‘in Australia’ special conditions for 
tax concession entities

SUBMISSION OF THE SALVATION ARMY

AUGUST 2011

The Salvation Army

The Salvation Army is the most recognised charity in Australia.  The Salvation Army’s services are open to all, without discrimination.  The foundation of The Salvation Army and its current ethos affirm its religious commitment and its social commitment as equal and indivisible.  The Salvation Army describes this as a “holistic mission”.

The Salvation Army is an evangelical part of the universal Christian Church.  Its message is based on the Bible and its ministry is motivated by love of God.  Its Mission is both spiritual and practical, encompassing the preaching of the Gospel of Jesus Christ and alleviating human suffering and distress without discrimination.

Opportunity to contribute

The Salvation Army is pleased to have the opportunity to contribute in the consultation process on the exposure draft of the restating the ‘in Australia’ special conditions for tax concession charities.  

Objects of The Salvation Army

“The objects of The Salvation Army shall be the advancement of the Christian religion….and, pursuant thereto, the advancement of education, the relief of poverty and other charitable objects beneficial to society or the community of mankind as a whole.”  

(Extract from Section 3, The Salvation Army Act UK, 1980)

This diverse mission is expressed in one of the earliest mottos of The Salvation Army “Heart to God, Hand to Man”.

Values of The Salvation Army

The Salvation Army values: 

	Human dignity	we affirm the worth and capacity of all people
	Justice	we promote healthy and whole relationships, and good society
	Hope	we work for reconciliation, healing and transformation for all people and creation
	Compassion	we feel compelled to stand with and do something about another’s suffering
	Community	we build community and meet with God in our encounter with others
Attributes of The Salvation Army

The Salvation Army is viewed by the community as highly committed, visible and trustworthy.  The Salvation Army provides a seamless approach to welfare and community work with a network of people available to assist those seeking its services.

The Salvation Army is also seen as responding to current social needs with expertise and professionalism.  The Salvation Army provides its services without discrimination and supports the most disadvantaged and marginalised in our society.  

The Salvation Army introduces life changing approaches as it is committed to changing the lives of people in crisis and not just meeting their immediate needs.  

The Salvation Army in Australia is a part of the worldwide Salvation Army church.

The Salvation Army’s Submission
1.	The Salvation Army is concerned with the strict behavioural restrictions that will be imposed on organisations as a result of the ‘in Australia’ legislation.
2.	The Salvation Army submits that the proposed restriction on deductible gift recipients (DGR) to donate money or property to only other DGRs in section 38-18 (3) is removed.
3.	The Salvation Army submits the not for profit entity definition as proposed in subsection 995-1(1) is removed and an organisation’s not for profit status is determined using the current Australian Taxation Office (ATO) processes and procedures. 
4.	The Salvation Army submits that if a definition of not for profit entity is to be legislated, the creation of such a definition must be incorporated in the future charitable definition reform process and consultation and not be dealt with separately.  
5.	The Salvation Army submits that the proposed restriction on charitable organisations to donate money to only entities that are exempt from income tax in Australia, as per the proposed section 50-50(2)(c), is amended or removed to ensure organisations such as The Salvation Army can continue to support the Australian public without restriction.
Discussion

The Salvation Army is a holistic organisation that provides significant and diverse services to the Australian public.  

It conducts its Social Work activities because of its commitment to the gospel of the Lord Jesus Christ. These are inextricably linked and cannot be separated. By way of formalising this concept, the objects of the Salvation Army are clearly documented in the UK Act 1980:
“The objects of The Salvation Army shall be the advancement of the Christian religion….and, pursuant thereto, the advancement of education, the relief of poverty and other charitable objects beneficial to society or the community of mankind as a whole.” 
The Salvation Army is aware that other church organisations conduct social services. In many cases, these are in separate entities with their own unique constitutions separate from the main church body. The Salvation Army does not comment on the approaches of other church organisations other than to highlight its uniqueness and the problems that these changes and those proposed in the proposed taxing of unrelated business activities. All Salvation Army programs are by definition related to its objects.

The Salvation Army understands the need of Government to ensure charitable and not for profit entities are using their resources for their stated objects and not utilising funds and resources to aid illegal or terrorist organisations either in Australia or overseas.  The Salvation Army however is concerned that in the attempt to legislate and control how a charitable organisation can utilise its resources, it has inadvertently restricted the organisation’s ability to actually fulfil its charitable objects.

In addressing the exposure draft implications for The Salvation Army, The Salvation Army notes the following:

The proposed section 30-18(3) states:
“The fund, authority or institution must not donate money or property to any entity that is not a deductible gift recipient.”
The Salvation Army submits to Treasury this could have significant detrimental limitations on organisations such as The Salvation Army in fulfilling its charitable objects.  

