Most schools will be aware that land used for school purposes generally qualifies for an exemption from land tax in Victoria.
However, there are a number of nuances which can impact on this general position. In this article we highlight some of the potential traps which schools and other education providers should be aware of.
Land tax
Vacant residential land tax (VRLT)
There are three specific areas where we have noticed some of our education clients getting caught out with regard to land tax and VRLT.
Trap 1 – Not applying for an exemption
The charitable land tax exemption is only available upon application to the SRO. Certain evidence must be presented in support of the application, including evidence of specific non-profit provisions in the school’s constitution and evidence demonstrating the use of the land in question.
Once an exemption is granted, it is ongoing so long as the use of the land continues to satisfy the criteria for exemption.
If the use of the land changes so that it no longer qualifies for exemption, the SRO must be notified. If not, then penalty tax may be applied on top of normal land tax once the issue is detected.
Trap 2 – Sharing use of school facilities
Sharing use of school facilities can impact on your exemption status. In brief:
A more detailed exploration of the issue of shared use can be found in our previous article ‘Hiring out the hall in 2025 – Land tax and facility hire for charities‘.
If you are unsure about whether your particular shared use arrangements could impact on your land tax exemption, guidance can be sought from the SRO in the form of a private ruling application.
Trap 3 – Overlooking VRLT reporting
It is common for schools to have residential landholdings – these properties may be used as a principal’s or caretaker’s residence, be rented out to third parties, or held for future school development.
These properties will be subject to land tax, but they may also be subject to VRLT if they are not occupied by a person as their PPR for more than 6 months of the year. If such a vacancy does occur, then a VRLT notification needs to be made to the SRO by 15 February of the following year, otherwise penalty tax may be imposed on top of VRLT.
The Commercial Real Estate team at Moores has extensive experience assisting schools and other education providers in navigating the land tax and VRLT rules, and we would be glad to help you with any questions, exemption applications, private ruling applications or reporting in this space.
Please contact us for more detailed and tailored help.
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Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.
Thinking of remunerating your directors?
As not-for-profits face increasing complexity, regulatory pressure and growing board workloads, director remuneration is firmly on the agenda. This session explores the legal framework, key risks and practical considerations for boards, including alignment with purpose, public expectations, director liability, and the distinction between remuneration and honoraria.
You will gain:
This session will be presented by experts from our Charity and Not-for-profit Law team, Practice Leader Rebecca Lambert-Smith and Associate Christopher Pierorazio.
If you are a leader of a charity or not-for-profit organisation, this webinar will help you navigate a complex regulatory environment and support your ability to attract and retain high-quality board members with the skills and experience needed to add value.
The Australian Government has announced reforms aimed at addressing its broader objective of doubling philanthropic giving in Australia by 2030.
The reforms focus on two key areas:
These reforms come as a response to recommendations made in the Future Foundations for Giving inquiry conducted by the Productivity Commission, as well as proposals contained in the sector-led Not-for-profit Sector Development Blueprint.
To better reflect the role of public and private ancillary funds in facilitating charitable giving, the reforms propose to rename public ancillary funds and private ancillary funds to ‘public giving funds’ and ‘private giving funds’ respectively.
Under the proposed reforms, the Government will set a minimum annual distribution rate of 6% of net assets for both public and private ‘giving funds’ (the current rate is 4% for public ancillary funds and 5% for private ancillary funds).
Giving funds must distribute a minimum share of their assets each year to qualify for tax concessions. Raising the distribution rate aims to direct more philanthropic capital to operating charities in the short term while still allowing funds to maintain capital and earn investment returns.
Treasury analysis indicates that a fund earning market returns and distributing 6% of net assets annually could operate for decades even without new contributions. In practice, many funds already exceed this level, with about two-thirds of public funds and half of private funds distributing more than 6% in recent years. The average distribution rate for private ancillary funds in the period from 2000 to 2021 was 8% and for public ancillary funds in the period from 2011 to 2021 was 15.3%.
