CORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 574-iv

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Public Administration Committee

Regulation of the Charitable Sector and the charities act 2006

Tuesday 6 November 2012

Susan Pascoe AM and Murray Baird

Evidence heard in Public Questions 286 - 379

USE OF THE TRANSCRIPT

1.

This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.

2.

The transcript is an approved formal record of these proceedings.

Oral Evidence

Taken before the Public Administration Committee

on Tuesday 6 November 2012

Members present:

Mr Bernard Jenkin (Chair)

Charlie Elphicke

Paul Flynn

Robert Halfon

Kelvin Hopkins

Greg Mulholland

________________

Examination of Witnesses

Witnesses: Susan Pascoe AM, Commissioner Designate, Australian Charities and Not-for-Profits Commission Taskforce, and Murray Baird, Assistant Commissioner, General Counsel, Australian Charities and Not-for-profits Commission Taskforce, gave evidence.

Q286 Chair: Good morning and welcome to this session of the Public Administration Select Committee in the United Kingdom on the operation of the 2006 Charities Act. I wonder if you could each introduce yourselves for the record please.

Susan Pascoe: Thank you. I am Susan Pascoe and I am Commissioner Designate of the Australian Charities and Notforprofits Commission.

Murray Baird: My name is Murray Baird and I am Assistant Commissioner, General Counsel of the Australian Charities and Notforprofits Commission.

Q287 Chair: Forgive me, but that means you are a lawyer, yes?

Murray Baird: I am a lawyer, but do not hold that against me.

Q288 Chair: We are particularly interested in your take on the debate we are having in the United Kingdom. I believe you have some opening remarks you would like to make.

Susan Pascoe: Thank you. Can I thank the Public Administration Select Committee on behalf of the Taskforce of the Australian Charities and Notforprofits Commission for the opportunity to appear today? I will begin with a newsflash: since sending the background briefing to the Select Committee, the ACNC Act 2012 has passed both houses of parliament and the new regulator is set for commencement in the early weeks of December this year.

Mr Baird and I have noted the particular areas of interest of the Select Committee, and we will address these in our opening remarks. I will speak on the policy context in which the ACNC was established; Mr Baird will offer some observations on a comparison between the Charities Act and the ACNC Act. We will be able to offer limited comment on the topical issue of public benefit, as the matter was not explicitly addressed in the ACNC Act and the exposure draft on the statutory definition of charity is yet to be released.

The creation of the Australian Charities and Notforprofits Commission is marked by longevity, inquiry and advocacy. The notforprofit sector has argued for a dedicated national regulator for the past two decades. The key policy drivers have been, firstly, exasperation with the complex, duplicative and onerous regulatory and reporting obligations across Commonwealth and state jurisdictions and consequent pressure from the notforprofit sector to reduce or remove unnecessary requirements. Secondly, an explicit preference has been expressed by peak bodies in the notforprofit sector to have comparable operating arrangements to business or government. In other words, they wish to function with a clear regulatory architecture, comparable to that provided for commercial enterprises and comparable to the clarity of parliamentary protocols and procedures. Thirdly, there is a keenness on behalf of donors and funders, as well as members of the public, for greater transparency on the purposes and activities of charities. Fourthly, there is a perception that the Australian Taxation Office was conflicted in its dual role of designator of charitable status and as revenue collection agency.

As noted in our background briefing paper, there have been numerous inquiries over the past two decades into the status of the notforprofit sector and the definition of charity. This provided a solid foundation for the current Government to embrace a comprehensive and integrated reform agenda for the notforprofit sector. These reforms cross regulatory, taxation and funding domains. The key element of the regulatory form is the creation of the ACNC. This is complemented by an initiative with states and territories, under the auspices of the Council of Australian Governments, to harmonise fundraising regulation, to specify governance standards for charities and to define reporting requirements. A review of the legal form of companies limited by guarantee is also foreshadowed.

The taxation reforms relate to the in-Australia requirements and efforts to better target tax concessions of unrelated business activities of charities. There is also a Governmentsponsored working party reviewing the full gamut of tax concessions available to charities, with a view to simplifying current arrangements. The funding reforms relate to initiatives of the Australian Government to streamline contracts and grants for charities to reduce or remove unnecessary requirements.

Finally, the objects in the ACNC Act regarding transparency, sustainability and red tape reduction are a good summary of the policy imperatives that have driven this reform agenda. I now pass over to my colleague, Assistant Commissioner Murray Baird, to make some introductory comments on the Charities Act and the ACNC Act 2012.

Murray Baird: Chairman, the purpose of my opening remarks is to address the differences between the regulation of charities in England and Wales and in Australia. Pages 16 to 19 of our paper, prepared by Dr Joyce Chia, Policy Researcher at the ACNC, sets out a comparison of the key features of both the ACNC Act and your Charities Act. I want to draw attention to a few significant differences, and I am indebted to my fellow Assistant Commissioner David Locke-formerly of the Charity Commission of England and Wales, and now of the ACNC-for his insights into the differences between the arrangements here and in Australia.

