A further piece of the Government's reform agenda for the not-for-profit sector began to take shape on Friday 28 October 2011, with the release of a consultation paper on introducing a statutory definition of charity.
The consultation paper is a welcome response to numerous calls for clarity by organisations including the Charities Definition Inquiry, Productivity Commission and the Senate Economic Legislation Committee. It appears to foreshadow a statutory definition which preserves key benefits of the current common law definition, such as flexibility around the meaning of charitable purpose. The proposals seem to be a genuine effort to codify existing principles, rather than an attempt to narrow the definition of charitable entity.
Background
The tax law currently provides a range of tax concessions for entities which are charities. However neither the tax law, nor any other piece of legislation, actually defines what is meant by the term 'charity'. This task is left to the common law, which has developed a definition through cases going back hundreds of years. Legislation adopted in 2004 did extend the common law definition somewhat, but stopped short of adopting an exhaustive statutory definition.
In 2003 the then Government put forward a Bill which would have introduced a statutory definition of charity, however this did not proceed. The current consultation paper proposes to use this Bill as a starting point for initial consultation.
Core definition
The 2003 Bill proposed that an entity satisfying the following elements would be a charity:
- the entity must be a not-for profit entity;
- it has a dominant purpose which 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.
The paper suggests a statutory definition could take similar form.
Charitable purposes
The 2003 definition of charitable purpose included the following (those in italics are not recognised by the current definition):
- the advancement of health;
- the advancement of education;
- the advancement of religion
- the advancement of social or community welfare;
- the advancement of culture;
- the advancement of the natural environment; and
- any other purpose that is beneficial to the community.
In a welcome move, the consultation paper comments that the last charitable head is of key importance in ensuring flexibility in a statutory definition. It states that this will allow the meaning of charitable purpose to develop in accordance with societal expectations. These comments indicate the Government is prepared to incorporate flexibility, the key advantage of the existing common law definition, into a statutory definition.
Disqualifying purpose
The 2003 Bill defined disqualifying purpose as:
- political advocacy that is more than ancillary or incidental; or
- illegal activities.
Political advocacy by charities has been a controversial issue, culminating in the High Court decision in Aid/Watch Inc v Commissioner of Taxation. There the Court held that there was no general doctrine in Australia which prevents political activities from being charitable. However in order to be charitable the advocacy must relate to one or more of the established charitable heads.
The consultation paper does not propose to overturn the Aid/Watch decision, instead proposing to alter the 2003 Bill's definition of disqualifying activity. The proposed alternation would essentially codify the Aid/Watch position. Charities could attempt to change the law or government policy provided their attempts to do so fell within a recognised charitable head.
Date of effect
The paper proposes that the statutory definition take effect from 1 July 2013. It suggests that entities which have received endorsement from the Australian Taxation Office would not need to reapply for recognition as charities.
Submissions
Submissions on the proposal are due by 9 December 2011.
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