2014 – the year for review for charities?

Last year could be classified as a year of change of charities. With the Australian Charities and Not-for-profits Commission (ACNC) hitting the ground running in January 2013, legislation being passed providing for a statutory definition of charity and the Federal Court’s decision on the Hunger Project’s FBT exemption application, 2014 may be the year for charities to review, reflect and possibly revisit their positions.

In addition, 2013 also saw a change in government, which could bring about a change in perspective in relation to charities in 2014.

Some of the key changes in 2013 are discussed below.

ACNC and annual information statements

All charities should now be familiar with the ACNC regime that commenced on 3 December 2012 and the impact it has had on their reporting, governance and compliance requirements.

Further, most charities should have lodged their first annual information statement with the ACNC, unless they are taking advantage of the extension granted by the ACNC.

Below are links to two articles published by Cooper Grace Ward regarding the above issues.

Key dates for charities and not-for-profits under the new Australian Charities and Not-for-profits Commission (ACNC)

Charities – extended time period for lodging information with the ACNC

If charities have not already done so, they should familiarise themselves with the ACNC regime and ensure they are complying and ready to report within the required time frames in 2014 and onwards.

The ACNC released an updated online application form for registering as a charity to reflect new charity legislation on 10 January 2014.

The ATO has also released a number of updated and new resources to assist charities understand their tax obligations and the relationship between the ATO and ACNC.

The Coalition has stated its intention to abolish the ACNC and replace it with a centre for excellence but at this point in time, the ACNC remains.

Statutory definition of charity

Legislation introducing a statutory definition commenced on 1 January 2014. Below is a link to an article published by Cooper Grace Ward regarding this.

Statutory definition of a charity to commence on 1 January 2014

The Hunger Project Australia: Impact on direct relief requirement for Public Benevolent Institutions

The Hunger Project Australia (HPA) applied to the Australian Tax Office (ATO) for endorsement as a Public Benevolent Institution (PBI) in order to obtain an exemption from fringe benefits tax.

The Commissioner initially rejected the application on the basis that HPA did not provide ‘direct benevolent relief’.

HPA appealed the Commissioner’s decision and Justice Perram of the Federal Court held that the provision of ‘direct relief’ was not required in order for HPA to be endorsed as a PBI.

The case

HPA is a member of a network of organisations all operating under the name ‘The Hunger Project’, whose principal aim is the relief of hunger. The Hunger Project was founded in 1977 in the USA and has its global headquarters in New York.

By far, HPA’s most substantial activity in achieving its objects is fundraising to support projects carried out by affiliated entities within its network overseas. It does not pursue the relief of hunger itself in any substantive manner beyond fundraising.

Justice Perram held that in order for an entity to be a PBI its objects had to be concrete, stating that ‘general but undirected or abstract benevolence would not suffice’.As HPA was significantly linked to the Hunger Project network, and all of the funds it raised went directly to the network’s activities and projects, it was held that there was a concrete object of benevolence in the relief of hunger.

Further, Justice Perram held that there was no ‘directness’ requirement for PBIs. This meant that HPA was found to be a PBI even though it did not engage directly in the activities making up the object of its benevolence (i.e. relieving hunger).

In adopting this position, Justice Perram reviewed case law including the High Court decisions in Perpetual Trustee Co v FCT (1931) and Commissioner of Taxation v Word Investments (2008) and held that the term ‘PBI’ should be given its ordinary meaning, which does not limit the application of the term to entities that directly perform charitable activities.

Impact of the decision

This case is contrary to the long standing position of the ATO that ‘direct relief’ is an essential element of a PBI as set out in Taxation Ruling TR 2003/5.

However, the case does confirm that, in order to be eligible for endorsement as a PBI, an entity’s benevolence must be concrete. General but undirected or abstract benevolence will not be sufficient to meet the requirements of a PBI.

The ACNC has released a Commissioner’s Interpretation Statement that confirms that it will apply this decision.

The ATO has lodged a notice of appeal to the Full Federal Court.

Subject to the decision on appeal, this case may create opportunities for charities that have previously been denied endorsement as a PBI on the basis that they do not provide ‘direct relief’ to be endorsed as a PBI. Charities that may benefit from this decision may extend beyond those predominately engaged in fundraising activities and capture charities that advocate for disadvantaged members of the public or work with other organisations to provide benevolent relief to those in need.