Explanatory Memorandum
Circulated By the Authority of the Treasurer, the Hon Wayne Swan MPChapter 6 - 2009 Victorian Bushfire Appeal Trust Account
Outline of chapter
6.1 Schedule 6 to this Bill provides the Victorian Bushfire Appeal Fund Independent Advisory Panel (the Panel) with greater scope to support communities and individuals affected by the 2009 Victorian bushfires.
6.2 The Panel oversees the expenditure of funds from the 2009 Victorian Bushfire Appeal Trust Account (the Appeal Fund). The amendments permit funds in the Appeal Fund to be used for a broader range of purposes than the law considers charitable, without jeopardising the charitable status of the organisation that collected the donations, the Australian Red Cross Society (the Red Cross).
6.3 The charitable status of the Red Cross will be protected so long as the funds are used for the purposes specified in these amendments (the allowable purposes).
6.4 The purposes for which the funds may be expended are extended by this Bill but are contained to provide assurance to the donors that their charitable donations will be used appropriately.
Context of amendments
6.5 Immediately after the February 2009 Victorian bushfires, the Victorian Government and Red Cross established a joint public appeal to raise money to support the victims of the fires.
6.6 Tax deductible donations were collected by the Red Cross and transferred to the Appeal Fund. The expenditure of these funds is overseen by the Panel, on which the Red Cross is represented.
6.7 Generally, money collected by a deductible gift recipient (DGR) such as the Red Cross must be used by the DGR, however in this case the money was transferred to the Appeal Fund. At the time, the Appeal Fund could not be endorsed as a DGR under any of the general categories, and nor could it be endorsed as a charity as the trustee of the Appeal Fund is the Victorian Government, and the functions of government are not charitable in a legal sense.
6.8 To ensure that the Red Cross could transfer this money to the Appeal Fund without endangering its own DGR status, the Parliament specifically listed the Appeal Fund as a DGR in the Tax Laws Amendment (2008 Measures No. 6) Act 2009. Organisations with DGR status are eligible to receive tax deductible gifts.
6.9 While the DGR listing of the Appeal Fund provided that the Red Cross could transfer donations to the Appeal Fund, the tax law that governs charitable tax concessions requires the funds be used for purposes that the law considers to be charitable. As the tax law requires that money donated to charities is used for charitable purposes, if the funds in the Appeal Fund were expended for purposes that were not charitable, the charitable endorsement of the Red Cross would be jeopardised.
6.10 The current tax law provides a general DGR category of Australian Disaster Relief Funds. Australian Disaster Relief Funds must be established and maintained solely for providing money for the direct relief of people in Australia in distress as a result of a disaster, including relief by way of assistance to re-establish a community. It must also be established for charitable purposes.
6.11 Such relief can cover a broad range of activities. These will vary with the nature of the disaster and the types of distress being suffered, and may include:
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- providing emergency shelter;
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- providing health care and food supplies;
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- providing relief for people through trauma counselling and through work on buildings, amenities, locations and infrastructure;
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- repairing and reconstructing infrastructure including:
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- rebuilding community buildings such as aged persons homes, halls, churches and schools damaged by a flood; and
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- replacing equipment used for the community by community organisations that is damaged in a storm; and
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- providing resources and facilities for use in relieving the distress including:
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- coordinating clean-up operations after a disaster; and
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- transporting and storing emergency supplies for people in outlying areas following a widespread fire or flood.
6.12 Under the current law, the Panel has been required to administer the Appeal Fund consistently with the purposes of an Australian Disaster Relief Fund.
6.13 Australian Disaster Relief Funds must be established and maintained in relation to a declared disaster. The Treasurer and the then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs declared the Victorian bushfires to be a disaster that started on 29 January 2009.
6.14 This start date provides that Australian Disaster Relief Funds can support those people affected by fires after 29 January 2009, including those fires prior to the widespread devastation caused by the fires on 7 February 2009.
Summary of new law
6.15 Recognising the extraordinary circumstances surrounding the Victorian bushfires, these amendments broaden the scope of purposes which the Appeal Fund can support beyond charitable purposes, without endangering the charitable status of the Red Cross.
6.16 These amendments will provide the Panel with greater scope to assist individuals and communities in towns and suburbs affected by the 2009 Victorian bushfires. The Panel has full discretion over the purposes for which it expends monies in the Appeal Fund.
