Statutory definition of a charity to commence on 1 January 2014

The legal definition of what constitutes a charity has developed over the past 400 years, dating back to the Charitable Uses Act 1601, commonly known as the Statute of Elizabeth.

Consequently, much uncertainty has ensued as to the technical legal meaning of the term, given the lack of codification in Australia.

Many years of consultation, various judicial decisions and the introduction of the Australian Charities and Not-for-profits Commission (ACNC) last year have now resulted in a the statutory definition of charity as contained in the Charities Act 2013, which will take effect from 1 January 2014.

This new law endeavours to preserve the common law principles of charity, making only minor amendments in an attempt to provide greater clarity and certainty about the meaning of both ‘charity’ and ‘charitable purpose’.

An entity will be ‘charitable’ if it is a ‘charity’. ‘Charity’ is defined to mean an entity that:

• is a not-for-profit entity;
• has purposes that are charitable purposes (or incidental to such purposes) that are for the public benefit;
• does not have purposes that are disqualifying purposes (as defined in the legislation);
• and is not an individual, a political party or a government entity.

The definition will apply for the purposes of all Commonwealth laws. Definitions of the same or similar terms for the purposes of state or local laws (for example, under state fundraising legislation) will not be impacted by this new law.

The new law provides for 12 categories of charitable purposes derived from common law including advancement of health, education, social or public welfare, religion, culture, the natural environment, the promotion or protection of human rights and preventing or relieving the suffering of animals.

It is anticipated that the introduction of the statutory definition will not have a significant impact on entities.

For entities that were endorsed as a charity by the ATO before 3 December 2012 and were automatically registered with the ACNC, there is no need to re-register. However, such entities should review their registration subtype with the ACNC as the new law provides for more comprehensive categories of charitable purposes.

Although it is voluntary to register as a charity, an entity will not qualify for any charity tax concessions from the ATO unless it is registered with the ACNC.

Before being elected, the new federal government indicated that it would repeal the new statutory definition and abolish the ACNC. However, at this point in time the new legislation and ACNC remain.