O'Connell, Ann --- "Tax Issues for Charities in the New Millennium" [2002] DeakinLawRw 6; (2002) 7(1) Deakin Law Review 131

Tax Issues for Charities in the New Millennium

Ann O’Connell[*]

The charitable sector in Australia is large and impacts on many aspects of our lives. For example, the Report of the Charities Definition Inquiry noted that there are approximately 19,000 charities that employ staff and that they account for approximately 4.8% of people employed.[1] The non-profit sector generally contributed $15 billion to gross value added in Australia in 1998-99, and these figures do not take into account the activities of volunteers.[2] The Report also noted that 90% of employment in charities is in the provision of health, welfare and education services but that charities and related entities also provide religious services and cultural facilities, and are involved in the protection of animals and the environment.[3]

The cost of providing tax relief to the charitable sector is substantial. According to the 2001 Tax Expenditure Statement released by the Department of Treasury, the estimated cost of allowing a deduction for gifts to approved entities is $300 million for the 2001/2002 income year. The estimated cost of providing an exemption from fringe benefits tax to public benevolent institutions is $240 million for the same period.[4] In those circumstance it is not surprising that the government has introduced measures to ensure that only entities that can legitimately claim to be charities or to fall within the appropriate head of relief qualify.

Since the start of 2000 there have been a number of significant changes to the tax treatment of charities and related entities.[5] In some cases the effect has been to restrict the preferential treatment given to charities and similar entities under the tax legislation but in other cases these entities have received more preferential treatment. A common feature of all the changes is that compliance costs for charities seeking access to tax concessions have increased. The changes can be grouped into three categories – measures relating to charitable giving, measures relating to the income tax treatment of charities and measures relating to other taxes and obligations. The purpose of this article is to examine those changes, to consider how the changes impact on the charitable sector and to consider whether the more onerous compliance burden can be justified on a tax policy basis. That is, it is necessary to consider whether the changes are needed to ensure that the concessions are appropriately targeted. In that regard, it will be noted that similar restrictions also apply in the US and the UK. Another important factor that needs to be considered is the likely impact of the Report by the Inquiry into the Definition of Charities and related Entities[6] released in August 2001. Although not directly concerned with the tax treatment of charities, the recommendations contained in the Report are likely to influence the government’s policy in this regard.

Part 1 of the article examines the tax measures relating to charitable giving. Part 2 examines the measures relating to tax exemption for charities. Part 3 examines a number of other concessions and recently introduced tax obligations. It concludes that overall the new measures significantly increase the compliance burden for charities but that given the high cost of providing the concessions and the fact that some applicants have been refused access to the concessions as a result of the measures, the approach appears to be justified. Part 4 considers the recommendations of the Charities Definition Inquiry and concludes that the recommendations relating to a statutory definition and administration separate from the Tax Office will provide more certainty for charities. It also notes that the Inquiry left open the question of whether, as a matter of tax policy, further restrictions should be imposed on access to the tax concessions.

I Measures Relating to Charitable Giving

Tax concessions related to charitable giving include the provision of a deduction for gifts to certain entities and the recent introduction of provisions to encourage philanthropy such as the introduction of the concept of private charitable entities and relaxation of some of the requirements relating to different types of gifts. From 1 July 2000 eligible entities must be endorsed as “deductible gift recipients” in order to enable donors to claim a deduction. This part examines the concession, the requirements for endorsement and also considers measures recently introduced that relate to encouragement of philanthropy.

A Gift Deductibility

1 Division 30 Income Tax Assessment Act 1997

Division 30 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) allows a taxpayer a deduction for gifts made to certain entities. Such an outgoing would generally not otherwise entitle the donor to a deduction as it would not have the necessary nexus with earning income.[7] Presumably the availability of the deduction means that taxpayers will be more willing to give or willing to give more to such entities on the basis that the after-tax cost is less than it would otherwise be. Essentially, it is the recipient of the gift (the charity) and not the taxpayer that gets the benefit of the deduction.[8]

Other jurisdictions employ different methods to encourage charitable giving. In the UK, there are two types of schemes providing tax relief – the Gift Aid scheme and the Payroll Giving scheme. Under the Gift Aid scheme a donor pays a net amount to a charity with a declaration that the donor has or will pay tax at least equal to the basic rate (20%). The charity then reclaims the basic rate from Inland Revenue.[9] If the donor’s marginal rate is higher than the basic rate, the donor is also entitled to claim additional tax relief.[10] Under the Payroll Giving scheme, if the donor’s employer has developed a payroll giving scheme, the donor can authorise the employer to deduct amounts from their salary and nominate the charities to which the money should go.[11] The donation is deducted from income before calculating the tax payable and may have the effect of moving the donor to a lower marginal tax rate. In the US a deduction is available up to 50% of the donor’s income but the deduction is only available to taxpayers who choose to itemise deductions rather than use a standard rate of deduction.[12] If the donor does not submit an itemised return no deduction is currently available, although there have been suggestions recently that non-itemisers should also be able to claim tax relief.[13]

There are very few conditions attached to the making of the gift for deductibility under Division 30. The gift must be made inter vivos[14] and must be a minimum of $2.[15] There are, however, some conditions that must be satisfied by the recipient and these are discussed below. In the UK prior to March 2000, there were a number of restrictions imposed in order to qualify for tax relief. For example, the predecessor to the Gift Aid scheme required a minimum gift of ¼250 and the Payroll Giving scheme was limited to a maximum of ¼1200. There are currently no lower or upper limits. There are however some restrictions on the amount of benefit that a donor can receive (see below). In the US, the maximum amount an individual can claim is 50% of taxable income (calculated before allowing the deduction),[16] for companies the limit is 10%.[17]

In order to claim the deduction under Division 30, the taxpayer must have made a ‘gift’ and there are also some specific anti-avoidance provisions. The legislation does not define the term ‘gift’ but according to case law a gift involves a transfer of property voluntarily and without any valuable consideration.[18] Therefore, if the donor receives a material advantage in return for the donation, the donor will not be entitled to a deduction as there will not a be gift. The receipt of some minor benefit would not result in a loss of the deduction.[19] Furthermore, a gift will not be an allowable deduction if the amount of benefit received by the fund is less than the value of the gift, any other entity becomes liable to do anything as a result of the gift, the donor or an associate is likely to receive a benefit or any other property is acquired from the donor as a result of making the gift.[20] In the UK, the legislation specifies the monetary value of the benefit that a donor may receive in relation to the amount of the gift. For example, if the donor gives more than ¼10,000 they can receive benefits of not more than ¼250.[21] In the US a deduction is only allowed to the extent that the contribution exceeds the value of any goods and services provided in exchange.[22] There is, however, an exception where the benefits received are of insignificant or insubstantial value.[23]

2 Endorsement As a Deductible Gift Recipient

From 1 July 2000 donations made to certain organisations will not be deductible under Division 30 of the Income Tax Assessment Act 1997, unless the organisation is endorsed by the Commissioner of Taxation as a deductible gift recipient (DGR).[24] Previously entities self-assessed although they may have sought a private ruling or other confirmation as to their status. The rationale for requiring endorsement was said by the Explanatory Memorandum introducing the measures to be ‘to protect the integrity of the tax system’,[25] although there was no discussion of whether the previous system had been subject to abuse. The requirement to be endorsed is separate from the requirement for certain entities to be endorsed as income tax exempt (see below). Subject to limited exceptions, the requirement to be endorsed applies to all existing organisations, including those established before 1 July 2000. It is possible to apply retrospectively, that is, from 1 July 2000 if the entity was in existence at that date. The fact that the Australian Tax Office (ATO) has previously confirmed gift deductibility status does not remove the need to obtain endorsement. Entities that do not need to be endorsed are organisations listed by name in Division 30, prescribed private funds and registered political parties.[26]

Entitlement to endorsement arises when three requirements are satisfied:

(a) Australian Business Number (ABN)

In order to apply for endorsement, the entity must have an ABN.[27] The provisions of the ABN legislation relating to charities are discussed below.

