Definition of a charity

Charities Bill 2003

The Government intends to simply use the statutory definition contained in the Charities Bill 2003 with a few a modifications.  This Bill was never proceeded with due to concerns within the not-for-profit sector.  It remains to be seen whether the limited modifications will be sufficient to address these concerns.

The core definition of charity in the 2003 Bill contained the following requirements for an entity:

	Is a not-for-profit entity
	Has a dominant purpose that is charitable and is for the public benefit
	Does not engage in activities that do not further its dominant purpose
	Does not engage in conduct that constitutes a serious offence
	Is not an individual, a partnership, a political party, a superannuation fund or a government body

The Bill then went on to define not-for-profit entity, dominant purpose, public benefit, disqualifying purpose and charitable purpose.

Charitable purpose was defined to be a reference to any of the following purposes:

	The advancement of health
	The advancement of education
	The advancement of social or community welfare
	The advancement of religion
	The advancement of culture
	The advancement of the natural environment
	Any other purpose that is beneficial to the community

The Charities Bill 2003 then contained a definition of advancement of social or community welfare and a definition of religion.

Under the new legislation, the meaning of not-for-profit entity will not be included in the charities definition but rather will be taken from legislation currently being redrafted in the “in Australia” special conditions legislation.

In addition, the Government is suggesting various modifications to the previous proposed definition and we discuss these below.

Exclusively Charitable Purpose

The definition of charity in the 2003 bill proposed that a charity must have a dominant purpose that is charitable.  The Government wishes to change this definition to state that the purpose or purposes of a charity must be exclusively charitable.  The government claims that this is the current position under current law.

For the Public Benefit

Based on the proposed definition, a charity’s purpose must be for the public benefit (does not apply to certain self-help groups and closed religious orders).  The consultation paper looks at the meaning of “public” and “benefit”.  The Charities Bill 2003 contained a single definition of the term, ”public benefit”,  and the paper considers whether an expanded definition is required .

It is important to note that the proposed definition of charity will result in all entities being required to demonstrate they pass the public benefit test.  Currently, entities whose purpose is the advancement of health, education or religion are presumed to be providing a public benefit, unless there is evidence to the contrary.  Under the proposed changes, no such presumption will exist.  This is likely to increase the compliance costs of those entities.

Furtherance of Charitable Purpose

Under the new definition, an entity must only engage in activities that further its exclusive charitable purpose.  However, it is important to distinguish between an entity’s purpose and its activities.  The government has accepted that activities need not themselves be intrinsically charitable for the entity to be charitable.  It is only necessary for the activities to be in the furtherance of the entity’s charitable purpose.

Commercial Activities

A charity can undertake unrelated activities, such as commercial activities, provided they further the entity’s purpose.  Nevertheless, as a result of separate proposed legislation, the Government intends to limit the effectiveness of a charity’s commercial activities by removing the tax concessions for many of those activities.

Political Activities

In the Charities Bill 2003, it was intended that the following political activities would be disqualifying activities:

	Advocating a political party or cause
	Supporting a candidate for political office
	Attempting to change the law or government policy

However the High Court held in the Aid/Watch case that there is no general doctrine in Australia that excludes political purpose from being charitable. Accordingly the government is proposing that the first two points above be retained as disqualifying but the activity of attempting to change the law or government policy be removed from the list of disqualifying activities.  It also want to provide that although a charity can engage in this type of activity, it must nevertheless have a purpose that falls within one of the listed charitable purposes.  It uses the example that it would be acceptable for an entity to seek to change government policy on the most effective way of relieving poverty.

Charitable Purposes

The key issues regarding charitable purpose on which the consultation paper seeks comments are:

	Should the definition of “advancement” be clarified to reflet that the current law also includes “prevention”?
	Should the list of charitable purposes be expanded or is the last category of “other purpose beneficial to the community” sufficient? Note it is anticipated that this category would include promotion and protection of human rights, the promotion of reconciliation, mutual respect and tolerance between various groups in Australia, and the prevention and relief of suffering of animals.
	Should a list of disqualifying purposes be included?

Australian Disaster Relief Funds

Although not really relating to the definition of charity, the consultation paper also addresses certain issues with the current operation of Australian Disaster Relief Funds.  Under existing law, such a fund must be established and expend its funds only in relation to one disaster.  It cannot exist to collect funds prior to a disaster occurring and it cannot hold funds over from one disaster to another.  There is also a lack of flexibility as to how donated funds can be applied.  The government is seeking responses on how these issues could be addressed.

Submission Deadline

Submissions from the public must be received by 9 December 2011.  If you are interested in making a submission, the consultation paper can be found at http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=2161.

Published : 7 November 2011