when purchasing land, for instance for office space or for training facilities.

Applying for a beneficial body determination from the Finance Minister would relieve the stamp duty cost, but would still involve time, expense and uncertainty for organisations that can ill afford this.

Further, charities that are linked, using fairly broad tests, to ‘relevant bodies' would be excluded.  This means that charities operating in groups, such as many groups of social welfare organisations, may be at risk.  All the members of a charitable group (Anglicare and the Salvation Army are but some examples) may be affected if one member of the group is a relevant body - for instance, given a blurring in the legislation between purposes and activities, potentially a counselling organisation or community housing provider.

Fortunately, the Bill incorporates a number of changes recommended by the Committee, which address additional unintended consequences.  For instance, there was initially a risk that charities with a mix of purposes for the relief of poverty, advancement of education or advancement of religion, might be excluded.  This might have affected charities such as health promotion charities (dual education and health purposes) if they also had a purpose of commercialising their research.

Concerns about the linking provisions have also been partially resolved by enabling the Commissioner of State Revenue to de-link the trustee of a charitable trust from ‘relevant body' discretionary objects.  However, the amendments do not address the concerns raised above for Indigenous and regional development charities and for charitable groups.

Affected charities have one last chance to contact their local members of Parliament before February 2015 and to review the likely impact of the Bill.