The Commissioner of State Revenue is aware that charitable organisations may conduct certain activities of a commercial nature that are directly related to the charitable purposes of the organisation. These activities are regarded as ‘directly related commercial activities and wages paid in respect of such activities are exempt wages for the purposes of s48 of the Payroll Tax Act 2007.
By contrast, wages paid to persons engaged in ‘unrelated commercial activities’ which are intrinsically non-charitable are not exempt wages regardless of whether the proceeds from those activities are applied to further the charitable purposes of the organisation.
Examples of ‘directly related commercial activities’
The following examples are illustrative of the types of activities that are considered to be directly related commercial activities for the purposes of s48 of the Payroll Tax Act 2007.
Example 1
A charitable organisation which has purposes to assist disabled persons conducts a sheltered workshop or social enterprise
Such activities are conducted primarily to provide gainful employment for people with disabilities. The operation of a sheltered workshop is regarded as intrinsically charitable because it is conducted with the primary purpose of providing relief and assistance to disadvantaged persons in the community. Therefore, wages paid by the charitable organisation to persons engaged in the operation of the sheltered workshop are regarded as wages paid to persons engaged exclusively in work of a charitable nature of the organisation.
Example 2
A charitable organisation which has purposes to advance its religious faith operates a store which sells religious books and publications
The sale of religious material is regarded as intrinsically charitable because it is conducted with the primary purpose of advancing its religious faith. Therefore wages paid by the charitable organisation to persons engaged in the operation of the religious bookstore are regarded as wages paid to persons engaged exclusively in work of a charitable nature of the organisation.
Example 3
A charitable organisation which has purposes for the relief of poverty and destitution provides a range of services such as accommodation and support services, soup vans and food vouchers, emergency relief services, and counselling services
It also conducts an opportunity shop with the aim to relieve poverty and to preserve some semblance of dignity for its shoppers (i.e. the operation of the opportunity shop is conducted primarily for the purposes of relieving poverty by providing clothing and goods at nominal prices). Where the operation of the opportunity shop meets the following criteria, the charitable organisation will not be regarded as carrying on an unrelated commercial activity:
- the activities conducted in the opportunity shop specifically meet the aims and objectives of the organisation’s charitable work (the opportunity shop must, through its operations, directly provide relief of poverty for its shoppers, as distinct from merely raising funds)
- the goods are sold at nominal prices
- the goods sold in the opportunity shop are predominantly donated to the charitable organisation
- the goods sold in the opportunity shop are predominantly second-hand.
In such circumstances, the wages paid by the charitable organisation to persons engaged in the operation of the opportunity shop are regarded as wages paid to persons engaged exclusively in work of a charitable nature of the organisation.
Examples of ‘unrelated commercial activities’
The following examples are illustrative of the types of activities that are unrelated commercial activities for the purposes of s48 of the Payroll Tax Act.
Example 4
A charitable organisation which is established to provide direct relief of helplessness, poverty or destitution provides a range of services including residential and support services for persons in need, support, and counselling to people in crisis including homelessness services, youth services and accommodation
It also operates 2 commercial printing businesses and has a small tele-marketing division which sells merchandise goods (i.e. small gifts, home and garden items and books and stationery). The proceeds of these enterprises are applied to further its services to help those in need. Although the organisation is a charitable organisation, the persons engaged in its printing and tele-marketing businesses are not engaged exclusively in work of a charitable nature. Therefore the wages paid to the persons working in these businesses are not considered to be exempt.
Example 5
A charitable organisation which has purposes to advance its religious faith also operates a commercial catering business and the proceeds of this enterprise are applied to further its services in advancing its religious faith
As the persons engaged in the commercial catering business are not engaged exclusively in work of a charitable nature, the wages paid to those persons are not considered to be exempt.
The Commissioner’s view of the term ‘exclusively’ in s48
Section 48 of the Payroll Tax Act 2007 exempts wages paid to a person engaged exclusively in the charitable work of the charitable organisation. The Commissioner is aware that uncertainty may arise where an organisation, which is charitable in the legal sense, may conduct both charitable work (including commercial activities directly related to its charitable purposes) and unrelated commercial activities. Some of its employees may be engaged in both the charitable work and the unrelated commercial activities. Strictly speaking, the wages paid to these employees would not be exempt because the wages are not paid to persons engaged exclusively in the charitable work.
However, the Commissioner will regard that wages are paid to persons engaged exclusively in the charitable work of the charitable organisation where the duties and responsibilities of that person are directed predominantly towards the charitable work.
An example of how s48 would apply in such circumstances is provided below.
Example 6
The Helpers Foundation is a charitable body whose primary purpose is to provide short-term accommodation and meals to the needy
To generate additional funds, the organisation runs a plant nursery and employs staff to work in that business. Profits from the plant nursery business are used to fund its charitable activities. The plant nursery is a commercial activity that is unrelated to its charitable objects and therefore the wages paid to persons engaged in that activity would not be exempt.
The Helpers Foundation employs a total of 90 persons engaged in the following capacities:
- 60 persons engaged directly in the provision of charitable services to the needy
- 2 managers providing management services in respect of the charitable services
- 5 administration and support services staff providing services for charitable activities only
- 2 administration and support services staff providing services for both the charitable activities and the plant nursery activities
- one administration and support services staff providing services for the plant nursery business only
- 18 persons engaged in the operation of the plant nursery business
- one Financial Controller
- one Chief Executive Officer (CEO).
Wages paid to the following persons are exempt from payroll tax:
- 60 persons engaged directly in the provision of charitable services to the needy
- 2 managers providing management services in respect of the charitable services
- 5 administration and support services staff providing services for charitable activities only.
Wages paid to the following persons are not exempt from payroll tax:
- one administration and support services staff providing services for the plant nursery business only
- 18 persons engaged in the operation of the plant nursery business
The wages paid to the following persons will be regarded as exempt from payroll tax if the duties and responsibilities of these persons are directed predominantly towards the charitable work of the organisation:
- 2 administration and support services staff providing services for both the charitable activities and the plant nursery activities
- one Financial Controller
- one CEO.
Organisations that are uncertain as to whether their circumstances qualify for exemption may seek a private ruling from the State Revenue Office.
