Chapter 3: Advocacy and disqualifying purpose

Charities Bill 2003: Relevant sections: Section 4: Core definition (1) A reference in any Act to a charity, to a charitable institution or to any other kind of charitable body, is a reference to an entity that: (d) does not have a disqualifying purpose; Section 8: Disqualifying purposes (2) Any of these purposes is a disqualifying purpose: (a) the purpose of advocating a political party or cause; (b) the purpose of supporting a candidate for political office; (c) the purpose of attempting to change the law or government policy; if it is, either on its own or when taken together with one or both of the other of these purposes, more than ancillary or incidental to the other purposes of the entity concerned.

Introduction

3.1 Section 8 of the draft Bill provides that certain kinds of purposes will disqualify an entity from recognition as a charitable body. A purpose of engaging in activities that are unlawful is always a disqualifying purpose (subsection 8(1)). Certain kinds of purposes, listed in subsection 8(2), will be disqualifying purposes if they are more than ancillary or incidental to the entity’s other purposes.

3.2 This section has proved to be the most controversial section of the draft Bill. Concerns about section 8 reflect the view that the section may operate to limit the advocacy activities of charitable bodies. Respondents saw this possibility as significant because of the widely-expressed view that advocacy is of vital importance to the operations of the modern charitable sector.

Overview of submissions

3.3 Submissions revealed a widely-held concern that subsection 8(2) of the draft Bill, read in light of the EM, would operate to exclude from the definition of a charity a body whose advocacy activities were more than ancillary or incidental to its charitable purposes. Another view expressed was that subsection 8(2) will encourage charities to adopt ancillary or incidental purposes in their constituent documents and to engage in advocacy activities at an increased level.

3.4 This concern was not significant in relation to the purposes described in paragraphs 8(2)(a) and (b). The majority of submissions agreed that charitable bodies should not be involved in ‘advocating a political party’ or ‘supporting a candidate for political office’, provided these provisions did not impinge on their freedom to comment on party platforms at election times if policies had a bearing on their beneficiaries.

3.5 However, respondents were very concerned about the effect of the draft Bill on the advocacy activities described in paragraph 8(2)(c) (‘attempting to change the law or government policy’). Many respondents felt that, having regard to the central role of advocacy in the work of the modern charitable sector, the draft Bill would be unworkable if it operated to restrict their advocacy work beyond the current common law position. In arguing that the draft Bill should be confined so as not to impose any such restrictions, respondents raised the following major concerns about section 8:

• that it may not reflect the common law;

• that there is confusion about the distinction between the terms ‘purpose’ and ‘activity’ as they relate to advocacy or ‘attempting to change the law or government policy’;

• that there is uncertainty about the way in which the terms ‘ancillary or incidental’ are to be measured, and by whom, irrespective of whether they relate to ‘purpose’ or ‘activity’.

3.6 Two other drafting issues were raised in submissions:

• Paragraph 8(2)(a) refers to ‘advocating a political party or cause’; some respondents queried whether the paragraph should be read as referring to ‘advocating a political party or a political cause’, or whether ‘cause’ was intended to have an unqualified meaning. If ‘cause’ is to be read as unqualified, respondents were concerned that this paragraph, like paragraph 8(2)(c), would inappropriately constrain their freedom to engage in advocacy work.

• Paragraph 8(2)(b) refers to ‘supporting a candidate for political office’; some respondents queried whether this reflected a drafting oversight and should in fact also extend to opposing a candidate for political office.

3.7 Many submissions expressed the view that advocacy activities are central to the work of the modern charitable sector. A number of submissions argued that the draft Bill should acknowledge the role of advocacy to modern charities positively, rather than refer to it in the negative as a ‘disqualifying purpose’. They also proposed that public advocacy should be clearly distinguished from partisan or party-political advocacy.

3.8 The concerns expressed in submissions were generally consistent with the CDI approach to advocacy:

‘Non party-political purposes or activities such as advocating on behalf of their causes or needs, contributing to the development or implementation of public policy, entering into the public debate, or seeking to change a particular law or public policy, should be assessed against the same principles as other purposes and activities. The principles recommended by the Committee are that to be a charity an entity’s dominant purposes must be charitable and any other purposes must further, or be in aid of, the charitable purposes or be incidental or ancillary to them.’(CDI p 218)

3.9 Some submissions stated that subsection 8(2) might place an unjustifiable burden on the implied constitutional right to freedom of communication on matters of government and politics.

