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  • Straight from the source – September 2022

    Providing advice and guidance that not-for-profits (NFPs) can understand is important and we take our role in this seriously. We work closely with the sector to tailor our advice so NFPs are aware of their rights and entitlements and can meet their obligations.

    This month, I’m very excited because we're about to release 2 significant pieces of public advice and guidance for the NFP sector: the final games and sports exemption ruling which was published in draft as TR 2021/D6, and a new practical compliance guideline (PCG) for residential colleges that will be published as a draft for public consultation.

    Both products have been developed collaboratively with the sector and we’re confident they will make it easier for NFPs to understand and apply the law in practice.

    So let me take you behind the scenes for a moment.

    The games and sports exemption for income tax

    In 2019, we began a review and refresh of Taxation Ruling TR 97/22 Income tax: exempt sporting clubs because questions were raised about whether the decision in Word Investments Limited [2008] HCA 55 (Word Investments) had changed the legal tests for determining whether a club is established for the main purpose of encouraging a game or sport.

    In Word Investments, the High Court found that an organisation that undertook fundraising activities and provided those funds to other organisations that conducted charitable works was itself established for a solely charitable purpose.

    We called for interested members of the NFP Stewardship Group to form a working group for the review and refresh and it was agreed the impact of Word Investments on the games and sports exemption should be taken to a public advice and guidance panel to seek advice. The panel considered alternative views on the games and sports exemption and ultimately concluded that Word Investments doesn't change the legal tests for determining the main purpose of a club.

    The working group met several times with the ATO authoring team. We reviewed every paragraph and example in the ruling to ensure the rewrite reflected the ATO’s new approach to delivering public advice. Our objective was to make it easier for users to understand and apply the law in practice. Unfortunately, the pandemic prevented further work on the ruling during 2020, and it was put on hold until 2021.

    We published Draft Taxation Ruling TR 2021/D6 Income tax: the games and sports exemption in 2021. TR 2021/D6 maintained the Commissioner’s view expressed in TR 97/22 and clarified the impact of Word Investments on the games and sports exemption. We've considered the feedback received during the public consultation period for TR 2021/D6 and expect to publish the final ruling shortly.

    Creating a practical compliance guideline for residential colleges

    In mid-2021, the ATO made a commitment to work with residential colleges and industry representatives to develop support and guidance that colleges could use to determine the GST status of their supplies.

    A working group was established and, applying a systems-led design approach, members identified 38 ideas that were then synthesised and prioritised by the group. When clustered, it became evident a viable solution would be satisfied by:

    • providing access to the current ATO Charity Benchmark market values, and
    • developing a practical compliance guideline (PCG).

    We also considered potential legislative change options that could systemically address the practical difficulties faced by residential colleges in applying the GST law. However, no options were identified during the consultations. Further exploration by our Tax Counsel Network and technical GST members also concluded there were no practicable legislative solutions.

    The working group collaborated with the ATO authoring team to create a PCG which will be published soon for public consultation. While a PCG is a new product for many, it provides broad law administration guidance, addresses the practical implications of tax laws and outlines our administrative approach.

    Unlike our rulings, a PCG is not binding on the Commissioner; however, if followed in good faith, it provides protection from interest and penalties should you be exposed to a tax shortfall.

    Working together

    Working collaboratively is fundamental to our role. We work with many stakeholders including the not-for-profit sector, intermediaries, advisers, other government agencies and our staff. I’ve been privileged to lead both the above working groups which were diverse in composition and objectives.

    In both instances, however, we never lost sight of our deliverables. I know there will be many proud sentiments shared by working group members. I would like to thank you and my ATO colleagues for your contributions and passion in helping us make advice and guidance easier to understand.

    I look forward to hearing from you.


    Last modified: 06 Sep 2022QC 70332