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.
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
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.
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
The 2003 definition of charitable purpose included the following
(those in italics are not recognised by the current
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.
The 2003 Bill defined disqualifying purpose as:
political advocacy that is more than ancillary or incidental;
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
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
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 on the proposal are due by 9 December 2011.
We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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