(b) Category of Gift Deductibility

Division 30 contains a table of entities that are eligible for gift deductibility status. That table is divided into “General” entities and ‘Specific’ entities. There are 13 general categories. The categories include health, education, welfare and rights, environment, the family and cultural organisations. Specific entities are those that are named in the Table. As already noted, entities that are named in Division 30 do not need to be endorsed. The ability to qualify for gift deductibility status is thought to be more difficult than the ability to qualify for income tax exempt status because there is no general ‘charitable’ category. Entities must either qualify as a ‘public benevolent institution’ or come within some other category. Essentially the categories of gift deductibility remain unchanged after 1 July 2000. However, a recent amendment has included a new sub-category of health to include “charitable institutions whose principle activity is promoting the prevention or control of disease in humans”.[28] The Explanatory Memorandum introducing the amendment said this would cover entities that engaged in research etc into diseases such as asthma, cancer and AIDS.[29] The amendment was said to be necessary because of concern that such entities may not fit within any of the existing categories of gift deductibility.[30] One of the difficulties for entities is that the terms used in these categories are generally not defined anywhere in the legislation but rely on the common law meaning, that is, the meaning as determined by the cases over time.

‘Public benevolent institutions’

A number of cases have considered the meaning of the expression ‘public benevolent institution”, but perhaps the starting point is the 1931 decision in Perpetual Trustee Co Ltd v FCT.[31] In that case, the High Court considered whether an entity that provided low cost accommodation and recreation for petty naval officers and lower ratings when ashore in Sydney, was a public benevolent institution. In deciding that it was not, it was said:

In the context in which the expression is found, and in ordinary English usage, a “public benevolent institution” means an institution organised for the relief of poverty, sickness, destitution, or helplessness.[32]

The principles established in the Perpetual Trustee case have been applied in subsequent cases and appear to be well accepted, despite it being noted that ‘the ways in which many public benevolent institutions go about achieving their objectives today are different from the ways in which the typical public benevolent institution operated in 1931’. [33] During 2000 the ATO attempted to provide some guidance to entities on the accepted meaning of the term ‘public benevolent institution’ and ‘necessitous circumstances funds’ both of which appear in the welfare and rights category of Division 30. In a Draft Taxation Ruling,[34] the ATO considered a number of issues relating to public benevolent institutions (PBIs).[35] It said that on the basis of Perpetual Trustee and subsequent cases, the term PBI applies to a non-profit organisation for the direct relief of poverty, sickness, distress or helplessness of the public.[36] Furthermore there is a requirement in Division 30 that the entity be ‘in Australia’ to qualify as a deductible gift recipient.[37] It is therefore necessary to be ‘non-profit’, to provide ‘direct relief’, to provide that relief to the ‘public’ and for the entity to be ‘in Australia’. The non-profit requirement does not mean that an entity cannot make a profit rather it requires an entity not to distribute any profit to the members of the entity.[38] Therefore the fact that an entity charges a fee-for-service will not automatically disqualify the entity although it has been noted that ‘the type and level of charges, in light of the type of services provided, may indicate that an organisation is not primarily for the relief of distress and suffering’.[39] To assist entities to meet this requirement the Draft Ruling contains examples of ‘non-profit’ and ‘dissolution’ clauses for the entities constituent documents.[40] The Draft Ruling also notes that despite a common perception to the contrary, the terms PBI and charity are not synonymous. That is, all PBIs are charities but not all charities are PBIs.[41] Although the Draft Ruling merely represents the views of the Commissioner, there is nothing particularly contentious in the Draft Ruling and is, therefore, unlikely to be challenged. The requirement that a PBI must provide direct relief has meant that a number of entities that provide indirect relief have been denied PBI status. For example, in Australian Council of Social Services v Commissioner of Payroll Tax[42] it was held that the Council was not a PBI because it did not dispense aid to those in need but rather acted as a co-ordinating body.[43] The requirement that the entity provide relief to the public has been held to mean that the activities must not be for the profit or gain of members, benefits must not be provided on the basis of some personal relationship and must be provided in a non-discriminatory way.[44] This requirement has also been held to mean that an organisation for the relief of suffering animals (rather than human beneficiaries) is not a PBI.[45] The requirement that the entity be ‘in Australia’ is a requirement of the legislation. It is discussed further below.

‘Necessitous circumstances funds’

In another Taxation Ruling, the ATO considered the notion of ‘necessitous circumstances funds’.[46] It was concluded that based on cases such as Ballarat Trustees Executors and Agency Co Ltd v FCT[47] ‘necessitous circumstances’ refers to financial necessity rather than needs based on age or health or some other criteria.[48] Furthermore, the method of providing relief must be the provision of money or goods to persons.[49] If anything more is done then it may not be a fund and it would be necessary to consider whether the entity falls within some other category (such as PBI).[50] Finally it was noted that the legislation required the fund to be ‘in Australia’.[51] This is discussed below. Again the views expressed in the Ruling seem to reflect decided cases and not to express any new or contentious issues.

No particular form

The legislation does not prescribe any particular form for an entity to be a DGR. It appears to be accepted for DGR purposes that an entity could be an incorporated body or association, an unincorporated body or a trust.[52] Division 30 refers to a ‘fund, authority or institution’.

There are two types of endorsement depending on whether the entity is, or operates a deductible fund, authority or institution. If the entity is a fund (for example, a necessitous circumstances fund), authority or institution (for example, a PBI) and has an ABN it is entitled to be endorsed provided it meets the statutory requirements relating to gift funds.[53] If an entity operates a fund, authority or institution (that is, the entity legally owns the fund or includes the authority or institution) the entity is entitled to be endorsed but only for gifts to the fund authority or institution.[54] For example, if a school operates a building fund it will be entitled to be endorsed to operate the building fund. Although it is only the building fund that can receive deductible gifts, the school can apply using its ABN – it does not require and would not be entitled to a separate ABN for the building fund. If an entity operates more than one fund it will need separate endorsement for each fund. Non-profit organisations with independent branches or units have the option of treating the units as if they were separate entities for GST purposes (see below). For DGR endorsement it is the entity and not the non-profits sub-entity that must apply.

