PRODUCTIVITY COMMISSION RELEASES ITS FINAL REPORT ON PHILANTHROPY WITHIN AUSTRALIA

18 Jul PRODUCTIVITY COMMISSION RELEASES ITS FINAL REPORT ON PHILANTHROPY WITHIN AUSTRALIA

Today the long-anticipated Productivity Commission Final Report on Philanthropy within Australia was tabled in the Commonwealth Parliament. The Report, available here, contains very significant recommendations that will have implications for every charity within Australia should they be implemented by the Commonwealth 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 ‘community-based activities by social welfare charities that do not meet the criteria to be a public benevolent institution (PBI), advocacy in furtherance of another charitable purpose, public interest journalism, 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 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 early childhood education and care and aged care (other than activities undertaken by a public benevolent institution).
  • all activities in the subtype of advancing religion. Without further clarification, this recommendation would mean that faith-based charities with an additional purpose of advancing religion, such as public benevolent institutions, will lose their deductibility status unless they voluntarily agree to the revocation of their religious purpose.
  • activities for the purpose of promoting industry or a purpose analogous to an exclusion in another subtype.
  • activities in the law subtype that further another excluded subtype.

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. The Government has confirmed that it will not proceed with this recommendation.

4. The School Building Fund DGR category will also be abolished. The Commission proposes ‘a transition period of five years’ for charities that would no longer have DGR status to adjust their fundraising activities. The Government has also confirmed that it will not proceed with this recommendation.

5. The Basic Religious Charity (BRC) exception within the Australian Charities and Not-for-profits Commission (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 that are BRCs; and
  • BRCs will now need to disclose their financial information 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 Australian Government should refer an inquiry to the Australian Law Reform Commission to examine the scope and coverage of Australian, State and Territory charities laws focused on opportunities to simplify and harmonise laws across jurisdictions and to clarify the roles and responsibilities of State and Territory Attorneys-General.

8. To provide clarity in the development of charity law the Commission recommends that the Government should:

• • provide test case funding for the ACNC to distribute to charities for the purpose of developing the law in matters of public interest; and
  • introduce a binding rulings scheme to be administered by the ACNC.

9. The ACNC should have the power to require a charity undergoing revocation to prove it has distributed its remaining assets to an eligible entity.

10. The Australian Government should establish a permanent National Charity Regulators Forum comprised of Australian, State and Territory regulators and ensure that the ACNC has the power to initiate litigation in the Supreme Courts of the States and Territories.

11. 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. The Australian Bureau of Statistics should also amend the Census to enhance reporting on volunteer participation.

12. 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;
  • set the minimum distribution rate at between 5% and 8%, based on varying factors; and
  • require such funds to develop a distribution strategy.

13. Various recommendations are made to provide greater data on the activities of charities, including the amounts of bequests and corporate giving in Australia 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.

14. The Commission also recommends that the Government should establish an independent organisation, provisionally called Indigenous Philanthropy Connections, with the goal of building partnerships between Aboriginal and Torres Strait Islander people and philanthropic and volunteering networks.

For the most part the recommendations maintain the position put forward by the Commission in its Draft Report. Significantly, the Commission has maintained its proposal 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. The Government is yet to release its formal response, but (as noted above) has confirmed that it will not be acting on the recommendation to abolish the deductible status of school building funds and funds for religious instruction in public schools.

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 (such as the recommendation of a binding ruling mechanism).

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. 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.