Trying to Define Charity
March 1, 2001 Matthew Sinclair
The idea of bringing nonprofits into the 21st century has become more than just a common name for conference sessions. Largely spurred by the viewpoint that government can’t do everything, several countries are examining how they can help their nonprofit sectors do more.
And, it has nothing to do with American efforts at helping faith-based organizations.
Efforts are underway in Australia, New Zealand, and Scotland to examine the definition of "charity," which is based on English Common Law from 1601. And Canada, while not currently looking at the definition question, has established seven "tables" (similar to task forces) examining how to improve the relationship between the nonprofit sector and the government – with (Can.)$94.6 million already committed to a five-year effort.
John Howard, Australia’s prime minister, established the Charities Definition Inquiry (CDI) in September, a three-person committee that has been collecting comments from the country’s nonprofit sector about the difficulties associated with the current definition of "charity." The CDI accepted comments through Jan. 19 of this year, and an official recommendation is expected this month.
The CDI is charged with examining and reporting on the existing definitions of charitable, religious and community service nonprofits. The committee is examining current definitions in Australia’s state and federal legislation, including the continuing relevance of the "public benevolent institution" (PBI) definition. It will also examine the current uses of the concepts for social, economic, legal, regulatory, and statistical purposes, as well as look at the definitions in overseas jurisdictions.
Common law charities
To be a "common law charity" in Australia, and throughout much of the British Commonwealth, organizations must meet three criteria to be considered fully tax-exempt charities: be a nonprofit; provide a direct public benefit or poverty relief to limited beneficiaries, and have a sole or dominant purpose that is "charitable in a technical legal sense, that is the relief of poverty, the needs of the aged and the relief or sickness or distress."
Most nonprofits in these countries meet two criteria. It’s the direct public benefit required to be a PBI that can leave organizations reeling. Moreover, organizations complain that the decisions about who receives exemption and become PBIs are inconsistent.
Elizabeth Cham, executive director of Sydney-based Philanthropy Australia, a sister organization to the Council on Foundations in Washington, D.C., said her organization recommends that the country needs a process by which consistent decisions are made. "Prevention, economic development (could be added), information and advocacy are important, but we really feel what’s needed is a process," she said.
She recommended the country establish an entity "with expertise, with consistent advice and clarity. … This entity may even be an entity within the tax office. … And this entity must be given the authority to make definitions and make clear definitions. … You may not, in fact, want a new definition that’s as unworkable as the old in five, 10, 15 years time."
Cham said her sense of the debate is "those that have tax deductibility don’t want it changed." There’s also concern that within the treasury department there’s building resistance "because of the revenues foregone," she said. "That’s the nature of treasury."
According to Amanda Steele, policy and research officer with the Community Business Partnership, there are no exact figures on the Australian nonprofit sector. A study in 1998 placed the sector’s size at approximately 114,000 organizations. Of that figure, 9,479 are designated as PBIs, which allows them to receive full tax concessions, and 15,242 that receive partial tax concessions. The rest are primarily sports associations, Steele added, which receive no tax breaks in Australia.
In the field and Outback
Nonprofits have generally been supportive of the steps to amend the system, said Steele, of the Sydney-based precursor organization to the official government inquiry group. There were nearly 100 public submissions of comment on the topic through January.
From the comments included online at the Charities Definition Inquiry Web site, many of the ideas may sound somewhat familiar to American ears. For example, the Anti-Cancer Foundation of South Australia, which is a community funded PBI, reported that it has been concerned "about the plethora of organizations who have cancer in their name and raise funds using a wide range of methods, some of which are to the detriment of ethical organizations."
While many of the comments go on for several pages, the Valentine Community Service Organization, in Valentine, New South Wales, wrote a simple three paragraph letter. In essence it preferred the status quo. "We are concerned that compliance criteria may be built into the definitions," the organization wrote. "Such compliance tends to be so expensive that organizations like ours reduce good works to get under the legislation, and it has come to the point where people are about ready to give up."
While Cham is in favor of the re-examination, she expects the Australian government’s ultimate decision to be driven by politics. "Government can put it on a shelf and say ‘that was interesting.’ Or alternatively, it will have to — if they change the definition — go through the parliament," she said. "I think as in all things, there’s a process (and) what happens is a political decision."
