Australia: Charity redefined: Broader scope for charities?

On 11 May 2011, the ATO issued draft Ruling TR 2011/D2 (Draft Ruling) and a Decision Impact Statement (Decision Impact Statement) setting out their views in relation to the Aid/Watch⁽¹⁾ case (see our case update here). The Decision Impact Statement and Draft Ruling have a significant impact on future or proposed activities and on some organisations not previously considered 'charitable'.

Does this mark the beginning of the public consultation on a statutory definition of 'charity'?

Despite the timing of the release, the Federal Treasury has said to Gadens Lawyers that the request for feedback on the Draft Ruling and the Decision Impact Statement is not the 'consultation' on the proposed statutory definition of charity foreshadowed in the 2011 Federal Budget (see our update here). Organisations previously not considered charitable may wish to take this opportunity to make a submission before future consultation on a statutory definition of 'charity'.

In summary:

Decision Impact Statement

A decision impact statement sets out how the ATO interprets and proposes to administer the tax law in light of a relevant judicial decision.

The Decision Impact Statement clarifies that the generation of public debate will only be considered charitable by the ATO if the subject matter falls within the four heads of charity:

• 'the relief of poverty';
• 'the advancement of education';
• the advancement of religion' and
• 'other purposes beneficial to the community'.

In Aid/Watch, the High Court found it unnecessary to determine whether 'other purposes beneficial to the community' includes the encouragement of public debate in relation to government activities outside of the four heads of charity. This leaves the question open for clarification.

The ATO has indicated that it will assess other entities that generate public debate about a government activity or policy beyond the four heads of charity on a case by case basis.

The request for Feedback on the Decision Impact Statement provides an opportunity for not-for-profit organisations to explore the question left open by the High Court on the subject matter about which public debate may be generated and still be considered charitable.

A copy of the Decision Impact Statement can be accessed here.

Draft Ruling

A tax ruling sets out how the ATO will administer the tax law.

The Draft Ruling is intended to replace TR 2005/21 on the ATO's definition of 'charity' and 'charitable institution'. Significantly:

• An entity can be charitable if it has a purpose of generating public debate in relation to subject matters within one or more of the four heads of charity. This change results from the Aid/Watch decision.
• The charitable status of an institution will not be affected by it carrying on a business or commercial enterprise to give effect to its charitable purpose, and even if its activities are not intrinsically charitable. These are a long-awaited changes to bring the tax ruling in line with the decision in Word Investments⁽²⁾.

A copy of the Draft Ruling can be accessed here.

Submissions

The ATO has invited comments on the Decision Impact Statement and comments on the Draft Ruling can be made until 24 June 2011.

Gadens Lawyers is able to assist and advise organisations that consider themselves charitable to provide feedback or a submission to the ATO, or in reviewing whether their activities may be considered charitable in light of the new Decision Impact Statement or Draft Ruling.

(1) Aid/Watch Incorporated v Commissioner of Taxation [2010] HCA 42 (1 December
2010).

(2) Word Investments Limited v Commission of Taxation [2008] HCA 55 (3 December
2008).

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.