‘Public funds’ and ‘ancillary funds’

The legislation also contemplates that a DGR may be a public fund (or prescribed private fund) established and maintained under a will or instrument of trust solely for the purpose of providing money, property or other benefits to another DGR or for the purpose of establishing such a fund, authority or institution.[55] These funds were described under the previous legislation as ‘ancillary funds’.[56] The expectation appears to be that these funds are in a sense temporary, operating until the funds are distributed to another DGR. One of the special conditions applying to ancillary funds is that the terms of the will or trust must allow the trustee to invest money that the fund receives because of the gift only in a way that an Australian law allows trustees to invest trust money.[57]

Division 30 uses the term ‘public funds’ in relation to ancillary funds and in relation to several general categories of eligibility. For example, it refers to a public fund established before 23 October 1963 and maintained for the purpose of providing money for hospitals,[58] a public fund for the establishment of a public university[59] and a public fund established for the relief of persons in Australia who are in necessitous circumstances.[60] In Bray v FCT, the meaning of the term “public fund” was considered. It was said that a fund will be public where:

(a) it is the intention of the promoters or founders that the public will contribute to the fund;

(b) the public, or a significant part of it, does in fact contribute to the fund; and

(c) the public participates in the administration of the fund.[61]

‘In Australia’

Division 30 also generally requires that the fund, authority or institution be in Australia.[62] This has been said to mean that the entity must be established and operated in Australia and must have its purposes and beneficiaries in Australia. There are two exceptions to this requirement.[63] First, it does not apply where the legislation provides otherwise, for example, in the case of overseas relief funds and certain environmental agencies.[64] Secondly, it does not apply to ancillary funds.[65] It should also be noted that the requirement will be satisfied if the overseas activities are merely incidental or insignificant.[66]

(c) The Gift Fund Requirement

The purpose of the gift fund requirement is to ensure that monies received are used for the principal purposes of the entity or the fund, authority or institution the entity operates. This is essentially a requirement to keep donations separate from other monies such as government grants and receipts from sponsorship or commercial activities.[67] This is separate from the public fund requirement. The legislation does not prescribe any particular form for the gift fund, that is, the legislation does not specify that a separate banking account be used, but as a matter of practice this may be the easiest way to satisfy the requirement. According to Taxation Ruling TR 2000/12, the requirement will be satisfied if there is separate identification of money received as a gift or because of a gift (eg any return from investment of gift monies) and separate identification and recording of how the money is used. Of course, it would be open to a court to find otherwise and to hold that a separate account should be used.

Provided the requirements relating to category, having an ABN and maintaining a gift fund are satisfied, an entity has a right to be endorsed. If the Commissioner refuses to grant endorsement, the legislation provides for statutory rights of review.[68] If there is a delay in granting endorsement, that is, where endorsement is not granted within 60 days from the date of lodging the application, the applicant can treat this as a deemed refusal and seek review.[69] Once the entity is endorsed the endorsement is entered on the Australian Business Register and potential donees can check that Register to ensure that any donation will be deductible. If an entity at any time no longer satisfies the requirements for endorsement, the endorsement can be revoked. Because of this possibility, the ATO suggests self-review on an annual basis or whenever there is a substantial change in the entity’s structure or activities.[70] The ATO may also decide to carry out a review at any time and as a result of such a review, may decide to revoke endorsement.

3 Receipts

The requirement to provide a receipt applies to all DGRs, that is, even if the entity is named in Division 30 and therefore does not require endorsement.[71] The receipt must contain the name of the fund, authority or institution, the entity’s ABN (if any) and a statement that it is a receipt for a gift. Although not required by the legislation, the ATO has indicated that it would also be helpful for the donee to claim a deduction if the receipt also stated the amount of the donation, a description of any gifts of property and the date of the gift.[72] Of course, the fact that the payment is for a gift will still need to be satisfied and in this regard a recent fact sheet issued by the ATO states that the cost of attending a fundraising dinner and similar events will generally not be a gift and therefore not deductible.[73]

B Measures to Encourage Philanthropy

A number of measures have been introduced in an effort to encourage philanthropy. Although the measures apply to gifts made on or after 1 July 1999, they were only enacted in 2000.

1 Prescribed Private Funds

The legislation now makes provision for prescribed private funds.[74] These funds are ancillary funds that comply with the requirements of a public fund except for the requirement to seek and receive contributions from the public.[75] This also means that such a fund will not need to be registered under state fundraising legislation.[76] The notion of a private fund is based on the US Model which has a long history of private charitable foundations.[77] A contribution to a private fund will be deductible. Such a fund does not require endorsement as a DGR[78] but will need to seek endorsement as an income tax exempt charity if it wishes to claim tax exemption.[79] The private fund must eventually distribute to another DGR although there are no prescribed limits on when this must occur.[80]

2 Gifts of Property Valued at More Than $5000

Previously, a gift of property could only be deducted if it was purchased during the twelve months before the gift was made. Furthermore, the amount of the deduction was limited to the lesser of the market value of the property on the day of the gift and the amount paid by the donor for the property.

The amendment allows property which is valued at more than $5000 by the Commissioner, to be deductible regardless of when and how it was acquired.[81] The amount of the deduction is the value of the property as determined by the Commissioner.[82]

3 Apportionment of Gifts Made to Cultural, Environmental and Heritage Organisations

This amendment allows the apportionment over a maximum of five years, of gifts made to certain cultural, environmental and heritage organisations (eg public libraries and museums). The apportionment is made in accordance with a written election made by the donor.[83] This will enable donors to spread the deduction over a period in the most tax effective way.

4 Capital Gains Tax Exemptions

The capital gains tax exemption that is available on gifts of property made under the Cultural Bequest Program has been extended to include:

Division 30 is limited to inter vivos gifts, so the capital gains tax exemption provides some relief for gifts made under will. The effect of the exemption is that any gain or loss made from making the gift is disregarded subject to anti-avoidance provisions, for example, if the property is reacquired by an associate of the deceased.[86]

5 Likely Impact on Charities

The measures relating to gift deductibility will have a mixed impact on charities. The most significant change is the requirement to be endorsed as a DGR. This will clearly result in an increased compliance burden for charities as they must apply to the Commissioner of Taxation for endorsement and then carry out regular reviews to ensure that the entity is still entitled to be endorsed. Although this is a burden for the charities concerned, figures from the ATO indicate that there may be an overall tax saving as a result of the endorsement process. According to statistics in January 2001, 18,909 entities had applied to become endorsed as DGRs and of those 15, 242 had been endorsed.[87] Some 2110 had been refused endorsement[88] indicating that some entities may have inappropriately claimed gift deductibility status prior to 1 July 2000. The statutory requirement to provide a receipt for gifts should not impose any additional cost to charities as this has been a requirement for public funds for a number of years.[89] The specific measures to encourage philanthropy will be welcomed by charities as they generally relax the requirements for donors to obtain deductibility. The impact of the introduction of private trusts is difficult to estimate. As at July 2001 the ATO had received approximately 40 applications for approval. Some evidence from the US suggests that such vehicles can be open to abuse[90] and so we must wait to see if that also occurs in Australia.

