The International Journal
of Not-for-Profit Law
Volume 2, Issue 3, March 2000
The government has amended the new Goods and Services Tax (GST) legislation to improve the treatment of charities in the following respects:
- the cost of supply test for determining whether charities are making non-business supplies of goods and services is amended from 50% to 75% of total cost;
- an option for charities to treat fundraising activities as separate sub-entities for the purpose of determining liability to register for GST is introduced;
- the threshold for GST registration for separate sub-entities is increased from AUD 50,000 to AUD 100,000;
- government grants to registered charities will be grossed up by 10%;
- newsletters and journals will be GST -free if not sold on a commercial basis.
The Australian Tax Office (ATO) has published a new guide incorporating these changes “Charitable, religious and non-profit organisations and the new tax system”.
(GST News, February 2000)
The leadership of East Timor recognizes that NGO law reform is a critical part of the effort to build a new democratic and free society. As stated by Agio Pereira, who is responsible for NGOs for the Conselho Nacional de Resistencia (CNRT):
|The government of East Timor must introduce legislation to enable NGOs to become formal legal entities…. Such legal status subsequently enables the NGO to exist with a degree of credibility in the eyes of the public and ensures that the NGO functions in accordance with the rules of good governance and, in the process, enhances the capacity of the civil society to also judge the government’s own transparency and competence. Pereira, Policy Discussion Paper – Strategy for East Timor: The Government and the role of Non-Government Organizations in East Timor at Section 2.4.|
The United Nations Transitional Administration in East Timor (“UNTAET”) has also recognized the need to create an enabling legal environment for civil society in East Timor. In its first regulation, UNTAET abrogated legislation violating international human rights standards, including the Indonesian Law on Social Organizations.
UNTAET invited ICNL to provide technical assistance in the development of an appropriate NGO legal framework. The Office of Transition Initiatives of USAID is funding ICNL’s work on this project. Experts from ICNL visited East Timor in March and met with a wide range of domestic NGOs and local lawyers as well as officials of UNTEAT and some international NGO representatives. ICNL’s goal is help develop a law that will fully protect and support the right to freedom of association in East Timor. Such a law would enable any persons in East Timor to register an NGO to engage in any activities that are lawful for individuals, and registration would be quick, easy, and non-bureaucratic. NGOs would be able to operate freely in all legitimate sectors of society.
ICNL hopes to make the process for drafting and enacting the new NGO law one in which there is the opportunity for full public participation, ensuring that East Timorese are fully involved in the drafting and implementation of the NGO legal framework. The process of developing a new NGO law for East Timor is underway, and ICNL will provide updates on its website (www.icnl.org) and in future issues of the IJNL.
The Public Benefit Test in New Zealand
A review of the taxation of charities in New Zealand was scheduled as part of the 2000/2001 Tax policy Work Programme by the former National Government. However, following a change of Government in November, 1999, the Minister of Finance in the new Labour Government has not yet decided whether this review will proceed.
Government officials had suggested that a wide range of matters raised by the Inter Church Working Party on Taxation and the Accountability of Charities Working Group should be considered at the same time as the tax review. These issues include:
- the definition of what constitutes a charity;
- a review of the appropriate legal structures for charities;
- an increase in the personal and corporate tax rebates;
- fundability of imputation credits;
- the charitable status of iwi (Maori tribal) trusts and the public benefit test.
In the mean time the Inland Revenue Department has released an Issues Paper on the Public Benefit Test.
The paper notes that the law in New Zealand appears to have diverged from that which is still the case in England and in other common law jurisdictions.
A major issue of growing concern is how to deal with a range of Maori (the indigenous people of New Zealand) associations that are based on iwi (tribal) affiliation.
In the past this has mainly concerned the operation of Maori Trust Boards which were established to manage the income from communal land holdings. The issue was whether the members of a Maori tribe and their descendants were a sufficient section of the community to qualify the trusts purposes as charitable. In the case of the Arawa Maori Trust Board v Commissioner of Inland Revenue it was held that the beneficiaries were a “fluctuating body of private individuals” and that the trust was not charitable.
This was not appealed but the Maori Trust Boards Act was amended deeming that specific trusts established for charitable purposes by Maori Trust Board to satisfy the requirements of the Income Tax Act and obtain charitable tax exemption.
