The inquiry into the definition of a charity...
Charity Definition Resources
The Australian Taxation Office has the following information that may be of assistance in submissions to the Board of Taxation consultation:
(Download from the ATO website, or order from the ATO Non-Profit Centre Publications section 02 6216 2657)
Tax basics for non-profit organisations (Nat 7966)
GiftPack for deductible gift recipients and donors (Nat 7967)
Income Tax guide for non-profit organisations (NAT 3132)
Final Taxation Ruling TR 1999/21: Income Tax and Fringe Benefits Tax Benefits Tax: Charities
Inquiry into the Tax Laws Amendment (2004 Measures No.1) Bill 2004
The Australian Senate Economics Committee web page for the review of Endorsement of charities proposals.
Chronology of the Inquiry
2008
A Senate inquiry is now underway into the disclosure regimes and models of regulation for charities and not-for-profit organisations.
On 18 June 2008, Senator Allison (Democrats) moved that the Senate note the report by CHOICE on charities, published online in March 2008, that highlights the wide variability and inconsistency in the way that charities disclose information to the public and acknowledges that the 27 recommendations from the inquiry into the definition of charities and related organisations, which reported in 2001, have not been implemented.
The Senate agreed to the matter to the Senate Standing Committee on Economics for report by the last sitting day of November 2008. The inquiry will examine:
- the relevance and appropriateness of current disclosure regimes for charities and all other not-for-profit organisations;
- models of regulation and legal forms that would improve governance and management of charities and not-for-profit organisations and cater for emerging social enterprises, and;
- other measures that can be taken by government and the not-for-profit sector to assist the sector to improve governance, standards, accountability and transparency in its use of public and government funds.
The link below to read more about the Inquiry into the Disclosure regimes for Charities and not-for-profit organisations, see the Inquiry’s website and relevant Hansard edition. Submissions for the Inquiry close on Friday 29 August, 2008.
The Parliamentary Joint Committee on Corporations and Financial Services has released a parliamentary report ‘Better shareholders – Better company: shareholder engagement and participation in Australia’. The report comes from left field, but probably picks up on the Victorian ‘Strengthening Community Organisations report release early this year.
One of the Parliamentary Joint Committees’ recommendations picks up a nonprofit organisation reform issue and says:
“3.120 The committee is also of the view that the broader issue of the framework for regulating small, closely held companies needs to be reviewed. The one-size-fits-all approach of the Corporations Act may be appropriate for large publicly listed companies with a diverse shareholder base with a considerable equity investment, but it places a significant regulatory burden on small companies and not-for-profit organisations for which the protection offered to investors by the Corporations Act is not as appropriate.100 The government should therefore begin to investigate an alternative regulatory framework for small incorporated companies and not-for-profit organisations.
3.121 The government should investigate an alternative regulatory framework for small incorporated companies and not-for-profit organisations.”
The Parliamentary Report appears to draw heavily on a report by Senator Andrew Murray entitled ’A proposal for simplifying the legal form and regulation of small for-profit businesses and not-for-profit entities’, (April 2008) and his earlier report, ‘One Regulator One System One Law’
2006
2006 Charities Act receives Royal Assent.
2005
21/12/05 ATO released finalised Taxation Ruling on charities. TR 2005/21.
21/12/05 ATO released finalised Taxation Ruling on Companies controlled by Exempt entities. TR 2005/22
11/05/05 Revised Draft Ruling released TR2005/D6 - Income tax and fringe benefits tax: charities.
2004
25/6/04 Extension of Charitable Purpose Bill passed
Budget Night 2004 Treasurer announces that Government will not proceed with draft charity bill. It will legislate for a statutory extension in respect of child care, closed religious orders and self help groups
2003
13/08/03 Board of Taxation website adds more material on consultations and FAQs
12/8/03 Senator Cherry asks a question of Senator Coonan in the Senate about the Charities Bill, PBIs and consequential amendments (p 13175) and then makes a further statement at (p 13185-13186) - see Hansard.
22/07/03 Federal Treasurer announced that the Board of Taxation would consult on a draft Charities Bill and Exposure Draft Memorandum - view Press Release.
2002
29/8/02 Federal Treasurer issues Press Release with draft legislative definition of charity attached.
28/6/02 Inquiry into the Definition of Charities and Related Organisations released and placed on definition website.
10/11/00 Issues Paper Released and web page established including submissions.
