The Government has released for comment a draft exposure of the Charities Bill 2013 which will introduce the long awaited statutory definition of “charity”.
In Australia, there is presently no statutory definition of “charity” and its interpretation has evolved through common law interpretation of the English Statute of Elizabeth in 1601. The Government considers that the draft legislation preserves the common law definition of charity including long established principles such as the presumption of public benefit for certain charitable purposes. It further incorporates recent court decisions, including Aid/Watch Incorporated –v- Federal Commissioner of Taxation.
The definition is:
charity means an entity:
(a) that is a not-for-profit entity; and
(b) all of the purposes of which are:
(i) charitable purposes (see Part 3) that are for the public benefit (see Division 2 of this Part); or
(ii) purposes that are incidental or ancillary to, and in furtherance or in aid of, purposes of the entity covered by subparagraph (i); and
(c) none of the purposes of which are disqualifying purposes (see Division 3); and
(d) that is not an individual, a political party or a government entity.
The definition effectively codifies the interpretation of what is a charity under Commonwealth law. While the legislation will not impact the charitable status of existing charities it will impact all charities seeking registration as a charity by the Australian Charities & Not-For-Profits Commission and entities seeking tax concessions from the Australian Taxation Office.
The Government says it has responded to feedback provided in response to the 2011 consultation paper ‘A Definition of Charity’ where over 200 submissions were made by the Not-For-Profit Sector.
Public consultation on the draft definition is open until May 3, less than 4 weeks from the date of the exposure draft of the legislation.
Not-For-Profit, Charitable Purpose & Public Benefit
As set out in the proposed definition of charity above, an entity must be: Not-For-Profit, have purposes which are solely charitable (with some flexibility for incidental purposes), and be for the public benefit.
The purposes of relieving poverty, illness and the needs of the aged, advancing education and advancing religion will continue to be presumed as being for the public benefit, unless there is evidence to the contrary. An entity that directs benefits to related individuals generally fails the public benefit test unless the relationship is incidental to the common characteristic which the charitable purpose addresses.
Public benefit includes two aspects that must be considered: there must be a benefit that is real and of value to the public (whether tangible or not) and that value or benefit must be available to the public (see Division 2).
The public benefit test does not apply to open and non-discriminatory self-help groups and closed or contemplative religious orders. A purpose of engaging in, or promoting, activities which are unlawful or contrary to public policy is disqualifying as are political parties and Government entities.
A significant amendment to the present common law definition of charity is the omission of purpose that it is for the relief of poverty, sickness or the needs of the aged. This has been substituted with “advancing social or public welfare”.
The term “charitable purpose” used in the definition in Part 3 now specifically includes:
- Advancing health;
- Advancing education;
- Advancing social or public welfare (including relief of poverty, caring for, supporting and protecting children and young people and providing childcare);
- Advancing religion;
- Advancing culture;
- Promoting reconciliation, mutual respect and tolerance between groups of individuals in Australia;
- Promoting or protecting human rights;
- Protecting the safety of the general public;
- Preventing or relieving the suffering of animals;
- Advancing the natural environment;
- Any other purpose beneficial to the general public that may be reasonably regarded as analogous to, or within the spirit of the above purposes; and
- Promoting or opposing a change to any matter established by law, policy or practice in the Commonwealth, a State, a Territory or another country, in furtherance or protection of one or more of the above purposes.
Each of the above listed categories are discussed in more detail in the Explanatory Memorandum to the draft legislation.
In its factsheet, Treasury states that the statutory definition does not intend to change the charitable status of existing charities, affect the taxation treatment of charities, restrict the flexibility of amending the definition in the future to extend the range of existing recognised categories of charitable purposes.
We will continue to keep you updated on the development of the statutory definition of charity and if you have any comments or concerns please contact Bill d’Apice or Anna Lewis.