An example is as follows, if The Salvation Army’s public benevolent institution entity, which is a DGR, identifies another organisation that is undertaking benevolent activities and it requests financial assistance from The Salvation Army to further the benevolent project, The Salvation Army would not be able to assist unless the other organisation was also a DGR.  In reality this is not always the situation.  It is possible the other organisation is an endorsed charitable institution and not eligible for DGR status based on some of its other purposes.  This lack of DGR status does not mean this organisation is less suited or less able to undertake the benevolent activity in the same manner as The Salvation Army.  So why in this scenario, should a DGR be stopped from supporting the activity the other entity is performing?  
The argument that this restriction is required as the DGR is using tax deductible gifts in its work and therefore all DGR entity money must remain within a DGR is flawed, as not all income of a DGR is as a result of receipting tax deductible donations from the public.  

The Salvation Army contends that the drafting of subsections 30-18 (1) and (2) provide sufficient ‘in Australia’ outcomes that enable the Government intentions for the law clarification to be satisfied and accordingly subsection 30-18(3) is to be removed.  This will restore the ability for DGRs like The Salvation Army to fulfil its purposes without restriction.    

The Salvation Army also has significant concerns with the inclusion of a new not for profit entity definition.  

The Salvation Army submits that the ‘in Australia’ policy objectives can be achieved by the Government without the need to include legislative definition of a not for profit entity.  

The inclusion of such a definition in this exposure draft is concerning given the proposed upcoming consultation into the development of a legislative definition of what is a charity.  The Salvation Army submits that it is during that process of determining a legislative definition of what is a charity that any additional terms, for example not for profit entity, should be included.   

With reference to this particular drafting of a definition of a not for profit entity, The Salvation Army is concerned with the scope and latitude of organisations that could be identified as not being able to participate in profit, gain or assets due to the lack of clarity provided in the definition.  The use of the phrase “for particular entities, including its owners and members” in the definition indicates the list of ‘owners and members’ is not exhaustive and/or final.  As such this would mean that in the future the ATO, or some other body could make a determination that other entities, entities that are unknown today, could be captured in this definition and be precluded from accessing the resources of the not for profit entity.  

The Salvation Army submits this definition is removed from the ‘in Australia’ exposure draft and the determination of whether or not an entity is not for profit continues to rely on common law and in accordance with current ATO practices.

The third area of concern in the exposure draft for The Salvation Army is in relation to subsection 50-50(2)(c).  This subsection states that an entity must “not donate money to any other entity unless the other entity is an exempt entity”.

This clause has the potential to stop a number of different activities that occur within the life of a charity.

The first activity that is immediately put at risk is the ability for a charity to distribute aid via the use of providing money to a welfare recipient.  It is noted that within the wider income tax laws, the term ‘entity’ is defined to include ‘individual’.  This subsection immediately stops charities from providing money via way of gift in a time of need to a welfare recipient.  Whilst the exposure draft explanatory information discusses a donation to mean that it is to “gift money unconditionally to another entity to fulfil its own purposes” there is a risk that the assistance of certain welfare recipients will fall into this category.  This is possible in respect of people who are in necessitous circumstances and where gifts of money are provided to assist the individual overcome the issues they are currently dealing with.  

If it is not the intention of Government to stop the flow of welfare payments of money to needy individuals, this needs to be explicitly identified so that organisations such as The Salvation Army can continue to operate effectively across Australia assisting those most in need in the manner that is most suitable at any given time.

An additional impact of this subsection is to put a stop to small scale, non-tax deductible giving for overseas issues, a specific example of what this subsection will stop: 

A local church is aware that an African church is need of funds to repair a church building or to purchase bibles.  The congregation members of the local Australian church agree to donate some money to the cause so the church can on-send this money to the African church.  

This clause effectively means the local church can no longer participate in this collection and distribution, but rather it either puts a stop to the collection entirely or forces the individual members to personally respond to the need and donate individually.  At no point in this scenario has there been any tax deduction given to a donor and nor has there been any tax/revenue loss to the Australian public as a result of this arrangement.  Accordingly The Salvation Army is concerned that these activities will be unnecessarily impacted by this measure.  

The Salvation Army submits this subsection needs to be amended or removed to overcome the examples highlighted previously.

If you have any questions in relation to this submission or would like any further clarification, please do not hesitate to contact us.

Contact details
Ian Minnett
Chief Financial Officer / Trustee
02 9266 9563