II Measures Relating Income of Charities

The tax concessions relating to income of charities include the exemption from income tax that is available for certain entities, including ‘charities’ and provisions which allow certain charities to obtain a refund of imputation credits in relation to their investments in Australian companies. From 1 July 2000 a charity must be endorsed as an ‘income tax exempt charity’ in order to claim income tax exemption. This part considers the exemption, the endorsement requirement and the measures dealing with refunds of imputation credits.

A Income Tax Exemption

1 Division 50 ITAA 97

The ITAA 1997 expressly provides that assessable income does not include exempt income.[91] Generally an amount is exempt income only if it is made exempt by a provision of the tax law. Division 50 ITAA 1997 provides that the total ordinary and statutory income of certain entities is exempt from income tax.[92] In some cases the exemption is subject to special conditions.

Division 50 lists nine categories under which entities may be eligible for exemption. They are:

A general feature of the entities within each of these categories is that they are non-profit. That is, they are not operated for the profit or gain of the members or promoters. In order to be non-profit an entities governing documents or rules must prohibit the distribution of profits to its members and provide for the distribution of any assets remaining on a winding up to another non-profit entity.

Prior to 1 July 2000 there was no requirement to have the ATO confirm that an entity fell within these categories. In other words, it was up to the entity to self-assess its status although the ATO could subsequently challenge that status. Some entities did choose to seek a private ruling as to their status or to otherwise confirm their status with the ATO. Since 1 July 2000, Division 50 provides for different treatment of entities that fall within certain subcategories, namely entities that are “charitable institutions” or “charitable funds”. From that date, those entities must be endorsed by the Commissioner of Taxation as income tax exempt.[93] Other non-profit entities will continue to self-assess and this is also discussed below.

1 Endorsement of Charities as Income Tax Exempt Charities

From 1 July 2000 income derived by a charity will be assessable unless the entity is endorsed as an income tax exempt charity (ITEC).[94] The requirement to be endorsed applies even if the entity otherwise qualifies for income tax exempt status, for example, as a religious institution or a public hospital.[95] Once endorsed the charity will be exempt from income tax and generally not required to lodge a tax return unless specifically requested to do so. The requirement to be endorsed as an ITEC is separate from endorsement as a DGR. As at January 2001, approximately 37,000 entities have become endorsed.[96]

In order to be eligible for endorsement, an entity must satisfy three requirements. It must:

(a) Australian Business Number (ABN)

The entity applying for endorsement must have an ABN.[97] The provisions of the ABN legislation relating to charities are discussed below.

(b) Charitable Institutions and Charitable Funds

The requirement to be endorsed applies only to two categories of entities referred to in Division 50 – charitable institutions and charitable funds.[98] However, if an entity falls within some other category of eligibility but is also a charitable institution or fund, it will need to be endorsed.[99]

According to a Draft Taxation Ruling issued by the ATO,[100] the term ‘charitable’ in this context still relies on the 1601 Statute of Elizabeth. For an entity to be established and maintained for charitable purposes, it must be within the spirit and intendment of the Statute and cases decided since that time, that is, it must be ‘for the relief of poverty and sickness, advancement of religion, advancement of education or other purposes beneficial to the community’.[101] The Draft Ruling also notes that an entity will not be charitable if its purpose is illegal or against public policy,[102] political,[103] or if it is a government body.[104] It was also noted that there must be an element of public benefit[105] and that there is an implicit requirement that a charity will be non-profit, that is, there will be no distribution to members during the life of the entity or on winding up.[106] Essentially the Draft Ruling simply summarises the rather complicated case law in this area. Although it is open to a court to distinguish that case law, change is more likely to occur as a result of the recommendation by the Inquiry into Charitable and Related Organisations that a statutory definition be introduced for all (ie tax and non-tax) purposes.

Endorsement is required of charitable institutions. The legislation does not require any particular form of entity although the wording suggests some sort of body. The Draft Ruling on charities indicates that a charitable institution could be a company, an incorporated body an unincorporated body or a trust.[107]

Endorsement is also required for charitable funds. According to a Taxation Ruling dealing with endorsement of income tax exempt charities, a fund manages property and makes distributions. If an entity does more than that it is probably an institution.[108] Three types of funds are recognised and different conditions apply to each type. Charitable funds can either be described as ‘old trusts’ or ‘new trusts’. The types of funds identified in Division 50 are:

The significance of these categories in relation to the special conditions is discussed below.

(c) Special Conditions for ITEC Status

In order to be eligible for ITEC status, an entity must satisfy some conditions imposed by the legislation. Those conditions differ depending on whether the entity is a charitable institution or a charitable fund.

For a charitable institution, it must:

In order to have a physical presence in Australia, the institution must be either wholly in Australia or have a division, branch or subdivision in Australia. The institution must also pursue its objectives and incur its expenditure principally in Australia. According to the ATO this means ‘mainly or chiefly. Less than 50% is not principally’.[110] If the charitable institution also has a presence in another country, the activities and expenditure must relate to the Australian presence. In working out whether expenditure is incurred principally in Australia, certain amounts received by the institution are disregarded. Those amounts are gifts, including testamentary gifts, proceeds from fund-raising activities and government grants.[111] This means that an institution can make offshore distributions and still be regarded as satisfying the requirement to incur expenditure principally in Australia because it is assumed that off-shore distributions are made first from any disregarded amounts.[112]

A charitable institution is entitled to ITEC endorsement if it is a DGR.[113] DGRs are entities that are listed by name in Division 30 ITAA 1997 or are endorsed as DGRs by the Commissioner of Taxation. Even if an entity is endorsed as a DGR it will still need to apply separately for endorsement as an ITEC.

For charitable funds, the conditions depend on whether the fund is an old trust or a new trust. For a new trust, the fund must:

In determining whether a charitable fund incurs its expenditure principally in Australia or distributes solely to charities in Australia or to other DGRs, distributions of amounts that are ‘disregarded amounts’ are ignored.[115]

For an old trust, that is a fund established by will before 1 July 1997, the fund is entitled to be endorsed provided the fund is being applied for the purposes for which it was established.[116]

If an applicant is refused endorsement, it can seek review.[117] Entities that are endorsed as ITECs will need to undertake self-review in the same way as entities endorsed as DGRs. There is also the possibility of review of status by the ATO.[118]

B Other Non-profits

The position in relation to other non-profit organisations remains unchanged. That is, they will be able to continue to self-assess whether they qualify for income tax exempt status. There is no need to apply to the ATO although as in the past, some entities may apply for a private ruling to clarify their status. This is, of course, subject to the proviso that if an entity is also a charitable institution or a charitable fund they must be endorsed.[119] There are nine general categories of entities that are eligible. The entities that will be eligible will be those that fall within Category 1, that is, “education, science and religion” (other than charitable institutions and charitable funds) as well as entities that fall within the other 8 categories.

