OF DEATH AND TAXES
|8th Jul 2019|
The the old adage that there are only two things certain in life, death and taxes has never applied to religious charities, but new registration requirements mean PBIs face an uncertain future. Can religious charities overcome their dependence on the secular state or are they facing an existential crisis?
>1750 and <1800
Founded by King Henry VIII, the Anglican Church has had an historic relationship to the State. Eligiblity for special tax treatment for religious charities dates back to the sixteenth century and Queen Elizabeth 1.
England introduced income tax in 1799 with an exemption for the income of charities. Wealthy donors could use of a deed of covenant to promise regular payments to a trust or individual and the income tax liability could be transferred to the holder of the deed (charities) thereby avoiding tax on these payments^.
The British govt introduces the 1798 statute to fund the Napoleonic wars including an exemption from income tax of any Corporation, Fraternity or Society of Persons established for charitable Purposes only^.
This exemption appears to have its origins in the 1671 and 1688 land tax exemptions for hospitals and charitable institutions, which was then continued in the income tax context.
For example, s 25 of the Taxation Act 1692 exempted specified organisations including: universities, colleges and schools, charities for the relief of the poor, hospitals and alms houses^.
>1800 and <1850
In 1836 Governor Bourke passed The Church Act which provided government funding to all religious denominations for the construction of churches and a Missionary Establishment intended for the Indigenous population.
The Taxation Act 1884 (SA) exempted land tax land used solely for any religious or charitable purposes, or by an institute under the Institute Act 1874 (SA) from taxation.
The Land and Income Tax Assessment Act of 1895 (NSW), Section 11(v) exempted from land tax lands occupied or used exclusively for, public NFP hospitals, benevolent institutions, churches, chapels for public worship, universities, affiliated colleges and the Sydney Grammar School.^
>1850 and <1900<
First income tax introduced, which under Section 14 of the Real and Personal Estates Duties Act 1880 (Tas) exempted ‘any Hospital, Benevolent Asylum, or other building used solely for charitable purposes’ from land tax.^
Section 3 of the Income Tax Act 1907 (Vic) amended Income Tax Act 1895 (Vic) to provide tax deductions for gifts to any public library, university, museum, benevolent asylum, womens' refuge or public dispensary within the state.The 1895 Act had also exempted from income tax a mixture of entities including religions.^
>1900 and <1950
The Federal Income Tax Act 1915 was introduced to finance WWI and exempted from income tax the income of religious, scientific, charitable or public educational institutions. It also granted a deduction for gifts, each exceeding £20, to ‘public charitable institutions’.^
The Income Tax Assessment Act 1918 (Cth) continued the deduction but reduced the threshold to £5.
The Land and Income Tax Assessment Act 1907 (WA) was introduced, exempting the income of all ecclesiastical, charitable, and educational institutions of a public character. The Income Tax Assessment Act 1915 contained an exemption for the income of religious, scientific, charitable or public educational institutions and also a deduction for gifts to certain charitable organisations. ^
In 1927, the federal income tax legislation was amended to alter the range of eligible donees to include ‘public charitable institutions’ in Australia, public universities in Australia or to affiliated colleges, and public funds to establish and maintain funds for public memorials relating to WWI.^
>1950 and <2000
The Fringe Benefits Tax Assessment Act 1986 is introduced with exemptions for employees of religious institutions
Tax reform put a cap on fring-benefit exemptions to religious organisations but didn't remove them entirely
Since Governor Burke funded the construction of churches with The Church Act in 1836, religion in Australia has enjoyed historical privilege in the form of land grants, government subsidies and generous tax concessions. However, recent changes in the regulation and administration of charities has seen Australia's religious charities claim to be at risk of losing those tax concessions and with them, their capacity to survive as financial entities.
Despite the leading role in relief of poverty now being the responsibility of and funded by the secular state, religious charities have enjoyed the privileges established for them prior to the emergence of the welfare state and have continued to benefit financially through funding for employment, aged care and similar programs. The long history of land gifts for which they have never been taxed, income tax exemptions, deductible gift recipient status and more recently, fringe-benefits exemptions have enabled the churches in Australia to amass untold wealth.
The economic depressions of 1890s and 1920s saw the existing charity system struggle under the weight of the need with which it was faced and with the establishment of welfare during the war era, supporting the poor became a responsiblity of the state through which religious organisations continue to play a major role.
Speaking of religious privilege I am a Brisbane mum with petition to Parliament to review Religious Instruction in state schools. Education about religions by teachers not indoctrination by volunteers. Qlders can sign. Love a retweet https://t.co/QMfCfbAKzZ— alison courtice (@alisoncourtice) July 16, 2019
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Making religious charities fully transparent to the secular state that funds so much of their work has proven notoriously difficult. A majority of charities are religious organisations who still enjoy full tax exemption despite repeated attempts to remove this historical privilege and the establishment of an industry specific regulator, the Australian Charities and Not-for-Profit Commission, in 2012.
