Aid/Watch Decision Must be Enshrined in Tax Law

The final report of the Charity Law Reform Project, by Changemakers Australia says the High Court decision on Aid/Watch changes the conventional view that “political” action is not charitable, opening the doors to Not for Profit organisations to engage in political advocacy.

The report found that NFPs have been negatively and unfairly impacted by the restrictions on advocacy under charity and taxation laws.

The report says the Aid/Watch decision is a step forward for charities, however it says this decision needs to be reflected by the Australian Tax Office (ATO) Tax Ruling for charities.

The report, Freedom to speak – capacity to act: Removing the barriers to advocacy, is part of the Changemakers Australia’s Charity Law Reform project, which was established to investigate the impact of restrictions of advocacy restrictions on the Not for Profit sector, and to progress the development of a reform agenda.

In December 2010 the High Court found in favour in favour of aid watchdog NFP, Aid/Watch in the case Aid/Watch Incorporated v Commissioner of Taxation, which the report says overturns the conventional legal view that “political”activity is not charitable.

The High Court ruled that activist group Aid/Watch is a charitable organisation exempt from tax, overturning
a lower court ruling in favour of the ATO.

Five of the seven High Court judges agreed that public debate on the efficiency of foreign aid directed towards poverty relief was a purpose beneficial to the community.

At the time Gary Lee, Aid/Watch director said the decision was a win for freedom of political communication in Australia and it resolves almost a decade of uncertainty for many charities and strengthens the ability of charities to advocate for the public good.

The Freedom to Speak report says this ruling challenges the current common law view that NFPs are not able to advocate for public policy reform, and is an important step towards NFPs being able to engage in advocacy, for advocacy groups to claim tax concessions, and for philanthropic foundations and donors groups to fund advocacy without fear of losing their DGR status.

The report says how the ATO – which regulates access to charitable status and tax concession – interprets the decision in the charities’ Tax Ruling is crucially important.

Changemakers says it expects the Aid/Watch decision to resolve key barriers to advocacy under charity law, and that the new Tax Ruling would include the following provisions:

• Charities with public policy reform objectives to be eligible for Tax Concession Charity status;
• Existing charities to be able to further their charitable objectives through advocacy, with no common law restrictions;
• Philanthropic organisations to be able to fund advocacy which is consistent with their Trust deed and the funded charity’s charitable purposes.

In addition, the report says charity status must be extended to “watch dog” organisations which seek to benefit the community through monitoring government activities and generating lawful debate.

The report says how wide the Aid/Watch decision can be interpreted is subject to debate, however it says it is expected that the ATO will seek to narrow the interpretation of the Aid/Watch decision, as a means of limiting the number of organisations eligible for charitable status (and tax concessions).

Therefore Changemakers says it is important that the NFP sector participates in the process of updating the Tax Ruling and seeks to ensure that the Ruling does not reinstate barriers to advocacy for public policy reform.

The report says it is unlikely the Aid/Watch ruling will impact upon the criteria for DGR state and the additional restrictions on Public Benevolent Institutions.

The report says that historically (and before the Aid/Watch ruling), the law in Australia has made distinction between what is “charitable” and what is “political” and withheld charitable status from organisations with law or public policy reform as objectives. It says organisations could only engage in advocacy if it was incidental to their objectives.

The report says before the Aid/Watch decision, there was a lack of distinction of what could and could not be done by NFPs and how much was too much. It says philanthropic organisations were provided with no specific guidelines on how they should approach the funding of advocacy.

It says that by seeing charities as organisations which should restrict their role in policy debates and law reform, the common law upheld a perspective of charities that was out of step with the role that charities play in contemporary Australia, and this was enshrined in tax laws. It says more tax concessions are available to relief organisations and less to charities which focus on public policy reform.

The report says that not allowing Not for Profit organisations to engage in public policy advocacy is undemocratic – as democracy only works when all parties with an interest in a particular policy debate are free to voice their views.

It says it is only charities that face limitations on their ability to advocate, due to charity law. Trade unions, industry associations and many think tanks are eligible for tax concessions, but face no limit to the type or extent of their “political” activities.

Through conducting interviews with 18 charities and undertaking a survey, the project found that the common law restrictions on “political” activity had a negative impact on both “doing” charities and “funding” charities.

The report says “doing” charities (mainly service delivery NFPs) understand that the law places restrictions on their advocacy activities, creating risk for charities who need to advocate to achieve their goals. These charities also reported that resources available for advocacy are constrained, limiting the ability for charities to undertake the level of advocacy needed to achieve their goals.

Small charities with Public Benevolent Institution (PBI) status said they felt particularly at risk of jeopardising their PBI status due to advocacy activities.

The report says “funding” charities (mainly philanthropic institutions) have been concerned that funding advocacy projects could risk both their charitable status and breach their trust deed, and there is little official guidance about how they should approach the funding of advocacy projects.

Recommendations

The project makes a number of recommendations that build on the Aid/Watch decision and further Changemakers’ objectives regarding the promotion of social change philanthropy and public policy reform .

ATO response to the Aid/Watch decision

• Changemakers to encourage the NFP sector to develop a sector-wide view of how the Aid/Watch decision should be reflected in the Income Tax and Fringe Benefit Tax: Charities tax ruling.
• Changemakers to work with other NFPs to influence the redrafting of the Income Tax and Fringe Benefit Tax: Charities tax ruling, towards ensuring an expansive interpretation of the Aid/Watch decision prevails in the new draft.
• Changemakers to ensure the specific needs of philanthropic organisations are considered in the process of finalising the tax ruling.

Sector response to the Aid/Watch decision

• Changemakers to engage with Philanthropy Australia on the development of an educational campaign to ensure that the philanthropic sector understands the implications of the Aid/Watch decision on philanthropic grant making.
• Changemakers to work with key NFPs, including peak organisations, towards better educating “doing” charities on how to attract philanthropic support for social change projects.

Charity sector modernisation

• Changemakers to support the establishment of a national regulator, on the basis that the regulator can be the source of future reforms to remove barriers to advocacy.
  Changemakers to provide a submission to the current consultation process which includes information from the survey undertaken as part of this project.

Tax concessions

• Changemakers to support a review of the tax concession framework, with the objective of: Extending access to DGR to a wider range of charities, in particular those that are involved in public policy reform activities; Removing the remaining restrictions which limit that ability of PBIs to engage in advocacy for public policy reform.

To download the full report, visit www.changemakers.org.au

Changemakers is a Not for Profit organisations which aims to support the growth of social change philanthropy in Australia.   The Charity Law Reform project received funding from the Victorian Legal Services Board.