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Australia Crawls Closer to Reform of the Definition of Charity
Myles McGregor-Lowndes*

The Australian state and federal jurisdictions have adopted and closely
followed the English definition of charit y, based on the Elizabethan 1601 Preamble.
English case authority is consistently used as the basis for Australian law in both
federal and state courts. Australian courts and regulators rely on the classification of
charitable purposes by Lord Macnaghten in Income Tax Special Purposes
Commissioners v Pemsel [1891] All ER Rep 28 (Pemsel’s case) into four heads: the
relief of poverty, the advancement of ed ucation, the advancement of religion, and
other purposes beneficial to the community.

State courts refer to the definition of charity in context of the supervision of
charity trusts, dispositions in wills, an d fundraising regulation, as well as in
connection with various statutes governing local tax exemptions. The Federal courts
have been dominated by case s stemming from the federal income tax legislation’s
exemption of “charitable institutions.” The state and federal jurisdictions have
remained almost identical in their interpretation of the definition of charity.

However, as the cost of litigation and the sensitivity of nonprofit organizations
to adverse publicity have grown, few cases have been pursued to the superior courts
over the last 25 years. In fact, the last ma jor case in the ultimate court of appeal
(High Court of Australia) occurred 30 years ago. The common law without a vibrant
flow of cases tends to ossify, particularly if there is no quasi-judicial body in the legal
environment such as the Charity Commission (England and Wales).

On 18 September 2000, the Prime Minist er announced the establishment of
an independent inquiry into definitional issues relating to charitable, religious, and
community service not-for-prof it organizations. He said:

We need to ensure that the legislative and administrative framework in which
they operate is appropriate to the modern social and economic environment.
Yet the common law definition of a charity, which is based on a legal concept
dating back to 1601, has resulted in a number of legal definitions and often
gives rise to legal disputes. The Inquiry will provide the government with
options for enhancing the clarity and consistency of the existing definitions
with respect to Commonwealth law and administrative practice. These should
lead to legislative and administrative frameworks appropriate for Australia’s
social and economic enviro nment in the 21st Century.

(https://www.pm.gov.au/news/media_ releases/2000/media_release456.htm ) It is
widely believed that part of the impetus fo r the inquiry resulted from the difficulties
in using the “charity” definition in the proposed federal Goods and Services Tax and
from some draft rulings by the Australi an Taxation Office on the definition.

Three lawyers were chosen to head the inquiry. The Chairman of the Inquiry
was the Hon I F Sheppard AO QC, former Judge, Supreme Court of NSW and Federal
Court of Australia. The other members of the Inquiry Committee were Mr Robert

Fitzgerald, Commissioner of Community Services NSW and former President of the
Australian Council of Social Service, and Mr David Gonski, Principal of a merchant
bank and member of the Prime Minister ’s Community-Business Partnership. The
Inquiry reported on 30 June 2001 to th e Federal Treasurer (report available at
https://www.cdi.gov.au ).
The report made some 27 recommendations among which was the
introduction of a statutory definition of “charity” with an independent administrative
body for federal law. The suggested definition was as follows:

Charitable purposes shall be:
• the advancement* of health, which without limitation includes:
− the prevention and relief of sickness, disease or of human suffering;
• the advancement* of education;
• the advancement* of social and community welfare, which without limitation
includes:

− the prevention and relief of poverty, distress or disadvantage of individuals or
families;

− the care, support and protection of th e aged and people with a disability;
− the care, support and protection of children and young people;
− the promotion of community developmen t to enhance social and economic
participation; and

− the care and support of members or form er members of the armed forces and the
civil defence forces and their families;

• the advancement* of religion;
• the advancement* of culture, which without limitation includes:
− the promotion and foster ing of culture; and
− the care, preservation and protec tion of the Australian heritage;
• the advancement* of the natural environment; and
• other purposes beneficial to the community, which without limitation include:
− the promotion and protection of civil and human rights; and
− the prevention and relief of suffering of animals.

(*Advancement is taken to include protection, maintenance, support, research,
improvement or enhancement.)

The Inquiry made a number of ot her recommendations, such as:
– that the common law exemption from the public benefit test in the case of
“poor relations” and “poor employees” charities was considered anomalous
and that such purposes should no longer be regarded as charitable;

– that the public benefit test be stre ngthened by requiring the dominant
purpose of a charitable en tity to be altruistic;

– that self-help groups which have open and non-discriminatory membership
be regarded as having me t the public benefit test;

– that care support and protection of ch ildren and young people be recognized
as a charitable purpose;

– that closed or contemplat ive religious orders regularly undertaking prayerful
intervention at the request of the public be held to satisfy the public benefit
test; and

– that the federal government seek the agreement of all state and territory
governments to the adoption of new defi nition, so the definition would remain
similar across all Aust ralian jurisdictions.

On 22 July 2003, after considering the Inquiry report, the Federal Treasurer
released a draft bill and directed the Board of Taxation to consult on the workability
of the definition of charity proposed (
https://www.taxboard.gov.au ). The Board was
to consult not about the announced policy of the Government, but about its
workability. The Tax Board is a body independent of government that reviews
potential taxation legislation and advises the government on improving the design
and effectiveness of the taxation system.

