House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Chapter 3 - Extending gift deductibility to ethics education

Outline of chapter

3.1 Schedule 3 to this Bill adds a new general deductible gift recipient (DGR) category into the Income Tax Assessment Act 1997 (ITAA 1997).

3.2 This measure extends tax deductibility to donations to public funds established solely for providing education in ethics in government schools in Australia as an alternative to religious instruction, where the ethics education to be provided is in accordance with State or Territory law.

Context of amendments

3.3 The ITAA 1997 allows a tax deduction to taxpayers who make a gift or contribution to a fund, authority or institution where they are covered in the law under either a general DGR category, or, where the fund, authority or institution is specifically listed by name in the law. Gifts of $2 or more in cash or property to DGRs may be tax deductible.

3.4 There are more than 30 existing general DGR categories. Organisations which meet the criteria (and special conditions) under these categories can apply for endorsement from the Commissioner of Taxation (Commissioner) as a DGR.

3.5 Currently, under one of the general categories of DGRs (item 2.1.8 in the table in subsection 30-25(1) of the ITAA 1997), a public fund established and maintained solely for the purpose of providing religious instruction in government schools in Australia is eligible for endorsement as a DGR and thereby able to accept tax deductible donations. Similarly, another general category (item 2.1.9 in the table in subsection 30-25(1) of the ITAA 1997) provides that a public fund of a Roman Catholic archdiocesan or diocesan authority established and maintained solely for the purpose of providing religious instruction in government schools in Australia is also eligible for endorsement as a DGR.

3.6 The Government announced in Media Release No. 043 of 8 April 2013 that to provide comparable treatment with religious education, it would amend the tax law to allow taxpayers to claim an income tax deduction for donations made to providers of ethics classes in government schools where a State or Territory government has approved the organisation to provide ethics classes as an alternative to religious education. The availability of ethics education in government schools as an alternative to religious instruction provides parents with a greater choice of education options for their children.

3.7 Ethics is a philosophy that examines ethical concepts and issues. It enquires into such things as goodness, right action, and moral responsibility. Ethics education may aim to give students a deeper understanding of ethics, helping them to form moral opinions and judgments and enabling them to respond more thoughtfully to many of the problems and issues they will face in their lives.

3.8 Gifts to the public funds established and maintained under this new DGR category are intended for covering the costs incurred in conducting ethics education, such as salaries of employees who manage and direct the ethics education program in government schools, curriculum development and learning materials for training volunteers and for students.

3.9 Currently, the State of New South Wales (NSW) is the only State or Territory that has legislation in place to allow the teaching of ethics in government schools as an alternative to religious instruction.

3.10 Section 33A of the Education Act 1990 (NSW) allows for special education in ethics as a secular alternative to special religious education at NSW government schools. The right to attend religious instruction is established under section 32 of the Education Act 1990 (NSW).

Summary of new law

3.11 This measure allows taxpayers to claim an income tax deduction for certain gifts of money or property to public funds that are:

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a registered charity (or operated by a registered charity);

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endorsed as a DGR by the Commissioner; and

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established and maintained solely for the purpose of providing education in ethics in government schools in Australia as an alternative to religious instruction, where the ethics education to be provided is in accordance with State or Territory law.

Comparison of key features of new law and current law

Detailed explanation of new law

3.12 The new general DGR category for ethics education will allow taxpayers to claim an income tax deduction for certain gifts of money or property that they make to a public fund as long as the public fund:

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meets certain eligibility requirements; and

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is endorsed by the Commissioner as a DGR.

3.13 A public fund is eligible to be endorsed by the Commissioner as a DGR if it is set up solely to provide education in ethics in government schools in Australia as an alternative to religious instruction, and where the ethics education to be provided is in accordance with State or Territory law. [Schedule 3, item 1, item 2.1.9A in the table in subsection 30-25(1) of the ITAA 1997]

3.14 However, the public fund will only be eligible for endorsement where it is a registered charity under the Australian Charities and Not-for-profits Commission Act 2012 or it is operated by a charity that is registered under that Act. [Schedule 3, item 1, item 2.1.9A in the table in subsection 30-25(1) of the ITAA 1997]

3.15 In addition, the Commissioner requires that all entities or funds endorsed under these new categories must demonstrate that they:

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meet the public fund requirements (explained at paragraph 3.31);

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where applicable, meet the gift fund requirements (explained at paragraph 3.35); and

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meet the special conditions that apply to DGRs (such as the 'in Australia' conditions).

