Charities definition submission

Council on the Ageing (Australia)

SUBMISSION TO THE
INQUIRY INTO THE DEFINITION OF CHARITIES AND RELATED ORGANISATIONS

January 2001

Contents

• Executive Summary
• Introduction
• Part One:
  The Changing Face of the Caritable Sector in Australia

Executive Summary

" Charity" in the 21^st century

The Council on the Ageing commenced in 1951 as the Old People's Welfare Council.

In the past 20 years, there have been significant shifts in the emphasis of our work as a charity. These shifts broadly track developments in the rest of the charitable sector. These recent developments have significant implications for the definitions of charities. The key features of changes include:

• a shift in the relationship between the recipient of charitable services and the provider to one based on an empowerment and rights model with the focus on self-help and prevention. This is opposed to a traditional "patronage" or "charity" model with the focus on maintenance of dependence and the status quo;

• a greater demand on the part of the constituency for activities to focus on policy development, advocacy services, education and information services directed towards long term, sustainable solutions to poverty and disadvantage through broad based government funding and intervention;

• direct service provision continuing to be an important feature of the activities of COTA and other charities, but a greater emphasis on program innovation and providing services in order to better understand the needs of the broader constituency. In COTA, the experiences of the services feed directly into the policy development and advocacy activities to benefit all older people, especially the most disadvantaged;

While there has been great change in the sector, COTA cautions against overestimating the extent of change. Social and economic disadvantage continue to be deeply embedded in the fabric of Australian society; it will continue to be difficult to engage business in philanthropic endeavours; and there continues to be considerable difficulty in attracting resources to policy development, information, advisory and advocacy activities especially for consumer-based charities.

Major factors affecting charities

For COTA, the rapid ageing of Australia's population is creating new pressures on our work. We perceive we have a "duty of care" to ensure that future generations of older people are protected from poverty and disadvantage by building sound economic and social foundations to cope with the changing demographics. In addition, the dramatic nature of the demographic change means that many other sectors require our services and expertise.

COTA in accordance with the experience of the entire sector is experiencing significant changes in its relationships with governments as a result of outcomes-based funding agreements, competitive tendering, contracting out and negotiated partnerships. Charities are also developing complex for-profit and not-for-profit entities in a bid to become more self-reliant and to be able to generate independent income.

Recommendations

Recommendation 1: Broadening the definition of charities

The definition of charity should be broadened to include the not- for- profit activities of human services including education, advocacy, advice, information provision, health, housing, care and social welfare services

Recommendation 2: Public Benevolent Institution status (PBI)

PBI status should be defined by the organisation's primary purpose of assisting people who are disadvantaged rather than by defining the methods used to assist disadvantaged people.

Recommendation 3: Ongoing assessment of charities and the charitable sector

COTA seeks a new review and assessment mechanism, such as the Charities Commission in the UK. The Commission determines which organisations qualify as charities and review aspects of the definition on a regular basis.

COTA recommends that such a an entity in Australia should include consumer representatives on its board or equivalent.

The Commonwealth, through such an entity, should take a leading role in consulting with jurisdictions to obtain uniformity in State and Territory legislation which could alleviate the regulatory burden on charitable and benevolent organisations.

Introduction

Background information about Council on the Ageing

COTA (Australia) is Australia's peak consumer organisation dedicated to protecting and promoting the well-being of older people, with a particular focus on the needs of disadvantaged older people. The issues addressed by COTA include ill-health and disability, frailty, poverty, social and geographic isolation, and age discrimination.

COTA is an independent consumer organisation run by and for older Australians. In accordance with contemporary governance principles, COTA employs professional management, policy, program and administrative staff. The COTA Boards "govern" the organisation while the professional staff "manage" the delivery of the outputs of the organisation.

COTA originated in Victoria as the Old People's Welfare Council in 1951. The national body was established later as were the Councils on the Ageing in all States and Territories. Each State and Territory COTA is separately incorporated under State or Territory Association Law. A separate company, COTA Membership Services Limited, is a company limited by guarantee under Corporations Law. COTA Membership Services Limited is wholly owned by the national and State and Territory COTAs. It is not registered either as a charity or a public benevolent institution but the revenue from the company is used solely for the charitable purposes of COTA.

Membership of State and Territory COTAs is open to people over 50 years of age. In addition to individual members, COTA at national, State and Territory levels has 1500 organisational members (many of which are charities themselves) and which directly and indirectly provide a membership base of more than half a million. Most of the organisational members are organisations of older people. Whether members or not, many older people, their carers and relatives as well as organisations come to COTA for information and advice and to alert us to problems they are experiencing with Government policies and programs and other conditions in the social and economic environment (eg. age discrimination).