25/10/00 Australian Democrats Charity Briefing
"Things are starting to speed up in getting the Inquiry up and running.
The Government has appointed the Committee and the secretariat is starting to function. They are in the process of putting together the issues paper. From what I have been told, the issues paper is basically the terms of reference, how the Committee interprets them, and, questions that the Committee would like answered. The Inquiry will be advertised in about two weeks time on a Saturday (4th Nov?) in the major papers and the Issues paper will be available as of then. This may make it difficult for the regional groups to gain knowledge of it so it would be great if you could circulate this information to them.
I am strongly recommending that any organisation interested in this Inquiry place their name on the mailing list. The person to call to do this is Christine Barron. Christine's phone number is 02 6263 4348 or her email is cbarron@treasury.gov.au <mailto:cbarron@treasury.gov.au>
The mailing list that is being constructed will be the surest way of getting a copy of the issues paper. There will be a web site but from experience these things tend to take longer than anticipated.
The Committee hasn't spoken to organisations yet. The consultation round will happen after the close of written submissions. I have been told that there will not be public hearings. This is not a good outcome since the consultation phase will not be open to the public to hear. Philanthropy Australia Inc will be conducting a series of meetings in Melbourne, Adelaide, Perth, Brisbane and Sydney to collect views on the legal changes necessary to facilitate foundation formation and effective operation. For further information contact Ester Lethlean on 03 9620 0200. There may be other peak bodies organising other such forums but I am not aware of any yet. I am also concerned that the smaller regional groups may miss out and it is important that the Inquiry hear from them.
The process of the Inquiry will mean that any organisation with an interest will need to send in a written submission. Submissions can be anything from a page of comments through to a substantial document. It is up to the organisation and how much there is to say. If you feel the Committee could get more understanding about the sector from your organisation I think it would be a good idea to say your organisation is interested in being part of the further consultations. The reality of getting into the consultation phase at present is very slim but it never hurts to ask. After written submissions close, which will be at the end of December, the Committee will then decide which organisations they are going to consult with. The written submissions along with the consultations will then be the basis of the report due to be tabled with the Treasurer before 31 March 2001.
It's a tight time line the Government has set and it has the New Year break is right in the middle of it. The Democrats will still keep lobbying the Government on some of the detail. I believe that the most important step now is to let the community sector know to save up a bit of energy for one more important submission before the end of the year.........and get on the mailing list for the Issues paper.
Cheers
Rose Kulak
Community Campaigner
Office of Senators Andrew Bartlett and John Woodley
Australian Democrats
Suite 14 B1
7/421 Brunswick Street
Fortitude Valley QLD 4006"
09/00 Fundraising Directions - Newsletter of Fundraising Institute of Australia - Queensland
"The Fundraising Institute of Australia's Involvement"
The Fundraising Institute will be making a submission to this Inquiry and it is expected that there will be opportunities for community consultation. National President of the Fundraising Institute of Australia David Zerman said that he would welcome comments from Members in relation to the submission, and recognises that there could be some diversity of views across the sector. The Prime Minister's Press Release of the Committee of inquiry are available on the members section of the Institute's website at http://www.fia.org.au/ and at www.grantnews.com.au"
09/00 Ministry Matters International (Vol.4 No. 4) - Extract
Action Plan
The purpose of distributing this information is to get the ball rolling and start the major Pentecostal Movements through the "Australian Pentecostal Ministers Fellowship" to form an Action Committee to communicate direct with the Committee of Inquiry.
The Independent Churches and Ministries should contact their ordaining/licensing body if it's an Australian organisation.
And those who have no one to act on their behalf, please contact us and will (sic) shall formulate a submission on your behalf.
Do not be complacent about this Inquiry, the under tones are quite clear, the major items at risk are Income Tax Exemption, Religious Institution status and Exempt Fringe Benefits.
Our Christian forefathers did not compromise, they died for the faith, let's not just leave it to the Catholic lobby group only."
21/9/00 Philanthropy Alert September - Extract
"LEGAL OBSTACLES TO FOUNDATION FORMATION
Philanthropy Australia has convened a committee to oversee work on legal obstacles to Foundation formation. This work will feed into the Government/Democrats inquiry into the redefinition of charity. We are interested to hear from anyone with views on legal obstacles to Foundation formation. Please email e.lethlean@philanthropy.org.au or fax (03) 96200 199 with any relevant information or views. We would particularly welcome examples of would be Foundation creators who have been deterred by legal and other obstacles.