Explanation of eligibility requirements

Meaning of public fund'

3.16 Public funds for DGR purposes fall under two types:

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funds established and controlled by government or government authorities; and

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funds to which the public are invited to contribute and in fact do contribute.

3.17 A public fund may be established as a separate entity, for example under an instrument of trust, or as part of a sponsoring organisation.

Meaning of established solely for the purpose of'

3.18 This new general category is intended to only extend to public funds that are established solely for the purpose of providing education in ethics. The word 'solely' is intended to take its ordinary meaning and requires that the public fund has been established exclusively or wholly to provide ethics education in government schools in Australia as an alternative to religious instruction where the ethics education to be provided is in accordance with State or Territory law.

Meaning of providing education in ethics in government schools in Australia'

3.19 Ethics, as it is understood through its ordinary meaning, includes 'a system of moral principles, by which human actions and proposals may be judged good or bad, or right or wrong' ^[1] .

3.20 The provision of education in ethics is then intended to cover developing curriculum and delivering classes in government schools that focus on giving students an understanding of ethics, helping them to form moral opinions and judgments, and enabling them to respond more thoughtfully to many of the problems and issues they will face in their lives. Inherently, this would include a focus on such things as goodness, right action, and moral responsibility.

3.21 However, this new general DGR category is intended to only extend to public funds that provide this ethics education in government schools in Australia. This means that it is restricted to ethics education provided in schools established by a law of a State or Territory government, and where the provision of ethics education is in accordance with State or Territory law.

Meaning of as an alternative to religious instruction in accordance with State or Territory law'

3.22 The new general DGR category will extend to the provision of ethics education, but only to the extent that it is provided as alternative to religious instruction under State or Territory law.

3.23 This would require the relevant State or Territory to have some legislation in place to allow the teaching of ethics classes in government schools as an alternative to religious instruction classes. However there is no requirement that religious instruction classes must be provided in a particular government school before ethics classes supported by this new general DGR category can be provided in that government school.

3.24 An example of this is section 33A of the Education Act 1990 (NSW) which allows for special education in ethics as a secular alternative to special religious education at government schools. The right to attend religious instruction is established under section 32 of the Education Act 1990 (NSW).

3.25 The provision of ethics education in a government school would be considered 'in accordance with State law or Territory law' where it is undertaken in a manner consistent with a law of the State or Territory government, including receiving authorisation from State or Territory regulators (where required).

3.26 Providing ethics education in accordance with State law or Territory law does not necessarily require a specific provision related to the provision of ethics education as exists in the NSW legislation; it need only be provided in manner consistent with general laws of a State or Territory regulating the provision of education in government schools.

Explanation of the public fund and gift fund requirements

3.27 Both the public fund and gift fund requirements may apply to public funds providing ethics education that are endorsed under the new general DGR category, depending on whether the public fund is the endorsed DGR itself or whether it is operated by an endorsed DGR.

3.28 Generally speaking, where the public fund is operated by an endorsed DGR, then it will need to comply with both the public fund requirements and the gift fund requirements.

3.29 However, if the public fund is the endorsed DGR itself, only receives gifts or deductible contributions, and has the appropriate winding-up rules in its governing rules, then the public fund itself may be the gift fund (in this case there would be no need for a separate gift fund).

3.30 The public fund and gift fund requirements are explained in the Australian Taxation Office's (ATO's) GiftPack - Guide for deductible gift recipients and donors publication.