The Treasurer announced that:
The legislative definition of a charity closely follows the definition that has
been determined by over four centuries of common law, but will provide

greater clarity and transparency for charities. It explicitly allows not-for-profit
child care available to the public, self-help bodies that have open and non-
discriminatory membership and closed or contemplative religious orders that
offer prayerful intervention for the public, to be charities. The legislation is
expected to begin on 1 July 2004.

(https://treasurer.gov.au/tsr/co ntent/pressreleases/2003/059.asp )
The strategy of the Draft Bill is to codify the existing common law of charity
and to expand it in certain respects. A more conservative drafting approach would be
to simply add the new purposes and dele te undesired purposes, leaving the common
law to stand. This is the approach take n in both England and Australia in the
amendment of the definition of charity to include recreational facilities and has been
quite successful in its implemen tation. As a code, the Draft Bill has to deal with some
difficult areas that are unclear in the co mmon law. To make matters even more
confusing, while using the term “code” in the official explanatory memorandum to
the Draft Bill, it will not be a pure code, and recourse seems possible to the common
law. It is a real possibility that the Draft Bill, if enacted, will require judicial
clarification–which is where th e whole issue of reform began.

The Draft Bill applies only to the Federal jurisdiction, and the other
jurisdictions have not to date shown any enthusiasm to adopt the proposals. This
may lead to the situation where the old common law applies to issues reserved
under the constitution to states and territori es and the new definition just to federal
matters, the main being income tax.

The Draft Bill takes the traditional four heads of charity and divides them into
seven heads, following the spirit of the Inquiry’s recommendations. The proposed
sections, which have raised only minor public comment, are:

10 References to charitable purpose
(1) A reference in any Act to a charitable purpose is a reference to any of the
following purposes:

(a) the advancement of health;
(b) the advancement of education;
(c) the advancement of social or community welfare;
(d) the advancement of religion;
(e) the advancement of culture;
(f) the advancement of the natural environment;
(g) any other purpose that is beneficial to the community.
(2) Advancement includes protection, mainte nance, support, research and
improvement.

11 Advancement of social or community welfare
Without limiting what constitutes the advancement of social or community
welfare, advancement of social or community welfare includes:

(a) the care of, and the support and protection of, children and young
people; and

(b) in particular, the provision of child care services.
12 Religion
(1) In determining, for the purposes of paragraph ^10(1)(d), whether
particular ideas, practices and observances co nstitute a religion, regard is to be had
to:

(a) whether the idea s and practices involve belief in the supernatural;
and

(b) whether the ideas re late to people’s nature and place in the universe
and their relation to things supernatural; and

(c) whether the ideas are accepted by adherents as requiring or
encouraging them to observe particular standards or codes of conduct or to
participate in specific practices ha ving supernatural significance; and

(d) whether, howeve r loosely knit and varying in beliefs and practices
adherents may be, they constitute one or more identifiable groups; and

(e) whether adherent s see the collection of ideas and/or practices as
constituting a religion.

(2) This section does not li mit the matters to which regard may be had in
determining whether particular ideas, practices and observances constitute a
religion.

Other provisions in the Draft Bill have caused significant public discussion. In a move
that proved controversial, the Bill made the following purposes disqualifying:

• illegal activities;
• advocating a political party or cause;
• supporting a candidate for political office; and
• attempting to change the law or government policy.
With the exception of illegal activities, the purpose will be a disqualifying purpose if
it, either by itself or when taken together with one or both of the other of these
purposes, is more than ancillary or incidental to the other purposes of the entity.

While few argued that charities should be involved in illegal activities,
advocate for a political party, or support a candidate for political office, many
believed that the Draft Bill wa s an attack on their ability to advocate for a political
cause or attempt to change the law or go vernment policy. When this is combined
with uncertainty about how government regu lators would actually decide whether a
disqualifying purpose “is more than ancillary or incidental to the other purposes of
the entity concerned,” it creates a deep se nse of foreboding in the nonprofit sector.
The Treasurer is adamant that there will be no change to the common law by the
new provision. Such organizations will still be able to advocate, but not be able to be
classed as charities for federal law.

The Draft Bill also seeks to bar any orga nization that has engaged in a serious
criminal offense (no conviction required) fr om charitable status with no means of
rehabilitation. Many organizations are ne rvous about such a provision given the
increasing move to strict-li ability offenses for the acti ons of their employees and
volunteers.

Government bodies are traditionally excl uded from charitable status, but with
the blurring of sectors and functions, the principles of the common law are becoming
increasingly difficult to administer. The Draft Bill de fines “government body” as
including a body controlled by the Commonwealth, a State, or a Territory, as well as
a body controlled by the government of a fo reign country. The Draft Bill is silent on
whether a local government-controlled body or a body controlled by a body
controlled by a government is included. The Bill also does not clarify what constitutes
control.

The Draft Bill also seeks to alter the public benefit element of the common
law definition. Under the first three heads of charity in the common law is a general
presumption that, prima facie, the element of public benefit is satisfied. Under the
draft bill, this will no longer be the case and all organizations will be required to
satisfy the test of having a purpose for the public benefit that:

• is aimed at achieving a universal or common good;
• has practical utility; and
• is directed to the benefit of the general community or to a sufficient section of the
general community.

The Tax Board handed its report to the Tr easurer in late December, but it has not
been released at the time of writing. The legislation is expected to begin on 1 July
2004.

* Myles McGregor-Lownes is Director of the Centre of Philanthropy and
Nonprofit Studies at the Queensl and University of Technology.