Further to our last edition of Charities Alert, the Australian Taxation Office (ATO) has confirmed that it will not appeal the Full Federal Court decision in Commissioner of Taxation v The Hunger Project Australia [2014] FCAFC 69.

Click here to view the ATO’s Non-profit News Service No. 0414 – Hunger Project update, containing the confirmation.

ATO interpretation of the Full Federal Court decision

In an interim Decision Impact Statement on the Full Federal Court decision recently issued by the ATO, the ATO stated that the ATO will adopt the Full Federal Court decision and its reasoning. Click here to view the ATO’s interim Decision Impact Statement.

This means that the Full Federal Court decision represents the legal authority on the meaning of ‘ public benevolent institution’ (PBI).

Click here to view our article in our last edition of Charities Alert on the analysis of the Full Federal Court decision.

ACNC interpretation of the Full Federal Court decision

The Australian Charities and Not-for-profits Commission (ACNC) has recently updated the following materials which are available on the ACNC’s website:

  • Commissioner’s Interpretation Statement: The Hunger Project case (CIS 2013/01), click here; and
  • Factsheet: Public benevolent institutions and the ACNC, click here.

It was held in the Full Federal Court decision that if an entity does not itself provide benevolent relief directly to people in need, the entity can still be a PBI, if the entity is an institution and provide the relief through related or associated entities. The ACNC accepts this, and states that a PBI is an institution that is organised, or conducted for, promoting the relief of poverty or distress which has:

  • concrete objects of benevolent relief;
  • clear mechanisms for delivering the benevolent relief; and
  • a relationship of collaboration and a common public benevolent purpose.

The ACNC further states that evidence is required to establish that the entity’s activities are organised and conducted for the purpose of relieving the poverty or distress of people in need. Examples of such evidence include:

  • How the charity’s funds are directly channelled to programs that provide benevolent relief, for example, through a collaborative arrangement with another organisation that delivers those programs; and
  • How the charity provides support (such as strategic planning, administrative, or professional services support) in collaboration with a network of organisations that all share a purpose of relieving poverty or distress.

More charities now qualify as PBIs

Accordingly, a charity which has not been endorsed by the ATO as a PBI (under the previous narrow ATO interpretation of the meaning of a PBI), but that can provide evidence of the nature required by the ACNC, could now potentially be registered by the ACNC as a PBI, and the charity subtype of PBI could be added to its registration with the ACNC.

One key advantage of having PBI registration with the ACNC is entitlement to the fringe benefits tax exemption. Another advantage could be deductible gift recipient status.

It would also be worth considering any opportunity of restructuring a charity in view of the Hunger Project case. For example, if the fundraising function is currently being undertaken by an operating entity, it should now be possible to have the fundraising function in a separate entity. This could have governance, asset protection and other possible advantages, depending on the charity’s particular circumstances.

Examples of charities that may fall within this category could include:

  • Institutions (eg charitable institutions, public ancillary funds, other fundraising institutions) that merely provide financial support to other associated entities providing the direct benevolent relief; and
  • An entity within a group of entities, that support the institutions that provide the direct relief (eg land owning company, service company, administration company, holding company, fundraising company).