6.17 The new additional purposes for which the funds in the Appeal Fund may be expended are restricted to the allowable purposes outlined in this chapter. The restrictions provide assurance to donors that their charitable donations will be used appropriately.
6.18 Any purpose that is currently allowed under the general DGR category of Australian Disaster Relief Funds will continue to be an allowable purpose. An Australian Disaster Relief Fund must, amongst other things, be established for charitable purposes.
6.19 In addition, a broad category of 'public benefit' purposes will be an allowable purpose. 'Public benefit' purposes comprise a wide category of newly permissible uses which would include building or operating community centres, halls, libraries, and similar public facilities.
6.20 A public benefit purpose is one consistent with the purpose of an income tax exempt entity, that provides broad and accessible public benefits where any private or commercial benefit is merely incidental and ancillary, if present at all.
6.21 Income tax exempt entities are generally granted a tax exemption in recognition of the public benefit that they provide.
6.22 Further, there are a number of specific additional purposes that are allowable purposes. These purposes target sections of the community which have been specifically identified as in need of support as a result of the bushfires.
6.23 The further allowable purposes are:
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- the provision of long-term support to orphans under 18;
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- reimbursement to individuals or organisations who have previously provided for eligible charitable or community benefit projects;
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- assisting individuals who lost their main residence in the fires, if their residence had the character of an owner-occupied residence, regardless of whether it was held in a trust, company or other legal structure;
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- assisting individuals who have had to live in transitional housing; and
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- assisting primary producers.
Comparison of key features of new law and current law
| New law | Current law |
| The charitable status of the Red Cross is protected so long as the Appeal Fund undertakes activities for one of the following purposes:
|
The charitable and DGR status of the Red Cross may be jeopardised if the funds in the Appeal Fund are used for purposes other than the purposes of an Australian Disaster Relief Fund. |
Detailed explanation of new law
6.24 These amendments provide the Panel with greater scope to support communities affected by the 2009 Victorian bushfires.
6.25 The Panel oversees the expenditure of funds in the Appeal Fund. The amendments permit funds in the Appeal Fund to be used for a broader range of purposes than the law considers charitable, without jeopardising the charitable status of the charity that collected the donations, the Red Cross.
6.26 These amendments ensure that any funds transferred from the Red Cross to the Appeal Fund, which is not itself a charitable fund or institution, will be disregarded in considering the Red Cross' status as a charitable institution and a public benevolent institution, so long as the funds are used for the allowable purposes . [Schedule 6, item 3]
6.27 The allowable purposes for which the funds may be expended are restricted to provide assurance to donors that their charitable donations will be used appropriately.
Allowable purposes
6.28 The allowable purposes fall broadly into three categories:
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- Australian Disaster Relief Fund purposes;
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- public benefit purposes; and
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- other allowable purposes.
Australian Disaster Relief Fund purposes
6.29 Any purpose that is currently allowed under the general DGR category of Australian Disaster Relief Funds will continue to be an allowable purpose . [Schedule 6, item 2, paragraph 2(a)]
6.30 An Australian disaster relief fund is a public fund that is established for charitable purposes. It must be established and maintained solely for providing money for the relief of people in Australia in distress as a result of a disaster. The relief may be by way of assistance to re-establish a community.
6.31 In most cases providing for a person's second home will not be an allowable purpose, as in most cases such assistance would neither be an Australian Disaster Relief Fund purpose (as such purposes must be charitable), nor otherwise an allowable purpose as provided for by these amendments.
6.32 It is the role of the insurance market to enable people to fully rebuild after a disaster. In many cases, providing funds to rebuild second uninsured homes confers a significant private benefit on an individual who is not in charitable need. Such support would be inconsistent with general charitable principles, and may be inconsistent with the expectations of donors, many of whom would not have the means to own a second home.
6.33 However, where a clear charitable need is identified, the Appeal Fund can provide for assistance towards rebuilding second homes.
Public benefit purposes
6.34 An allowable 'public benefit' purpose will be a purpose to provide broad public benefits that are:
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- consistent with the purposes of one or more income tax exempt entities;
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- widely and publicly accessible; and
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- provide commercial or private benefits only to an incidental and ancillary extent, if at all.