COTA's overview of the Definitions of Charities Inquiry

While the Inquiry has emanated from concerns that current definitions of charities are losing relevance in the social and economic environment in which charities operate – and most particularly how these definitions relate to the tax treatment of charities – COTA believes it is important that the Inquiry recognises that there are major threads of continuity in both the work of the sector and its environment. Examples of those aspects which COTA believes have not substantially changed in recent years and which are not predicted to change in the medium term, include:

• ongoing social and economic inequality and other factors leading to some groups in society experiencing high levels of comparative disadvantage. While there may be changes in the way poverty and disadvantage are experienced – for instance, the problems may be less visible than in the past - these problems are nevertheless deeply embedded in the Australian social fabric;

• a low level of philanthropic activity on the part of the business sector in Australia. COTA believes that there are major limitations to what can be expected of Australian business in terms of its support for the sector well into the future. We believe that the demands of globalisation, share-holders and major policy changes such as tax reform place limitations on the capacity of many businesses to play a greatly expanded philanthropic role. This means an ongoing role for continuing Government support of the sector in terms of tax concessions and direct funding especially for those areas which are less likely to attract funding from alternative sources;

• difficulty in attracting resources from government - and business - for policy development and advocacy activities compared to direct service activities. While there has been an increasing emphasis in the charitable sector on self-help, advocacy and policy development activities, there is a continuing reluctance to fund such activities which have less immediately measurable outcomes than direct service activities. In addition, advocacy may be less controllable than direct and specific services. The direction of policy and advocacy activities on occasion may be contradictory to the interests of the funding source.

The submission examines first, the changes that are occurring within the sector from COTA's perspective and second, options for reform.

Part One:
The Changing Face of the Caritable Sector in Australia

"Charity" in the 21^st century

COTA's experience attests to a profound change in the last years of the 20^th century in terms of social expectations and experiences relating to the notion of "charity" and the organisations which provide "charitable" services.

In the ageing sector, this change has been marked. Older people reject the idea that they are "subjects" for charitable endeavour. Rather, they view themselves as independent decision-makers, and the clients or consumers of services provided by the sector under a "rights" rather than "charity" model.

This attitudinal change profoundly alters the relationship between the provider of "charitable" services and the recipient. Rather than one of patronage, the relationship is based on principles of mutuality and equality. Older people determine the outputs of the organisation. They demand that COTA's work is aimed at the prevention of poverty and disadvantage combined with endeavours to bring about systemic change to improve the position of those who are disadvantaged. These outcomes are achieved through policy and advocacy services and through programs which aim to empower and assist disadvantaged older people particularly through provision of information and advisory services and education services.

Outcomes are sought which are long term and sustainable rather than short term "quick fixes". COTA, along with much of the charitable sector, sees that long term sustainable solutions to poverty and disadvantage are achieved by high quality, accessible social programs in areas including income security, health, housing and community services. Such outcomes are beyond the scope of most charities and require significant government funding and intervention.

Many charities choose to allocate resources to obtain government intervention rather than to deal with deep rooted social problems in superficial and ad hoc ways. This activity is often linked in many modern charities to the trialling of innovative methods in assisting disadvantaged groups which can then be used as a springboard for advocating to government for adoption as fully funded national or state programs available to all eligible people. COTA has commenced many programs over the years, such as meals-on-wheels, which have later been taken up by governments for general application. We continue this work to the present day.

In addition, many charities, including COTA, provide a core of services which enable them to maintain close contact with their constituencies. While there are usually geographical and resource restrictions to the services that a single charity can provide, the experience of working directly with a small proportion of a constituency provides a wealth of information about needs and issues which then inform policy and advocacy activities which, in turn, are aimed at assisting the whole of the constituency.

A very few charities are able to provide some services which have near universal coverage. For example, COTA is the auspice of Seniors Information Services (SIS) – a freecall telephone service - in New South Wales, Victoria and Tasmania and most older people in those states have access to the service. The same service, originally commenced by COTA, is now operated by state governments or other agencies in most of the other States and Territories so that almost all older Australians have access to a SIS service.

Community organisations such as COTA have a greater focus on self-help, empowerment, prevention and advocacy activities than they did in the years when definitions of charities were first developed. Nevertheless, within charities, direct services continue to play an important role by informing policy and advocacy activities and by developing and trialling new, more effective approaches for dealing with social problems and need.

Changes in the social and economic environment that impact on charities

From COTA's perspective, one of the most important changes in the social and economic environment relates to the rapid ageing of Australia's population. The ageing of the population is a well-documented, prospective change, although its effects are beginning now.

This means that one of COTA's aims must be to ensure that there is an adequate foundation built in the present so that the society and the economy are equipped to deal with the changed demographics in the future. An important aim is to ensure that future generations of older people are protected from poverty and disadvantage. COTA considers that it has a "duty of care" based on current information, to prevent problems for society, the economy and older people in the future.

Population ageing is creating major new issues for governments, community organisations and businesses. All sectors are becoming aware that their objectives must incorporate the perspective of an ageing population. As a result there is a greatly expanded demand for COTA's policy and program expertise.

Changing relationships with governments

Like many community sector organisations, COTA has been affected by government policy in terms of outcomes-based funding agreements, competitive tendering, contracting out and negotiated partnerships.

Many community organisations including COTA, confront tensions between the contracted services and the aims of the organisation. The owners of the organisation are often the members, and constitutionally, the Directors are responsible to the members. Accountability can become confused where there are conflicting accountabilities to a contracted funder and the members.

