Peter Costello

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Government Response to Charities Definition Inquiry




Today I am releasing the Government's response to the Report of the Inquiry into the Definition of Charities and Related Organisations.

As I noted when I released this Report in August 2001, the Inquiry has made a significant contribution in simplifying such a complex legal and administrative issue.

The Government has decided to enact a legislative definition of charity for the purpose of the administration of Commonwealth laws and to adopt a majority of the Inquiry's recommendations for the definition. While the Commonwealth's predominant requirement for a definition of a charity is for the purposes of deciding which organisations are eligible for tax relief, the definition will apply for all Commonwealth legislation. I will be writing to each of the State and Territory Treasurers to gauge their interest in achieving harmonisation of laws defining charity.

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. The details of the definition are attached. It will explicitly allow not-for-profit child care 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. It will provide certainty to those organisations operating in the sector while still providing the flexibility required to ensure the definition can adapt to the changing needs of society.

I 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.

Charities and other not-for-profit organisations are pivotal members of society. In order for them 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 where such purposes further, or are in aid of, the dominant charitable purposes or where they are incidental or ancillary to the dominant charitable purposes. The Government agrees with this recommendation, but is concerned to ensure that the taxation concessions provided to charities are not abused. The Government has therefore decided that from 1 July 2004, charities, public benevolent institutions and health promotion charities will be required to 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.

I am also announcing today that 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. 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:

      - 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.

      - 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.

      - 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 cost to revenue of the Government's response is $2 million in 2004-05 and $5 million in 2005-06 and 2006-07.

I would like to again thank the Inquiry members for their work in producing the Report. The members of the Inquiry were the Hon. Ian Sheppard AO QC (chair), Mr Robert Fitzgerald AM and Mr David Gonski.

29 August 2002

Contact: Niki Savva
02 6277 7340


Elements of the definition of charity

(1) A charity is an entity (other than an entity excluded by paragraph 9) that is not-for-profit and has a dominant purpose or purposes that are charitable and, subject to paragraph 7, for the public benefit.

(2) In addition:

    (a) where the entity has other purposes, those purposes must further, or be in aid of, the dominant purpose or purposes, or be ancillary or incidental to the dominant purpose or purposes; and

    (b) the entity must have activities that further, or be in aid of, its charitable purpose or purposes; and

    (c) the entity must not have purposes, or engage in activities, that are illegal; and

    (d) the entity must not have a dominant purpose that is:

      (i) advocating a political party or cause; or

      (ii) supporting a candidate for political office; or

      (iii) attempting to change the law or government policy.

Charitable purposes

(3) Charitable purposes means the following:

    (a) the advancement of health;

    (b) the advancement of education;

    (c) the advancement of social and community welfare, including without limitation, the care, support and protection of children and young people, including the provision of child care services;

    (d) the advancement of religion;

    (e) the advancement of culture;

    (f) the advancement of the natural environment;

    (g) other purposes beneficial to the community.

(4) Advancement is taken to include protection, maintenance, support, research, improvement or enhancement.

(5) In determining whether an entity has the purpose of the advancement of religion, regard is to be had to the principles established by the High Court in Church of New Faith v Commissioner of Pay-Roll Tax (1983) 154 CLR 120.

Public benefit

(6) To be for the public benefit, a purpose must:

    (a) be aimed at achieving a universal or common good; and

    (b) have practical utility; and

    (c) be directed to the benefit of the general community or a sufficient section of the community.

(7) The following entities do not have to have a dominant purpose or purposes that are for the public benefit:

    (a) open and non-discriminatory self-help groups that have open and non-discriminatory membership;

    (b) closed or contemplative religious orders that regularly undertake prayerful intervention at the request of the public.

Open and non-discriminatory self-help group

(8) An open and non-discriminatory self-help group is a group of individuals where:

    (a) the group is established for the purpose of assisting individuals affected by a particular disadvantage, discrimination or need that is not being met; and

    (b) the group is made up of, and controlled by, individuals affected by the particular disadvantage, discrimination or need that is not being met; and

    (c) any membership criteria relate to the purpose of the group; and

    (d) membership of the group is open to any individual who satisfies criteria referred to in paragraph (c).


(9) The following are excluded from being charities:

    (a) an individual;

    (b) a partnership;

    (c) a political party;

    (d) a superannuation fund;

    (e) the Commonwealth, a State or Territory or a body controlled by the Commonwealth or a State or Territory;

    (f) a foreign government or a body controlled by a foreign government.

(10) For the purposes of paragraph 1, entity includes:

    (a) a body corporate; and

    (b) a corporation sole; and

    (c) any association or body of persons whether incorporated or not; and

    (d) a trust.


(11) An entity is taken to be not-for-profit if and only if:

    (a) it is not carried on for the profit or gain of particular persons; and

    (b) it is prevented, either by its constituent documents or by operation of law, from distributing its assets for the benefit of particular persons either while it is operating or upon winding up.


29 Aug 2002

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