Developments in the Charities and Not-for-Profits Sector

What you need to know

This Bulletin outlines developments in the charities and not-for-profits sector during March and April 2016:

The Impact of Charity and Tax Law/Regulation on Not-For-Profit News Organisations Report

The Impact of Charity and Tax Law/Regulation on Not-For-Profit News Organisations Report focuses on the challenges facing not-for-profit (NFP) news organisations in applying for charitable and deductible gift recipient (DGR) status in a range of jurisdictions. The availability of DGR status is of particular importance given the current decline in profitability of the international news market.

NFP news organisations which succeed in obtaining charitable status obtain four main advantages: GST concessions; capped FBT rebates; state, territory and local government concessions; and DGR status (if eligible). Income tax is not a recognised advantage, as news organisations tend to operate at a loss and so are not required to pay tax in any event.

NFP news organisations can be recognised as a charity if they perform activities for the benefit of the public or a sufficiently large section of the public and perform those activities solely (not incidentally or as an ancillary purpose) for charitable purposes under the Charities Act 2013 (Cth). Any news-related activities must be directed towards achieving those charitable purposes.

While news organisations were previously considered incapable of fulfilling charitable criteria, following the High Court judgment in Roman Catholic Archbishop of Melbourne v Lawler (1934) 51 CLR 1 (Lawler), ATO Ruling 2011/4 now states that Lawler stands only for the proposition that performing news activities that are merely connected with a charitable purpose is by itself insufficient to qualify for charitable status. Thus, in order to qualify for charitable status, news activities must themselves be directed to achieving the relevant charitable purpose. NFP news organisations have been successfully recognised as charities when linked to the following charitable purposes: religion, local communities, foreign languages, vision impaired readers, education and research, advancing independent journalism, and community broadcasting.

However, only a minority of NFP news organisations have been able to register for DGR status. Some organisations have been successful in applying to be listed as a DGR under the Income Tax Assessment Act 1997 (Cth); operating under an institution, such as a University, which has DGR status; receiving donations from other DGRs; or in some rare cases applying for direct recognition as a DGR from the Australian Taxation Office.

In March 2009, the Productivity Commission concluded that DGR status should be extended to all recognised charities. This was echoed by a report from "The Not-for-Profit Sector Tax Concession Working Group". However to date, neither reports' recommendations have been implemented.

Australian Charities and Not-for-profits Commission (Consequential and Transitional) Regulation 2016 (Cth)

The Australian Charities and Not-for-profits Commission (Consequential and Transitional) Regulation 2016 (Cth) (ACNC Reg), registered 15 April 2016, relaxes the reporting obligations on registered not-for-profit entities under Division 60 of the Australian Charities and Not-for-profits Commission Act 2012 (Cth) (ACNC Act) for additional financial years.

Division 60 of the ACNC Act outlines the reporting requirements for registered entities, with additional obligations on larger entities. Part 4 of Sch 1 of the Australian Charities and Not-for-profits Commission (Consequential and Transitional) Act 2012 (Cth) (ACNC Transitional Act) provides for transitional arrangements in relation to these reporting requirements – allowing statements, reports and other documents given to Australian Government agencies in accordance with legal requirements to be used to meet reporting obligations.

Part 2 of the ACNC Reg extends the operation of the transitional provisions by prescribing 2015-16 and 2016-17 as additional financial years to which the transitional provisions apply under item 10(4)(d) of the ACNC Transitional Act.

The Australian Charities and Not-for-profits Commission

In a joint media release on 4 March 2016, the Minister for Social Services, Christian Porter, and the Minister for Small Business and Assistant Treasurer, Kelly O'Dwyer, announced, after consultation with the sector and stakeholders, that the Australian Charities and Not-for-profits Commission (the Commission) would be preserved, rather than repealed and replaced with a new body.

Minister O'Dwyer further announced that the government intends to work in conjunction with the Commission to "remove duplication … increase accountability and transparency" and "reduce the burden of red tape for charities and not-for-profit organisations".

Draft Commissioner's Interpretation Statement: Public Benevolent Institutions

The exposure draft Commissioner's Interpretation Statement: Public Benevolent Institutions (the statement), released by the Australian Charities and Not-for-profits Commission (the Commission) in March 2016, outlines the Commission's views regarding the meaning of the phrase "public benevolent institutions" (PBI) for taxation purposes.

The Commission deems a PBI to be a "charitable institution with a main purpose of providing benevolent relief to people in need" and outlines the meaning of each concept within the test. To qualify, an entity must:

• Be a charity under s 5 of the Charities Act 2013 (Cth), not a government entity;
• Have a charitable purpose under s 12 of the Charities Act 2013 (Cth);
• Meet the registration entitlement criteria in s 25-5 of the Australian Charities and Not-for-profits Commission Act 2012 (Cth);
• Be public, which involves consideration of the breadth of the class of individuals benefited, whether it receives public funds, the degree of public control and accountability and connection with government;
• Have as its main (ie predominant or dominant) purpose benevolence in the sense outlined in Perpetual Trustee Co Ltd v Commissioner of Taxation (1931) 45 CLR 224: "organised, promoted or conducted for the release of poverty or distress (sickness, disability, destitution, suffering, misfortune or helplessness)";
• Direct its benevolence towards people in need, whether financial or otherwise, not just to the general community per Australian Council of Social Service Inc v Commissioner of Pay-roll Tax (1985) 1 NSWLR 567;
• Provide practical and material relief from poverty and distress which is "of such seriousness as will arouse community compassion and thus engender the provision of relief" per Pay-roll Tax, Commissioner of (Vic) v The Cairnmillar Institute (1990) 90 ATC 4752; and
• Fall within the ordinary meaning of an institution.

Further guidance on these requirements and examples of PBIs are provided in the statement.

The Commission's staff are bound by this interpretation in assessing applications by entities for registration as a PBI in the hope of obtaining charitable tax concessions. While not binding on others outside the Commission, the statement is also meant to be of assistance to charities and members of the public.

The Commission is calling for comments in response to the statement by 1 June 2016.