Additional Comments by Senator Xenophon
Introduction
1.1
There have been numerous inquiries into the not-for-profit sector over
the past decade, all consistently calling for reform of regulation of the
not-for-profit sector in order to ensure greater transparency and
accountability.
1.2
This Senate inquiry was a beneficial and successful opportunity to
continue this discussion and heard from a range of experts, charities and
religions and members of the public through the submissions and public hearings
process.
1.3
The Committee's recommendations for the establishment of a single
independent national commission for not‑for-profit organisations, similar
to the Charity Commission for England and Wales; and for the Government to inquire
into the operation of MILVILUDES in France to learn how it monitors the
activities of cults, with a view to establish a similar agency in Australia,
should both be initiated as soon as possible.
The need for reform
1.4
Not-for-profit organisations, including charities and religions, are
currently afforded tax exempt status due to the presumption that they provide
the community with services and assistance that is of benefit. Subsequently, these
entities are not required to lodge income tax returns unless otherwise
specified.
1.5
According to the Mr Michael Hardy, Assistant Commissioner of Taxation
with the Australian Tax Office,
"There are about 55,000 organisations that have some
sort of charitable tax concession endorsement. We receive around 6,000
applications per year, which are reviewed."
1.6
Of those, however, Mr Hardy acknowledged that, given resource
limitations, not all of these applications are closely scrutinised.
"There is certainly a fast tracked assessment process.
Realistically, with the staff available and to work through the number of
applications per year, perhaps in the order of 70 percent of applications work
through the risk assessment as being relatively fast processed through the
system. Some of those are tagged for subsequent, after-the-event review. The
remaining ones would be subject to more careful scrutiny upon
application."[1]
1.7
Perhaps more concerning, however, is that charities and religions are also
able to self-assess their income tax status and may therefore be income tax
exempt and operate completely unknown to the Tax Office.
Mr Hardy—If they make that self-assessment, which also
then allows for them to be exempt from income tax, they would not make
themselves known to the tax office. They would not be required to make
themselves known to the tax office. If the nature of their activities in
relation to goods and services tax, for example, were below the thresholds for
registration, they would not be registered for goods and services tax purposes.
If they did not have employees or they did not have any fringe benefits tax
arrangements in relation to employees, they would have no requirement to engage
with the tax office in the fringe benefits tax space, and so they may in fact
be technically invisible to the tax office in any formal sense.
ACTING CHAIR—That in a way answers the question which
I was going to ask, and that is: since groups can self-assess as a religion,
what quantum, what number, of religions would you say are out there whereby,
unless they become visible to you from some of their activity, you would not
know they existed as such? For a group to claim tax exemption there must be a
point where they put in a tax return or an exemption is claimed, and therefore
it must be possible to make some sort of assessment of the numbers.
Mr Hardy—The only tax concession that could be
accessed without an approach to the tax office by a religious organisation
would be to self-assess that they were a religious organisation, which makes
them exempt from income tax. The practical consequence of that is that they do
not have to lodge an income tax return. If they have no reason to have a
dealing with the tax office in any other capacity then they have no dealing
with the tax office.
ACTING CHAIR—Do they have to advise you of their
self-assessment?
Mr Hardy—No. Self-assessment is that. They
self-assess.
ACTING CHAIR—In other words, they are left alone. They
have self-assessed and you do not have any reason to monitor them whatsoever.
Mr Hardy—No. The legislation does not provide for
that. They are potentially invisible to us as a taxation entity or an entity
that has an interaction with the tax system.
Senator XENOPHON—Mr Hardy, further to Senator
Eggleston’s line of questioning, that means that once an organisation has a tax
free status as a religion, for instance, and they self-assess, there is no
scope to look into the books of that organisation?
Mr Hardy—There could be for an organisation, and not
just in the charity sphere, because the tax system is premised along
self-assessment. If the tax office became aware of an organisation that was
self-assessing as a religious organisation and we had reason to believe that
they may have made an incorrect assessment, we certainly do have powers of
inquiry to make contact with them and to gather information. We might be able
to advise them that they were incorrect in their assessment and that perhaps
they were not a religious organisation, in which case they may be part of the
tax system in some other fashion.
