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On 22 August 2018, Treasury sought submissions on donations to charities reforms that included the requirement for non-government organisations with donee deductible status to register as a charity with the Australian Charities and Not-for-profits Commission (ACNC) from 1 July 2019. This is a timely and important issue for taxpayers who donate money to charities.

Many of us have donated money to a charity or not-for-profit and been able to claim this amount as a tax deduction from our income. But not everyone is aware that some of these entities, or specifically listed donees, are only eligible because the Parliament has named them in the Income Tax Act (Division 30). At present, there are around 190 of these entities, and they form a very small percentage of charities and not-for-profits that are eligible for tax deductible donations. The tax concession of deductibility of donations is also of considerable cost to the revenue. Treasury has estimated that the amount of revenue lost every year due to this tax concession is around $1.2 to 1.3 billion.

Unlike other eligible entities, there is no established process for obtaining this specific naming or listing. Because of this, many not-for-profits complain that the system is unfair on smaller organisations that do not have the funds or political power to prepare a case and lobby the government.

My analysis of the specifically listed donees indicates that some of them have gained this status through strong links with one or other of the major political parties. Examples of this from both sides of the political spectrum are the Lionel Murphy Foundation, established in 1986 by Gough Whitlam, Neville Wran and Ray Gietzelt (all Labor Party leaders and/or unionists), and the General Sir John Monash Foundation, established in 2001 with an initial contribution from the Australian Federal Government led by Prime Minister John Howard, leader of a conservative coalition government.

Lack of oversight

A major concern about these entities is that once they are listed in the legislation they are not subject to any regular oversight from the government or the public. This makes them different to charities, as charities are required to register with the ACNC and must lodge an annual financial statement with this Commission, which is then publicly available. Major donors and members of the public can therefore determine how their donations are used by a charity, but this is not the case for specifically listed donees.

An example of how this situation can be potentially misused is the case of Southcare Helicopter Fund Pty Ltd. This organisation is specifically listed in the Income Tax Act. It commenced operations on 12 September 2000 and is a private company limited by shares. It has a gift fund to which tax deductible donations may be made, but is not registered with the ACNC. This is because it is not a charity, but instead a company limited by shares and registered with the Australian Securities and Investment Commission (ASIC).

Several searches of the corporate records for this entity with ASIC did not reveal anything about its finances, but did disclose that it has been deregistered and that it no longer has any directors or a registered office. It is therefore not known what the objectives of this fund were, whether this fund is continuing in operation, whether it is still receiving tax deductible donations from the public and what use it is making of any donations that it has already received.

The major concern here, now that the company is deregistered, is what it will do with any funds that are still available in its gift fund. With no scrutiny by the ACNC, it is possible that these funds are dissipated to organisations that are not charities or eligible donees. The only recourse is to the state Attorney-General to take legal action to protect charitable assets, and this is unlikely to occur due to the high cost of such action.

Policy options

The problems identified here could be overcome by making it a level playing field, one that is open and transparent and ensures that specifically listed donees are treated in exactly the same way as charities. A possible way of doing this is as follows:

First, the Government should direct Treasury to review the specific listings in the Income Tax Act and remove any that are no longer operating; this will at least ensure that those entities that remain on the list are, to begin with, eligible to be there.

Secondly, this updated list should be reviewed by Treasury from a legal and operating perspective. The governance standards required for registration of charities with the ACNC provide an excellent framework against which to benchmark an organisation. There are five governance standards: (charitable) purposes and not-for-profit nature of the registered entity; accountability to members; compliance with Australian laws; suitability of responsible entities; and duties of responsible entities. Furthermore, not-for-profits operating overseas should be required to comply with governance standards that are specifically relevant to international organisations.

Third, as proposed by Philanthropy Australia, the government should establish an independent panel with the task of making recommendations to the federal government regarding whether an organisation should be granted a specific listing. This panel would be informed by advice from Treasury, but also consider broader factors which Treasury does not necessarily consider. These include the requirement of specific community groups to have a voice in general community discussions, the needs of emerging groups within Australian society and evolving community welfare issues. These recommendations should be made public, together with the decision of the relevant Minister regarding the application which is the subject of the recommendation. Such a process would lead to increased trust and confidence in the specific listing of donees.

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