The reforms will also allow giving funds to smooth distributions over a three-year period. This change is intended to provide greater flexibility for funds supporting larger or multi-year charitable initiatives. This will enable giving funds to make large distributions in a single year and then distribute less than the minimum distribution rate in the subsequent two years. This may be particularly beneficial where funds are supporting major projects or responding to short term needs.
The new minimum distribution rate will apply from the first financial year following amendments to the giving fund guidelines. Existing giving funds will also benefit from a two-year transition period before the new distribution rate must be met.
This initiative is similar in concept to changes made to the ancillary fund guidelines in 2020 that permitted ancillary funds that exceeded the minimum distribution rate in the 2019-2020 and 2020-2021 financial years to distribute lower amounts in subsequent years. Those changes were intended to promote philanthropic giving during the COVID-19 economic downturn.
The Government has recently endorsed 34 new community charities as deductible gift recipients.
Community charities are locally focused charitable trusts or incorporated bodies that support community initiatives by distributing funds, property or benefits to organisations endorsed as DGRs. For instance, they may support a wide range of initiatives, including:
Importantly, previously DGR endorsement was only available for discrete categories (e.g. only environment, or only cultural activities), requiring organisations pursuing broad purposes to establish and operate more than one DGR endorsed entity. Community charities are more flexible, as they can incur expenditure in support of all DGR purposes and are not confined to one category, allowing them to direct tax-deductible donations to a wide range of charitable causes.
The measures aim to strengthen the philanthropic ecosystem by encouraging more timely distributions from giving funds while expanding the number of organisations able to access DGR status and attract tax-deductible donations. For charities, foundations and philanthropic donors, the reforms may have implications for fund governance, distribution strategies and eligibility for tax-deductible giving structures.
Our Charity and Not-for-profit team advises charities, philanthropic foundations and donors on the legal and regulatory framework governing tax-deductible giving in Australia.
We can assist with:
If your organisation operates, or is considering establishing, a giving fund or seeking DGR endorsement, our team can help you understand the implications of these reforms and ensure your structure remains compliant.
Is your not-for-profit (NFP) contemplating a merger? This is part four of a five-part article series that will offer some practical guidance to your board or merger advisory committee. Subscribe to receive the remaining articles in the series.
Due diligence is the process of obtaining and reviewing information in order to critically evaluate a potential merger partner. The primary purpose of due diligence is to assist the board to identify potential risks and issues that could impact a merger, ensuring that the board can make an informed decision regarding whether or not to proceed with the merger. Due diligence also assists to inform the choice of merger type (discussed in article 2) and identify issues that may need to be prioritised and addressed as soon as practicable following any merger.
The due diligence process should include:
The culmination of the due diligence process is a report that is provided to the board in order to inform and support its decision regarding whether or not to proceed with a merger agreement.
Some of the key considerations that should be taken into account in the due diligence review include:
A detailed analysis of the financial health of the prospective partner should be carried out to determine its ongoing financial viability. A review of donor and grant history as well as projected grant income will help inform the analysis. This work is often carried out as a discrete component of the due diligence process by a financial advisor who is experienced in working with not-for-profit organisations.
A complete list of assets (tangible assets and intangible assets – intellectual property and goodwill) and liabilities (security interests registered on the Personal Property Securities Register and mortgages recorded on any certificates of title) should be reviewed, including conducting appropriate searches.
These are the liabilities that will be transferred from the one entity to another (usually the acquiring NFP or the new merged NFP). Historical liabilities can create significant risks for NFPs in a merger. This is because child abuse liabilities in particular: do not have a limitation period; may be uninsured; and depending on the merger type and jurisdiction, may transfer between entities in a merger. It is important to assess the risk of historical liabilities – this will include reviewing the claims history of the organisation and enquiring about known historical issues. Part five of our article series will address historical liabilities in more detail.
If a merger will result in one or more NFPs closing, it will be necessary to provide for the transition of employees to the acquiring NFP (and for the redundancy of any employees who will not be retained). Ideally terms of employment will be substantially the same as or better than the employee’s current terms of employment. A substantial difference in the employee benefits between the two merging organisations may result in unanticipated costs if parity requires an increase for a number of employees. The acquiring NFP will also need to confirm the current status of leave entitlements, fringe benefits tax exempt benefits (relevant for Public Benevolent Institutions and Health Promotion Charities) and superannuation guarantee contributions. Other employment risks that should be considered in the due diligence process. These include (without limitation) the possibility of a wage underpayment (liability for which may be able to be traced to any parent entity) and any unresolved workplace disputes.