Section 8 may diverge from the common law

3.10 Many submissions suggested that section 8 of the draft Bill did not codify the common law as intended. In principle, respondents favoured the approach taken in the attachment to the Treasurer’s Press Release (PR No 49). That definition did not refer to a disqualifying clause but rather stated that an entity must not have a dominant purpose of attempting to change the law or government policy. ‘Although there is not a great deal of difference between the two formulations, the reference to not having a dominant political purpose appears to better reflect the existing case law’. (Ann O’Connell)

3.11 Other submissions noted that the wording of section 8 appears to reverse the onus of proof and thus differs from the common law. For example, it was noted that the Bill in fact appears to reverse the onus of proof through its choice of language — that is, the use of ‘disqualifying purpose’ has perhaps unintentionally given the impression that advocacy is not a desirable activity for a charity unless it is a minor role.

Distinction between ‘purpose’ and ‘activity’

3.12 Paragraph 8(2)(c) refers to the ‘disqualifying purpose’ of attempting to change the law or government policy. It does not refer to ‘activity’. However, the EM at paragraph 1.32 indicates that ‘activities’ as well as purpose will be assessed when determining an entity’s dominant purpose.

3.13 Conflation of ‘purpose’ and ‘activity’ (as well as the confusion about ‘ancillary’ and ‘incidental’ mentioned below) could result in a narrow interpretation of how much advocacy a charitable body is entitled to undertake without jeopardising its charitable status. Some submissions suggested that charitable bodies might respond to the lack of clarity by limiting their advocacy activities, to the detriment of their beneficiaries, rather than jeopardise their charitable status.

‘Ancillary or incidental’ require clearer definition

3.14 Many submissions held that the term ‘ancillary or incidental’ was vague and confusing. The EM, at Example 1.1, appears to equate the term with ‘small scale’. Respondents argued that this is more restrictive than either the common law or the ATO’s current approach.

3.15 Definitive guidance in the draft Bill and EM would help ensure consistency in assessing eligibility for taxation concessions. ‘The ATO through their own submission to the [Charities Definition] Inquiry recognised the difficulty of their interpretative task in the absence of clearly defined guidelines.’ (Anglicare Australia)

3.16 Many respondents were unsure how their advocacy activities would be treated or indeed which activities would be classified as ‘attempting to change the law or government policy’. ‘[A]dvocacy, whether for an individual client, a group of clients, a local community or a group of not for profit organisations is generally a seamless extension of human services delivery and community development in 2003 Australia.’ (NCOSS)

3.17 Respondents inferred that they would need to keep more detailed records on their purposes to substantiate that their purposes had not crossed the boundary of being ‘more than ancillary or incidental to the other purposes of the entity concerned’. This would increase administrative costs and necessitate a consistent approach to recording activities. ‘If charities are required to keep detailed records of their advocacy work and allocate costs and expenses devoted to this work for the purposes of auditing by the ATO, an audit system would need to be developed so that [the] new measure is applied uniformly across the sector.’ (Cancer Council Victoria)

The centrality of advocacy to the modern charitable sector

3.18 A number of organisations submitted that advocacy is of particular importance in achieving their charitable purpose and, as such, might not meet the test of ‘ancillary or incidental’. Included among these were disability organisations, welfare rights and community legal centres, peak bodies, environmental groups and human rights organisations.

Disability organisations

3.19 Organisations providing disability services are involved intensively in advocacy to achieve their charitable purpose. For example, the Disability Justice Advocacy submitted that it receives funding from government under the Disability Services Act 1986 (Cth) to undertake 70 per cent advocacy on behalf of individuals and 30 per cent systemic advocacy. Rather than just ‘helping people with disabilities step over or around walls in society’, advocacy focused on ‘removing those walls’ to ensure equal access to services and facilities across the community. Representation by the disability sector had thus played a large role in the introduction of anti-discrimination legislation and non-discriminatory government policies. (Royal Blind Society)

Welfare rights and community legal centres

3.20 Submissions from welfare rights and community legal centres claimed that one of their major roles is to undertake systemic advocacy if particular laws or government policies have an adverse or disproportionate effect on certain groups of clients. Some felt there may be a conflict between the effect of the draft Bill when enacted and some funding agreements which require that legal centres undertake test case litigation and provide critical input into law and policy proposals. (Caxton Legal Centre)