Firstly, the scope of regulation: in England and Wales that Charity Commission only regulates charities. If you are a charity, you get the concessions; if you are not, you do not. This may put pressure on notforprofits to squeeze themselves into the charity definition, whether it is the right fit or not. In Australia some tax concessions apply to the whole of the notforprofit sector, whether they are charities or not: for example, deductible gift recipient status-the closest equivalent to your Gift Aid. Of the 25,000 organisations that qualify, 5,000 are not charities. A typical example would be a deductible gift recipient being a Governmentcontrolled cultural organisation that would not qualify as a charity but qualifies for tax deductibility. There are other categories of tax exempt notforprofits that are not charities. For example, many community organisations, such as Rotary or Lions, would be regarded as community service and not as charities, but they are entitled to income tax exemption.

Notforprofit is a widely recognised definition in Australia, more commonly used than charity. This is very similar to countries of the world where the definition is nongovernment organisations or notforprofits. The Australian Government has deliberately decided not to set up just a charities commission, but rather a Charities and Notforprofits Commission. The legislation has been drafted in such a way as to permit incremental roll-out, first to charities and then to notforprofits to cover the field.

If I could comment on the basis of registration, in England and Wales there is a requirement to register if the annual income meets the registration threshold, whereas in Australia there is no minimum threshold for registration. Australia has followed the New Zealand model of not making registration mandatory, but rather linking registration to tax concessions. This tends towards a more complete register of all charities receiving either taxation or other funding breaks. The Australian Taxation Office has kept such a register for the last decade. The requirement for registration of all charities seeking tax exemption does not appear to have been a burden on smaller charities.

If I could turn to the models of the incorporated structures, in Australia as in the UK there are a relatively small number of charities that are companies limited by guarantee. The largest proportion of entities on the charities register in England and Wales are unincorporated associations or trusts. Australia, in contrast, has had in most states the concept of the incorporated association: a simple and less onerous option for notforprofits to become incorporated, which has proved very popular. The difficulty for us has been that each state has different requirements. It is a structure not well suited to a national organisation, although it is often utilised for that purpose. The popularity of the incorporated association in Australia may augur well for the introduction of charitable incorporated associations under your Charities Act.

One of the key features of our legislation and the way it will be carried out is the idea of joined-up government: the concept of a onestopshop. On one form, an entity may apply for charity status, and the same material will constitute an application for concessions to the Australian Taxation Office-the file in fact goes from one office to another. That is consistent with the aim of the ACNC Act to cut red tape. While the ACNC is an independent regulator, it will have a memorandum of understanding with the ATO to share information and avoid duplication for charities. The public information portal of the ACNC will disclose the tax concessions granted by the ATO, whether the charity is a company limited by guarantee, or whatever its structure may be, and give the company number. A company limited by guarantee will be able to file changes of directors, information and annual returns with the ACNC. The ACNC will then make that information available to our Companies House, the Australian Securities and Investments Commission. Again, these arrangements will be worked out with a memorandum of understanding between Government agencies for the exchange of data. The ACNC database will create a charity passport of data that can be made available to all other Commonwealth agencies requiring information from charities. The ACNC legislation requires other agencies to seek such information from the ACNC, rather than require charities to provide it to the Government more than once. The tag for this arrangement is called "report once, use often".

We intend that the ACNC register will be a thorough repository for all relevant information that Government agencies or the public may require about any charity and, in due course, every notforprofit. It will include: the governing documents of charities; the contents of the annual information statement; the annual accounts of medium and large charities. It will include details of all members of governing bodies, unless that is suppressed for good reasons, such as public safety or donor privacy.

The regulatory powers of the ACNC will be graduated and proportionate. I draw the Committee’s attention to the regulatory pyramid on page 15 of our written paper. Graduated and proportionate sanctions can include administrative penalties, warnings, directions, undertakings and injunctions. Suspension and deregistration will be reserved for cases of egregious, deliberate or persistent breaches. There are a variety of remedies should the Charities Commission need to intervene.

The question of the definition of charity is a work in progress in Australia. Although the case law in both countries relies on a common heritage, there are significant differences. For example, some co-operatives in Australia can be charities on the basis that they benefit the wider community, notwithstanding they exist for their members. Promotion of amateur sport and promotion of the efficiency of charities is charitable in the UK but not in Australia. We have included some examples of the active judicial consideration of the definition of charity in the paper at paragraph 1.18. Perhaps the most significant recent case is that of Aid/Watch, where an entity committed to promoting and campaigning for effective foreign aid policies through public debate was considered charitable under the fourth head of charity on the basis that it encouraged public discussion on charitable matters.

Q289 Chair: We understood this was going to be a five minute introduction; it is a bit longer than we thought.

Murray Baird: In that case, those are the only matters I wish to raise.

Q290 Chair: You are taking a very comprehensive approach to all this, but there is a certain amount of criticism that this will create greater burdens and bureaucracy for charities and notforprofit organisations in Australia. For example, we already have this dual registration point: a company limited by guarantee has to register at Companies House, and it has to register at the Charities Commission if it wants to be a charity. Are you not creating more regulatory burdens?

Susan Pascoe: If you take that example, the practice in Australia will be that there will be a single point of registration with the Australian Securities and Investment Commission, and then the regulatory oversight will be by the ACNC, the Australian Charities and Notforprofits Commission. Any data that is required will be passed to ASIC by the ACNC. That is an example of the moniker we are using: report once, use often.