There are some special conditions that must be satisfied to be eligible for income tax exempt status. For example, all entities must be non-profit. In some cases this is explicit,[120] in other cases implicit.[121] An entity must also have a physical presence in Australia, have DGR status or be prescribed. There are also some additional conditions that apply to particular categories.[122]

C Refunds of Imputation Credits

These measures are relevant to the investment income of charities. Prior to 1 July 2000 a charity receiving dividends from the holding of company shares effectively bore the tax paid by the company. That is, because the charity did not pay tax, it could not claim a credit for the tax already paid by the company that was available to other shareholders and such credits were non-refundable. From 1 July 2000 certain eligible entities are entitled to a credit for the underlying company tax on franked dividends[123] and can claim a refund.[124]

In order to be eligible for a refund the entity must be income tax exempt and

Resident in this context means the institution has a physical presence in Australia, and to that extent, incurs its expenditure and pursues its objective principally in Australia at all times during the year of income.[126] To obtain a refund, the entity needs to complete a personalised refund application form available from the ATO.

Division 7AA of ITAA 1936 contains some anti-avoidance provisions to prevent abuse of the entitlement, that is, if the entity gets a reduced benefit or provides a benefit to someone else or someone else gets a benefit.[127] The consequence is a denial of the rebate and the controller of the institution may be liable to pay an amount and incur tax at the top marginal rate.[128]

The interaction of Division 7AA with other provisions of the legislation may mean that the rebate is not available to some charities. The measures in Division 7AA appear to contemplate a portfolio type investment in shares. However, if a charity has or wishes to establish a wholly-owned subsidiary for the purpose of commercialisation of activities, the subsidiary company may be an ‘exempting company’[129] so that when the dividend is paid the rebate under Division 7AA is denied. These measures were introduced to address the potential for tax exempt entities to enter into schemes whereby franking credits are traded and the benefits flow to persons who are not the true economic owners of the shares. The denial of the rebate to charities in these circumstances may be inadvertent as there was no evidence of charities engaging in franking credit trading and the issue was not addressed when the refund measures were introduced. However, until there is a change to the legislation a charity will need to avoid holding more than 95% of the shares in a subsidiary company or avoid receiving a dividend.

D Likely Impact on Charities

The requirement to be endorsed as an ITEC, like the requirement to be endorsed as a DGR, will impose an additional compliance burden on charities. One significant issue in relation to income tax exemption is why charities were singled out as needing to go through the endorsement process when other non-profits can continue to self-assess. ATO figures do suggest that some charitable entities may have been claiming exemption incorrectly – as at January 2001, 41,558 applications for endorsement had been received, of these 37,159 had been endorsed and 1,586 had been refused endorsement.[130] It is possible, however, that other non-profits may also be incorrectly claiming exempt status. However, given the high cost of providing the exemption and other concessions, it is appropriate that the concessions be targeted to those entities that meet some commonly accepted standard of ‘charitable’. Charities may be concerned, however, that the body that determines the status of the entity is also the body responsible for administering the concessions. This matter is discussed in Part 4.

The measures relating to refunds of imputation credits will be particularly welcomed by larger charities that invest in company shares and may even cause charities to change their investment patterns. Smaller charities are more likely to hold their funds on bank deposit and so the introduction of the rebate will be less likely to effect them although over time it may impact on investment patterns.

III Other Taxes and Obligations

Charities are also given tax concessions under other legislation such as the fringe benefits tax legislation.[131] Restrictions on those concessions were introduced in 2000. Charities must also comply with some tax related obligations such as the obligation to make deductions from various payments under the Pay As You Go provisions introduced in 2000. It may also be necessary or desirable for a charity to apply for an Australian Business Number and to consider the operation of the Goods and Services Tax legislation.

A Fringe Benefits Tax (FBT)

Certain entities are entitled to concessions in relation to the provision of benefits to employees. Generally, the provision of benefits to employees (fringe benefits) gives rise to a liability to tax by the employer (FBT). Some entities are entitled to an exemption from FBT, while others are entitled to a rebate.

1 Exemption

The Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides that a benefit provided in respect of employment of an employee of a public benevolent institution, a public hospital or a private non-profit hospital is an exempt benefit[132] and therefore not subject to FBT. The public benevolent institution exemption has recently been extended to include charities the principal activity of which is promoting the prevention or control of disease in humans.[133] From 1 April 2000, the level of benefit provided to an employee of a public or private non-profit hospital eligible for exemption is $17,000 per employee.[134] From 1 April 2001, the level of benefits provided to an employee of a public benevolent institution, eligible for exemption is $30,000 per employee.[135]

2 Rebate

From 1 April 1994, the method of calculating FBT liability was changed to include a gross-up amount. This effectively means that the employee is treated as having received both the value of the benefit and the FBT. The employer is then entitled to a deduction for the cost of the benefit and the tax paid. Tax-exempt employers are required to calculate their FBT liability using the gross-up method but are not able to utilise the deduction. However, since 1994 most tax-exempt employers (but not public benevolent institutions)[136] are eligible for a rebate of FBT equivalent to 48% of the employer’s FBT liability.[137] As of 1 July 2001, the level of benefits eligible for concessional treatment by way of rebate is $30,000 per employee of a rebatable employer.[138]

B Pay As You Go (PAYG)

From 1 July 2000, PAYG has replaced most tax instalment and withholding systems. There are two components of PAYG – PAYG instalments and PAYG withholding.

1 PAYG Instalments

PAYG instalments replace the company and superannuation fund instalment system and the provisional tax system. The provisions provide for the payment of instalments of expected tax on business and investment income for the current income year.[139] PAYG instalments are not payable by an entity which is exempt from income tax. In particular, PAYG instalments do not apply to charitable institutions and charitable funds that are endorsed as exempt from income tax.

2 PAYG Withholding

PAYG withholding replaces all existing tax withholding systems, including Pay As you Earn.[140] Charitable entities will be obliged to withhold, for example, from payments of salary and wages paid to employees of the entity.[141] New withholding obligations have also been introduced. In particular, there is a requirement (subject to certain exceptions) to withhold from a payment for a supply of goods or services where the supplier does not quote an ABN.[142] One significant exception to this requirement is where the payment is less than $50.[143] The non-profit status of the payer does not impact on the obligation to withhold from payments subject to PAYG withholding.

C Australian Business Number (ABN)

The ABN is a single business identification number which is required for certain registration purposes and for other dealings with the ATO.[144] It is not mandatory for a charitable entity to obtain an ABN but it may be necessary because the entity wishes to obtain endorsement as a DGR or ITEC or it may be desirable because the entity wishes to claim input tax credits or to avoid the 48.5% withholding on investments.

Entities which are eligible to have an ABN include:

Activities conducted by DGRs, charitable institutions and charitable funds and religious institutions are considered to be an enterprise for these purposes.[146]

D Goods and Services Tax (GST)

The GST is a tax which is charged on the supply of goods and services in Australia and on goods imported into Australia.[147] It took effect from 1 July 2000 at a rate of 10%. GST is essentially a value added tax – it is paid at each step along the chain of transactions involving goods or services until the end user is reached and broadly, tax is paid on the value added. Only the end-user or consumer ultimately pays the tax, entities making supplies can claim a credit for GST paid on inputs (an “input tax credit”).[148] GST is imposed on all taxable supplies by registered entities or entities required to be registered.[149] The term ‘taxable supplies’ covers virtually all activities involving the supply of goods and services.[150] The entity making the supply is liable to remit the GST to the ATO.

