Two companies set up to promote the agricultural industry are getting charity tax concessions despite annual revenues of more than $1bn each.
Under existing rules, the companies have been given charity status, which can make them eligible for tax breaks, including income and payroll tax, GST concessions and deductible gift recipient (DGR) status.
But the arrangements have long drawn criticism and now the Productivity Commission has said “all charities that advance industry” should be removed from DGR status, and has criticised all tax concessions for agricultural entities.
In a draft report from its inquiry into philanthropy, the commission has pointed to Co-operative Bulk Handling Limited (CBH) and Queensland Sugar Limited (QSL) as entities that should not have charity status.
QSL, which promotes the sugar industry for the benefit of cane growers and millers, is exempt from income and payroll tax, and eligible for franking credit refunds. Last financial year its gross income was $1.2bn.
A spokesperson said the concessions represented savings of about $2.2m a year.
CBH promotes Western Australia’s grain growing industry, had a gross income last year of $1.1bn and is eligible for an income tax exemption.
Matt Grudnoff, a senior economist at the Australia Institute with a particular interest in tax concessions, said the system needed to “go back to first principles”.
“Tax concessions are for people who are promoting charitable works – that is, for organisations that are trying to help disadvantaged groups, your classic groups that are trying to house homeless people or feed people who can’t afford food,” he said.
“This doesn’t seem to fit into that at all. Therefore it’s very surprising that they have charity status.”
The QSL spokesperson said the organisation was not-for-profit and returned profits generated by their services to Queensland cane farmers and sugar millers.
“As such, the Australian Charities and Not-for-profits Commission (ACNC) has determined that we meet their requirements for charity status under the Charities Act 2013,” the spokesperson said in a statement.
There is no suggestion companies getting charity tax concessions have done anything wrong, rather a suggestion by the Productivity Commission that the system needs to change.
“The commission has previously been critical of granting charity status (and the associated tax concessions) to agricultural trading companies such as [CBH] and [QSL] and recommended that the Australian government should legislate to exclude agricultural commodity trading companies from being granted charity status and receiving the associated tax concessions,” the PC said in its draft report.
On top of that, “there is a case for specifically excluding all charities that advance industry from the DGR system”, it said.
In 2008 the Australian Tax Office challenged CBH’s charity status but was unsuccessful.
In 2017 the PC said that “QSL’s charity status provides it with tax concessions that benefit a small number of commercial milling and farming businesses (which affects the competitive neutrality of the market) in an industry which has cost Australian taxpayers almost $2bn since 1990”.
Melbourne Law School professor Ann O’Connell described it in 2021 as an effective subsidy at taxpayer expense that “stretches the notion of charity”.
In the Australian Tax Forum journal earlier this year, O’Connell described tax concessions as a “dog’s breakfast” and said there was a “piecemeal approach”.
Agricultural trading companies were among entities that “do not need, or alternatively it could be argued, do not deserve taxpayer-funded support”.
O’Connell said tax exemptions for agriculture were legislated in 1922 to “encourage and support agriculture in the early days of federation”.
Grudnoff said there were plenty of other industries that would be more profitable if they were eligible for tax exemptions.
“There is a set of rules that we all abide by,” he said.
Guardian Australia has contacted CBH for comment.
The productivity commission will consider a new round of submissions and host public hearings before handing its final report to the government in May 2024.