Senator XENOPHON—But if they are classified as a
religious organisation, they are invisible—you used the word ‘invisible’
earlier—for the purpose of being subject to pay tax; therefore, you cannot
look. Once they have got the status of religion you cannot really look behind
that.
Mr Hardy—Once they are a religious organisation and they
self assess, they are exempt from income tax and therefore have no obligation
to lodge an income tax return.[2]
1.8
There is a clear need, therefore, for greater scrutiny and
accountability of organisations which receive income tax exemption.
1.9
The establishment of a national independent commission for not‑for-profit
organisations as recommended by the Committee will address this issue, as well
as broader concerns facing the sector.
The need for a Public Benefit Test
1.10
The Senate inquiry heard from a number of former members of the Church
of Scientology, an organisation which is provided with charitable status in
Australia and is thereby income tax exempt.
1.11
These individuals recounted their experiences while they were members of
the organisation, and explained why, based on their experiences, they do not
believe the organisation should be tax exempt.
Some examples of the evidence
provided include:
Mr Anderson—One should be able to clearly identify
groups who do good works, because they see the results. If one cannot see those
results, that particular group should be deemed to be highly suspect and should
be treated as such. I guarantee if you asked the same taxpayer what good works
Scientology do and what they are known for, they would actually struggle to
give you an answer. I know I do. That was one of the things I found very
difficult to reconcile in my association with Scientology over 25 years. I in
fact found them to be quite self-serving and not really directed at the
external environment.[3]
Mrs Underwood—... as a former Scientologist I
believe that the Church of Scientology is a prime example of why this tax
amendment is required. As I outlined in detail in the attachment to my
submission, the Church of Scientology is a tax-exempt organisation which, one,
enjoys tax-exempt status while it only serves itself at the detriment of
others. It does not even serve its members. Its members actually serve it. Two,
it is fraudulent. It deceives and heavily coerces its people in order to obtain
so-called donations. It often does not deliver what is promised, and in some
cases it uses those funds for purposes other than what is stated. This is fraud
and it is a crime. Three, it is an organisation which threatens its people with
‘pay up or else’. This is extortion.[4]
Ms Vonthehoff—The experiences include bullying
and harassment; two coerced abortions; Scientology justice procedures,
including court hearings resulting in removal of freedoms; forced financial
donations; severe financial stress; working a minimum of 40 hours and up to 70
hours a week for no pay; removal of my Australian passport while studying for
Scientology in the US, so I was unable to leave; working under duress all night
on many occasions while my young children were forced to stay at the office and
sleep on the lounge; threats of loss of my family if I tried to leave;
psychological abuse; being forced to sign a suicide waiver, freeing Scientology
of all responsibility if I caused myself any harm, when I made it clear how
much I wanted to leave; and interrogation regarding my personal life and sex
life.[5]
1.12
The Committee's recommendation that a Public Benefit Test, such as the
one proposed in the Tax Laws Amendment (Public Benefit Test) Bill 2010,
will therefore ensure that an organisation's aims and activities are for the
'public good' and is weighed against any harm caused, such as the test in
effect in the United Kingdom.
1.13
Furthermore, the recommendation that the Government provide a report
into the operation of France's MILVILUDES agency (which monitors the operation of cult-like organisations), and similar
international bodies, with a view to establishing a similar agency in Australia,
will ensure that cult-like activities are closely monitored and appropriate
laws are introduced to combat these groups who use psychological pressure and
breaches of general and industrial law to maintain control over individuals.
Conclusion
1.14
The Committee's recommendations go further than the scope of the Tax
Laws Amendment (Public Benefit Test) Bill 2010, by recommending a Charities
Commission using a Public Benefit Test to provide appropriate and fair scrutiny
of not-for-profit organisations and, with this, much greater protection for
individuals.
1.15
Given some of the horrific stories heard within the Inquiry, it is
important that any legislation to establish a Charities Commission and/or a
MILVILUDES equivalent in Australia be introduced as soon as possible and by no
later than 30 June 2011.
Nick Xenophon
Independent Senator for South Australia
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