[Schedule 6, item 2, paragraph 2(b)]
6.35 Public benefit means the organisation must have a purpose aimed at achieving a universal or common good; their benefits are accessible; and are directed to the general community.
6.36 There are a number of categories of entity that are made income tax exempt in the tax law, generally in recognition of their value to the community. These categories include, amongst other things, charitable institutions, community service organisations, cultural organisations, health organisations, sporting organisations and local government bodies.
6.37 To be consistent with the purpose of an income tax exempt entity, the funds must be used for activities that would be undertaken by an income tax exempt entity. This is a wide category of newly permissible purposes for the Panel and would include rebuilding or establishing community centres, youth centres, halls, libraries, and for other similar purposes which meet the requirements of a public benefit purpose.
6.38 Purposes consistent with local Governments are allowable purposes if they have a broad public benefit, wide public access and no more than an incidental and ancillary private benefit.
6.39 It may be that the local government itself is funded to undertake these purposes, or that another service provider is contracted to provide the service.
6.40 The Australian Government understands that the Panel will not fund activities that are the responsibility of the Victorian State Government.
Other allowable purposes
Orphans
6.41 Providing long term assistance to orphaned minors (that is, under the age of 18 years) without any requirement for annual assessments is an allowable purpose . [Schedule 6, item 2, paragraph 2(d)]
6.42 The requirement for annual assessments arose due to the fact that long-term assistance is usually not permitted under charitable law. Under the current law, the Appeal Fund is able to provide funds to individuals with charitable needs, but is not generally permitted to 'predict' distress in the long term. To provide longer term assistance, orphaned minors would have been subjected to annual personal assessments of need in order to access charitable assistance from the Appeal Fund.
6.43 Under these amendments, the Appeal Fund can provide for orphaned minors who are presently in need of charitable assistance as a result of the bushfires. The charitable assistance which they presently need can be projected until these orphaned minors reach the age of 18 years, without further assessment of their needs.
Reimbursements
6.44 Reimbursing individuals or organisations who have paid for either Australian Disaster Relief Fund activities or public benefit activities to be performed is an allowable purpose (see paragraphs 6.34 to 6.40 for a discussion of public benefit purposes) . [Schedule 6, item 2, paragraph 2(c)]
6.45 Under the current law, if an individual can meet their expenses out of their own pocket, or if some other person has relieved the distress for them, they have not generally been considered to be in charitable need. Australian Disaster Relief Fund activities must be for charitable purposes.
6.46 The amendments provide for assistance to people who may have provided for certain Australian Disaster Relief Fund or public benefit purposes after the fires, and thus been ineligible to receive assistance from the Appeal Fund that was provided to people in similar situations who had not provided for themselves. Alternatively, it may support organisations who paid for charitable disaster relief services for people affected by the fires.
Transitional housing payments
6.47 Providing support to individuals who, because of the bushfires, have lived or are living in transitional housing is an allowable purpose. Grants of up to $15,000 per individual may be provided . [Schedule 6, item 2, subparagraph 2(e)(ii)]
Primary producers
6.48 Assisting individuals who are primary producers is an allowable purpose. The amendments allow the Appeal Fund to make grants of up to $10,000 to primary producers. This payment would be open for primary producers to use for repair and restoration of farm activities, including in re-fencing properties . [Schedule 6, item 2, paragraph 2(f)]
6.49 Under the current law the Appeal Fund has not been able to provide charitable assistance to businesses, including farmers. However, they have been able to support farmers who are in personal distress (rather than their business being in distress).
Principal residence
6.50 For determining assistance to families whose principal residence has been destroyed or damaged, the changes allow the Appeal Fund to ignore the legal structures in relation to the ownership of primary residences. This has relevance to individuals who may use company or trust structures to own their residence.
6.51 Providing assistance to individuals who lost a residence in the fires that had the character of an owner-occupied residence, despite the fact it may have been held in a trust, company or other legal structure, will be an allowable purpose . [Schedule 6, item 2, subparagraph 2(e)(i)]
6.52 To date, Appeal Fund monies have not been able to be used to provide assistance towards rebuilding property that does not belong to an individual, for example, property that belongs to a business or a trust. The proposed policy would allow the Appeal Fund to disregard legal ownership structures to identify property that is in essence an owner-occupied primary residence, and provide assistance towards rebuilding the home.
