Public Benevolent Institutions (PBIs) are able to access significant Commonwealth tax concessions. One the requirements for access to the concessions is recognition that the entity is a PBI for purposes of the ACNC. This article outlines the ACNC’s view as set out in the Commissioner’s Interpretation Statement: Public Benevolent Institutions (CIS 2016/03 -approved 19 December 2016).
The aim of this article is to indicate the scope of CIS 2016/03 and alert readers to the extent of its guidance in dealing with the ACNC.
The ACNC’s view should not be relied upon as definitive guidance when interpreting a reference in State or Territory legislation to a PBI. However, as with any carefully considered analysis the ACNC’s thoughts on the general character of a PBI may (as a practical matter) be a useful starting point for considering the general nature of these bodies.
The ACNC considers a PBI in the context of identifying these bodies as a sub-type of charity under the Charities and Not-for-Profits Commission Act 2012 (ACNC Act). As a result, the ACNC analysis deals with:
- the general concept of a PBI; and
- specific legislative requirements for registration as a PBI under the ACNC Act.
In order for an organisation to be a sub-type of charity it must be a ‘charity’, as noted in context of the discussion of requirement (b) below. In particular, the organisation must be established for the pursuit of one or more of those purposes which the Charities Act 2013 (Charities Act) recognises are charitable, such as advancing social or public welfare. It must not be a ‘government entity’ within the meaning of the Charities Act (discussed in a separate Commissioner’s statement: CIS 2016/01).
As PBIs registered by the ACNC will also be ‘registered charities’, they will be able to access the Commonwealth tax concessions applicable to the later.
Registered PBIs may also be able to access certain additional tax concessions – notably, gift deductibility and some FBT concessions.
The identifying characteristics in subparagraphs (a) and (b) above are considered under the corresponding headings below. Under heading (c) below, we draw attention to some practical aspects PBI registration that are dealt with in CIS 2016/03.
(a) The General Concept of a PBI
The features of a PBI are:
- it is ‘public’ in the required sense;
- it is benevolent; and
- it is an institution.
The ‘public’ character required
A PBI must be ‘public’ in the sense of benefiting a sufficiently extensive set of individuals. Its public character may also be supported by its relationship with the general public such as being subject to public control and accountability, receipt of public funds, or having a connection with government.
The concept of benevolence
The main purpose of a PBI must provide benevolent relief to people.
Fundamentally, a PBI must be specifically targeted at providing relief to people in need (typically, poverty or distress such as sickness, disability, destitution, suffering, misfortune or helplessness). Note that distress may exist without poverty. Charging a whole/partial fee does not necessarily preclude registration as a PBI.
For instance, it is not sufficient to promote social welfare in the community generally such as giving general advice/information, undertaking research or performing advocacy services to the whole/part of the community. Additionally, the relief must be concerned with removing/abating need rather than merely providing services that are targeted at people in need.
However, CIS 2016/03 recognises (see para 5.9.1 et seq.) that in certain circumstances prevention of poverty/distress from arising can constitute provision of relief and will be benevolence, while in other instances the prevention work may be too general in nature. Note especially that people who are ‘at risk’ may thereby be people ‘in need’.
The level of poverty/distress which must exist is ‘of such seriousness as will arouse community compassion and thus engender the provision of relief’. CIS 2016/03 provides guidance on the ACNC’s application of this test in some commonly encountered circumstances: indigenous affairs, stress produced by ordinary human experiences, and provision education/training.
While a PBI may have purposes other than provision of benevolence, these must be ancillary or incidental to the provision of benevolence. It is not sufficient that any non-benevolent purpose is merely minor.
A PBI can provide benevolent relief either directly or indirectly. Indirect provision of relief includes relief provided via or in co-ordination with related or associated entities or through agents/contractors. The statement discusses the requirements for provision of indirect relief in detail, drawing on the Full Federal Court decision in Commissioner of Taxation v Hunger Project Australia [2014] FCAFC 69 and referring the ACNC interpretation statement CIS2013/01. Your attention is especially drawn to the ACNC’s position that:
‘a PBI may provide relief via, or in coordination with, related or associated entities that are not PBIs for the fulfilment of benevolent purposes only’.
CIS 2016/03 discusses the eligibility of organisations which have ‘a main purpose of providing benevolent relief to persons residing overseas’ to be registered as a PBI. It notes that provision of relief to people in countries that the Minister for Foreign Affairs has not declared as ‘developing’ does not preclude registration. (However, it notes that a PBI’s access to the gift deductible recipient (DGR) endorsement is determined by the ATO and seeking such endorsement may entail separate considerations.) As a practical matter, provision of benevolent relief overseas is likely to involve greater difficulty in establishing compliance with governance standards, one of the specific legislative requirements for registration mentioned in Part (b) below.
Institution
In essence, an organisation is an institution where it is created and exists to bring into being charitable purposes and intentions of its founders. The legal structure of a PBI can be take any form – company, trust, unincorporated association – as long as it has a distinct identity. Merely managing trust property which is applied to charitable purposes does not amount to being an institution. Merely being incorporated does not create an institution.
CIS 2016/03 provides guidance on the ways in which a new organisation can demonstrate that it is an institution. The ACNC requires that a new organisation demonstrates that it has concrete plans to operate in the foreseeable future (within one year of establishment) and indicates the manner in which it may be able to show this. Failure to commence operation within one year of establishment without explanation of the reason for not realising its plans may result in the ACNC reviewing the organisation’s registration as a PBI.
All PBIs should note that CIS 2016/03 warns that the ACNC may review the registration of an existing PBI which ‘has not been operating for six or more months and cannot explain how it nevertheless evidences the bringing of its founders’ purposes and intentions into being’.
(b) Specific legislative requirements for registration as a PBI under the ACNC Act
The ACNC Act specifically prescribes that, apart from having character described above, in order for a body to be registered as a PBI it must:
- meet the definition of charity in s. 5 of the Charities Act;
- be a not-for-profit entity (this is both a requirement of the Charities Act and the ACNC Act);
- comply with the governance standards and external conduction standards described in Part 3-1 of the ACNC Act;
- have an ABN; and
- not have been identified as engaging etc. in terrorist or other criminal activities
Observation: We have found that the third requirement is readily overlooked in practice and should, therefore be especially noted.
(c) Practical Considerations in obtaining/maintaining PBI registration
Part 7 of CIS 2016/03 lists sources of information which the ACNC will consider in making a decision in relation to the registration of an organisation as PBI. While the application for registration will require provision some of the material listed, we surmise that other of the listed material would be provided at the option of the applicant or in a supplementary request by the ACNC in problematic circumstances.
Observation: The list includes websites and annual reports. These can be especially informative as to the nature of an applicant for registration and should be carefully reviewed ahead of an application in order to anticipate queries that the ACNC might raise.
Part 7 sets out the principles that the ACNC will apply in determining whether PBI registration will be granted.
Part 8 of CIS 2016/03 stresses the importance of compliance with governance standards and external conduct standards and avoiding contravention of the ACNC Act. It draws attention to the obligation of a registered PBI to notify the ACNC where there has been a failure to comply or a contravention and the failure or contravention is ‘significant’.
Observation: Whether there has been significant non-compliance or a significant contravention is set out in s. 65-5(3) of the ACNC Act. Section 65-5(4) prescribes the time within which the ACNC must be notified of the relevant non-compliance/contravention.
Part 9 of CIS 2016/03 contains examples of the manner in which the ACNC will apply its contents.