Government Decides on Charity Definition

The Federal Government has decided to enact a legislative definition of ‘charity’ and to adopt a majority of the 2001 Inquiry recommendations.

Federal Treasurer, Peter Costello says the legislative definition of a charity will closely follow the definition that has been determined by over four centuries of common law, but will provide greater clarity and transparency for charities.

Costello says the definition will explicitly allow for Not for Profit childcare available to the public, self-help bodies that have open and non-discriminatory membership and closed or contemplative religious orders that offer prayerful intervention for the public, to be charities.

He says it will provide certainty to those organisations operating in the sector while still providing the flexibility required, ensuring the definition can adapt to the changing needs of society.

The Treasurer says he will ask the Board of Taxation to consult widely with the charitable sector on an exposure draft of the legislation. The legislation is expected to begin on 1 July 2004.

The Government has decided to establish a new category of deductible gift recipient for charities whose principal activities promote the prevention and control of harmful and abusive behaviour among humans. This will assist these charities in attracting public support for their activities. The new category will apply from 1 July 2003.

To ensure that there is no change to the taxation treatment of public hospitals as a result of these decisions, the Government has also decided that fringe benefits provided to employees whose duties are exclusively performed in, or in connection with, a public hospital will continue to be subject to the $17,000 capped fringe benefits tax (FBT) exemption, whether or not those hospitals are public benevolent institutions.

The Treasurer says that in order for charities to be able to continue to contribute fully, they need to be able to participate in a wide range of activities including, at times, commercial activities.

The Inquiry recommends that commercial purposes should not deny charitable status in some cases. The Government agrees with this recommendation, but is concerned to ensure that the taxation concessions provided to charities are not abused.

The Government says it has therefore decided that from 1 July 2004, charities, public benevolent institutions and health promotion charities must be endorsed by the Australian Taxation Office in order to access all relevant taxation concessions.

Depending on the character of the charity, these concessions are the income tax exemption as a charity, refundable imputation credits, deductible gift recipient status, the FBT rebate, the $30,000 capped FBT exemption and GST concessions.

From 1 July 2004, an organisation endorsed to access these tax concessions will have its status attached to its Australian Business Number and be able to be publicly accessed through the Australian Business Register.

Peter Costello says this will allow greater scrutiny of the use of taxation concessions by charities and improve public confidence in the provision of taxation support to the charitable sector.

The other changes are:

1.The Income Tax Assessment Act 1997 to be amended with effect from 1 July 2003, to allow future additions to the list of organisations specifically named as deductible gift recipients to be prescribed by regulation rather than requiring a legislative amendment. This will allow continued scrutiny by Parliament but will make the process less administratively costly and more timely.

2.Entities established in perpetuity by the Parliament to be allowed to be endorsed as deductible gift recipients from 1 July 2003.
: They are currently denied endorsement because they cannot meet the requirement that their constituent documents or governing rules require that any surplus assets be transferred to another deductible gift recipient if they are wound up.

3.The GST law to be amended to ensure that the current GST concessions for gift deductible entities apply only to deductible gift recipients and not to any larger, non-charitable entity that operates the deductible gift recipient.
: This will ensure that non-charitable entities are not able to access the GST charity concessions and gives effect to the original policy intent of the law.

The Treasurer says the cost of the changes to the definition is $2 million in 2004-05 and $5 million in 2005-06 and 2006-07.

It has taken the Federal Government 12 months to respond to the Inquiry chaired by Ian Sheppard AO QC, with Robert Fitzgerald AM and David Gonski.