The Australian Charities and Not-for-profits Commission (ACNC) has released for comment a draft Commissioner’s Interpretation Statement on the meaning and scope of the charity subtype of “public benevolent institutions” for ACNC purposes. The following is an extract of some of the key portions of the Statement.

[ACNC – Public consultation and Comment; Download Statement] [LTN 75, 21/4/16]

Extract from draft PBI Statement

2.  What is a public benevolent institution?

  1. For ACNC purposes, a PBI is a charitable institution with a main purpose of providing benevolent relief to people in need.
  2. While the phrase PBI is a compound expression, it is nevertheless appropriate to define each word in the phrase.
  3. Accordingly a PBI must be:
    • ‘public’ in the required sense;
    • benevolent; and
    • an institution.
  4. Additionally, to be eligible for registration as a PBI subtype of charity, an entity must also be eligible for registration as a ‘charity’ under the Australian Charities and Not-for-profits Commission Act 2012 (s25-5 of the ACNC Act).

4.   Public

  1. Technically, the ‘public’ component of the phrase PBI:
    • is not limited to the concept of ‘public benefit’ which applies to charities; and
    • is distinct from the taxation concept of a ‘public fund’.
  2. Rather, in determining whether an entity is ‘public’ for the purposes of being a PBI, a number of criteria are relevant.
  3. The main criterion is the extensiveness of the class of individuals that the entity benefits.
  4. Other criteria are relevant but not decisive in determining whether an entity is ‘public’:[4]
    • receipt of public funds;
    • public control and accountability; and
    • connection with government.
  5. As noted in paragraph 3, an entity that is a ‘government entity’ is not eligible to be registered as a PBI.

5.      Benevolent 

A.  People in need

  • The seminal case of Perpetual Trustee Co Ltd v Commissioner of Taxation (1931) 45 CLR 224, established that a PBI is benevolent if it is organised, promoted or conducted for the relief of poverty or distress (sickness, disability, destitution, suffering, misfortune or helplessness).
  • In simple terms, a PBI must have benevolent relief as its main purpose, and that relief must be provided to people in need.
  • The entity’s benevolence must be directed to people in need and not the broader general community. This principle was elucidated by Priestley JA in Australian Council of Social Service Inc v. Commissioner of Pay-roll Tax:

‘To me, the word “benevolent” in the composite phrase “public benevolent institution” carries with it the idea of benevolence exercised towards persons in need of benevolence, however manifested. Benevolence in this sense seems to me to be quite a different concept from benevolence exercised at large and for the benefit of the community as a whole even if such benevolence results in relief of or reduction in poverty and distress. Thus it seems to me that “public benevolent institution” includes an institution which in a public way conducts itself benevolently towards those who are recognisably in need of benevolence but excludes an institution, which although concerned, in an abstract sense, with the relief of poverty and distress, manifests that concern by promotion of social welfare in the community generally.’

  • Therefore an organisation that provides general advice, information, research and advocacy services to the whole community may not be a PBI. However some health organisations that are not PBIs because their work is not directed to people in need (for example, an organisation exclusively engaged in health research) may instead be eligible for registration as health promotion charities.
  • Similarly a PBI must have a main purpose of providing benevolent relief as distinct from prevention. Prevention is likely to be directed at the community at large and may lack the necessary requirement of identifying people in need.

B.   Not only Financial need

  • A PBI is not restricted to providing relief to people in financial need only. It may provide relief to people in need for one of the other reasons outlined in paragraph 1.1.
  • The fact that an organisation charges a fee, or partial fee, does not preclude it from being eligible for registration as a PBI.

C.   Degree of need

  • Poverty and distress is relative. To qualify as a PBI, the poverty or distress that is relieved must be “of such seriousness as will arouse community compassion and thus engender the provision of relief.”
  • An organisation with a purpose of addressing Indigenous disadvantage will ordinarily be “benevolent” for PBI purposes.
  • An organisation that provided marriage guidance and counselling was not found to be a PBI because the “community does not regard those who are, or have been, in marriage, successful or unsuccessful, as a general category of people with an unfortunate disability or condition arousing compassion.” Hence “the stress and pain encountered in ordinary human experience associated with such things as failure, deception, loss of status and reputation, and bereavement”[4] will not meet the requisite threshold.
  • The ACNC takes the view that an organisation that provides education and training will not generally be a PBI unless its activities are directed at people in need, for example, people with disabilities or the long-term unemployed.

D.  Nature of relief

  • The relief provided need not be practical and material in nature.
  • To qualify as a PBI, an entity’s services must be actually directed towards relieving the poverty or distress experienced by the people it assists.

F.   Directness of relief

  • To be a PBI, there is no requirement that the charity must itself directly give or provide the benevolent relief. Such a charity can provide relief via, or in coordination with, related or associated entities and still be a PBI. That is, there is no ‘directness’ requirement (Hunger Project Australia [2014] FCAFC 69).
  • As set out in the Commissioner’s Interpretation Statement on The Hunger Project case (CIS 2013/01), the ACNC takes the view that a PBI must have:
    • concrete objects of benevolent relief – the beneficiary group must be recognisably in need of benevolent relief. General, undirected or abstract objects like benefitting the whole community are insufficient. (In the case of a fundraising institution, there must be a recognisable group that would benefit from the charitable work being funded);
    • clear mechanisms for delivering the benevolent relief – the way in which the charitable work leads to benevolent relief must be clear. (In the case of a fundraising institution, there must be a clear way to deliver the benevolent relief for which the funds are raised); and
    • a relationship of collaboration and a common public benevolent purpose – based on the analogy of the reasoning in Word Investments (2008) 236 CLR 204. There are a number of ways in which an institution may be organised, or conducted for, or promoting the relief of poverty or distress under a collaborative relationship or common purpose (such as through their organisational structure, shared planning and processes). As in Word Investments, the focus is on the substance of the objectives and activities, rather than the form. (In the case of fundraising, an institution that raises funds for associated entities but does not itself provide relief is no bar to it being a public benevolent institution.)
  • An organisation is not precluded from being registered as a PBI if some of its services are provided by agents or contractors Legal Aid Commission of Victoria 92 ATC 2053.
  • The ACNC takes the view that a PBI may provide relief via, or in coordination with, related or associated entities that are not PBIs for the fulfilment of benevolent purposes only.

6.   Institution

  • A PBI must meet the legal requirements of being an ‘institution’. There is no technical legal definition of the term ‘institution’ and it therefore takes its ordinary meaning.
  • A charitable institution is created and exists to bring into being the charitable purposes and intentions of its founders.[1] It was expressed as follows by Lord MacNaghten in Mayor of Manchester v McAdam [1896] AC 500:

‘It is the body (so to speak) called into existence to translate the purpose as conceived in the minds of the founders into a living and active principle.’[at p511]

  • An organisation that is not operating and does not have concrete plans to operate in the foreseeable future will not be an institution because it will not evidence the bringing of purposes and intentions into being.
  • A mere trust or a fund is not an institution (Stratton v. Simpson (1970) 125 CLR 13 per Gibbs J at 158). Therefore where an entity merely manages trust property which is applied for a charitable purpose, it is not an institution.
  • A PBI can assume any legal structure, whether a corporation, trust or unincorporated association, as long as it has a distinct identity. Nevertheless incorporation on its own will not be sufficient; so not all corporations will be institutions.

 

Category: Tax Month - April 2016

Author: John Morgan

John Morgan is a tax specialist lawyer of more than three decades experience now practicing at the Victorian Bar - w: www.FJMtax.com e: f.john.morgan@vicbar.com.au