Coalition breaks its silence on Charity Reform and the ACNC and announces a very different approach

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Kevin Andrews for the Coalition on 15 June 2012 outlined a very different approach to the current Federal Government’s reform agenda facing Charity and the NFP sector.

We set out below some key extracts from the policy announcement with some comments.

The expansion of the welfare state in the 1970s , and the increase in the demand for a range of services over the past two decades, and the outsourcing of services previously delivered by government has resulted in a significant increase in government funding to not-for-profit organisations. However, it should be recalled that the vast majority of these organisations exist without government funding, either at all, or in any ongoing significant manner.

… [A] one size fits all approach to social problems, ensnared by contractual obligations, designed to fit governmental silos, which rob much of the individual initiative and personal initiative that should motivate charity. Worse, it endangers the vibrancy of the institutions that help to form citizens in the virtues. The act of giving, whether finances, services or counsel, becomes a professional activity and a function of the State, rather than an act of charity and love directed to fellow human beings.

Charities Commission

The Gillard government is proposing to establish a new Charities Commission, modelled loosely on the one operating in the UK.

… [A] major new regulatory agency with sweeping powers.

Nowhere has the mischief that requires this new monolithic regulatory structure been identified.

Consider just a few of the more than 150 pages of new regulation.

The draft sets out a series of governance principles.

One is “to enable the public (including the members, donors and volunteers of a registered entity) to know the purposes of the registered entity.”

Surely this can be established in a much simpler, less costly, less burdensome manner, than a whole new regulatory regime. The requirement that each organisation publish these details on its website would achieve the same end.

Another section states: “A registered entity must not have a person as a responsible entity if having the person as a responsible entity would undermine public trust and confidence in the governance or operation of the registered entity.”

Not only does this involve a reverse onus on the entity, it would necessitate an examination of the activities of every potential person on the governing board of the entity against a vague standard.

Another section states: “A registered entity must establish and maintain processes for ensuring that it does nothing that places Australia in breach of its international law obligations.”

Once again, this is a burdensome provision that will require many charities to obtain advice about a myriad of international laws.

Worse, these and other provisions treat the civil sector with a State paternalism. If entities or their directors break the law, they can be prosecuted. If existing laws need strengthening, let the Government make the case for doing so, replete with examples of the breaches that need to be rectified. But nowhere has the mischief that this Bill assumes been made out. It is a power grab by government, which will extend extraordinary powers to bureaucrats to reach into the affairs of organisations ranging from local congregations to international charities. Under the provisions of the draft bill, individuals ranging from a local parish minister through to the Archbishop of a diocese could be suspended or removed by the Commission. And every entity will be required to meet a new complex set of reporting requirements that will cost charitable organisations, including local congregations, thousands of dollars. Officers of the Commission will have powers to inspect and seize records.

This is an extraordinary reach by government into the affairs of civil society. It assumes that people, who give of their time and efforts, often in a voluntary capacity, are untrustworthy and tainted.

The Coalition will adopt a different approach.

First, we recognise that there is a place for a national body to enhance the role of the institutions of civil society. Accordingly, we will support a small Commission as an educative and training body. We will work with the sector to ensure that it represents the sector. We will work with the sector to transfer responsibility and governance of the Commission to the sector over the next few years.

Under the Coalition, the independent charities commission will:

  • Provide education and support services to registered charities;
  • Provide information to assist with the process of registration for new charities      and not-for-profit agencies;
  • Act as a ‘one-stop shop’ for information on charitable organisations and      agencies operating within Australia;     
  • Advocate for the rights of charities and not-for-profit agencies;
  • Represent the interests of charities and not-for-profit agencies to government;
  • Help facilitate the interaction between government and the charitable and      not-for-profit sector;
  • Undertake research and cross-sector evaluations on issues of concern to the sector;
  • Help foster innovation within the sector.

[Corney & Lind comment: It would be useful for the Coalition to consider how it may intend to unwind reforms that have already be in place. For example the ACNC in its current proposed shape is intended to commence operation on 1 October 2012.]

We will also ask the new body to co-ordinate with the sector, the Commonwealth, the States and Territories to propose a new, common financial and other reporting standard that will negate the practice of numerous reports being prepared each year for different funding and regulatory bodies.

We will retain the regulatory powers that already exist in the ATO, ASIC and other similar bodies, and not transfer them to the new Commission.

[Corney & Lind comment: This would still see the ATO as being the gate-keeper, as to who is and who isn’t charitable. This is not ideal given that the mandate of the ATO is to maximise revenue collection.]