Peak bodies

3.21 Peak bodies undertake research, policy and advocacy roles on behalf of different segments of the charitable sector. The Government funds a number of peak bodies to represent their sectors. It was suggested that paragraph 8(2)(c) would lack flexibility if a peak body’s specialist advocacy activities were construed as being a purpose of attempting to change the law or government policy that was more than ‘ancillary or incidental’. (ACOSS)

Environmental organisations

3.22 Environmental groups emphasised the importance of advocacy in achieving their charitable purposes. A submission referring to the ACF case pointed out that, while a campaign of tree-planting might be a strategy to address the problem of salinity, controlling land-clearing through legislation had proved to be far more effective. Without major advocacy work, the objective of protecting and renewing the natural environment would be unachievable. ¹

Human rights organisations

3.23 The draft Bill and EM, taken together, might exclude human rights organisations from charitable status despite the explicit reference to ‘the promotion and protection of civil and human rights’ as an example of ‘other purposes beneficial to the community’. (EM paragraph 1.84)

3.24 A number of submissions argued that human rights organisations are by their very nature involved in significant advocacy for changes in law or policy. One noted that the concept of human rights is not static but rather has evolved over time. Charities may therefore find themselves ahead of the law and public opinion. Another thought it could be seen as contradictory to acknowledge civil and human rights as a ‘purpose(s) beneficial to the community’ (paragraph 10 (1)(g)) if such an organisation could be construed as having a disqualifying purpose because it sought to protect those rights through a change in the law or government policy.

3.25 Overseas aid organisations noted that they cannot risk the safety of their field workers by taking an overt advocacy role where there is considerable civil unrest and violence. Therefore there is a need for specialist organisations not connected with on-the-ground charitable work. However, organisations with only a specialist advocacy role, for example human rights organisations, might be disqualified from charitable status.

3.26 There was also uncertainty about whether explicit reference to advocacy in constituent documents could be interpreted as a purpose that was ‘more than ancillary or incidental’. UNICEF Australia noted that its parent body requires it to advocate on behalf of children’s rights.

Constitutional validity

3.27 Several submissions raised a concern that the draft definition may be unconstitutional. (The Federation of Community Legal Centres (Victoria) Incorporated; Professor Michael Chesterman). ‘[I]t could be considered that the Draft Bill, particularly if it does prohibit a charity from advocating a “political cause” [paragraph 8(2)(a)], would impose an unjustifiable burden on freedom of political expression. This could lead to its invalidity under the Commonwealth Constitution.’ (The Federation of Community Legal Centres (Victoria) Incorporated, citing Lange v Australian Broadcasting Corporation (1997) 189 CLR 520). This issue, which is discussed further at paragraphs 9.11-9.13, is a matter for specialist legal advice.

Board assessment

Does section 8 of the draft Bill reflect the common law?

3.28 The rationale for introducing a legislative definition is to provide clarity and certainty to the sector where case law has not. If the legislation does no more than state the common law, it is hardly surprising that there are different views on whether the draft Bill accurately reflects the common law.

3.29 Australian superior courts have decided very few cases about the definition of a charitable body over many years of changing social and economic circumstances. As the CDI Report noted, ‘[t]he High Court has not been asked to decide on a case on charitable purposes since 1974 and has not heard a case on PBI since 1942.’ (CDI p 35)

3.30 However, there have been some relatively recent cases in which other courts have had to consider the significance of certain kinds of ‘political’ activity in determining charitable purpose.

3.31 The CDI Report referred to the lower court case of Public Trustee v Attorney-General of New South Wales² in which Justice Santow noted that ‘a trust may survive in Australia as charitable where the object is to introduce new law consistent with the way the law is tending. There is then no longer contrariety with an established policy of the law.’

3.32 Since the CDI Report was released, another lower court case, Australian Conservation Foundation Inc v Commissioner of State Revenue,³ has indicated that the common law is still evolving. That case noted that ‘[i]t is now plain, if it was not before, that there is no law that says a charity can be proscribed merely because you can attach the epithet political to some of its activities: for a variety of reasons many charities nowadays will not be able to avoid conduct that may be said to be political. It is in my opinion clear that the ACF should prima facie be regarded as charitable and it would in my view be unacceptably unworldly if the ACF were to lose that status because of the misgivings expressed by some jurists (as it happens, Law Lords) in another context, in another hemisphere, and in another millennium.’