The historical privileges have built the wealth and their role in benevolent works has provided the social licence for churches to influence public policy. The Royal Commission into Institutional Responses to Child Sexual Abuse, followed by the same-sex marriage plebiscite and more recently, the case against Cardinal George Pell has cooled public sentiment toward the privileges enjoyed by our religious institution, putting their social licence at risk.
It is when one considers the impact of religious belief on same-sex marriage in aged care, health care issues such as the recently passed Voluntary Assisted Dying legislation or abortion that it becomes obvious that while the churches have historically played a significant role in meeting basic human needs, in an increasingly secularised society this role is coming under question, particularly when these same organisations are only operating through their dependence on generous tax concessions which are not available to secular or for-profit organisations.
Terminally ill patients in Catholic-run hospitals and hospices wanting to end their lives will have to move elsewhere to ask to use the scheme, with Church health providers reaffirming they will not offer assisted dying services. (The Age 18 June, 2019)
The Australian not-for-profit (NFP) sector is large and diverse. It consists of approximately 600,000 organisations across a number of different entity types. As of 17 February 2017, around 54,800 charities were registered with the ACNC. There are around 28,000 organisations endorsed as DGRs, of which around 18 per cent are not registered charities – under 10 per cent are government entities (and therefore not eligible for charity registration) and over 8 per cent could seek charity registration with the ACNC. (Treasury, 2017 )
Not all charities are eligible for ‘Deductible Gift Recipient’ (‘DGR’) status. In fact, only about 38 per cent of charities are currently DGRs. PBIs [Public Benevolent Institutions] are the largest group of charities that are eligible for DGR status. We have seen that the PBI was developed by the legislature to ensure that the tax concession of deductibility of donations was not available to all charities. There are several explanations for this, although the paramount one seems to be the protection of the revenue. The donation tax concession is estimated by Treasury to cost the Federal revenue over $1.2 billion per year. (The Adelaide Law Review, 2013)
...studies show that churches and other non-profit organisations saved more than $1 billion each year by paying less tax or none. These [exemptions] include exemptions from the GST, income tax, fringe benefits tax at the federal level; land tax, stamp duty, payroll tax and car registration (state); and rates, and some power and water charges (local government and utilities). (The Age, 2016)
Thanks to the establishment of the Australian Charities and Not-for-Profit Commission and the reporting it requires, we now know that Australian charities maintain over $300 billion in assets annually. A large factor in this are that universities, schools, hospitals and aged care facilities are all registered charities. However, it is also the case that historical gifts of land, funding and tax concessions have concentrated enormous wealth in the hands of religious organisations and that religious charities dominate the government funded charities that continue to deliver government social and educational functions.
...the core business of chuches has moved from parish work [where revenue is declining] to winning and supplying government contracts [where revenue is growing] (Wallace, 2007)
It must also be noted that the current legislation excludes many religious organisations from reporting requirements so the true wealth of the charity sector and within it, the wealth of Australian churches remains shrouded in mystery.
Charities declaring 'religious activities' as their main activity have always been and remain, the largest charity sub-type numbering over 14,000, approximately 20% of all registered charities. Closer to 30% or nearly 20,000 charities are registered with a charitable purpose of 'advancing religion'.
While the Australian Charities and Not-for-Profit Commission took over the registration of charities entitled to receive tax exemptions in 2013, the legislation administered by the ACNC was compromised in its power to hold religious charities to account as a direct result of influence from the churches. A status of Basic Religious Charity was added to the legislation which exempts religious charities from reporting to government, permitting religous charities to 'self-identify' as to their own eligibility for this status.
As asserted by Professor Ann O'Connell, who is 'Special Counsel at Allens, Solicitors, a member of the Advisory Panel to the Board of Taxation and a member of the Australian Tax Office Public Rulings Panel and GAAR Panel',
Each year the ACNC has noted that religious charities had wrongly self-assessed themselves as BRCs. For example, in 2014 they identified 464 charities that were incorporated or had another sub-type (and so ineligible to be a BRC). In 2015, 354 charities were identified as being incorporated and in 2016, 371 charities were identified as having misclassified themselves as BRCs.
An example of how the BRC exemption (even when correctly applied) affects transparency and accountability is exemplified in some of our earliest established charities. The Anglican Church Property Trust of Sydney manages, invests and distributes assets of the Anglican Church in Australia yet is not required to provide financial statements to the ACNC.