She also noted that 2001 is an election year in Australia, and whether politicians move on the issue or let it die in committee is hard to predict. "It’s important for the sector to say this is really important. And with an election coming up, it can be an opportunity to make it a real issue."
People in New Zealand were not quite as responsive to emailed requests for information. Steve Maharey, the NZ minister responsible for the "community and voluntary sector" may have offered a telling reason for the general reluctance to comment. In a speech before Philanthropy New Zealand, as listed on the organization’s Web site, Maharey said, "Unfortunately, in the past the relationship between the government and community and voluntary organizations has been characterized by mistrust and insecurity. I know that it takes time to gain the confidence of a sector disillusioned and jaded by past experiences where their views were often not taken into account in the development of policies that would affect their communities."
According to his comments, there are no tax incentives to establish philanthropic trusts in New Zealand, currently, though they do not pay tax as long as they come within the Charitable Trusts Act definition of charities and meet the requirements of the Inland Revenue Department (analogous to the Internal Revenue Service).
A governmental tax review of New Zealand’s sector of approximately 66,000 charities has begun in response to the requests from organizations. Maharey’s comments note that the review is not intended to raise additional revenue. "Consequently, if the review results in some tightening of the definition of charity for tax purposes, this will probably be offset by an increase in assistance for those organizations that continue to be considered charitable for tax purposes under the new definition."
David Robinson, director of the Social and Civic Policy Institute and convenor of the Voluntary Sector Program at the Victoria University Institute of Policy Studies, said via email that the major concerns around the definition of charity include the position of Maori Trust Boards and iwi (tribal) social services; local governments setting up "false" charitable trusts, such as Wellington Stadium; governance of museums, art galleries and sporting facilities. "That is making use of the charitable trust structure to operate a local council facility," he explained.
North of the border
Canada has taken a different route, currently skirting the definition debate and moving toward redefining the relationship between the sector and government. The Voluntary Sector Roundtable has evolved into the Voluntary Sector Initiative (VSI), which will look at issues of capacity, volunteerism, legislative and regulatory framework, research and information management, public awareness, public policy, and federal government/voluntary sector relations.
Susan Carter, executive director of the Ottawa-based VSI secretariat, said the bulk of the five-year process would take place in the first two years. A first-year progress report is expected in June, though the seven joint tables were not constituted until the fall of 2000. There are also working groups, made up of sector people only, looking at advocacy and finance. "Both of these were issues that the government was not prepared to be the subject of joint work at this point," she said.
The definition of charity is not formally in the terms of reference for the tables currently making up the VSI. Gordon Floyd, vice president for public affairs at the Toronto-based Canadian Centre for Philanthropy (CCP), said, "There is some discussion that the table looking at regulatory issues will have to get into this area because part of the subject matter they have to tackle is who should be covered by federal regulation. … At the moment, federal regulation covers essentially charities. The jurisdiction over charities is provincial, not federal. The federal government is involved solely because of their taxing power."
Floyd said, Canada is behind its colleagues Down Under. "They seem to be moving more directly on the issue of the definition of charity than we are here," he said. "Here we’re looking at who the federal regulations should apply to … indirectly getting at the issue of definition."
He added that Canadians are content to let the definition of charity stand, though he’d say it’s only a starting point. It probably is the only practical avenue for Canada, however, he noted. Since jurisdiction is at the provincial levels, getting all 10 Canadian provinces to move in the same direction is probably as difficult as getting the 50 American states to move in unison. Though the population is notably smaller than the United States, approximately one-third is culturally French-Canadian, and the sector operates differently in Quebec.
Carter said the question of how much a change in the definition of charity might affect the country’s treasury has no clear answer at this time.
Researchers can be found arguing that the overall size of contributions "is fairly inelastic," she said, "and if the number of organizations increases, it will translate to more organizations dividing a finite pie." And there are also researchers who claim the pie’s size depends on the level of tax treatment rather than the number of organizations. "It’s difficult often to know (which is the best view)," she said, "because there are more things that are changing than the number of charitable organizations."
With changes in the United Kingdom as well as the Canadian roundtable and the definitional questions Down Under, "It’s a huge economic moment for the world," Cham said.