Happy New Year! How did you spend your New Year’s Eve? A random survey of my friends and family revealed quite a diversity of responses to this question: from going to bed at 9:30pm after the new baby finally went to sleep, to staying out until 8am on New Year’s Day. Of course there were some responses in between like having a nice dinner with friends and going to a beachside restaurant and watching the fireworks in the distance.
It has been an exciting start to the year for current and future Australian charities. We have a new Charities Act that updates the definition of what a charity actually is, for the first time since the reign of Queen Elizabeth I (the one played by Cate Blanchett not by Helen Mirren!) That seems like a pretty spectacular start to the year to me; and worthy of some fireworks!
Why did we need this change to our laws? The main idea behind the legislation is to simplify how charities are defined and classified, and therefore provide greater certainty for charities as they undertake their operations. Instead of trying to work out if a new organisation fits into some outdated categories, we now have a new set of classifications that reflects our current society and values (the Elizabethan law included ‘marriage of poor maids’ as a charitable purpose – not quite as necessary today!) Importantly, these classifications are all in the one place to look up, instead of wading through lots of court case documents to see what the judges of the time thought constituted a charity or not.
How does the new law work? The new legislation does two things: firstly, it takes the common law understanding of what constitutes a charity (developed and tested in the courts over time, dating back to the laws that we inherited from England), and reinforces that by putting it in legislation. This pre-existing common law definition said that organisations that aimed to do things like relieve poverty, educate people and further religion were generally thought to be charities. Our new legislation has taken a look at other areas of activity that have developed in our society, some of which have been confirmed by court cases, and says that these also can indicate that an organisation is a charity. This means, for example, that organisations whose purpose it is to protect human rights, conserve the environment, and promote reconciliation and tolerance will now be considered charities. The new law also recognises that many modern charities pursue their causes through prevention, education, research and awareness raising activities. It also allows for charities that conduct advocacy as part of their work.
What is the new definition of charity? The Charities Act requires that an organisation must be the following to be classified as a charity:
- be not-for-profit
- have only charitable purposes that are for the public benefit
- not have a disqualifying purpose, and
- not be an individual, a political party or a government agency,
What does a new charity definition mean in practice? Existing charities will find that not much changes. The Australian Charities and Not-for-profits Commission (ACNC) will contact existing charities over the next 18 months to determine which of the new charity categories applies to them. New charities that want to register with the ACNC should wait until the end of this week (10 Jan) when the ACNC will provide a new application form on its website to use for registration. The ACNC will also update its guidance about what it means to be a charity.
What next? To really operationalise this new change, it needs to flow through to the administration of the various concessions that apply to charities in Australia, not just income tax exemption. At the moment various federal and state bodies use different charity definitions to determine stamp duty exemption, payroll tax exemption, eligibility for different levels of fringe benefits tax rebates, etc. Harmonising these is a critical next step on the path of continued administrative burden reduction for charities.
Do you need help understanding your legal and compliance obligations as a charity? Contact us now to discuss how we can help you.