Notes for Aid/Watch Forum

Notes for Aid/Watch Forum 10 February 2011

Is the case relevant to DGRs?

What is the implication of the Aid/Watch decision for DGR categories?

Types of tax concessions There are 2 main types of tax concessions – Tax Concession Charity status and Deductible Gift Recipient Status. The tests for the 2 categories are generally separate and distinct.

Application of the case Many commentaries on the Aid/Watch case are concluding that charities can now undertake more political activity to generate public debate. But what if they are also endorsed as a DGR? Will some political purpose entities not only be eligible for charitable status but also be eligible for DGR status? On a quick review, my conclusion is that the case will result in little change to the activities of:

 Public Benevolent Institutions (PBIs)

 Environmental Organisations but there may be an increase in political activity for

 Cultural Organisations,

 Harm prevention charities,

 Health promotion charities and

 Charities who are specifically named in the Tax Act.

PBIs Welfare groups which are PBIs must have a predominant purpose of direct relief of poverty, suffering, misfortune, destitution, etc. If these entities increase their political activities the political activities will be indirect (rather than the required ‘direct relief’) and therefore cannot be included in determining the predominant purpose. PBIs will still need to maintain their political activities as minor and incidental to their predominant direct benevolent relief.

Environmental organisations Aid/Watch is an environmental organisation, as such, its principal purpose must be the protection and enhancement of the natural environment or the provision of information or education, or the carrying on of research about the natural environment. Its tax deductible receipts can only be applied for its environmental purposes. It will be interesting to see the reaction to the Aid/Watch decision from the Department of the Environment (Water, Heritage and the Arts) given that the High Court seems to be saying that Aid/Watch’s principal purpose is relief of poverty or is the public generation of

7674598.4 Printed 24/02/11 (12:20) Notes for Aid/Watch Forum page 1

debate for the relief of poverty. The Federal Court did recognise the environmental emphasis of Aid/Watch in pursuing the relief of poverty but neither court seemed to be presenting the principal purpose of Aid/Watch as environmental or education and research on the environment. The key question is – what is Aid/Watch’s principal purpose? And is this consistent with the requirements of an environmental organisation? Without discussing Aid/Watch in particular, the Department has advised me that it considers the conduct of political activities in pursuit of environmental purposes to be within the requirements of an environmental organisation. They look at the purposes and aims, rather than the means, and it is consistent, in their view, to have a principal purpose of protection and enhancement of the natural environment through lobbying government or generating public debate to achieve the environmental purposes. In this regard they do not see the judgement as changing the approach to DGR status or the activities of an environmental organisation.

Cultural Organisations, Harm prevention charities and Health promotion charities All of these entities require the principal purpose to be the promotion, which can be achieved by an indirect or direct activity:

 for cultural organisations – the promotion of the arts

 for harm prevention - the promotion of the prevention and control of abusive behaviours

 for health promotion – the promotion of the prevention and control of diseases. The legislation does not limit or prescribe how the promotion can be done and so it is quite conceivable that promotion could be done through generating public debate for a change in law or policy. For example

 is it promotion of the arts to argue to decrease censorship? Or to increase government spending?

 is it promotion of prevention of substance abuse to encourage a change in laws to decrease the hours clubs and pubs remain open?

 is it promotion of control of a disease to generate public debate demanding subsidised drugs or vaccinations relevant to that disease? The potential shift for these categories may depend on the application of the Aid/Watch decision – will it be limited to the generation of public debate for one of the first 3 heads of charity? In which case the above will may depend on whether the promotion of the arts is advancement of education, or subsidising medicines is relief of poverty. Prior to the Aid/Watch decision these political activities would have to have been undertaken only as incidental and minor to the principal purpose which would mean there would need to be significant other activities of the entity. If it was not, then, particularly for the harm prevention charity and the health promotion charity, they would not have cleared the first hurdle of being a charitable institution. If a wider interpretation of the Aid/Watch decision is accepted then there is potentially a big shift for these organisations.

Principal purpose It is crucial for many categories of DGR to be able to determine the principal purpose - this is often very difficult and often depends on the how the purposes in the constitution are phrased, and, of course, the actual activities of the entity. I note, without answering, that the recent High Court decisions (in Word Investments and Aid/Watch) have not made this any clearer.

7674598 Notes for Aid/Watch Forum page 2

It seems on one way of looking at these – in Word, the High Court held the purpose was not to carry on a business. Carrying on the business was done to achieve the charitable purposes of Word Investments. In Aid/Watch, it was considered one of the purposes was a political purpose but that this was itself a charitable purpose, so OK. The generation of public debate was an activity but it was held to be a purpose, even though not in the constitution, and held not to be a disqualifying purpose. There was no discussion of the ‘principal purpose’ to assist in applying this to the DGR categories. But there remains the confusion of when an activity becomes a purpose? Are political activities always a purpose?

Alice Macdougall Freehills 10 February 2011

7674598 Notes for Aid/Watch Forum page 3