If an entity is carrying on an enterprise, it must register for GST purposes if its annual turnover exceeds certain thresholds.[151] For a non-profit entity the threshold is $100,000.[152] If an entity has an annual turnover below the relevant threshold, it may choose to register for GST[153] in order to be able to claim input tax credits on its acquisitions.

Activities carried on by charities or DGRs constitute an enterprise for GST purposes.[154] Provided certain requirements are met, these entities also have the option to register non-profit sub-entities which are then treated as being separate entities for GST purposes.[155]

1 Supplies Made by Certain Non-profit Entities

If an entity is not registered and is not required to be registered, it does not make taxable supplies. Consequently, no GST is payable by these entities on supplies they make. If the entity is registered or required to be registered for GST purposes and is either a charitable institution or charitable fund or a DGR, the following GST concessions may apply:

2 Supplies Made to the Non-profit Entity

Whilst an entity may not be required to be registered for GST, it will need to be registered if it wishes to claim input tax credits. Generally, input tax credits arise is respect of taxable supplies which an entity acquires. They are claimed back from the ATO by the recipient of the supply and are equivalent to the amount of any GST which was included in the price paid for the acquisition.

E Likely Impact on Charities

Of the measures relating to other taxes and obligations for charities, the most onerous is clearly the GST. Although there are some exemptions for charities, they will need to determine on an almost daily basis whether their activities have GST consequences. Charities will also need to be aware of their PAYG obligations and ensure that they receive a tax invoice with an ABN properly quoted or that they fall within the $50 exception. The tightening of the FBT concessions arose because of evidence that the concession was being abused. The level of benefit available now is said to be equivalent to providing an employee with a 6 cylinder car and some additional minor benefits.[161]

IV Inquiry into Charitable and Related Organisations

The Report of the Charities Definition Inquiry (the Report) was released by the government on 24 August 2001. The Report makes it quite clear that under the terms of reference, it was not required to deal with or recommend a particular tax treatment for charities.[162] The terms of reference required the Inquiry to consider more broadly the definition of the term charity, including whether it is appropriate to have a statutory definition.[163] The findings of the Inquiry clearly extend beyond the tax legislation and involve matters that are under the jurisdiction of the states and territories.[164] This of itself may mean that any response to the Report by the Commonwealth will need to involve the states and territories and may therefore take longer to announce. Although the Report does not deal directly with tax issues, its recommendations will clearly have implications for the future tax treatment of charities.

Perhaps the main recommendation contained in the Report is that it would be more appropriate to have a statutory definition of ‘charity’ rather than relying on the common law.[165] The Report identifies a number of benefits from this approach including the removal of uncertainty as to what is a charity and the fact that a statutory definition could reflect modern values.[166] The Report also recommends that there should be a statutory framework that distinguishes between ‘ordinary’ charities and ‘benevolent’ charities.[167]

In relation to ‘charity’ generally, the Report notes that the definition should expressly incorporate the no profit requirement. However, the Report does suggest that this be changed to refer to ‘not-for-profit’ to reflect the fact that it is not the making of profit which is restricted but rather the distribution of profit to members either while the charity is operating or on winding up.[168] The Report also recommends that the term ‘entity’ should be used to describe charities although no particular structure should be prescribed – a charity could therefore be an incorporated body, an unincorporated association or a trust. The Report did say that some entity structures would be unsuitable for a charity, for example, partnerships.[169]

In order to be a charity, the entity must have a dominant “charitable” purpose or purposes. The way in which it is recommended that charitable purposes be defined bears some resemblance to the Preamble to the Charitable Uses Act 1601 (known as the Statute of Elizabeth) and to principles developed in the cases, but is somewhat broader. The Preamble set out the following charitable purposes:

The relief of the aged, impotent and poor people; the maintenance of sick and maimed soldiers and mariners, schools of learning, free schools and scholars in universities; the repair of bridges, ports, havens, causeways, churches, sea-banks and highways; the education and preferment of orphans; the relief, stock or maintenance of houses of correction; the marriages of poor maids, the supportion, aid and help of young tradesmen, handicraftsmen and persons decayed; the relief or redemption of prisoners or captives; and the aid or ease of any poor inhabitants concerning payment of fifteens, setting out of soldiers and other taxes.[170]

In Pemsel’s case in 1891, Lord Macnaughton classified the categories of charitable purposes under four heads:

Charity in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community not falling under any of the preceding heads. [171]

According to the Report’s main recommendation, an entity will have charitable purposes if they are for:

The Report also recommends a strengthened public benefit test, including an express reference to ‘altruistic’.[173] In keeping with the existing law, the Report notes that to be of public benefit a purpose must be aimed at achieving a universal or common good; have practical utility and be directed to the benefit of the general community or a sufficient section of the community.[174] The Report also notes that according to dictionary meanings, altruism is defined as ‘unselfish concern for the welfare of others’ or ‘regard for others as a principle of action’.[175] The Report concludes that while the concept of altruism needs to be emphasised, it is not necessary to define the term any more precisely because it is sufficiently understood within the community.[176] However, given the amount of confusion that has arisen in the past it would be preferable for such a term to be defined or for the public benefit test to be made more explicit.

The Report confirms that in accordance with current practice it would not be appropriate for bodies with party political purposes[177] or government bodies[178] to be regarded as charitable. However, the Report takes the view that commercial purposes should not disqualify an entity from being charitable. The Report notes that it is a matter for government whether a charity which engages in commercial activities should be entitled to the same tax concessions as charities that do not engage in those activities.[179]

The Report also favours removing the separate categories of religious, scientific and public educational institutions.[180] That is, the Report takes the view that such entities should only be classified in the same way as charities if they also qualify as charitable entities.

The Report also recommends a separate sub-category of ‘benevolent’ charity.[181] This would cover an entity that meets all the requirements for a charity and their dominant purpose is to benefit, directly or indirectly, those whose disadvantage prevents them from meeting their needs.

The Report clearly has implications for the future tax treatment of charities. First, the suggested definitional approach is broader than under the existing common law and so potentially more entities could be eligible to be treated as charities for tax purposes. Secondly, the two tier definitional framework that distinguishes between ‘ordinary’ and ‘benevolent’ charities could provide a framework for providing different tax concessions for different types of charities. However, as this already occurs under the existing tax legislation, this may not be a very significant development.

Finally, the Report recommends that a dedicated administrative body be established to determine issues such as status and to provide advice to the ATO.[182] It was suggested that this body could perform a similar function to the Charities Commission in the UK. The Report recognises that establishment of such a body could be expensive and so suggests the establishment of at least a permanent advisory panel, including representatives from the charities and related sector to provide independent advice to the ATO.[183]

Charities should generally welcome the Report. First, the recommendation to have a statutory definition will provide more certainty for charities and related entities. Secondly, the recommendation to establish a dedicated administrative body removed from the ATO is significant. Such a body would be able to determine the status of entities and ensure uniformity in interpretation across the States and Commonwealth. It would also avoid the potential for possible conflicts of interest where the ATO is both determining status and effectively determining access to tax concessions. We must now await the government’s response to the Report.