Divergence between the orthodox approach to the common law
and ATO practice

3.33 The CDI Report notes that Picarda’s view is that ‘… the orthodox approach is that if an organisation’s stated purposes are clearly charitable an activity test is not necessary. As noted in Vancouver Society of Immigrant and Visible Minority Women v Minister of National Revenue (1999): “It is really the purpose in furtherance of which an activity is carried out, and not the character of the activity itself, that determines whether or not it is of a charitable character”.’ (CDI p 101)

3.34 The CDI Report notes that Dal Pont indicates that there are three main circumstances where it may be necessary to look to activity to substantiate the dominant charitable purpose:

• where there is doubt about whether a purpose stated in a governing document as the main purpose is in fact the main purpose. In this case the substance or facts of the matter will prevail over the formulation of the governing documents if the latter are proved to be misleading;

• where an entity’s governing documents do not clearly indicate its main object. The activities may serve to indicate the relative weight to be accorded to each purpose; and

• where an entity lacks governing documents or where they are informal or incomplete. It is the nature of the entity as substantiated by its activities that will determine the entity’s status.^’

(CDI p 101)

3.35 The ATO approach as described in the CDI Report adopts a more comprehensive approach where ‘purpose’ is determined by ‘an objective weighing of all its features. They include its constitutive or governing documents, its activities, policies and plans, administration, finances, history and control, and any legislation governing its operation’ (Draft Taxation Ruling Income tax and fringe benefits tax: charities 1999/D21 (TR 1999/D21)). The ATO has published a number of information packages using examples to assist the sector in determining and reviewing their status. However, the ATO gives little guidance as to the underlying principles used to determine its assessment.⁴ The CDI Report acknowledges that the ATO approach seems to have an element of practicality and common sense about it, but warns that an over-enthusiastic administration can be a burden if no purpose is served by it being undertaken. (CDI p 109)

3.36 The ‘orthodox’ approach as described in the CDI Report appears to be reflected in the draft Bill, which uses the terms ‘purpose’ and ‘activity’ to refer to quite different concepts and on its face the draft Bill applies only to political purposes. On the other hand, the EM appears to reflect the approach adopted by the ATO as described in the CDI Report; ‘purpose’ and ‘activity’ are in some cases used interchangeably. This leads to the expectation that assessing whether a body has a political purpose of the kind covered by subsection 8(2) will involve an examination of its activities, and whether those activities are more than ancillary or incidental to the body’s purposes. This discrepancy between the draft Bill and the EM seems to have been a major contributor to confusion in this area. The confusion between purpose and activity is further exacerbated by the failure to clearly define the meaning of ‘ancillary or incidental’.

3.37 Advocacy for most charitable bodies embraces such activities as policy advice, community education and constituent representation. These activities may shade into political advocacy when the dominant purpose of a body is to procure a change in law, government policy or decisions of government authorities or to maintain the present law. Advocacy may also embrace overt political lobbying.

3.38 The Board notes that some submissions do not appear to distinguish between the kinds of advocacy described in subsection 8(2), which are generally speaking ‘political’ advocacy (although not all of them are ‘party-political’) and the non-political forms of advocacy, for instance community education or representation on behalf of individual, disabled or otherwise disadvantaged people.

3.39 The Board believes that the EM will create confusion for charitable bodies attempting to determine when the activity of advocacy, or attempting to change the law or government policy, ceases to be ‘ancillary or incidental’ and becomes a purpose that is more than ‘ancillary or incidental’. Among other things, the EM uses the expression ‘small scale’ as a test for whether an activity is incidental to a dominant purpose, but this test seems to have no basis in the draft Bill.

3.40 The Board believes that the lack of clarity in relation to advocacy activities partly arises from the existence of at least two different approaches to the common law in this area (see paragraphs 3.33-3.36). It is exacerbated by:

• the use in the EM of concepts such as ‘small scale’;

• confusion about the difference between political advocacy and other advocacy; and

• the possibility that some bodies may be currently endorsed as charities even though they are not, in fact, eligible for endorsement under either the orthodox or the ATO reading of the common law.

