Australia: Definition of Charity: The changes just keep coming - Treasury consultation released
Not For Profits Update

In the continuing barrage of information relating to the reforms to the not-for-profit sector, on 28 October 2011 the Commonwealth Treasury released its consultation paper on a definition of charity to apply for all Commonwealth laws with effect from 1 July 2013. Although Treasury has indicated that existing charities will not need to reapply to the new Australian Charities and Not-for-profits Commission for registration, it has indicated that registration will be reviewed by the ACNC over time.

Existing charities should review the consultation paper to ensure that they take advantage of the opportunity for consultation in relation to the issues relating to their existing activities.

Submissions to Treasury on the consultation are due 9 December 2011. Given the definition is due to start in July 2013 and an exposure draft of legislation will be prepared during 2012, it is clear there is a long way to go in finalising the reforms.

The Consultation paper can be accessed here.

Current definition

The current definition of charity comes from the common law and can be broadly described as the 'four heads of charity' identified in Pemsel's case(1). These 'heads of charity' are:

1. relief of poverty
2. advancement of education
3. advancement of religion
4. other purposes beneficial to the community.

The ATO has also recently finalised TR 2011/4 which sets out its views on the meaning of 'charitable' in the context of determining whether the purpose of an organisation is charitable and therefore eligible for tax concessions (see our update here).

The new definition

The idea of a statutory definition of charity is not new. In 2001, the Australian Government commissioned an inquiry into the definition of charities and related organisations which led to the introduction of the Charities Bill 2003. However, this bill was subsequently withdrawn before being passed.

The consultation paper makes extensive reference to TR 2005/D2 which was the draft form of TR 2011/4.

Treasury has proposed that the new definition will be based on the 2001 inquiry and the Charities Bill 2003, taking into account the developments since 2003, including the High Court's decision in Aid/Watch. The Charities Bill 2003 defined charity with reference to a 'core definition' and that the entity's domininant purpose was charitable. The concepts of 'core definition' and 'charitable purpose' are defined and described and will invariably be subject to interpretation and guidance over time.

The definition of 'not-for-profit' is also to be developed. A further exposure draft of these amendments is expected in the coming months.

Issues for consultation

The consultation paper sets out a number of questions for consultation and invites response from the industry. The are a number of issues that are particularly relevant for existing charities. They will will need to consider and assess the implications and engage in the consultation to ensure Treasury understands their impact. These issues go to the operation, structure and financial foundation of an organisation and include concepts of:

• charitable purpose
• public benefit
• activities - nature and breadth
• lobbying and advocacy.

Gadens Lawyers is able to assist organisations seeking to understand and assess the issues raised in the consultation and in making submissions to Treasury.

Footnotes

¹ Commissioners for Special Purposes of Income Tax v Pemsel [1891-1894] All ER Rep 28

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This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.