This week, the Federal Government has taken a further step forward in its efforts to reform and simplify the regulation of the not-for-profit (NFP) sector, with the release of exposure draft legislation providing a statutory definition of “charity”.

The Federal Government released an exposure draft of the Charities Bill 2013 along with the Charities (Consequential Amendments and Transitional Provisions) Bill 2013, Explanatory Material and a fact sheet. A copy of the official press release can be found here.

This is a significant and very welcome development following the release of the original Charities Bill in 2003 and the substantial consultation process undertaken in 2011.

In particular, these amendments are likely to provide greater certainty and accessibility to the not-for profit tax concessions. It is, however, disappointing that the Exposure Draft has not addressed some of the existing issues with respect to the definition of a “charity” and there are aspects of the definition that remain uncertain.

This initiative forms part of the range of measures announced in the 2011-12 Budget for the NFP sector. Our most recent alert in relation to the reforms generally is available here and the most recent updates are below.

A welcome reform measure

The meaning of “charity” has not previously been comprehensively defined for the purposes of Commonwealth law. The current meaning is based on over 400 years of complex and inconsistent common law, going back to the Statute of Elizabeth of 1601. This has resulted in significant uncertainty for the NFP sector.

The new definition contained in section 5 of the Bill largely preserves the common law definition of charity. It codifies certain long-established key principles, such as the presumption of public benefit for certain charitable purposes. It also incorporates recent court decisions such as Aid/Watch Incorporated v Commissioner of Taxation [2010] HCA 42 and feedback from the 2011 consultation process.

Enacting a statutory definition is undoubtedly a welcome reform measure, as it will provide greater clarity to the NFP sector and potentially make the available tax concessions more accessible to that sector

Existing issues continue, and some new ones arise

There will be a range of organisations that will continue to have uncertainty as to their status as a “charity” under the draft definition. These organisations will likely need to develop a strong case as to the public benefit their work provides.

There are also concerns surrounding the draft provision for “disqualifying purposes”, which would preclude an entity from falling within the meaning of “charity”. Disqualifying purposes include engaging in, or promoting, activities that are “contrary to public policy”. Despite some clarifying notes, it is not clear how the scope of this exclusion will operate.

Further consultation expected

The Federal Government received over 200 submissions to the initial Consultation Paper released on 28 October 2011. It is likely the issues identified above will be the subject of further submissions. Interested parties are now invited to comment on the draft legislation, and submissions will be accepted until Friday, 3 May 2013. More information on submissions can be found here.

The proposed start date for the statutory definition has been moved from 1 July 2013 to 1 January 2014.

Other key reforms for the NFP sector

Other reform initiatives that have been announced or have advanced since our last alert include:

Click here to view table.