For the Terms of Reference, please find attached a copy of the Media Release from the Prime Minister and Cabinet:"Inquiry into Charitable and Related Organisations"
18/9/00 The Inquiry into Charitable and Related Organisations Terms of Reference announced by the Prime Minister.
07/00 Elizabeth Cham, Executive Director of Philanthropy Australia in their journal, Philanthropy (Vol 42,p 4) wrote:
"Of even greater long term significance, however, is the government's agreement to review the definition of Public Benevolent Institutions (PBI's). The current limitations on what an organisation must do to claim tax deductible status, and thus be eligible for most private grants, arises from a law of 1601! Groups focusing on community development, job creation, prevention, or advocacy, fall outside the crucial definition. Four hundred year later, a very different view prevails about how best to address justice and equity in a meaningful way, and Australia lags behind in its legal definition of public benefit. In the early years of the Australian Parliament, some of the world's most socially progressive legislation was passed. It would be a fitting goal for the Centenary of Federation to restore that leadership."
26/6/00 The Prime Minister, The Hon John Howard address to the Prime Minister's Community Business Partnerships Awards at Parliament House Canberra included the following remarks:
"Charities churches and not-for-profit organisations are of course pivotal members of the social coalition. They are playing a major and running role under the Government's business and community partnerships policy. And we always need to ensure that the legislative and administrative framework in which they operate are appropriate to the economic and social environment of modern times. Yet as many of you involved in those organisations will know, the common law definition of charity is based on a legal concept which originated in 1601. As a result, there are currently a number of definitions of a charity and this often gives rise to legal disputes. And therefore the Government has announced an independent inquiry into definitional issues relating to charities, churches and not-for-profit organisations to be completed by the end of the year. The terms of reference of the inquiry, let me assure you - it has no goal other than a simpler, clearer legal definition are being developed in consultation with the Australian Democrats and the Community Business Partnership."
2/6/00 The Interim Report of the Innovation Summit Implementation Group to the Prime Minister's Science, Engineering and Innovation Council noted:
"Australian philanthropic investment in R&D appears to fall short of the mark in comparison to similarly placed economies.
The Group is analysing whether there is a different treatment between philanthropy incentives available for arts and cultural pursuits and fro R&D. The Group proposes that any differential treatment be removed.
A number of initiatives could be in place to encourage philanthropic investment in R&D. For example, the Group considers that there could be an active promotion of science and research as avenues for philanthropy. The Group considers that the establishment of a service that matches philanthropists with eligible researchers, universities and research agencies is warranted. Ensuring that incentives available through the Cultural Gifts and Cultural Bequests Program are available for science and research philanthropy, including tax deductibility provisions and capital gains tax exemption for donations would assist in bolstering philanthropic investment in R&D.
Finally, the Group considers that corporate Australia is likely to be fully engaged in investing in the new economy and part of this is being networked wit strategic groups - this new approach to building intellectual capital partnerships and strengthening customer ties will result in greater engagement by corporate Australia."
05/00 The Trade Paper Association Times reports that the Government has established an independent inquiry into the definitional issues relating to charities, churches and not-for-profit organisations. It anticipated that the Charities Consultative Committee will be engaged to direct the inquiry. (page 1)
13/4/00 Letter from the Treasurer to Senator Meg Lees about FBT capping of certain nonprofit organisations.
"In my letter to Senator Woodley of 8 December1999, I raised the prospect o some type of inquiry into definitional issues relating to charities, churches and not-for-profit organisations. I now propose we proceed with an independent inquiry with the objective that it be completed by the end of this year. I would like to further discuss with you and Senator Woodley who should conduct the inquiry along with its terms of reference."
8/12/99 Letter from the Treasurer to Senator John Woodley confirming agreement on Charities Consultative Committee Report Recommendations.
"Finally, and on a more general note, I note that there are various kinds of charities according to various definitions which lead to the various kinds of different treatment under income tax, WST and financial taxes. The definitions have raised huge legal disputes over past decades.
Given that the common law definition of charity is based on a legal concept originating in the sixteenth century, I consider there may be some merit in examining the definitional issues. You have raised the possibility of looking at this through the Law Reform Commission or some other mechanism. While I do not wish to be definite at this stage, I would like to further discuss the possibility of some type of inquiry to examine definitional issues outside the context of the current issue and I propose therefore that we return to this discussion next year."