In The Purple Economy: supernatural charities, tax and the state, Max Wallace argues that the failure of democracies to fully realise a distinction between church and state has resulted in churches becoming "immensely wealthy as a result of their centuries old tax-exempt status as charities that 'advance religion'".
Written prior to the establishment of the ACNC - and any requirement for charities to publicly disclose their finances- Wallace was reduced to searching newspapers for references to the purchase or sale of church properties.
..the Herald-Sun of 27 August 2002 reported that,
"The Anglican Church is well and truly in the commercial property game. At least 15 of its Melbourne diocese church properties are rented out for various uses, including offices, service stations, shops and car parks. It has waterfront properties it plans to develop and multi-million dollar joint ventures on the table. It owns property worth about $1B spread across 1,100 titles in the Melbourne diocese...the church is planning four or five property developments in Melbourne...[the accounting manager] describes the projects as multi-million dollar residential and commercial developments. The diocese also has a $70M investment portfolio inlcuing $20M in 30 stocks on the share market."
More recent analysis using similar methodology was employed by Fairfax journalists journalists to estimate the value of properties owned by the Catholic church.
As is pointed out in the book, Wallace quotes Richard Lead that Section 23 of the Income Tax Assessment Act 1932 (since superseded by the 1997 Act) exempted "religious institutions from tax of every type of income, not just donations from their parishioners. Property rents, bank interest, dividends, capital gains, trading profits - you name the income, and section 23(e) renders it free of income tax." and quotes a former Tax Commissioner's intimate awareness of just how effectively churches in particular have been able to exploit their privileged tax exemptions: "The then Tax Commissioner, Mr Carmody, was quoted as saying that the exploitation of salary-sacrifice arrangements by non-profit organisations including 'churches' had gone too far". Wallace also quotes Treasurer Peter Costello in the Canberra Times (25 August 1998):
...the Federal Government told the churches and charities yesterday to stop using loopholes to reduce tax for their senior staff. Many benevolent institutions were loading fringe benefits such as expensive cars into salary packages, Treasurer Peter Costello said. 'The churches can't have it both ways...they can't say on the one hand we stand for a tight tax system against avoidance but on the other we don't want any of our fringe benefits brought into the tax net'.
In a speech to Anglicare in the wake of scandals in the Anglican church reminiscent of those currently bestting the Catholic Church. Peter Costello went so far as to point out that:
Less than half of the population rates clergymen highly for ethics and honesty. This is at a time when church leaders speak out on what they perceive to be moral issues...When the government was reforming the tax system I was amazed how many church leaders were, in fact, tax experts who had sized up the moral of a value added tax. (Peter Costello, 2003)
Treasurer Peter Costello capped fringe-benefits exemptions in 2000 but with concessions as a result of the stance taken by the Democrats who were concerned with the implications for hospitals.
In A New Tax System (Fringe Benefits) Act 2000, the cap applying to charities and those other organisations was increased to $30,000 'of grossed up taxable value per employee with effect from 1 April 2001. This amount had been $17,000. (Treasury, 2000)
Despite Treasurer Costello's attempts to put a stop to the churches abuse of fringe-benefits, concessions were made for PBI's, leaving religious employers to continue to use fringe benefit tax exemptions to obfuscate the incomes of their employees.
A significant trap that we see for ministries in employment law is the provision of exempt Fringe Benefits to its employees. We are regularly seeing ministry employers, such as churches and para-church organisations, providing exempt Fringe Benefits to employees in circumstances where that employee probably is not eligible for those payments. (Corey & Lind Lawyers, 2007)
The generosity of PBI tax concessions entice religious charities to register with the ACNC for the tax benefits and a lax attitude toward holding religious charities to account has seen them rort the system. However, a recent clarification of the legislation now makes charities choose between the financial benefits of tax concessions or the ability to define themselves under law as religious organisations.
For the purposes of regulation, charities must declare a charitable 'purpose' and a 'main activity'. Charities must also not have a 'disqualifying purpose':" The ACNC Act sets out the 14 subtypes with which a charity can be registered. These include the 12 charitable purposes in the Charities Act 2013 (Cth), as well as Public Benevolent Institutions and Health Promotion Charities."
In 2016, the former Charities Commissioner, Susan Pascoe handed down an Interpretation Statement for how the ACNC would administer the awarding of the status of Public Benevolent Institutions, a status which plays a key role in either extending or limiting tax exemptions to religious charities.
This Statement held that PBI's could not maintain that status and the tax exemptions which flow from that if their main activity is religious. This Statement has two main implications for religious charities: one financial and the other legal. If religious PBI's do not drop advocating religion and religious activities from their registration applications with the ACNC, they are likely to lose PBI status and the generous tax concessions which flow from that.