Perhaps I could give you a couple of other examples. There will be a reduction rather than an increase in the regulatory burden if all Commonwealth agencies take the information that is provided by the ACNC. That is a requirement of Commonwealth agencies. That will also occur if some of the accompanying changes that the Government has brought in are enacted and become Government policy. So, for example, there have been changes made to the administration guidelines of the Commonwealth. For example, in the administration of contracts and grants, it is now a requirement that the financial reports provided to the ACNC suffice for the acquittal of grants for Commonwealth purposes, unless it is a very high risk grant-there is an exception.

Q291 Chair: What do you anticipate the budget of the Commission to be?

Susan Pascoe: It is 56.3 million AUD over four years; that includes the build of the IT in this establishment phase.

Q292 Chair: What is that in pound equivalents?

Susan Pascoe: It is about two-thirds in pounds, so my maths would probably very quickly put that at about £43 million.

Q293 Chair: About £40 million. That is more than our Charity Commission-oh, that is four years, so yours will cost about £10 million a year for four years?

Susan Pascoe: If you take out the IT build, you need to halve that. It is about £20 million.

Q294 Chair: We would be staggered if that was enough money, to be quite honest; that is my instant reaction. We spend a little short of £30 million. That has been cut, and our Charity Commission regulates about 280,000 charities, which is a much larger number, of course. They can barely scratch the surface of the regulation, in all honesty.

Susan Pascoe: Typically the main costs are staffing. The staff is around 95. That is probably another significant difference when you look at the budget.

Q295 Greg Mulholland: Good morning. It is very flattering that you are looking at the UK Charity Commission as something of a model. You spoke about the history, going all the way back to 1601 and being operational from 1853. This is obviously what we are particularly interested in: could you give us a sense of where you think you can draw on the particular expertise of the Charity Commission for England and Wales? Do you see that as a useful model to do what you are doing, which is clearly quite controversial in some ways in Australia?

Susan Pascoe: I will begin. Some of the features of the operation of the Charity Commission in England and Wales have been a good model: the approach that is taken to guidance and advice; the approach to building selfreliance amongst the charities through online access to materials. We like the way in which the materials specify what is a legal requirement, as distinct from good practice. I suppose where we might deviate-Murray might elaborate a little on this-is that our Act, you might have noted, has a wider range of enforcement powers. That does give us a chance to take a graduated and proportionate approach if a charity is noncompliant.

It is worth saying that we have looked to other countries as well. For example, we looked to New Zealand in the design and the build of the website. It was very beneficial to me personally to attend the Fifth International Conference of Charity Regulators in common law countries in Scotland last year, where there was a demonstration of the websites of all of the charity commissions. A view was taken as to what constitutes good practice. New Zealand’s was certainly the easiest to navigate; the design of it was such that we have borrowed heavily from there.

We have also looked at the conduct of charitable regulation in Canada and in the United States, where the function remains with the Internal Revenue Service in the United States and with the Canada Revenue Agency. The Australian Government is making a deliberate departure from that approach. That relates to the fourth of the policy drivers I mentioned: a widespread perception that the Taxation Office was conflicted in its dual role.

Q296 Chair: I must ask you to give shorter answers because we are going to run out of time. I am so sorry.

Susan Pascoe: Not at all. That will give you some sense of it. I suppose in summary, it is very much an international perspective. While we have drawn on the UK-and particularly we have focused on it in that paper-we have looked internationally.

Q297 Greg Mulholland: We will be interested to hear about your learnings from other countries as well, perhaps at another time. Setting up something from scratch is a great opportunity for you to look at where people are perhaps not getting things right, or where you can improve on things other countries are doing. Have you identified any weaknesses or flaws in the model of the Charity Commission for England and Wales that you are seeking not to replicate for that reason?

Susan Pascoe: We take a close interest, and we have noted the controversy in recent determinations. Without commenting on them, we would be seeking not to be placed in that circumstance. It is a debate as to whether that relates to the clarity in the legislation or the nature of the guidance and then the determinations themselves.

Q298 Greg Mulholland: That is very useful, and we will be coming on later to the public benefit definition, so I will leave that discussion for now. Obviously you are also aware that like Australia we are all facing the economic situation facing the world and smaller budgets. The Charity Commission, like every other public body, has had to bear the brunt of those reductions in spending. Have you been able to look at that, specifically? Being quite technical, despite some successes the Charity Commission will now no longer be doing regulatory compliance investigations, which famously led to the winding up of Atlantic Bridge last year. Are you building that into your thinking and will you be facing similar challenges?

Susan Pascoe: We certainly have an adequate but modest budget. We will have a compliance function and the capacity to monitor and pursue investigations should the need arise.

Q299 Chair: Moving on, you basically have three statutory objectives: public trust, sustaining the notforprofit sector and reducing unnecessary regulation. What do you think the most important objective is?

Susan Pascoe: If you were to ask the sector, they would definitely say red tape reduction, although they lobbied for the Charities Act. If you look at the roll-out of the exposure draft of the legislation, there were five iterations in the end. It was first released on 9 December last year. It began with public trust and confidence, and that was then enhanced. The addition in the third iteration of the Act was the one that relates to sustainability. That was also from lobbying from the sector. I struggle to distinguish between them; I think they are all very important in the Australian context.

Q300 Kelvin Hopkins: Registration: why is it going to be voluntary and not compulsory? You touched on it; could you spell it out in simple terms?