In addition, COTA is experiencing greatly increased government expectation of participation in its policy implementation processes. For example, the Commonwealth established a large number of forums for the implementation of its Aged Care Reforms from 1996, for which COTA was asked to contribute a member to all forums.

We have also noted a greater degree of formalisation of accountability to governments in terms of how funds are spent and in terms of our public comment. These requirements are not necessarily negative but they have meant some reorientation in our operations and prioritisation in recent years.

Mingling of for-profit and not-for-profit entities

There is a complex mix of commercial and not-for-profit organisations emerging which deliver human services and sometimes a combination of both within a single organisation or legally related organisations. The pressure for community organisations to be more self reliant has resulted in separate commercial entities being established to generate new income.

Part Two
Options for Enhancing the Existing Definitions in Australia

Broadening the definition of charities

From COTA's perspective, it would be useful if there was greater clarity in the current definition used to distinguish a charitable institution from other not-for-profit organisations. As described in the Inquiry's issues paper, a charity may be understood to be:

• an organisation operating as not-for-profit;

• providing a public benefit or providing relief of poverty to a group of beneficiaries;

• having a sole or dominant purpose that is charitable, that is: the relief of poverty, sickness or distress and the needs of the aged; the advancement of education; the advancement of religion; or other purposes beneficial to the community.

The Australian Tax Office (ATO) has attempted to clarify the definition of charity in the process of the 2000 tax reforms. There may still be a gap, however, between ATO and community understanding of what constitutes a charity. Quite simply, a common understanding of a charitable organisation is that its primary purpose is related to the common community good with no individual profit motive.

The registration as a charity provides a public perception that the organisation is one which is worthwhile to support. While not a reason in itself to register a charity, it is important for the organisations to have this status recognised. For example, volunteers work unpaid for charitable organisations because of the status and primary purpose of the organisation not the means by which the outcomes are achieved. This is evidenced by the resignation of volunteers where not for profit organisations lose government tenders to for-profit organisations. The work may be the same, but the status and nature of the relationship is changed.

Recommendation 1

The definition of charity should be broadened to include the not- for- profit activities of human services including education, advocacy, advice, information provision, health, housing, care and social welfare services

Public Benevolent Institution status (PBI)

The Public Benevolent Institution (PBI) status is intended to confer more generous tax treatment to organisations that work principally on behalf of disadvantaged people. PBI status for a charity is an important means of ensuring that taxation expenditure is targeted towards the most disadvantaged. Over the last few decades the definition has been applied within the boundaries of legal precedent by the ATO and the courts.

The ATO rulings and legal judgements reflect the weighting given to the various components of an organisation's activities. The varying judgements or rulings reflect the outdated definition and the difficulties of applying it fairly or evenly. The recent ATO Draft Taxation Ruling (TR2000/D14), does provide clarity but only in the context of historical interpretations of "benevolent relief", "direct provision of services", "direct relief of poverty, sickness destitution or helplessness" etc.

The implications for agencies which have PBI status are significant. The granting of tax deductibility status results in far greater potential for attracting large and small donations. In addition, some foundations and trusts restrict access to their grant programs to those charities with PBI status.

Fringe Benefit Tax exemptions enable charitable organisations to reduce direct labour costs and remain relatively competitive in the labour market. Therefore, the gap is reduced between for-profit and not-for-profit remuneration levels which allows charitable organisations to recruit more highly qualified staff than they otherwise would be able.

The current interpretation of the PBI definition which determines eligibility for PBI status, reinforces regional and historical disadvantage for smaller and emerging charities. This is particularly relevant in an environment where charities are increasingly expected to secure more income from corporate sources. The barriers run in direct conflict with the Commonwealth Government's promotion of business/community partnerships. Businesses will inevitably have a preference to establish partnerships with PBI status organisations as they can gain a tax benefit from donations and grants.

The PBI definition has meant that too much focus has been on what and how services are provided rather than the organisation's main purpose and target group. For example, PBIs must provide direct services to disadvantaged people. However, substantial, sustainable improvements in the circumstances of disadvantaged people are made through policy development, advocacy services, service coordination and support services.

Recommendation 2

PBI status should be defined by the organisation's primary purpose of assisting people who are disadvantaged rather than by defining the methods used to assist disadvantaged people.

Ongoing assessment of charities and the charitable sector

The current system of definitions of the charitable sector is obscure to the community sector. When an administrative decision on their application for exclusion is made, most community organisations do not have the skills or resources to contest the ruling. The ATO has the function of deciding eligibility. There is an inherent conflict for the ATO as it has a position of opposing non-direct funding of services. The ATO's primary concern to maximise revenue may overshadow the broader public interest concerns in defining charitable purposes.

The process of assessment is not transparent and obtaining accurate information on the basis of any decision can be difficult.

Recommendation 3

COTA seeks a new review and assessment mechanism, such as the Charities Commission in the UK. The Commission determines which organisations qualify as charities and review aspects of the definition on a regular basis.

COTA recommends that such a an entity in Australia should include consumer representatives on its board or equivalent.

The Commonwealth, through such an entity should take a leading role in consulting with jurisdictions to obtain uniformity in State and Territory legislation which could alleviate the regulatory burden on charitable and benevolent organisations.

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