3.41 Under paragraphs 4(1)(a), (b) and (c) of the draft Bill, an entity may have a dominant purpose that is charitable and engage in advocacy activities that are consistent with this dominant purpose, but still fail the ‘ancillary or incidental’ test in subsection 8(2). From the submissions it has received and its own review, the Board considers that, because of the interrelationship between these provisions, the draft Bill may have certain consequences which need further consideration.

3.42 These consequences are as follows:

• A number of bodies (see paragraphs 3.19-3.23 above) have indicated that, if the draft Bill is enacted, they may no longer be recognised as charitable because their advocacy activities, which they consider are central to their charitable operations, would be more than ancillary or incidental as contemplated in subsection 8(2). On the Board’s reading of the draft Bill, there is some force to this suggestion.

• The difficulty in applying the words ‘ancillary or incidental’ in subsection 8(2) may cause a number of charities which currently engage in advocacy to curtail the extent of their advocacy activities because of the fear that those activities could be classed as a ‘disqualifying purpose’. This may impact on the effectiveness of those charities.

• There is a possibility that subsection 8(2) will encourage charities to adopt ancillary or incidental purposes as set out in that subsection, to include those purposes in their constituent documents, and to engage in those activities at an ancillary or incidental level. At present these bodies may not have such purposes or engage in such activities.

3.43 The Board considers that the above matters are significant and proposes that they be further considered by the Government with a view to providing greater clarity to the charitable sector. The following comments are provided to assist with any clarification of these matters:

• If the Government is simply following the common law treatment of advocacy, then there is a strong argument that it could achieve that outcome without the need for a subsection 8(2) in the draft Bill. The argument centres around the common law definition of charitable purposes which has generally excluded political or other non-charitable purposes.

• If the Government, in clarifying the common law, wishes to make it clear that overt political advocacy (which the Board does not take to mean advocating change to the law or government policy) is not a charitable purpose, then this could be better achieved by deleting subsection 8(2) and substituting a new subsection 10(3) as follows:

10(3) A reference in any Act to a charitable purpose does not include a reference to either of the following purposes:

(a) the purpose of advocating a political party or [a political] cause;

(b) the purpose of supporting [or opposing] a candidate for political office.

• If the Government, in clarifying the common law, believes that the consequences outlined in paragraph 3.42 above necessarily follow (that is, are correct), then it should, in the EM or as it sees fit, explain that these are consequences to the sector.

Recommendations

3.44 The Board recommends that the Government provide greater clarity to the sector on how charitable bodies may be affected by the interrelationship between subsection 8(2) and paragraphs 4(1)(a), (b) and (c).

3.45 The Board makes the following recommendations in the event that the Government decides to retain subsection 8(2) in substantially its current form:

(a) The Board recommends that the EM and if necessary the draft Bill be revised to clarify how the provisions of the draft Bill are intended to operate, and to deal with the following issues in particular:

• The discrepancy between the words of the draft Bill, which maintain a clear distinction between activities and purposes, and the view expressed in the EM that charitable purpose may be determined by an examination of activities and other matters as well as purposes.

• The tests that will be applied to determine whether particular activities have become purposes in their own right.⁵

(b) The Board recommends that the draft Bill be amended to clarify whether ‘cause’ as used in paragraph 8(2)(a) is intended to mean ‘political cause’ or to have a more general application.

(c) The Board recommends that consideration be given to whether paragraph 8(2)(b) should also refer to opposing a candidate for political office.

(d) The Board recommends that the EM be revised to emphasise that subsection 8(2) applies only to:

• the purpose of advocating a political party or [a political] cause;

• the purpose of supporting [or opposing] a candidate for political office;

• the purpose of attempting to change the law or government policy;

• rather than advocacy as this word is commonly understood in the community.

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¹ Australian Conservation Foundation Inc v Commissioner of State Revenue [2002] VCAT 1491.

² Public Trustee v Attorney-General of New South Wales (1997) 42 NSWLR 600.

³ Australian Conservation Foundation Inc v Commissioner of State Revenue [2002] VCAT 1491.

⁴ Paragraphs 103-110 of Draft Taxation Ruling TR 1999/D21: Income tax and fringe benefits tax: charities; Income Tax Guide for Non-profit Organisations NAT7967-5.2003, p 35.

⁵ The Board notes that, under the draft Bill, the tests ‘ancillary or incidental’ apply only when these activities have become purposes — they are not a test for when an activity becomes a purpose. Refer to paragraph 3.39.

 

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