V Conclusion

The measures dealing with tax concessions for charities that have been introduced recently will, in most cases, impose significant compliance burdens on charities. However, the cost of providing these concessions is considerable and the government is correct to introduce some mechanism whereby some measure of control is exercised over who is entitled to those concessions. The recommendations in the Report of the Charities Definition Inquiry, if accepted, could result in further restrictions. First, it seems likely that the government will accept the need for a statutory definition of the term ‘charitable’ and secondly, the Report invites the government as a matter of tax policy to determine whether different types of charities should be eligible to receive the various tax concessions. Another important issue for the government to resolve is whether the body responsible for determining the status of an entity should also be the body responsible for administering the tax concession. Hopefully the government will accept the recommendations in the Report and establish an independent body to undertake this important function.

[*] Senior Lecturer, Law School, University of Melbourne; Senior Research Fellow, Taxation Law and Policy Research Institute, Deakin University; Special Counsel, Allens Arthur Robinson.

[1] Report of the Inquiry into the Definition of Charities and Related Organisations, 3.

[2] Ibid.

[3] Ibid.

[4] Treasury, 2001 Tax Expenditures Statement, Items A63 and C13. The estimated cost of providing an income tax exemption for charitable and related entities is not available (Item D3).

[5] The tax legislation provides relief to a range of entities, only some of the provisions use the term ‘charitable’. The term is used in this paper as a shorthand method of referring to all entities that are entitled to relief. For a discussion of the terms used in the UK, see J Warburton ‘Charity – One definition for all tax purposes in the new millennium?’ [2000] British Tax Review 144.

[6] Report of the Inquiry into the Definition of Charities and Related Organisations (hereinafter Charities Definition Inquiry), June 2001.

[7] Under ITAA 1997 s 8-1

[8] For a discussion of the unique nature of this tax concession, see Rick Krever ‘Tax Deductions for Charitable Donations: A Tax Expenditure Analysis’ in R Krever and G Kewley (eds),Charities and Philanthropic Organisations – Reforming the Tax Subsidy and Regulatory Regimes , Australian Tax Research Foundation and The Comparative Public Policy Unit, Monash University, 1991.

[9] Finance Act 1990 (Cth) s 25 as amended by Finance Act 2000 (Cth) s 39 .

[10] Ibid.

[11]Taxes Act 1988, s 202 as amended by Finance Act 2000 s 38.

[12] Internal Revenue Code 1986, s 170(a).

[13] Statement by President Bush, ‘Tax Incentives to Boost Charitable Giving’, 30 January 2001.

[14] ITAA 1997 s 30-15(2).

[15] ITAA 1997 s 30-15 .

[16] Internal Revenue Code 1986 s 170(b)(1)(A).

[17] Internal Revenue Code 1986 s 170(b)(2).

[18] McPhail v FCT [1968] HCA 13; (1968) 117 CLR 111.

[19] Taxation Determination TD 92/110 and Taxation Ruling IT 2443.

[20] Income Tax Assessment Act 1936 (ITAA 1936) s 78A.

[21] The limits vary depending on the value of the gift. The limits are: ¼0-100 – 25% of the value of the gift; ¼101-1000 – ¼25; ¼1001-10,000 – 2.5% of the value of the gift; ¼10,000 plus – ¼250: Finance Act 1990 s 25 as amended by the Finance Act 2000 s 38.

[22] Internal Revenue Code 1986 reg 1.170A-1(h).

[23] Internal Revenue Code 1986 Rev Rule 67-246.

[24] ITAA 1997 s 30-17.

[25] Explanatory Memorandum, A New Tax System (Tax Administration) Act 1999, 106.

[26] ITAA 1997 s 30-17(1).

[27] ITAA 1997 s 30-125(1)(a) and (2)(a).

[28] Item 1.1.6 in ITAA 1997 s 30-20(1).

[29] Explanatory Memorandum, Taxation Laws Amendment Act (No 2) 2001, 37.

[30] Treasurer’s Press Release No 55, 22 June 2000.

[31] [1931] HCA 20; (1931) 45 CLR 224.

[32] [1931] HCA 20; (1931) 45 CLR 224 , 232 (Starke J).

[33] Commissioner of Pay-roll Tax (Vic) v Cairnmillar Institute (1990) 90 ATC 4752, 4757 (McGarvie J).

[34] Under the Public Rulings program, the ATO provides guidance as to its interpretation on a particular aspect of the law in the form of a Public Ruling. Such Rulings do not represent the law on a particular issue and are not in any way binding on taxpayers. Public Rulings are, however, binding on the ATO if they are favourable to the taxpayer (see, for example, ITAA 1936 ss170BA to 170BF ). Draft Rulings represent the preliminary views of the ATO and may be subsequently amended or withdrawn. They are not binding on the ATO and should be treated with caution.

[35] Draft Taxation Ruling TR 2000/D14.

[36] Draft Taxation Ruling TR 2000/D14, para 28.

[37] Draft Taxation Ruling TR 2000/D14, para 128.

[38] Draft Taxation Ruling TR 2000/D14, para 77.

[39] See Legal Aid Commission of Victoria v Commissioner of Pay-roll Tax (Vic) (1992) 92 ATC 2053; Commissioner of Pay-roll Tax (Vic) (1992) 92ATC 4311 and Draft Taxation Ruling TR 2000/D14, para 41.

[40] Draft Taxation Ruling TR 2000/D14, para 77.

[41] Draft Taxation Ruling TR 2000/D14, para 127.

[42] 82 ATC 4385, 85 ATC 4236.

[43] See also Trustees of the Allport Bequest v FCT 88 ATC 4436, 4441.

[44] Draft Taxation Ruling TR 2000/D14, para 75.

[45] FCT v Royal Society for the Prevention of Cruelty to Animals Qld Inc (1992) 92 ATC 4441.

[46] Taxation Ruling 2000/9.

[47] [1950] HCA 19; (1950) 80 CLR 350.

[48] Taxation Ruling, 2000/9, paras 8-13.

[49] Taxation Ruling, 2000/9, para 15.

[50] Taxation Ruling, 2000/9, para 16.

[51] Taxation Ruling, 2000/9, paras 25-26.

[52] Draft Taxation Ruling, 2000/D14.

[53] ITAA 1997 s 30-125(1).

[54] ITAA 1997 s 30-125(2.

[55] ITAA 1997 s 30-15, Table Item 2.

[56] Former s 78(5) ITAA 1936.

[57] ITAA 1997 s 30-15, Table Item 2, Special Condition (b) and see Taxation Ruling 95/27.

[58] ITAA 1997 s 30-20, Item 1.1.4.

[59] ITAA 1997 s 30-25, Item 2.1.2

[60] ITAA 1997 s 30-45, Item 4.1.3.

[61] 78 ATC 4179. See also Taxation Ruling 95/27, para 6.

[62] See, for example, ITAA 1997 s 30-15, Table Item 1, Special Condition (a) .

[63] Taxation Ruling TR 2000/D14 para129.

[64] ITAA 1997 ss 30-80 and 30-85. The Overseas Aid Gift Deduction Scheme is administered by the Department of Foreign Affairs.

[65] ITAA 1997 s 30-15 Table Item 2.

[66] Taxation Ruling TR 2000/D14, para 130.