Murray Baird: The reasoning behind the Act was that, if charities had concessions from the Commonwealth Government, then they ought to register and be subject to scrutiny and transparency. If they did not want or require those concessions, there was no need to register them. Although it is a voluntary system, it is the gateway not only to tax concessions but a number of other privileges charities have in our country. It was determined that it would not be necessary to register if no concessions were being given.

Q301 Kelvin Hopkins: In a sense, it is voluntary but you will not get any cash if you do not register?

Murray Baird: That is exactly the situation. We expect a high takeup.

Q302 Kelvin Hopkins: What proportion of charities do you estimate will voluntarily register with the ACNC? How many? What proportion?

Murray Baird: We expect that the vast majority of charities will register with us.

Q303 Kelvin Hopkins: There are some that will choose not to, presumably?

Murray Baird: There are some who will choose not to.

Susan Pascoe: A point of clarification: when we are established in a few weeks’ time, the Australian Taxation Office will pass over all the existing 56,000 charities and they will be deemed to be charitable until we review them against the statutory definition of charity, which is expected to be activated on 1 July next year.

Q304 Kelvin Hopkins: Thank you. Another question: the ACNC will have the power to charge charities for late filing of documents-another pressure on them, it seems. What evidence do you have that fines will act as a deterrent to late filing?

Susan Pascoe: None, to be honest, because we have not started yet. It is taken from the practice of other regulators. The Department of the Treasury, which has undertaken this work, looked very carefully at other regulators in Australia and at other charity commissions in the drafting of the Act. It has based this series of enforcement powers on the practice elsewhere.

Q305 Kelvin Hopkins: What is your best guess of revenues you could raise in that way? They could go towards funding the organisation. Looking at other parallel organisations, do late-filing fines make a significant contribution to their revenues?

Susan Pascoe: I do not have that information, I am sorry, but could I add that, if we do our job well through guidance, information and education to the sector and through alerts, there ought to be a very low rate of noncompliance. I can give you one parallel example in the Australian context, the Office of the Registrar of Indigenous Corporations. They have a 92% compliance rate, but then they have a high level of intervention and support if it looks like an indigenous corporation will not meet its obligations.

Q306 Kelvin Hopkins: It is not a formal question, but I was interested to learn there are some 600,000 notforprofit organisations in Australia, which works out at about one for every 40 people. That is a staggering number. Only 56,000 are classed as charities; even that is quite significant. Administering an efficient tax organisation and tax reliefs on two-thirds of those must be an enormous task; I would have thought it was very costly. Is that not the case?

Murray Baird: Much of that is selfregulation. In fact, charities are those that have needed to register under the tax system, now under the ACNC system; we estimate that is 60,000. The others in the notforprofit sector are largely selfassessing and just elect to declare themselves notforprofit. They are simply subject to occasional Australian Taxation Office orders.

Q307 Chair: Is there any concern a notforprofit organisation might register with the new body in order to avoid scrutiny?

Susan Pascoe: It would be a sorry state it found itself in if it chose to do so. Apart from the fact that at the point of registration or reregistration you need to provide your governing documents, your financial practice and quite a detailed set of information about your purposes and activities, there is always a chance you will be audited or that you will be in a class of entities that are the subject of interest at the ACNC. I doubt it.

Q308 Chair: The practicalities depend on your rather lean and small organisation being able to scrutinise the activities of individual trustees in thousands and thousands of different organisations. Your resource is going to be quite thinly spread.

Susan Pascoe: It is. Like other regulators we will be auditing in single digits, but like other regulators we will be asking individuals to attest to the veracity of the information that they provide to us, with very serious consequences for noncompliance. Like other regulators, the public will act as watchdogs and phone in when they have concerns. We will have a modest audit programme of our own.

Q309 Chair: In Australia, there are different levels of tax concessions to different kinds of charities and benevolent institutions and so on. We do not have that. We have a single tier. What would you say is the advantage of your system over our system?

Murray Baird: I think the Government would simply say the advantage is that it protects the revenue. It is true that a higher and better class of charity, and some other organisations, have, over the years, been granted deductable gift recipient status-

Q310 Chair: What constitutes a better charity?

Murray Baird: The most typical would be the public benevolent institution: the welfare organisation providing direct relief to people in need.

Q311 Chair: Organisations that actually do things for their clients.

Murray Baird: That do things directly to intervene for the relief of poverty and suffering.

Q312 Chair: A campaigning charity would have a lower level of tax relief.

Murray Baird: Exactly, yes. A charity that did not come within the deductible gift recipient status would not be able to give a tax deductable receipt for donors. The advantage that the charity gets is simply tax exemption and some indirect tax relief.

Q313 Chair: It would be able to reclaim purchase tax, for example. Do you have VAT in Australia? I cannot remember.

Murray Baird: In fact, the Goods and Services Tax: there is some relief, but only for the direct charitable work that has been done. Generally, a charity does not get relief from the Goods and Services Tax, but every charity would get relief from things like payroll tax, land tax and municipal rates.

Q314 Chair: For example, would an animal charity that campaigns to change the law on cruelty to animals be a benevolent institution and get the full level of tax relief?

Murray Baird: Not unless it were named in an Act of Parliament to be put into that category-for example, the RSPCA, the Royal Society for the Prevention of Cruelty to Animals.

Q315 Chair: It gets full tax relief because it is named.

Murray Baird: It would get relief because of its ability to find its way into that category.

