Charity Definition – Dilemma on Public Benefit?

As indicated in our recent pdf bulletin, the Federal Government promised to issue a Consultation Paper proposing a new definition of what constitutes a “charity”. This has now issued and submissions closed on 9 December 2011.

The consultation paper discussed a proposal for the provision of “public benefit” to be a charity, as is required under the Charities Act 2006 (UK).  There is no definition of “public benefit” in the UK Charities Act and, as a result, there is uncertainty as to whether organisations satisfy that requirement.

There are two cases on this issue heard by the UK Charity Tribunal this year.  These have given charities, NFPs and their advisers in the UK some indication as to how the “public benefit” provision will be interpreted.

1. The first case (“schools’ case”) involved fee-charging schools.  They have to establish that they provide a public benefit and, therefore, qualify as charities.  Previously, proof of “promotion of education” was enough to qualify them as a charity under accepted case law. In this case the Tribunal ruled in favour of the schools and found that “although it is necessary that there must be more than a de minimis or token benefit for the poor, once that low threshold is reached, what the trustees [of a private school] decide to do in the running of the school is a matter for them, subject to acting within the range within which trustees can properly act.”
2. The other case (“poverty case”) will determine whether charities provide a public benefit if they exist to relieve poverty only among a small group of people, such as the employees of a certain firm or industry.

As indicated in the Third Sector article on this topic the UK Tribunal had never held a hearing of this type before.  Charities in the UK were falling over themselves trying to be joined as parties to the cases.  The UK Tribunal was faced with a dilemma: how can it allow charities’ voices to be heard without getting bogged down in detail or giving undue prominence to some charities over others?

The Tribunal’s dilemma was particularly acute in the poverty case.  Unlike the schools’ case, in which the Charity Commission and the Independent Schools’ Council are on opposite sides, there are no obvious adversaries in the poverty case.  Their cases highlight and emphasise the problems associated with the much discussed “public benefit” requirement in the UK.  Do we want these problems and these uncertainties here?  We don’t think so.