A comprehensive contracts register that tracks key information (including the name of the contract, whole-of-life costs, the supplier, the contract manager, the commencement and termination date and performance and payment milestones) should be prepared. A review of all contracts should be carried out to identify material risks and ascertain whether the contract can be novated or assigned (if appropriate).
Insurance documents will need to be reviewed to confirm that the prospective merger partner is appropriately insured.
The prospective merger partner’s privacy policy should be reviewed to confirm it allows for any disclosure of personal information, health information or sensitive information that is anticipated as part of the merger process. Any risk of significant non-compliance with privacy obligations should be also identified and assessed.
The anticipated efficiencies of a merger may be significantly impacted by an inability to integrate systems and data. An expert IT consultant can assist to review technology systems and data sets to determine how different technology systems might interact post-merger and give a considered assessment of the potential cost and complexity of systems integration.
Once the due diligence report has been prepared and submitted to the board, the acquiring NFP will need to determine whether or not to proceed with a merger agreement. This involves returning to any non-negotiables and merger principles established up front (discussed in article 3) as well as assessing identified risks in the context of the organisation’s risk appetite. It may also involve a review of cultural alignment – have any cultural red flags been identified in terms of the merger partner’s transparency and conduct during the due diligence process? Depending on the nature of the risks identified, it may be possible to choose a merger type and/or include conditions in the merger agreement that will assist to mitigate the risks.
Depending on the complexity of the merger, the due diligence process can be daunting and time-consuming. The Charity and Not-for-profit Law team at Moores can help with developing a fit-for-purpose due diligence strategy or assisting with the due diligence process.
Is your not-for-profit (NFP) contemplating a merger? This is part two of a five-part article series that will offer some practical guidance to your board or merger advisory committee. Subscribe to receive the remaining articles in the series.
There are a range of available NFP merger types depending on the legal structure of the organisations that propose to merge. Determining which of these available merger types is most appropriate requires an assessment of what is important to your NFP, including control, structural simplicity and containment of risk. Identifying the preferred merger type early on will:
The five most common merger types are summarised below, together with their pros and cons. Note that, depending on the structure of the merging organisations, some merger types may not be possible.
Under this model, NFP B transfers its assets and operations to NFP A. NFP B ceases to exist. This option may be appropriate if NFP A has multiple assets and complex operations and is considering merging with NFP B which has less assets and simple operations.
Pros
Cons
Under this model, NFP A becomes the parent of NFP B (by becoming the sole member of NFP B) and NFP A has control of NFP B. Both organisations survive and NFP B’s assets and operations remain in NFP B. This merger type may be appropriate if it is necessary to maintain separation, possibly because the two NFP’s purposes are not aligned or NFP B has known liabilities which need to be contained.
This may be an appropriate “transitional” step where NFP A controls NFP B for a period while transferring NFP B’s assets and operations into NFP A (before ultimately closing NFP B).
Under this model, NFP C is created as a new entity. Both NFP A and NFP B transfer their assets and operations to NFP C before they both cease to exist. This merger type may be appropriate if both NFP A and B want a fresh start on an equal playing field.
Under this model, NFP C is created (a new entity). NFP C is usually the parent (sole member of NFPs A & B) and NFP C would have control over both NFP A and NFP B. The outcome is that all three organisations remain in existence. This merger type may be appropriate if it is necessary to maintain separation (possibly because the two NFP’s purposes are not aligned, NFP A or NFP B have known liabilities which need to be contained or the complexity of their different operations means separate incorporation is preferable).
Under this model, NFP A and NFP B (incorporated associations in the same State and Territory except the Northern Territory) amalgamate to become a new NFP AB. The effect of amalgamation is that NFP A and NFP B cease to exist. NFP AB will assume all assets and liabilities of NFPs A and B and ordinarily, there is no need for assignment or novation of contracts.
