House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

Statutory extension of charity

The Extension of Charitable Purpose Bill 2004 provides a statutory extension to the common law meaning of 'charity' for the purposes of all Commonwealth legislation.

The statutory extension allows:

•

organisations providing child care to the public on a non-profit basis;

•

self-help bodies with open and non-discriminatory membership; and

•

closed or contemplative religious orders that offer prayerful intervention to the public,

to be treated as charities for the purposes of all Commonwealth legislation.

Date of effect: The amendments apply from 1 July 2004.

Proposal announced: This measure was announced in the Treasurer's Press Release No. 31 of 11 May 2004.

Financial impact: The estimated cost to revenue is $3 million in each year from 2005-2006.

Compliance cost impact: Nil.

Chapter 1 - Statutory extension of charity

Outline of chapter

1.1 The Extension of Charitable Purpose Bill 2004 provides a statutory extension to the common law meaning of 'charity' for the purposes of all Commonwealth legislation.

1.2 The statutory extension will allow:

•

organisations providing child care to the public on a non-profit basis;

•

self-help bodies with open and non-discriminatory membership; and

•

closed or contemplative religious orders that offer prayerful intervention to the public,

to be treated as charities for the purposes of all Commonwealth legislation.

Context of reform

1.3 The amendments contained in this bill form part of the Government's response to the Report of the Inquiry into the Definition of Charities and Related Organisations that was announced by the Treasurer on 29 August 2002 (Press Release No. 049).

1.4 Following the Board of Taxation's report Consultation on the Definition of Charity, the Treasurer announced on 11 May 2004 (Press Release No. 31) that the Government would introduce a statutory extension to the common law meaning of charity for the purposes of all Commonwealth legislation.

Summary of new law

1.5 The amendments provide a statutory extension to the common law meaning of charity so that:

•

organisations providing child care to the public on a non-profit basis;

•

self-help bodies with open and non-discriminatory membership; and

•

closed or contemplative religious orders that offer prayerful intervention to the public,

can be treated as charities for the purposes of all Commonwealth legislation.

Comparison of key features of new law and current law

Detailed explanation of new law

1.6 Under the common law, a fund or institution generally needs to satisfy three broad criteria in order to be considered a charity - that it is non-profit, has a dominant charitable purpose, and that its dominant charitable purpose is for the public benefit.

1.7 Some institutions or funds that the Government considers should be treated as charities are either uncertain about, or have difficulty satisfying different aspects of this criteria. As a result, this bill allows certain child care and self-help groups, and closed or contemplative religious orders to meet various aspects of the criteria.

Statutory extension of charitable purpose

Non-profit child care available to the public

1.8 In order for an institution or fund to be a charity under the common law it must have a dominant purpose that is charitable.

1.9 In the case of institutions or funds that provide non-profit child care, it is often not clear whether the provision of such services is charitable.

1.10 To avoid doubt, this bill ensures that the provision of child care services available to the public on a non-profit basis is a charitable purpose. [Schedule 1, item 4, subsection 4(1)]

1.11 This amendment applies for two purposes. The first is to determine whether the provision of child care is a charitable purpose under a Commonwealth Act or instrument and, second, whether an institution or fund is a charity under a Commonwealth Act or instrument. [Schedule 1, item 4, subsection 4(2)]

1.12 The term 'non-profit' within the context of this amendment will not prevent the institution or fund from making profits (or gains) or accumulating surpluses, provided those profits are not for the purpose of profit or gain to its individual members or distribution to its owners or members, or to any other person, either while operating or on winding up.

1.13 Although the provision of child care services can be treated as a charitable purpose, it will still be necessary for the institution to satisfy the other general criteria before the institution will be taken to be a charity. This includes the public benefit test. [Schedule 1, item 4, subsection 4(3)]

1.14 Broadly speaking, the public benefit test requires that the fund or institution has a dominant charitable purpose that is aimed at achieving a universal or common good, has practical utility and is directed to the benefit of the general community or to a sufficient section of the general community.

Statutory extension of public benefit

Self-help groups with open and non-discriminatory membership

1.15 Open and non-discriminatory self-help groups are often organised and managed by the same people that benefit from the group. For this reason, open and non-discriminatory self-help groups would not typically be able to satisfy the public benefit test.

1.16 To ensure that open and non-discriminatory self-help groups can be charities, this bill provides that such institutions satisfy the public benefit test. [Schedule 1, item 5, paragraph 5(1)(a)]

1.17 An institution will be an open and non-discriminatory self-help group notwithstanding that it is made up of, and controlled by, individuals who are affected by the disadvantage or discrimination.

1.18 This amendment applies for the purposes of determining whether an institution is a charity for the purposes of a provision of a Commonwealth Act or instrument. [Schedule 1, item 5, subsection 5(3)]

1.19 Although open and non-discriminatory self-help groups will be taken to satisfy the public benefit test, it will still be necessary for the institution to satisfy the other general criteria before the institution will be taken to be a charity. This includes having a dominant charitable purpose. [Schedule 1, item 5, subsection 5(4)]

Closed or contemplative religious orders that offer prayerful intervention to the public

1.20 Under the common law, there is some doubt as to whether a closed or contemplative religious order fulfils the public benefit requirement in order to be a charity. In Gilmour v Coats [1949] AC 426 the House of Lords expressed the view that there is no proven or provable benefit to the community if the results of the contemplation are in no way communicated to the public.

1.21 To ensure that closed or contemplative religious orders that offer prayerful intervention to the public can be treated as charities, this bill provides that such institutions satisfy the public benefit test. [Schedule 1, item 5, paragraph 5(1)(b)]

1.22 The extension applies for the purposes of determining whether an institution is a charity for the purposes of a provision of a Commonwealth Act or instrument. [Schedule 1, item 5, subsection 5(3)]

1.23 Closed or contemplative religious orders are institutions that keep their observances, prayers or reflections to themselves. Therefore, if the order prays for any members of the faith community who seek it, then they will be treated as satisfying the public benefit requirement.

1.24 Although such closed or contemplative religious orders will be taken to satisfy the public benefit test, it will still be necessary for the institution to satisfy the other general criteria before the institution will be taken to be a charity. This includes having a dominant charitable purpose. [Schedule 1, item 5, subsection 5(4)]

Index

Schedule 1: Statutory extension of charity