Q316 Chair: I have not quite understood. What is the distinction between a good charity and a less good charity? I have not quite understood that yet.

Murray Baird: There are some categories, such as benevolence, that put you into that category. There are many other categories that are simply the result of historical lobbying.

Q317 Chair: Historically, then, you have inherited a situation which is a little inconsistent, shall we say?

Murray Baird: It is.

Q318 Chair: That does not sound like an advantage.

Susan Pascoe: The Government has a working party at the moment that is looking at all of the taxation arrangements for charities, with a view to simplifying and streamlining them. That working party is about to release a discussion paper. It has been in existence for about 12 months.

Chair: This, then, will overlap with the next question about the definition of charity. We have lots of questions on that.

Q319 Robert Halfon: I know you have some memorandums on this, but can I just ask how you define a charity, in a nutshell? I have some follow-ups to that.

Susan Pascoe: At the moment, the designation of charitable status is made by the Australian Taxation Office, and it does it on the basis of common law, but perhaps Mr Baird can talk about that. Are you interested in how we propose to define it?

Q320 Chair: In a nutshell, what is the common-law definition of a charity?

Murray Baird: It simply goes back to the 1601 Act and Pemsel’s case. We look for relief of poverty, advancement of education, advancement of religion, and other purposes beneficial to the community according to the common law.

Q321 Robert Halfon: You grant religious groups charitable status as well.

Murray Baird: We do.

Q322 Robert Halfon: Do you make any distinction between religious groups?

Murray Baird: We preserve the common-law presumption of public benefit and, accordingly, there is rarely a challenge to that presumption.

Q323 Robert Halfon: I am sure you are aware there is a controversy over here where the British Charity Commission have denied the Christian Brethren charitable status. Is there an equivalent of the Christian Brethren in Australia, and have you granted them charitable status?

Murray Baird: There is an equivalent of the Christian Brethren in Australia, and they have been granted charitable status on the presumption of public benefit.

Q324 Robert Halfon: How did you define that public benefit when it came to the Christian Brethren and the work that they do? Is it because of the charitable activities they do?

Murray Baird: Frankly, because of the presumption, it is unlikely that the Australian Taxation Office made a close enquiry on that question. It is presumed that bona fide religious organisations are for the public benefit.

Q325 Robert Halfon: Do you have a view as to the actions of the Charity Commission in Britain about their questioning of the charitable status of the Christian Brethren here?

Murray Baird: We would not express a view as a regulator and not as a policymaker.

Q326 Robert Halfon: What are your views on the removal of the presumption of public benefit for charitable status?

Murray Baird: Our Senate Economics Committee have looked at that in the last 12 months or so, and they are considering how they ought to define charity in a statutory definition of charity. We expect there will be a statutory definition of charity exposure draft, perhaps even before the end of this year, but certainly early next year. It will be up to our policymakers then to make a determination on whether to stick with the existing situation of the presumption of public benefit or to adopt the approach in the UK and other jurisdictions to abandon that common-law presumption.

Q327 Robert Halfon: If you grant charitable status to religions, how do you define what a religion is? My colleague over there quotes-is it the Pasta Society?

Paul Flynn: Pastafarians.

Murray Baird: In our country, the test case was the Scientology case. The High Court said that there needs to be a belief in a supreme being or idea, and a code of conduct that is consistent with that belief.

Chair: Would Pastafarians not qualify?

Paul Flynn: Yes, they would. They believe in a supreme being. They believe in a great blob of spaghetti in the sky.

Chair: Just a minute, Mr Flynn. We will come to you in just a second.

Robert Halfon: Could I just finish my question?

Chair: I am sorry he is answering your question, Mr Baird.

Q328 Robert Halfon: You test a charity for religious benefit, and you said you grant most religious organisations charitable status.

Murray Baird: Could I clarify that? The Australian Taxation Office has had that role up until our commencement, which is likely to be early December this year, but, in terms of a nation, yes.

Q329 Robert Halfon: Do you look at them not just for their religious activities but also their public benefit? For example, do you or the Taxation Office, or whoever it may be, assess whether or not that religious organisation does charitable works in the field, as well as just being a religion?

Murray Baird: Because of the presumption of public benefit for religion, it is assumed that a bona fide religion is for the public benefit. Whilst it would be open to the Australian Taxation Office to say that the detriment outweighed the benefit, I know of no case where that has occurred.

Q330 Robert Halfon: A final question: do you think that the rules that you have about public benefit being given for religions is the right thing, or should it change in the way that people are looking at over here?

Murray Baird: That matter is right at the forefront of our policymakers’ concerns at the moment. A consultation paper is out, the submissions are in, and we eagerly, as a charities commission, await the outcome of that debate. An exposure draft will come out very soon. I anticipate that will be subject to very close inquiry. Our Act was subject to three parliamentary inquiries in as many months, and I would expect that very issue will be subject to close scrutiny.

Q331 Chair: The consultation is not on a specific proposal of a definition.

Murray Baird: The consultation paper proposed the adoption of the UK approach of abandoning the presumption.

Q332 Chair: Are you surprised that the 2006 UK Act has resulted in such a major reassessment of what public benefit means? The Charity Commission in this country say they have been left a very difficult task with very little guidance.

Murray Baird: Clearly, a departure from the common law of many centuries will create a new playing field.

Q333 Chair: In your opinion, is that what the Act intended?

