Draft bill for the non-profit reform act 2023
On 12 October 2023, the expected draft law on the reform of charitable status and donation benefits was published and promises improvements for non-profit and charitable organisations as well as a significant expansion and simplification of donation benefits. In addition, the financial remuneration of volunteers in Austria will be made more attractive from a tax perspective.
According to the Charities Reform Act 2023, which was recently reviewed, there are to be extensive changes in the area of donation deductibility. In future, all (tax-deductible) charitable or benevolent purposes will also qualify as donation-favoured purposes. This means that small organisations will no longer be required to obtain an annual confirmation from an auditor. In addition, a number of other simplifications are planned for non-profit organisations.
Extension of the favouring of donations
The tax concessions for donations previously regulated in Section 4a EStG contain a closed list of concessions for donations, which, however, only covers a small section of the tax concessions for charitable purposes in the BAO. This restriction is now to be removed. In future, all tax-privileged charitable or benevolent purposes will also be sufficient to qualify for donation favouritism. Charitable organisations in the fields of sport, education, youth development, animal welfare or the preservation of local heritage and monuments that have not yet been eligible for donations will therefore be able to benefit from donation tax relief in future. For art and cultural organisations, the additional requirement of receiving public funding, which was previously provided for, will no longer apply. In the area of education, public kindergartens and schools will also be eligible for donations in future due to the explicit mention in the law.
Simplification of the application and annual confirmation process
In order to apply for inclusion in the list of organisations receiving donations, the applicant organisation had to have been in existence for at least three years at the time of application. This period is now to be reduced to one year. The previously required annual confirmation from an auditor regarding compliance with the requirements for donation favouritism will be replaced by a simplified report from a tax consultant. Only if there is a legal or statutory obligation to have the annual financial statements audited (e.g. in the case of large associations as defined by the Austrian Associations Act, corporations or private foundations subject to mandatory audits) will an annual confirmation by an auditor still be required.
In return, however, penal provisions are also provided for: in future, an organisation can lose its charitable status and be excluded from submitting a new application for a maximum of three years if it has been fined by a court for criminal acts or intentional financial offences. This also applies to decision-makers or employees of this organisation.
Capitalisation of charitable foundations
The previously temporary regulations on the assets of charitable foundations will be made permanent. The current maximum amount of deductible donations (EUR 500,000) will no longer apply. In future, only the limit of 10 % of the profit or the total amount of income at donor level will apply, with an additional carry-forward option being introduced for donations in excess of this amount.
The regulations on the use of funds will be relaxed for foundations. In future, charitable foundations will be allowed to use up to 50 % of the donated assets for the favoured purposes in the first two years. Previously, funds could only be utilised after two calendar years.
In future, non-profit legal entities will be able to transfer activities and assets to other non-profit legal entities, even if there is no participation in the acquiring organisation. This means that a non-profit organisation can transfer part of its activities to another non-profit organisation or a non-profit foundation. Previously, the transfer required a shareholding in the acquiring organisation, which meant that transfers were effectively only possible to subsidiaries.
The rules for umbrella organisations, holding companies and cooperations will also be relaxed: in future, cooperation between charitable and non-charitable organisations will also be possible under certain conditions.
The previous turnover limit for the automatic exemption for businesses of non-profit organisations that do not qualify for preferential treatment will be raised from EUR 40,000 per year to EUR 100,000 per year. In future, exemptions can also be applied for retrospectively.
In addition, it will also be possible to retroactively remedy formal, minor deficiencies in the legal basis (articles of association, statutes, partnership agreement, etc.) for tax purposes. Previously, this was only possible on the basis of the administrative practice set out in the association guidelines, which was not covered by law.
The Income Tax Act introduces an exemption for expenses paid for voluntary work. The so-called “small volunteer allowance” amounts to a maximum of EUR 30 per calendar day and a maximum of EUR 1,000 per calendar year and applies to all non-profit organisations. The “large volunteer allowance” amounts to a maximum of EUR 50 per calendar day and a maximum of EUR 3,000 per calendar year, but is limited to charitable organisations or disaster relief organisations, organisations exempt from municipal tax (mainly hospitals) or trainers and exercise instructors. This corresponds to the recording obligations of the paying organisation. If an organisation pays out more than EUR 2,000 per year to one person, a report must be submitted to the tax office by the end of February of the following year.
The non-profit package will lead to a comprehensive expansion of the group of purposes eligible for donations as well as numerous simplifications for non-profit organisations. The new lump sum for volunteers is also intended to strengthen and promote voluntary work. The new regulations are set to come into force as early as 1 January 2024, which is a welcome development.
In view of the recent intensive negotiations, no significant changes to the current draft bill should be expected during the legislative process. The legislative process remains to be seen.