However, this situation which affects specific Maori Trust Boards, is of little help in resolving more recent concerns where a range of new forms of Maori associations have developed.
In particular, the Iwi Authorities which have negotiated substantial settlements of claims for land, fisheries and other resources made under the Treaty of Waitangi and the iwi Health and Social Service groups.
It is suggested that legislative options need to be developed on ways to amend the public benefit test to give greater certainty to iwi and hapu (sub-tribes) based structures and other entities seeking charitable status.
Another current issue concerns the situation of Education Trusts. The issues paper suggests that although it is clearly still necessary for a charity to be for public benefit, merely considering the class of beneficiaries will not resolve the matter. It is necessary to consider the purpose of the trust as well.
Those in the community sector who have been involved in bringing these issues to the attention of Government hope that this discussion of the Public Benefit Test will feed into a wider review of charitable issues later this year.
The Bureau of Internal Revenue has issued a ruling concerning the conditions for exemption of donations from VAT. Foreign and local donations to or by religious institutions of religious articles are exempt, provided that they are directly and exclusively used for religious purposes and not in the ordinary course of a trade or business.
(BIR Ruling No. 032-99, 23 March 1999)
In previous reports on Vietnam, ICNL has discussed legal developments and proposed legal developments that affect the way in which NGOs are organized and operated in that country. One of our constant themes has been the need for regulation of grant-making organizations, which are authorized by the 1995 Civil Code in section 110 (e) (see e.g., Overview of Legal Environment for NPOs in Vietnam (1997)). Now the government has issued such regulations under the Decree of December 22, 1999, “On the Organization and Operation of the Social Funds and Charity Funds.” This note briefly describes the regulation and what it contains. A longer discussion of the regulation against the background of other legal developments in Vietnam will be in the June issue of the Journal.
The regulation contains four chapters, the first of which deals with general aspects of the funds. It is important to note that the new regulation specifies that social and charity funds may be set up and operate for “humanitarian and charity purposes to promote cultural, sport, scientific and social development.” Article 2.
The second chapter deals with the funds’ establishment and their powers and competencies. With respect to the establishment, the regulation prescribes that funds must have three founding members (Article 5.2 a/) and that they must follow a specific and definite establishment procedure, with many requirements. The “competence to permit the establishment” of funds is granted to the People’s Committees of the provinces and the centrally-run cities, with the power also being granted to delegate to People’s Committees of smaller units of government the permission to establish “small-size” funds (unspecified as to what “small-size” means). (Article 7.1, 7.2).
The funds themselves are permitted to raise money and to develop and implement projects, but they must do so within the purposes and principles stated in their charters. And they must be “subject to the inspection and examination by the State agencies as prescribed by law.” Article 8.
The third chapter describes the organization and management of the operation of funds. Basically the chapter sets out two required governing bodies for funds, a Fund Management Board (FMB) (Article 9) and a Fund Control Board (FCB) (Article 12). The Chairman of the FMB appoints the fund’s director, who is the “fund’s representative at law, “ and he has duties that qualify him as the fund’s chief executive officer. Articles 10.1 and 11. The Chairman of the FMB also appoints the “chief accountant” of the fund (Article 10.3), with similarly specified duties.
Although this regulation clearly spells out a two-tier governance structure, the FCB is not entirely independent of the FMB (despite the statement in Article 12.3 that it is to “operate independently”). The Chairman of the FMB appoints the FMB. Article 12.2.
The remainder of the third chapter spells out in detail exactly how funds are supposed to operate, including their obligations to the state. Specifically, Article 16 makes funds “subject to” state financial and professional management.
The fourth chapter deals with mergers, consolidations, divisions, and dissolution of funds, including sanctions for the failure of funds to start operations, to operate according to their charters, and in the event of violations of law or “the people’s interests.” (Article 20). Decisions as to sanctions are to be made by the establishing authority (Article 20.4), and there is no appeal right specified in this legislation. All assets of funds that are dissolved must be paid over to the state. Article 21.
The text of the new regulation is available from ICNL. Interested persons should get in touch with Karla Simon about the regulation or to receive a copy of it. Her email address is firstname.lastname@example.org.