A definition of charity - consultation paper

Written on the 21 November 2011 by PKF Australia Limited

A review of charities

In the 2011 Federal Budget, the government announced it intended to review charities and the taxation concessions extended to charities.

In response, the government has released a consultation paper A Definition of Charity. The aim of this process is to produce a standard definition of charity throughout Australia, including in the areas of state and federal taxation.
The government is requesting feedback from interested parties, with submissions due by 9 December 2011.

Where are we at?

The paper identifies a number of definitions of charity and charitable purposes throughout the taxation statutes. The paper concludes there are inconsistencies across these definitions which make it difficult for all parties involved, including charities and the Tax Office. The first attempt at drafting a definition of charity came in 2003 as part of a Federal Government review. This draft definition did not proceed into legislation and it is the aim of this paper to develop a more workable definition of charity using the 2003 framework as a foundation.

What has happened since 2003?

There have been several significant developments since the initial attempt to drafting a definition of charity in 2003. A number of key jurisdictions, including the UK and NZ, have legislated definitions of charity as part of an overall charities act. The basis of the definition proposed in this paper draws from key areas identified in the definitions applied in these other countries. Further, the Australian courts have heard a number of cases which have changed the way in which entities are classified as charities. Key cases include Aid Watch, Word Investments and Central Bayside.

The 2003 definition

The definition of charity contained in the 2003 Charities Act was founded on the following key principles:

• the entity must be a not-for-profit entity;
• it has a dominant purpose that is charitable;
• it is for the public benefit;
• it does not engage in activities that do not further, or are not in aid of, its dominant purpose;
• it does not have a disqualifying purpose;
• it does not engage in, and has not engaged in, conduct that constitutes a serious offence; and
• is not an individual, partnership, a political party, a superannuation fund or a government body.

Extending that definition

The paper canvasses ways in which these principles may need to be modified in light of the recent court decisions, the position of the Tax Office in TR 2011/D2, and the common or general perception of what would constitute
a charity. Some of the key areas discussed include:

• Not-for-profit – subject to a separate consultation involving the special “in Australia” conditions also announced in the 2011 Federal Budget;
• Dominant purpose – proposing that the entity’s purpose be exclusively charitable;
• Peak bodies – can a peak body be charitable?;
• For the public benefit – create a public benefit test and define what is meant by the public (a broader segment of the community);
• Religious and educational organisations – how do these fit in with the public benefit test? 
• Commercial activities – How do these fit in with a charity’s purpose (citing Word Investments)?
• Advocacy bodies – how do these fit in with the public benefit test (citing Aid Watch)?
• Charitable purposes – what are charitable purposes?
• Australian Disaster Relief Funds (ADRF) - do ADRF fall within the realm of charities?