Choosing the appropriate merger type is essential. The Charity and Not-for-profit Law team at Moores can help you understand the available merger types available to your merging organisations including the pros and cons of each option.
Moores Practice Leader, Rebecca Lambert-Smith and Associate Yoni Ungar, sit down in a Moores Q&A to discuss the new reforms to the Australian government’s Deductible Gift Recipient (DGR) registers.
These new reforms will ease the administrative burdens for cultural, environmental, harm prevention and overseas aid charities, however most organisations will not benefit from these reforms until they make key changes to their governing documents. If your organisation may be able to take advantage of the flexibility these new reforms provide, we have detailed some of the key information you need to know.
Long-awaited reforms to the Australian government’s Deductible Gift Recipient (DGR) registers have now come into effect, easing administrative burdens for cultural, environmental, harm prevention and overseas aid charities. However, most organisations will not benefit from these reforms until they make key changes to their governing documents.
As flagged in our article last year, in early 2023 the Australian Government introduced reforms to ease the administration of four categories of DGR. These four DGR categories were administered by the following Australian Government departments:
On establishment, new organisations had to apply to the relevant department for DGR endorsement and obtain the written approval of two Ministers – a process which often took years to finalise. These organisations were then subject to ongoing administrative and reporting requirements, including submitting annual audited accounts to the relevant department, providing statistical information about donations and operating a public fund.
A streamlined endorsement process From 1 January 2024, these four registers were abolished. These DGR categories are now administered by the Australian Taxation Office (ATO). The ATO is now assessing applications for DGR endorsement, with processing times reduced to months or even weeks. Charities whose applications were not finalised before 1 January 2024 have been notified that the ATO will complete the assessment of their applications. All new applications must be made directly to the ATO.
Reduced reporting requirements Established organisations no longer need to provide additional statistical returns and audited accounts to the ATO. Instead, it is sufficient to comply with their Australian Charities and Not-for-profits Commission reporting requirements.
Simpler administration Importantly, organisations in these DGR categories will no longer be required by legislation to operate a public fund to receive all DGR gifts (and income generated from those gifts). Instead they may be able to operate a simpler gift fund (discussed further below).
Reduced membership for environmental organisations Finally, the requirement for an environmental organisation to have membership consisting of either at least 50 individual members or only body corporate members has been abolished. This means that environmental organisations that have a body corporate sole member could consider seeking to adopt an alternative, simpler governance model (where the board and members are the same individuals). New environmental organisations can also be established with this simpler model.
Receipts Organisations were previously required to issue receipts for gifts and deductible contributions in the name of their public fund. From 1 January 2024, all receipts must be issued in the name of the organisation.
Public funds must comply with certain ATO requirements, including having a separate bank account and being operated by a management committee. The management committee must constitute at least three people, a majority of whom must satisfy the ATO’s responsible person test (as set out in paragraph 21 of Tax Ruling TR 95/27) – being individuals with a degree of responsibility to the community, typically with a professional occupation. For many organisations, this means that the public fund cannot be operated directly by the organisation’s board, but requires a separate management committee. Further, some organisations find it challenging to recruit sufficient individuals to the management committee that meet the responsible person test.
Gift funds don’t need their own committee of management or their own bank account. Instead, the organisation operating the gift fund needs to have clear accounting practices in place to track the funds and ensure that they are used appropriately. This can significantly streamline the organisation’s administration.
Despite the reforms, organisations still need to follow the requirements set out in their governing documents (their Constitution or Rules) if those requirements are compatible with the new laws. In particular, any public fund clause in an organisation’s governing document must be amended and replaced with a gift fund clause before the organisation can cease to comply with the public fund management committee requirement.
If you’ve been planning on setting up a cultural, environmental, harm prevention or overseas aid charity, the process is now significantly more streamlined. We can help you get established.
If you operate an existing cultural, environmental, harm prevention or overseas aid charity, we can help you understand the implications of these changes, as well as amend your governing document to take advantage of the new flexibility in relation to gift funds.
Contact our Charity and Not-for-profit law team for more information on how we can help your organisation.