Murray Baird: I think I would not want to stray into policy on that question.

Q334 Chair: It is not a policy question; it is a legal interpretation. Do you think that the Act, as it is on the statute book, requires a reassessment of public benefit, or is it a matter of opinion?

Murray Baird: If the presumption is no longer there, it calls for a positive inquiry. As a charities commission, should the presumption be abandoned in our country, that would call for us to examine each application to assess the public benefit.

Chair: We need to move on quite quickly.

Q335 Robert Halfon: This is genuinely the last thing. Do you think it is a good thing that religious organisations in Australia are given charitable status?

Susan Pascoe: Yes, but I should declare an interest. I am a former director of Catholic Education in Australia.

Q336 Robert Halfon: Why do you think that is a good thing?

Susan Pascoe: As a citizen of Australia, I think that there is, if you like, a settlement that is expressed in common law that, to date, has not brooked any particular inquiry or dissonance in the Australian community, and one might venture there with some trepidation.

Q337 Paul Flynn: Just to correct any misimpression that was given about the religion of Pastafarianism, I have taken this up with the Charity Commission in the past and they do recognise it as a religion, because they believe in the supreme body of a blob of spaghetti in the sky. The scientific basis for that belief is not all that secure, but they will argue the scientific basis for most religions is often non-existent. In terms of interpretation of the charity law, however, it is a charity.

The group that has caused a stir here have given us their case for declaring themselves to be a charity as one of providing public benefit. They provide public benefit in their activities: preaching on street corners, handing out religious tracts and comforting the dying. There is a question about whether those activities would be welcomed by everybody. They preach separation-they were the words that they used-and they are exclusive. I understand what you say about what happens in Australia, but because of the difficulty we have had here, do you think we need a sharper definition of what public benefit is? Being comforted by one of the people who came before us last week is not something I would welcome in my final hours. I would not regard that as a public benefit at all in any way. In fact, it could make death seem more appealing, I would have thought, if these people turned up.

Murray Baird: My understanding of the common law is that, in Australia, we have regarded religion as being intrinsically for the public benefit, unless there is a strong detriment attached. Accordingly, the courts have kept away from value judgments as to comparing one religion with another. On a common-law basis, that would be presumed to be for the public benefit.

Q338 Paul Flynn: We are struggling with what has happened in the recent past here. The 2006 Act did what politics and Parliament often does: it has failed to come to a definition and waited for the courts, of all people, to try to sort it out, which was a recipe for the chaos that resulted in its wake. Are you determined to get a definition that will be a guide for the future, that will be binding in courts and one that we can copy?

Murray Baird: Mr Flynn, I think, in our country, the courts have been very active in determining these controversial matters and, generally speaking, having determined them, they have settled down. Perhaps the common law is an appropriate instrument to deal with those definitions, should there be uncertainty.

Q339 Chair: An appropriate instrument? Is it an appropriate instrument?

Murray Baird: In my view, yes.

Chair: Yes. Sorry, I just wanted to make sure I heard that correctly.

Q340 Paul Flynn: Based on a clear definition from your Parliament.

Murray Baird: Based on whatever material they are given, whether it be the precedents in the common law or whether it be some direction from Parliament.

Q341 Paul Flynn: Do you have a tradition in Australia of giving charitable status to the sons and daughters of rich people that is denied to the sons and daughters or poor people?

Murray Baird: Certainly, it is the view in Australia that public benefit can be for rich or poor alike.

Q342 Paul Flynn: If there is a privileged school with powerful, privileged people sending their children there and paying the fees for boarding, they are people with a strong voice in society. Would they gain benefits and have benefits that are not enjoyed by people in a comprehensive school or inner-city estate?

Murray Baird: I think the view in Australia would be that education is, in itself, for the public benefit, regardless of whether it is given to the rich or the poor.

Susan Pascoe: Non-government schools have charitable status.

Q343 Paul Flynn: Do you have difficulty with your Catholic schools as they have here about the teaching regarding the rules on homosexuality? It was not the teaching-it was the adoption, involving discrimination against homosexual couples. Would that be a difficulty that would occur in Australia?

Susan Pascoe: There are exemptions under the equal opportunity legislation in Australia for the selection of students and the appointment of staff, and religious schools are able to teach their beliefs and traditions, as long as they are not in contravention of Australian law.

Q344 Chair: Just a clarification: any educational institution in Australia would be likely to be a charity, be it a private institution, a fee-paying institution or otherwise.

Murray Baird: Yes, it would have the presumption of public benefit, so, should there be a substantial detriment, that would be examined, and it would be disqualified if it were simply an agent of Government, on the usual rule that Government is not a charity.

Q345 Chair: But if the term "public benefit" is brought into statute, this might open up the same kind of debate in Australia.

Murray Baird: I would anticipate it would.

Q346 Paul Flynn: If I can just come back on this definition of "any education", if there were schools run by the Moonies, by the Scientologists or by religious groups who believe that female genital mutilation was the right form of life and practice-and there possibly are such schools doing that now-would all those be regarded as being charities because they are educational?

Susan Pascoe: They would be highly unlikely to get registration as a school.

Q347 Paul Flynn: Why?

Susan Pascoe: Because the practice of female genital mutilation is contrary to Australian law, for example. There are very strict criteria for the registration of schools. I can go into it, but that is perhaps not relevant. But they would be unlikely, in that circumstance, to be registered.