29/11/99 Senate Economics Legislation Committee Report on Taxation Law Amendment Bill (No.8) 1999 and A New Tax System (Tax Administration) Bill 1999 that includes provisions widen tax deductibility of certain organisations, make it more flexible, and to endorse all existing charitable institutions and trusts. It considered the issues of the tax exemption and deductibility definitions.
UK Material
Charity Commission
Cabinet Office Strategy Unit
Home Office
Scottish Government – Latest Charity Law News
UK Joint Committee on the Draft Charities Bill
The Committee’s report covers all aspects of the draft Bill, and is organised according to the following broad topics: charitable purposes; public benefit; regulation by the Charity Commission; the Charity Appeal Tribunal; Charitable Incorporated Associations; fund-raising and public collections; trading; and exempt and excepted charities.
The Committee has made 52 recommendations, including the recommendation that the basic principles of public benefit should be those set out in the recent concordat between the Home Office and the Charity Commission. (Recommendation 8). (NB: The principles are set out in a box after paragraph 78.) The Committee also recommends that the real Bill should include provisions to clarify the effect of the loss of charitable status on the assets of a charity. (Recommendation 9) On trading, the Committee concluded, on balance, that further powers to trade are desirable provided there remains some limit to them, and that the limit should be higher than the existing limit of £50,000 a year. It recommends that the draft Bill should be amended to allow charities to trade within the charity and enjoy tax exemption on trading income up to the point where income from trading equals 25% (or £5,000 if greater) of the charity's total turnover, but this should be subject to an overall limit higher than the current £50,000 and the Government should consult on the level at which that overall limit should be set. (Recommendation 42) The Committee has made several recommendations on fund-raising and public collections, see recommendations 32–41.
Regarding the self-regulation of fund-raising, the Committee recommends that the explanatory notes published with the Bill set out more fully the criteria by which the Secretary of State will determine whether self-regulation is working effectively. (Recommendation 32) On public collections, (Recommendations 33-37), notable recommendations are that the Home Office should consider carefully both the regulatory burdens and the resource issues in bringing forward its proposals. The Committee recommends that the Home Office should review the notification arrangements before bringing forward the Bill, which should have powers to vary, by Order, the time limits for notifications in clauses 39 and 41 of the draft Bill. The Committee recommends that the Charity Commission, not local authorities, should be the lead authority for granting certificates of fitness to carry out public collections. It recommends that local authorities should retain their enforcement powers.
The report also provides background analysis and makes recommendations about how legislation is taken forward, including a recommendation that the Bill should contain a requirement for the Secretary of State to review and report to Parliament on the impact of the Act no later than five years after Royal Assent and that report should include an assessment of the effect of the legislation on public confidence in charities, the level of charitable donations and the willingness of individuals to volunteer.
Annex 2 to the report provides a schedule of points made about the draft Bill, clause by clause. It summarises points made in written evidence and the Home Office response to each one; the Committee made it clear that inclusion of a point did not indicate that it would be included in its recommendations.
The oral and written evidence taken during the inquiry have also been published.
NZ Material
Details of The New Zealand Charities Act and the recently created New Zealand Charity Commission can be found on the Ministry of Economic Development website.
PowerPoint Slides from the CPNS seminar day: Are you ready for more Nonprofit Tax Reform? 11 August 2003.
Myles McGregor-Lowndes 'Charity Definition Inquiry - How will it affect you?' (PowerPoint, 144kB)
Myles McGregor-Lowndes 'Taxation Laws Amendment Bill No.7' (PowerPoint, 76kB)
Brad Stanfiled 'The New Business Tax System' (PowerPoint, 60kB)
Charity Law Publications
Third Sector Review Special Issue: Charity Law in the Pacific Rim, Vol 8. No. 1, 2002. View table of contents and ordering information at the ANZTSR website (see Publications page).
Centre of Philanthropy working papers on charity law. List and order form. (PDF, 84kB)
Legal Cases of Relevance
Case note (PDF, 23kB) of Central Bayside Division of General Practice Ltd. v Commissioner of State Revenue No. 8719 0f 2002 (Victorian Supreme Court)
Federal Court Case: Commissioner of Taxation vs Word Investments Ltd [2006] FCA 1414 (PDF, 3.6MB) - and for more information on this case and its implications for charities carrying on business activities, see CPNS-QUT-Nonprofit Podcast Program 5
Adobe Reader is required to open and print Portable Document Format (PDF) files and is free to download from: http://www.adobe.com/products/acrobat/readstep2.html