Productivity Commission releases its Draft Report on Philanthropy within Australia

01 Dec Productivity Commission releases its Draft Report on Philanthropy within Australia

Overnight the Productivity Commission released its Draft Report on Philanthropy within Australia. The Report contains some very significant recommendations that will impact upon every charity within Australia if they are maintained within the Commission’s final report due in May next year and if they are subsequently implemented thereafter by the Government.

The following provides a summary of the Commission’s key proposals:

1. The Deductible Gift Recipient (DGR) categories are to be streamlined and expanded to include ‘most classes of charitable activities’. This would expand DGR status to ‘advocacy in furtherance of another charitable purpose, public interest journalism, smaller social welfare charities that do not meet the criteria to be a public benevolent institution, and a more diverse range of animal welfare and health promotion charities.’
2. The following categories are to continue to be excluded from DGR status, but remain tax exempt:
   • ‘primary, secondary, religious and other informal education activities, with an exception for activities that have a specific equity objective (such as activities undertaken by a public benevolent institution);
   • the activities of childcare and aged care in the social welfare subtype (other than activities undertaken by a public benevolent institution); and
   • all activities in the subtype of advancing religion.’
3. DGR status for both public funds for religious instruction in government schools and Roman catholic public funds for religious instruction in government schools will be abolished.
4. The School Building Fund DGR category will also be abolished. The Commission proposes ‘a transition period (for example, three to five years) for charities that would no longer have DGR status to adjust their fundraising activities.’
5. The Basic Religious Charity (BRC) exception within the ACNC regime will be abolished, with the result that:
   • the ACNC Commissioner will be able to suspend, appoint and remove the leaders of religious institutions; and
   • religious institutions with an annual revenue above $500,000 will now need to disclose their financials on the publicly searchable ACNC register.
6. The Commission recommends that the Government should ‘develop a legislated definition of what constitutes a public benevolent institution to delineate its scope more clearly.’
7. The ACNC regulatory regime should be strengthened with the ACNC given the power to:
   • publish details of recommendations given to a charity to address actual or potential non-compliance with the Australian Charities and Not-for-profits Commission Act 2022 or Regulations 2022; and
   • publish circumstances and reasons for referrals made to other Australian government agencies (including state and territory regulators) under section 150-40 of the Act, in instances where harm caused by the disclosure does not outweigh the public benefit of that disclosure.
8. To provide clarity in the development of charity law the Commission recommends that the government should:
   • provide test case funding for the Australian Charities and Not-for-profits Commission (ACNC) to distribute to charities for the purpose of developing the law in matters of public interest; and
   • introduce a binding rulings scheme for the ACNC.
9. The Australian Government should establish a permanent National Charity Regulators Forum comprised of Australian, state and territory regulators and clarify the powers of the ACNC to initiate litigation in the Supreme Courts of the States and Territories.
10. Australian, state, territory and local governments should give greater consideration to how changes to policies and programs would affect volunteers. This includes adopting measures that may mitigate any adverse effects on volunteer participation and identifying opportunities for volunteers as part of policy or program design.
11. The Australian Government should amend the private ancillary fund and public ancillary fund guidelines to enable smoothing of the distribution rate over a period of up to three years.
12. Various recommendations are made to provide greater data on the activities of charities, including the amounts of bequests and by imposing a requirement for listed companies to publicly report itemised information on their donations of money, goods and time to entities with deductible gift recipient status.
13. The Commission also recommends that the ‘Australian Government should support the establishment of an independent philanthropic foundation controlled by Aboriginal and Torres Strait Islander people [which] would focus on strengthening the capacity of Aboriginal and Torres Strait Islander communities to build partnerships with philanthropic and volunteering networks.
14. The Commission proposes that local charities will be able to establish a deductible fund for undertaking benevolent work in their local community. It provides the example of a ‘charity that primarily focuses on religious worship, but also undertakes some social or public welfare activities to support people in need in the local community could establish a gift fund and be endorsed as a DGR, with tax-deductible donations it receives only permitted to be directed toward eligible social or public welfare activities’. If adopted, this would be a very significant and positive move. There has been a growing awareness of the effectiveness of ‘place-based initiatives’ in harnessing local knowledge and initiative to address local benevolent need. The Commission is to be commended for its regard for the contribution that small scale local relief may play in encouraging philanthropy and social cohesion.

The Commission’s report proposes wide-ranging reforms that contemplate significant legislative effort by Commonwealth, State and Territory Governments. Many of the reforms will be welcomed by the sector. These include reforms aimed at streamlining existing arrangements or ensuring greater consistency between State, Territory and Federal Governments and those seeking to provide greater clarity for charities seeking to comply with their legal obligations.

However, as the ACNC statutory review pointed out in 2018, proposals to expand the powers of the ACNC to appoint the leaders of religious institutions could give rise to concerns over the regime’s compliance with the Australian Constitution and also international law. In addition, powers to publicly declare directions given to a charity in respect of ‘actual or potential non-compliance’ will need to be carefully balanced with an appeals regime that enables a charity and its responsible persons to respond in a court of law to any allegations made. Charity registration confers substantial benefit, but it also enlivens considerable obligations. The Productivity Commission’s recommendations, if implemented, would expand those obligations in many significant ways.

The Commission is seeking stakeholder feedback by 09 February 2024 before it finalises its recommendations to the Government on 11 May 2024. A copy of the Commission’s draft report may be found here: philanthropy-draft.pdf (pc.gov.au)