Q348 Chair: I appreciate you do not want to get involved in questions of policy in the UK system, but in summary you are in a pre-2006 Act legal environment at the moment, and if you passed a similar definition of charities as we have kind of imported into our legislation over here, you would finish up with the same kind of controversial judgments to be made by your new Charities Commission when it started operating under that Act.

Susan Pascoe: Mr Jenkins, there has been very close scrutiny in Australia of the UK situation, and many of the groups that might be affected are advocating already, in anticipation of what might be in the statutory definition of charity.

Q349 Chair: What is the key lesson that we should take from your scrutiny of what has happened over here over the last three or four years?

Murray Baird: We do not yet know the outcome of our discussion.

Q350 Chair: We will never know the outcome of that discussion, because it will always be a movable feast, will it not?

Murray Baird: Our Government will either continue the common-law presumption of public benefit or define public benefit in a new way.

Q351 Chair: Ministers, when they introduced our Act, suggested that they were continuing the common-law tradition of what a charity would be. They did not say there was going to be a big change by the introduction of the Act and, to that extent, the Act has not fulfilled expectations. What lesson do you take from that?

Murray Baird: I think, in Australia, there is little controversy about the need to codify the common law of charity.

Q352 Chair: We did not think we needed to over here either.

Susan Pascoe: Perhaps one lesson is just in the nature of the legislation. It left the Charity Commission to write the guidance and to try to interpret, and I think that was a very difficult circumstance. It is certainly a circumstance that we would prefer not to be in.

Q353 Chair: So you are going to have a tighter statutory definition, so that there is less chance for what you might call policy decisions to be made by the Charities Commission in Australia.

Susan Pascoe: I think it could go either way: you could either go for a black letter or you could go for maintenance of the presumption, so a continuation of a reliance on common law and interpretation of the common law.

Q354 Chair: I can see we are not going to get much further on this line of questioning.

Susan Pascoe: No, I am sorry. We are really not in a position to help, because of the circumstance.

Chair: I appreciate that.

Q355 Kelvin Hopkins: The question I was hoping to ask has already been asked. There is a range of views about whether or not private education should be subsidised, effectively, by the state through tax relief, especially for rich people. I take a view that it should not be; others would take a view that we should carry on with the present arrangement. If you tie the definition down very tightly and make it pretty rigid, there is scope for lawyers to say, "A charity that is looking after homeless people, yes; a charity that is subsidising private education for rich people, no," but if you leave it a little bit open and a little bit flexible, and try not to tie it down too tightly in legislation, then the private-education schools get off the hook. It seems to me you have a very similar problem. Are there people in Australia who, like me, believe that we should not subsidise private education for the rich and that they should not have the tax reliefs, and is the establishment basically taking the view that, like us in Britain, the subsidy should continue?

Susan Pascoe: The matter was settled in Australia when a group called the Defence of Government Schools took the famous DOGS case to the High Court, and the High Court deemed that it was not unconstitutional for the Government to provide recurrent funding to non-government schools. If you like, that matter is settled. Interestingly, an inquiry has just been conducted into the relativities to the funding, but that is the settlement. Interestingly too, in the United States, a similar case that went to their Supreme Court determined otherwise, so, we can see, with a similar body of law, different interpretations can be made.

Q356 Paul Flynn: Could we ask Charlie Elphicke’s question, seeing as he is disgracefully absent at the moment, which was one that he raised last week when he talked about the Charity Commission being used to "suppress religion". Many of us would think this is a neurotic and irrational expression of victimhood that some people suffer, but do you really think there is any possibility in Australia of the Charities Commission being used to suppress particularly Christian religion? Is this in the world of fantasy?

Susan Pascoe: One way I will answer is to say it is obviously not the intent, but also, in the appointment of staff, we have deliberately chosen people who know, understand and support the sector, so I do not think that we would anticipate radical or aberrant interpretations of the law.

Q357 Chair: Can I just have one final go at asking this question? Do you want your body to have as wide discretion of interpretation as the Charity Commission for England and Wales appears to have, or do you think it would be better if the Australian Parliament took a bit of a firmer view about what a charity is and what public benefit is? Would that not help you in your work and reduce litigation costs and all that sort of thing? Which view do you take?

Susan Pascoe: I think that the intent in the statutory definition of charity is to codify the common law and to give us that clarity.

Q358 Chair: You take the latter view then.

Susan Pascoe: Yes, but that does not mean it will be prescriptive on the topic of public benefit.

Q359 Chair: No, but if there is a lesson that you have taken from our present controversies, it is that quite a lot of this heartache and uncertainty could be avoided if Parliament took a firmer view about what charitable status meant. Am I correct?

Susan Pascoe: Yes.

Murray Baird: Or the courts gave clear signals when required. I do not think it matters too much who gives the clear signal, as long as the regulators are not left in uncertainty.

Q360 Chair: Yes, but how much case law do you need? How many cases will there be?

Murray Baird: I think, as the Committee changes and as new issues arise, you need a continual stream of guidance.

Q361 Chair: You are a lawyer, aren’t you?

Murray Baird: I appreciate the point.

Chair: We wonder whether we can save the expenditure on lawyers. I think that is the burden of my question.

Robert Halfon: Could I just make a point of order, just to correct something the Member-

Chair: No, I am not taking a point of order. People are responsible for their own questions.