Application and transitional provisions
6.53 This measure applies to payments made by the Red Cross to the Appeal Fund after 28 January 2009 and before 6 February 2014 . [Schedule 6, item 4]
6.54 The amendments will not be inserted into the Income Tax Assessment Act 1997 (ITAA 1997), as the amendments have application in the tax law beyond just the ITAA 1997.
6.55 All expressions used in the amendments have the same meaning as in the ITAA 1997 . [Schedule 6, item 1]
Consequential amendments
6.56 This Schedule inserts a note into Division 30 of the ITAA 1997 as a signpost to this measure . [Schedule 6, item 5]
6.57 This note, and the specific listing of the Appeal Fund (which will no longer be eligible to receive tax deductible gifts), is repealed on 30 June 2016 . [Schedule 6, items 6 and 7]
Index
Schedule 1: GST and representatives of incapacitated entities
| Bill reference | Paragraph number |
| Items 1 to 7, 11 to 13, 16 to 19, 25 to 32, 34 to 38, 40 to 42 | 1.101 |
| Item 8 | 1.16, 1.17, 1.20, 1.21, 1.22, 1.26, 1.27, 1.28, 1.29, 1.30, 1.31, 1.32, 1.33, 1.34, 1.35, 1.38, 1.41 |
| Item 9 | 1.86 |
| Items 10 and 43 | 1.102 |
| Item 14 | 1.53 |
| Item 15 | 1.54 |
| Item 20 | 1.66 |
| Item 21 | 1.60, 1.65 |
| Item 22 | 1.67 |
| Item 23 | 1.42, 1.55 |
| Item 24 | 1.43, 1.44, 1.46, 1.49, 1.50, 1.69, 1.71, 1.73 |
| Item 33 | 1.100 |
| Item 39 | 1.98 |
| Items 44 and 45 | 1.97 |
| Item 46 | 1.94, 1.96 |
| Item 47 | 1.83, 1.84 |
| Items 48 and 49 | 1.87 |
| Item 50 | 1.91 |
| Item 51 | 1.92 |
| Item 52 | 1.75 |
Schedule 2: Taxation of financial arrangements
| Bill reference | Paragraph number |
| Part 1, item 1 | 2.19 |
| Part 1, item 2 | 2.20 |
| Part 1, item 3 | 2.25 |
| Part 1, sub-subitem 3(1)(a) | 2.26 |
| Part 1, sub-subitem 3(1)(b) | 2.26 |
| Part 1, subitems 3(2) and (3) | 2.31, 2.32 |
| Part 1, subitem 3(4) | 2.28 |
| Part 1, subitem 30(4) | 2.29, 2.30 |
| Part 2, item 4, subsection 45-120(2B) of Schedule 1 to the TAA 1953 | 2.34 |
| Part 2, item 5 | 2.35 |
| Item 4 in the table in clause 2 | 2.36 |
| Item 5 in the table in clause 2 | 2.37 |
Schedule 3: Helping Children with Autism package
| Bill reference | Paragraph number |
| Item 1, section 11-15 | 3.10 |
| Item 2, section 52-170 | 3.7 |
| Bill reference | Paragraph number |
| Item 1, section 11-15 | 4.10 |
| Item 2, section 52-170 | 4.7 |
Schedule 5: Exempting Commonwealth Government Securities from interest withholding tax
| Bill reference | Paragraph number |
| Item 1 | 5.11 |
| Item 2 | 5.16 |
| Item 3 | 5.17 |
Schedule 6: 2009 Victorian Bushfire Appeal Trust Account
| Bill reference | Paragraph number |
| Item 1 | 6.55 |
| Item 2, paragraph 2(a) | 6.29 |
| Item 2, paragraph 2(b) | 6.34 |
| Item 2, paragraph 2(c) | 6.44 |
| Item 2, paragraph 2(d) | 6.41 |
| Item 2, subparagraph 2(e)(i) | 6.51 |
| Item 2, subparagraph 2(e)(ii) | 6.47 |
| Item 2, paragraph 2(f) | 6.48 |
| Item 3 | 6.26 |
| Item 4 | 6.53 |
| Item 5 | 6.56 |
| Items 6 and 7 | 6.57 |