The law governing charities and non-profit organisations in Australia is most confusing. It is so perplexing that charities and non-profit organisations have been screaming for years for the Federal Government to review the laws as they apply to charities and non-profits with a view to simplifying them. This confusion is one of the main catalysts behind the Senate inquiry into the third sector in Australia which took place in 2008.
One of the contributing factors to this confusion is the terminology. Many people, even those who work in the third sector, do not understand the distinction between the different types of charitable and non-profit categories which exist, especially as applied by the Australian Taxation Office (ATO). The ATO has attempted to address this confusion by publishing a number of guides and fact sheets which explain the law, as applied by the ATO, but the confusion still prevails.
In particular, many individuals who work for Church agencies and organisations struggle to understand the technical differences between a charity, as compared with a public benevolent institution (PBI), and as compared with a deductible gift recipient (DGR). This article will attempt to unravel the confusion surrounding this terminology. Once unravelled, it may be that some Church agencies/organisations will discover that they are eligible for endorsement as a charity, PBI or DGR for which they have not applied.
We hope that this article will encourage those Church agencies/organisations to apply, where they think they may be eligible, so as to access all of the tax concessions and exemptions which are available to charities, PBIs and DGRs (as the case may be).
What is a charity?
A charity is an entity established for altruistic purposes that the law regards as charitable. The ATO does not set the criteria to determine whether or not an entity is a charity. Criteria for deciding what constitutes a charity have been established and continue to be established by case law.
Charities include most religious institutions, aged person homes, homeless hostels, organisations relieving the special needs of people with disabilities, and societies that promote the fine arts.
The characteristics of a charity are:
- it is an entity that is also a trust fund or an institution;
- it exists for the public benefit or the relief of poverty;
- its purposes are charitable within the legal sense of that term;
- it is non-profit; and
- its sole purpose is charitable.
It is established law in Australia that the four main categories of charity are:
- relief of poverty;
- the advancement of education;
- the advancement of religion; and
- other purposes beneficial to the community not falling into any of the preceding categories.
The advancement of religion
Of most interest to those working within the Christian Church is whether the particular activities carried on by their organisation/agency fall within the “advancement of religion” category of charity. The Courts have held that the following purposes do qualify as being for the advancement of religion:
- spreading of religious doctrine;
- mission work;
- provision of facilities for worship;
- preaching of the gospel;
- Christian work;
- assistance in poor parishes;
- Holding of Church services;
- burial grounds associated with churches; and
- gifts for the provision and maintenance of clergy/ministers/pastors etc.
As from 1 July 2000, charities in Australia must be endorsed by the Federal Commissioner of Taxation as charities in order to access all of the exemptions and concessions available to charities under the Federal tax laws.
As at 2010, it can be assumed that most Church organisations and agencies have been endorsed by the ATO as charities (being established for the advancement of religion).
What is a public benevolent institution (PBI)?
Although most Church organisations and agencies would be eligible for endorsement as charities by the ATO, only a limited number of those same organisations/agencies would be eligible for endorsement as PBIs. A PBI is a non-profit institution organised for the direct relief of such poverty, sickness, suffering, distress, misfortune, disability, destitution or helplessness as arouses compassion in the community.
Being endorsed as a charity means that these organisations and agencies:
- are exempt from:
- income tax; and
- capital gains tax; and
- enjoy certain concessions in relation to:
- GST; and
- FBT; and
- are entitled to a refund of franking credits on dividends they receive.
As not all charities satisfy this definition, it is clear that a charity is not automatically a PBI, however it is unlikely that any PBI would not also itself qualify as a charity. In other words, PBIs are considered to be a subset of charitable institutions.
Throughout the Christian Church in Australia, most social welfare agencies such as Anglicare NSW, CatholicCare etc are endorsed by the ATO as PBIs. Other examples of PBIs in the Church are:
- agencies looking after migrants;
- agencies established to minister to Aborigines;
- hospital chaplaincies;
- services aimed at assisting the homeless; and
- certain limited counselling services etc.
PBIs enjoy greater tax concessions and exemptions than those available to mere charities, as PBIs:
- are exempt from fringe benefits tax; and
- will, in most circumstances, be entitled to DGR endorsement
What is a deductible gift recipient (DGR)?
Certain entities are entitled to be endorsed by the ATO as DGRs.
DGRs are entities to which donations can be made where the donor will receive a tax deduction.
DGRs are also a subset of charities. Subdivision 30-B of the Income Tax Assessment Act 1997 contains tables that identify general and specific recipients of deductible gifts in the following areas:
- welfare and rights;
- industry, trade and design;
- the family;
- international affairs;
- sports and recreation;
- philanthropic trusts; and
- cultural organisations.
To obtain DGR endorsement, entities need to be endorsed by the ATO or specifically named in the relevant table in subdivision 30-B. An example of a recipient specifically named in the table is the St Patrick’s Cathedral Restoration Fund.
In addition to these DGR categories, a public ancillary fund or a private ancillary fund can achieve DGR status if they are established by Will or trust deed solely for the purpose of providing money, property or benefits to other DGRs.
For those Church organisations/agencies which do not enjoy all or any of the above endorsements from the ATO, it is a worthwhile exercise to periodically review your entitlement as the laws surrounding charities, PBIs and DGRs are amended from time to time, and so therefore an entitlement may arise where it did not exist before. This is especially the case with the DGR categories, which continue to gradually expand.