Robert Halfon: Just a quick statement for the record-

Q362 Chair: We are taking evidence from our witnesses, not making comments of our own. We will move on to the question of political campaigning. You have had a recent case where the Australian Taxation Office ruled that Aid/Watch "was an institution which did not itself distribute aid and thus was not charitable; and second it achieved its objects through campaigning which amounted to a political purpose". Has this judgment had a big effect on the charitable sector in Australia?

Murray Baird: I think it has sent a signal that the assumption that charities ought not get involved in advocacy, and even advocacy that might be regarded as political, is no longer the case, and that a great deal of latitude will be given to use advocacy, should it be for a charitable purpose. It is a departure from the common law as would be known in the UK. Our High Court has said that is no longer the law in Australia, and so that signal will mean that charities will be more emboldened to get involved in advocacy and public campaigning.

Q363 Chair: More involvement?

Murray Baird: Yes. Whereas a charity would have been reluctant to make a statement that might be regarded as political in the past, I think the case has given them permission to say, "There may be underlying social issues that cause suffering in the community, and we want to address those as well as direct help to the people who are suffering." Aid/Watch was, in fact, aimed at looking at the causes of poverty and the ineffectual way in which aid was granted.

Q364 Chair: Was the ATO’s decision overturned by the High Court?

Murray Baird: Yes, the ATO had said that Aid/Watch had gone too far in getting involved in campaigning. The High Court said, "No, it did that campaigning for a charitable purpose and is, therefore, still a charity."

Q365 Chair: Are you not concerned that, if people see their charitable donations being diverted for political purposes, this will undermine public confidence in what a charity is? Did you have that concern?

Murray Baird: The High Court held that this was still a charitable purpose. I think the public will make its own decision as to the most effective way of meeting a social need. If it is by way of advocacy, the donors and volunteers will make their decisions as to whether that is appropriate or inappropriate.

Q366 Robert Halfon: Do you recognise charities 99% of whose work is campaigning as opposed to work in the field? Are those recognised as charities or are they seen as pressure groups?

Murray Baird: Aid/Watch was such a group that said, "We will benefit those in need of aid by our campaigning; that is how we will make our contribution," so they were given a great deal of latitude to do that. I do not know whether it was 99%, but certainly the majority of their work was in campaigning, and that was held to be charitable.

Q367 Robert Halfon: My question was: if there are charities that do the vast majority-I am not talking about 55% but 90%-odd-of their work in the form of campaigning as opposed to doing practical work in the field, do you think it is right that they are then recognised as charities?

Murray Baird: Yes, I think our court was saying there are many methods of public benefit and of helping the poor, and that the method could be simply by stimulating public debate on these issues.

Q368 Robert Halfon: Is that your view as well?

Susan Pascoe: Certainly, as our role is to interpret and to administer the law, yes.

Q369 Chair: Can I ask: political parties and political giving do not attract tax relief in Australia, do they?

Murray Baird: Political parties are part of that wider circle of not-for-profit organisations.

Q370 Chair: So they do get some tax relief.

Murray Baird: They would get tax exemption.

Q371 Chair: They get tax exemption but they do not get the full benefits.

Murray Baird: They are not charities.

Q372 Chair: They get the second-tier benefits of not being a for-profit organisation.

Murray Baird: Perhaps even the third-tier benefits.

Q373 Robert Halfon: Do you think it should be a requirement for these kinds of charities that we are just talking about to make it absolutely 100% transparent in their accounts and to the public that they do not do work in the field but that they are, in essence, spending all their money or the bulk of their donations on campaigning?

Susan Pascoe: Yes, and that is the nature of the annual information statement that they will provide to us. They are required to detail their activities for the past year and the projected activities for the forthcoming year.

Q374 Robert Halfon: Does that include spending on advertisements, public affairs, public relations and similar related matters?

Susan Pascoe: If they are a medium or a large charity, they have to submit a financial report as well, and that is any charity over 250,000 per annum. They will be required and in a common format, so that the information is comparable across charities.

Q375 Robert Halfon: You can see, then, if a significant proportion of their money was spent on public affairs as opposed to in the field doing charitable work.

Susan Pascoe: Just to be clear, those forms are being finalised as we speak. The process was to wait for the passage of the legislation and then to have a final consultation on those.

Q376 Chair: The principle is that they are to be transparent.

Susan Pascoe: The principle is, indeed. Yes, absolutely.

Q377 Robert Halfon: How do you then make a distinction between those kinds of charities that spend all their time campaigning as opposed to doing work in the field and normal pressure groups?

Susan Pascoe: People can read and interpret their financial affairs. If you like, the three pieces of information should be their governing documents, the annual information statement that details their activities, and then their financial statements as well. There are three pieces of information that will be on the public register that people will be able to look at to make that determination.

Murray Baird: We would then go to the question of: what is a charity? Are they for the relief of poverty, the advancement of religion or the advancement of education, or are the purposes beneficial to the community?

Robert Halfon: I see.

Q378 Chair: I think we have reached the end of our questioning. It has been very informative for us and a great honour for us to have you as our witnesses.

Murray Baird: Thank you.

Susan Pascoe: Thank you. We wish you well. We have been following your activities and will continue do so.

Chair: We wish you well in your endeavours, and thank you very much for joining us today.

Prepared 3rd December 2012