Public fund requirements

3.31 The basic requirements for public funds are laid out in the Commissioner's Taxation Ruling TR 95/27.

3.32 Approximately half of the general DGR categories require that a public fund be established. The public fund requirement ensures that there are administrative and legal frameworks in place which will help safeguard property and moneys donated to the fund, authority or institution, and help ensure that tax deductible donations are used for the purpose for which endorsement was given.

3.33 The basic requirements for public funds include that:

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the fund must be managed by members of a Committee, a majority of whom have a degree of responsibility to the general community (this requirement does not apply to funds established and controlled by a governmental or quasi-governmental authority);

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the objects of the fund must be clearly set out and reflect the purpose of the fund;

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gifts to the fund must be kept separate from any other funds of the sponsoring organisation;

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a separate bank account and clear accounting procedures are required to explain all transactions relevant to the DGR status of the fund;

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receipts must be issued in the name of the fund. Receipts must state the name of the fund to which the gift has been made; the fund's Australian Business Number (ABN) and the fact that the receipt is for a gift;

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the public must be invited to contribute to the fund;

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the fund must operate on a not-for-profit basis (that is, moneys must not be distributed to members of the managing committee or trustees of the fund except as reimbursement for out-of-pocket expenses incurred on behalf of the fund or proper remuneration for administrative services);

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should the fund be wound-up, any surplus money or other assets must be transferred to some other qualifying fund; and

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the Commissioner is to be notified of any changes to the fund's constitution or other founding documents.

3.34 While a public fund is required to be controlled by an executive committee made up of a majority of responsible persons, the day-to-day running of the organisation need not be carried out by those persons. The fund must, however, be set up in such a way that it is not possible for public control to lapse for any period.

Gift fund requirements

3.35 The gift fund requirements are found in section 30-130 of the ITAA 1997.

3.36 A gift fund is a fund, maintained for the principle purpose of the DGR fund, authority or institution. All gifts, and deductible contributions, of money or property for that purpose are made to it and credited to it.

3.37 A gift fund cannot receive any other money or property, and the fund is only to be used for the principal purpose of the fund, authority or institution.

3.38 The DGR fund, authority or institution must be required (by law, its constituent documents or governing rules) to transfer any surplus assets of the gift fund to another similar DGR fund, authority or institution when the fund, authority or institution is wound-up or the DGR endorsement is revoked, whichever occurs first.

Ancillary funds

3.39 It remains an option under existing arrangements in the tax law for non-government organisations wishing to support a public fund providing ethics education that is endorsed under the new general DGR category to establish an ancillary fund (a fund established and maintained under will or instrument of trust for the purpose of providing money, property or benefits to DGRs or for their establishment), to collect tax deductible donations in its own right and to give to public funds established to provide ethics education.

Enforcement

3.40 The Commissioner has a wide range of enforcement powers, including powers to obtain information and revoke DGR status. DGR funds are subject to the ATO's regular compliance program.

What is a gift?

3.41 Gifts of $2 or more of money or property to DGRs are tax deductible to donors, provided that the gift complies with all relevant conditions.

3.42 The donation must be a gift and voluntary. A transaction which is mandatory or where the giver receives a benefit or advantage in return is not a gift. Further information on what is a gift can be found in the Commissioner's Taxation Ruling 2005/13.

Application of measure

3.43 This measure will apply from the day this Bill receives Royal Assent and will apply to gifts made on or after that day. [Schedule 3, item 3]

Consequential amendments

3.44 The index to Division 30 of the ITAA 1997 is updated to include the new general DGR category for ethics education. [Schedule 3, item 2, section 30-315]

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Extending gift deductibility to ethics education

3.45 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

3.46 This Schedule adds a new general deductible gift recipient (DGR) category into the Income Tax Assessment Act 1997 .

3.47 This measure extends tax deductibility to donations to public funds established solely for providing education in ethics in government schools in Australia as an alternative to religious instruction, where the ethics education to be provided is in accordance with State or Territory law.

Human rights implications

3.48 This Schedule does not engage any of the applicable rights or freedoms.

Conclusion

3.49 This Schedule is compatible with human rights as it does not raise any human rights issues.

Assistant Treasurer, the Hon David Bradbury