Charities and philanthropic organisations could be caught up in the federal government’s plan to set a minimum 30 percent tax on capital gains and discretionary trusts, the Senate Economics Legislation Committee has heard.
Attended by senators and representatives from the Australian Tax Office (ATO) and Department of Treasury, the June 16 hearing fielded numerous questions over whether sufficient planning had gone into the government’s tax reforms.
But one of the most pressing queries centred on the impact that changes to capital gains tax could have on charitable giving.
Handed down in May’s federal budget, the government announced it would replace the current 50 percent discount on profits earned, to a flat 30 percent tax and inflation-linked system that covers the entire profit.
The move is aimed at deterring property investors from investing in existing homes—a move intended to free up housing and boost supply in the form of new builds.
But there are now concerns charitable groups could get caught in the firing line.
Under the current system, some investors who realise a large capital gain can use the 50 percent capital gains tax discount while also donating to a deductible gift recipient to lower their tax obligations.
Donations generally go to a charity, school, medical research organisation, or religious institution.
Critics of the reforms say the new rules impose a minimum tax obligation even after the proceeds are donated, effectively disincentivising potential donors.
Liberal Senator Paul Scarr quizzed Treasury Assistant Secretary Robb Preston on how much consultation had been held with the charity sector.
“We have engaged with a number of charitable organisations,” Preston said.
But when asked to produce names of those he'd spoken to, the government official said he would need to follow up with that information.
“I’m sure you'd be able to recall some Mr. Preston, if not all,” Scarr pressed.
Preston replied: “I’m not very good at remembering names, apologies senator.”
Scarr asked if the government had consulted Philanthropy Australia, to which Preston said it had.
But when Scarr quizzed Preston further on the details, he said he needed to take the question on notice and provide the answers later.
“Mr. Preston you can not take a question on notice that you know the answer to,” the senator told him. “I do not want to have to wait for these answers ...”
Preston said he needed to respond on notice due to his own memory and the fact it may have been Treasury colleagues who spoke with some of the charities.
“Has the consultation around the consequences for charitable giving conclude or is still ongoing?” Scarr asked.
Preston answered that the government was continuing to meet with people in the sector.
“I would say it’s ongoing,” he said.
Charity Concerns
In a statement issued in the wake of the government’s May budget, not-for-profit Philanthropy Australia said it had written to Treasurer Jim Chalmers to explain the possible unintended consequences of the legislation.“Charities are already managing a surge in demand driven by cost‑of‑living pressures, housing stress and entrenched wealth inequality,” CEO Maree Sidey said.
“If recent and proposed changes make giving less attractive—even indirectly—we risk constraining that generosity at the moment when it is most needed.”
Sidey pointed to Australia’s poor record of giving, saying charity was weaker than it should be for a nation with wealth.
“Tax settings are not the sole driver of their decisions, but they are part of the equation,” she said.
“If that equation becomes less favourable or more uncertain, some giving will simply not occur.”
The minister said the country was on the verge of one of the biggest intergenerational wealth transfers in its history, with an estimated $5.4 trillion (US$3.8 trillion) expected to change hands over the next 20 years.
“A very large river of wealth is flowing across generations. Only a thin stream reaches the community sector,” Leigh said.