However this lack of acknowledgment of their religious affiliation also has legal implications:
When this reasoning is applied to the public benevolent arms of religious institutions, in effect, the requirements of charity law disentitle such bodies from the exemption under anti-discrimination law. This has the practical consequence that such bodies will not be able to require that their governing members or staff (the persons who effect their purposes) ascribe to, or act in accordance with, a set of religious beliefs. They thus forego discretion over the character and voice of their institutions. (Adventist Development and Relief Agency Australia Ltd, Seventh-day Adventist Aged Care, Compassion Australia and Anglicare Sydney, 2018)
Furthermore, in light of the legalisation of same-sex marriage, religious charities are concerned that their continued prosetylisation of the traditional view of marriage might be seen as a 'disqualifying purpose' under the Charities Act which prohibits registration of charities that pursue a purpose which is against public policy. Such concerns prompted the 2018 Ruddock Review of Freedom of Religion to make the following recommendation:
The Commonwealth should amend section 11 of the Charities Act 2013 to clarify that advocacy of a ‘traditional’ view of marriage would not, of itself, amount to a ‘disqualifying purpose’.
Catholic commentators hope the forthcoming religious discrimination bill is set to tip the balance back in favour of religious institutions by squaring the circle on the issues raised by same sex mariage legislation.
The legislation would also establish a religious freedom commissioner at the Australian Human Rights Commission. Moreover, it would amend existing laws regarding religious freedom, including marriage and charities law, and objects clauses in anti-discrimination law. (The Catholic World Report, 2019)
It appears that every time the secular state gets close to removing the privileges bestowed in an earlier age from religious charities, the churches find a way to maintain the status quo. With the religious right now so embroiled in national politics, a truly secular state looks set to remain more an ideal than a reality for Australia.
Religious Freedom Review, 2018, Prime Minister and Cabinet, Commonwealth of Australia.
Conviction with Compassion: A Report on Freedom of Religion and Belief 2000, Joint Standing Committee on Foreign Affairs, Defence and Trade, Commonwealth of Australia.
Defining Moments: Bourke Church Act, n.d. National Museum of Australia.
Fringe Benefits Tax: Charities and Non Profit Organisations, 2000, Peter Costello, Treasury Media Release, Commonwealth of Australia.
Address to the Anglicare Lunch: Is Faith a Lost Cause, 2003, Peter Costello.
Charity Commissioners Interpretation Statement, 2016, ACNC, Commonwealth of Australia.
Tax Deductible Gift Recipient Reform Opportunities Discussion Paper, 2017, Treasury, Commonwealth of Australia.
Basic Religious Charities Under The Australian Charities and Not-For-Profit Commission Act 2012, 2019, Anne O'Connell, Review of Australian Charities and Not-for-profits Commission (ACNC) legislation, Treasury, Commonwealth of Australia.
Basic Religious Charities, n.d. ACNC, Commonwealth of Australia.
A Thematic Heritage Study on Australia's Benevolent and Other Care Institutions, 2016, Commonwealth of Australia.
Henry Tax Review,2010, Ken Henry, Treasury, Commonwealth of Australia.
^The Socio-Political and Legal History of the Tax Deduction for Donations to Charities in Australia and how the 'Public Benevolent Institution' Developed, 2017 Fiona Martin Associate Professor, School of Taxation and Business Law, University of New South Wales, Sydney, Australia.
The purple economy: supernatural charities, tax and the state, 2007, Max Wallace, Elsternwick, Victoria. Australian National Secular Association.
The Nature of Prejudice, 1954, G W Allport, Addison-Wesley.
Australian government proposes religious discrimination bill, 2019, The Catholic World Report.
Hillsong- Gods Millionaires: Pentecostal churches are not waiting to inherit the earth. They are taking it now, tax-free, 2005, Austalian/May 26, Adele Ferguson Business Review Weekly Magazine.
With $30b in wealth, why is the Catholic Church struggling to pay for justice?, 2018, Ben Schneiders and Royce Millar and Chris Vedelago, The Age.
Archdiocese defends compensation scheme as more money flows to victims, 2019, Farrah Tomazin, The Age.
Churches reap the benefits of belief: $500 million in tax exemptions, 2006, Barney Zwartz, The Age.
Scott Morrison urges coleagues to avoid another religious freedom row, 2019, David Crowe, SMH.
Democrats oppose new fringe benefits tax rules, 2000, PM with Mark Colvin, Radio National, ABC.
Catholic church restates staunch opposition to voluntary assisted dying laws, 2019, Melissa Cunningham, The Age.
Election FactCheck: is the Australian Sex Party right about religious organisations, tax and record-keeping?, 2016, Bronwen Dalton & Ann O'Connor, The Conversation.