11 August 2011
Manager
Philanthropy and Exemptions Unit
Personal and Retirement Income Division
The Treasury
Langton Crescent
PARKES ACT 2600

Dear Sir/Madam
Submission on the Tax Laws Amendment (2011 Miscellaneous Measures) Bill (No. 1) 2011:  ‘In Australia’ Special Conditions for Tax Concession Entities
This submission is made on behalf of SIM Australia.  SIM Australia is a charitable institution under Item 1.1 of Subdivision 50-5 of the Income Tax Assessment Act 1997 (ITAA 1997).  We are part of a wider mission agency, SIM International, established in 1893, which has over 2000 staff working in 40 countries throughout the developing world.  Although we hold income tax exemption we are not endorsed as a deductible gift recipient.  We are a member of Missions Interlink and currently fall within the prescribed entity exception of Section 23AG of the ITAA 1997.  

We currently operate in partnership on over 100 projects, which seek to promote both spiritual and physical aid is delivered to people in Africa, Asia and South America, giving evidence to the compassion, interest and care that Australians have for our global community.  

SIM Australia’s holistic projects seek to honour our responsibility as Australians to help rebuild communities and countries, fostering independence and stability through training and leadership development. The activities that SIM Australia undertakes overseas would not satisfy the ‘in Australia’ requirements of the proposed legislation.

All projects supported are supervised and managed by project managers to provide regular reports and ensure projects meet specific plans and KPIs.  

Whilst we understand that the proposed amendments to legislation are designed to prevent tax avoidance arrangements and improper use of funds, we believe there are better and less complicated methods of achieving these objectives.  Our concerns are listed below.
Concerns
1.	Under our Constitution, SIM Australia is a not-for-profit entity and aims to use all the income raised in the course of our religious and humanitarian activities. Any surplus in one year would be expected to be spent in the following years. It follows that any tax payable would be minimal compared to the additional amount of administrative effort that would be placed on both our organization, and the Australian Taxation Office, in implementation and compliance. The additional administrative costs for SIM Australia would not be met from “profits” but from a reduction in the services that we provide. The additional administrative costs of the Australian Taxation Office would need to be met from Government revenue.
There are a number of activities that SIM Australia undertakes where the Income Tax legislation is unclear and would need to be considered and clarified. For example, overseas capital works projects to build a hospital may appear at first to not be an allowable deduction. However, where ownership of the building passes to a foreign Government or foreign organisation, tax deductibility would need to be considered. Another example where tax deductibility questions arise is where donations from Australian donors are pooled with donations from other related charities to undertake charitable activities overseas. The different methods used to pool funds may impact whether the expenditure is tax deductible. Where SIM Australia’s expenditure is not considered tax deductible, it would be necessary for us to reduce our charitable activities by the combined cost of any Income Tax payable plus the additional Income Tax compliance costs.
2	Loss of Income Tax exempt status for any donor organisation
	It is noted that if SIM Australia loses its income tax exempt status, then under the Exposure Draft, any other tax-exempt organisations that makes a donation to us will lose their own tax exempt status. SIM Australia has received donations from over 3000 tax exempt organisations. Our concerns are twofold. Firstly, many of these donor organisations are administered by people who will not be aware of changes to the legislation and there is likely to be a large amount of non compliance due to lack of knowledge. The Government would then face a significant cost in education and compliance audit activities. The second concern is that when donor organisations realise that a donation to SIM Australia would result in a loss of their own income tax exempt status, donations to SIM Australia are likely to reduce significantly. A significant reduction in donations would necessarily result in a significant reduction in our charitable activities.
Recommendation
That the proposed tax law amendment be withdrawn.  
Alternatively, that the new law contains exemptions for all prescribed institutions listed in the current regulations.  Also, that a minimum threshold for donations to entities without income tax exempt status should be introduced in the legislation. 

On behalf of SIM Australia 

Mark Mann
Financial Director