New ruling on tax exemption for charities

A Federal Court decision could mean that charitable organisations could engage in large-scale commercial activities and keep their income tax exemption if the profits are used for a charitable cause.

In what some commentators are describing as a landmark decision, the Federal Court has upheld a decision allowing charities to run commercial enterprises and maintain their income tax exemption.
 
In the case between the ATO and a Christian organisation called Word, the court ruled that charities could engage in large-scale commercial activity so long as the profits are used for a charitable purpose.
 
Although the case did not refer directly to aged care, it could have significant implications for charitable care providers.
 
“It means a lot of these charities can now be a bit more innovative, entrepreneurial, and more business-like in the activities they carry out,” said Andrew Caspar, a Senior Counsel with law firm Russell Kennedy.
 
“Conceivably, a charitable organisation could set up a separate subsidiary to run a trading business, as long as the profits are put back towards the charitable purpose and not paid out in the form of dividends to other shareholders or people looking to make a profit,” said Mr Caspar.
 
“The decision emphasised that it’s not so much about the activities that you carry out but the motivations and how the profits are used.”
 
The ATO has until 12 December to decide whether it will appeal the decision in the High Court.

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