[67] ITAA 1997 s 30-125(4), (5) and (6).

[68] ITAA 1997 s 30-150 .

[69] ITAA 1997 s 30-135(2).

[70] ‘GiftPack – A Taxation Guide for Deductible Gift Recipients and Donors (Gift Pack)’, ATO, 2000, 12-13.

[71] ITAA 1997 s 30-228.

[72] Gift Pack, above n 70, 12.

[73] Fundraising dinners and similar events fact sheet, ATO, August 2001.

[74] ITAA 1997 s 30-15 Table Item 2.

[75] Guidelines for Prescribed Private Funds, March 2001.

[76] For example, under the Fundraising Appeals Act 1998 (Vic).

[77] See N Crimm, ‘Deep Throated Concern: A Case Study of a Private Foundation’s Governance, An Estate and Incestuous Fiduciaries’ (2001) 50 Emory Law Journal 1.

[78] ITAA 1997 s 30-17(1)(b).

[79] ITAA 1997 s 50-50 .

[80] Guidelines for Prescribed Private Funds and Model Trust Deed, March 2001.

[81] ITAA 1997 s 30-15 Table Items 1 and 2, Type of Gift or Contribution para (d) .

[82] ITAA 1997 s 30-15 and 30-212.

[83] ITAA 1997 Division 30-D.

[84] ITAA 1997 s 118-60(1).

[85] ITAA 1997 s 118-60(2).

[86] ITAA 1997 s 118-60(3) and (4).

[87] ATO Submission, Charities Definition Inquiry.

[88] Presumably 1557 applications were awaiting determination.

[89] Taxation Ruling TR 95/27, para 9(c).

[90] See N Crimm, above n 77.

[91] ITAA 1997 s 6-20.

[92] ITAA 1997 s 50-1.

[93] Under ITAA 1997 sub-division 50-B.

[94] ITAA 1997 s 50-52.

[95] ITAA 1997 s 50-52(3) .

[96] ATO Submission, Charities Definition Inquiry.

[97] ITAA 1997 s 50-110(3).

[98] ITAA 1997 s 50-110(2).

[99] ITAA 1997 s 50-52(3) .

[100] Draft Taxation Ruling TR 1999/D21.

[101] Draft Taxation Ruling TR 1999/D21 paras 117-141.

[102] Draft Taxation Ruling TR 1999/D21, para 13.

[103] Draft Taxation Ruling TR 1999/D21, para 14.

[104] Draft Taxation Ruling TR 1999/D21, para 16.

[105] Draft Taxation Ruling TR 1999/D21, paras 8 and 11.

[106] Draft Taxation Ruling TR 1999/D21, para 142.

[107] Draft Taxation Ruling TR 1999/D21, para 19.

[108] Taxation Ruling TR 2000/11.

[109] ITAA 1997 s 50-50 .

[110] Taxation Ruling TR 2000/11, para 15.

[111] ITAA 1997 s 50-75(1).

[112] ITAA 1997 s 50-75.

[113] ITAA 1997 s 50-50(b).

[114] ITAA 1997 s 50-60 .

[115] ITAA 1997 s 50-75(3).

[116] ITAA 1997 s 50-57.

[117] ITAA 1997 ss 50-120(2) and 50-135.

[118] ITAA 1997 s 50-140.

[119] ITAA 1997 s 50-52(3)

[120] For example, ITAA 1997 s 50-40, Items 8.1 and 8.2, s 50-45 Item 9.1 and 9.2 and see s 50-70 of the ITAA 1997.

[121] Draft Taxation Ruling TR 1999/D21, para 142.

[122] For example, s 50-5 Item 1.6 requires a scientific research fund to satisfy the conditions in ITAA 1997 s 50-65.

[123] ITAA 1936 Division 7AA.

[124] ITAA 1997 Division 67.

[125] ITAA 1936 s 160ARDAB.

[126] ITAA 1936 s 160ARDAB(7).

[127] ITAA 1936 s 160ARDAC .

[128] ITAA 1936 ss 160ARDAD and 160ARDAE.

[129] ITAA 1936 s 160AQTA, 160ARHBA.

[130] Presumably 2,813 applications were awaiting determination.

[131] Concessions are also provided under other tax legislation such as the State and Territory Pay-roll Tax Acts, stamp duties under the State and Territory Duties Acts and under the State and Territory Land Tax Acts.

[132] FBTAA s 57A.

[133] FBTAA s 57A(5) inserted by Taxation Laws Amendment Act (No 2) 2001 (Cth).

[134] FBTAA s 5B(1E).

[135] FBTAA s 5B(1E)

[136] FBTAA s 65J(1). Also absent from the list are public hospitals and universities.

[137] FBTAA s 65J .

[138] FBTAA s 65J(2B).

[139] Taxation Administration Act 1953 (Cth) (TAA Act) Part 2-10, Schedule 1.

[140] TAA Act Part 2-5 Schedule 1.

[141] TAA Act s 12-35, Schedule 1.

[142] TAA Act s 12-190, Schedule 1.

[143] TAA Act s12-190(4)(b), Schedule 1.

[144] A New Tax System (Australian Business Number) Act 1999 (ABN Act) s 3. According to the Explanatory Memorandum, A New Tax System (Australian Business Number) Bill 1998, the introduction of the ABN would make tax avoidance more difficult by requiring taxpayers to deduct tax unless an ABN is quoted when required: para 1.8.

[145] ABN Act s 8(1)(a) and (2).

[146] ABN Act s 38(1)(d)(e)(f).

[147] A New Tax System (Goods and Services Tax) Act 1999 (GST Act) s 7-1(1) .

[148] GST Act s 7-1(2) .

[149] GST Act s 9-5(d) .

[150] GST Act s 9-5.

[151] GST Act s 23-5.

[152] GST Act s 23-15(2).

[153] GST Act s 23-10.

[154] GST Act ss 9-20(d), (e) and (f).

[155] GST Act Division 63.

[156] GST Act SubDivisions 38-B and 38-C.

[157] GST Act SubDivision 38-G.

[158] GST Act s 38-250.

[159] GST Act s 38-255.

[160] GST Act SubDivision 40-F.

[161] The Treasurer, ‘Tax Reform: Not a New Tax, A New Tax System’, August 1998, 50.

[162] The Report, 1.

[163] Terms of Reference of the Inquiry into the Definition of Charities and Related Organisations, The Treasurer, 18 September 2000.

[164] Treasurer’s Press Release.

[165] The Report, Recs 11-13.

[166] The Report, 38-9.

[167] Ibid 9.

[168] Ibid Rec 1.

[169] Ibid Rec 2.

[170] 43 Eliz I c 4.

[171] Income Tax Special Purposes Commissioners v Pemsel [1891] AC 5311; [1891] All ER Rep 28, 55.

[172] The Report, Rec 13.

[173] Ibid Rec 7.

[174] Ibid Rec 6.

[175] Ibid 124.

[176] Ibid 125.

[177] Ibid ch 26.

[178] Ibid ch 28.

[179] Ibid ch 27.

[180] Ibid ch 30.

[181] Ibid ch 29.

[182] Ibid ch 32.

[183] Ibid Rec 26.