Until and unless there is harmonisation of various Commonwealth, State and Territory laws, the proposed Commission simply adds yet another layer of regulation and bureaucracy on the sector. We will respect the role of the States, but work with them to achieve harmony in relation to fundraising codes and other regulations.

The ACNC was conceived as a body to support charities and NFPs to enhance their contribution to society. Its role appears to be more about policing and enforcement as outlined in the Exposure Draft of the Australian Charities and Not-for-profits Commission Bill 2012 (for example, the powers to investigate any breach of the law, powers to remove a responsible person, etc). No evidence has been put forward of cases of non-compliance by charitable entities which could justify the seemingly heavy handed reforms or how the proposed reforms would address any current problems.

Secondly, we will retain the current Common Law definition of charity, and maintain the Public Benefit Test. This is consistent with the evidence based reviews of the 2001 Charities Definition Inquiry, the 2008 Henry Review, and the 2010 Productivity Commission report.

It is already part of the law that an entity is not charitable if its purposes are not for the public benefit. There is a presumption for example that an entity whose purpose is for the relief poverty, the advancement of education or the advancement of religion is for the public benefit. The presumption is not absolute. It is rebuttable. This is acknowledged by the ATO in its key ruling, TR 2011/4:2: “[public benefit] may be prima facie assumed unless the contrary appears. … Where ‘the contrary appears’, … , an applicant must prove benefit.”

If a relevant regulator believes that an entity is not charitable on this ground, the law already provides the appropriate response. Specifically regarding the advancement of religion, the ATO notes in TR 2011/4: “336. A purpose involving religion is not charitable if the public benefit is absent.”

For example, if the ATO considered that a particular religious body was not acting for the public benefit, then it has the power to revoke the body’s charitable status and assess it for income tax (or deny it an endorsement in the first place when it applies to the ATO). The onus then would be on the charitable body to challenge the assessment in the courts and prove that it is acting for the public benefit.

[Corney & Lind comment: Not quite. Currently the there is a presumption that that the “religious body” would be for the public benefit, and the onus of proof would be on the ATO to show lack of public benefit when the matter came before the courts. This is as it should be, as the ATO is resourced to be able to evidence gather and produce that evidence that the entity in question is not for the public benefit. This evidence could include evidence of “harm”.]

There is nothing preventing the ATO from adopting the same action under the current law in respect of a religious (or other charitable) body which the ATO considered was not acting for the public benefit. The fact that the ATO has not taken any action in this regard could reasonably lead to the inference that there is not a problem in the first place rather than an inference that the law needs to be changed.

Previous reviews do not support removal of the presumption of public benefit. The 2001 Charities Definition Inquiry recommended retention of the presumption of public benefit: “once a purpose has been established to fall under the advancement of health, education, social and community welfare, religion, culture or the environment, it would be presumed to be for the benefit of the community unless evidence to the contrary were presented.”

The 2008 Henry Review Report and the 2010 Productivity Commission Report endorsed the position of the 2001 Charities Definition Inquiry. The previous attempt to remove the presumption of public benefit in the Charities Bill 2003 was rejected after full consideration.

Despite some suggestions by some to the contrary, the proposed removal of the public benefit test has nothing to do with the Word Investments case (for which there is a specific response in the form of the “unrelated business income test” reforms) or Aid/Watch (for which there is a specific response in the form of “in Australia” reforms).

There is no evidence as to how the current law is deficient. Further, there is evidence that removal of the presumption in England and Wales has led to challenges to the status of not for profit religious providers of aged care and education. What is certain and uncontroversial under current law risks becoming the subject of lengthy and costly dispute resolution under a revised law.

Removing the presumption of public benefit is not the appropriate way to address concerns about perceived or actual problems with a particular group or organisation. The current law can be applied or, if necessary, modified, to address any concerns. To use this instance as evidence of support for removing the presumption flies in the face of the substantive evidence based reviews over many years in the 2001 Charities Definition Inquiry, the 2008 Henry Review Report and the 2010 Productivity Commission Report.

We will examine any particular issues that are the cause of concern. It has at times been suggested that the Charities Sector needs review and regulation because the sector receives substantial tax concessions. Arguments about tax concessions for charities and NFPs do not belong in the consultation and formulation of policy on the definition of charity, the ACNC, NFP governance arrangements and charitable fundraising. The issues should not be conflated. Instead, tax reforms should be considered in specific responses such as the “unrelated business income test” (UBIT) and “in Australia” proposed reforms.

Consistent with the approach I have outlined today, the Coalition will work with the sector to address any particular issues that arise regarding the taxation treatment of charitable organisations. We will not use discrete taxation issues as a Trojan Horse to impose a burdensome new regulatory system on the sector.