Charities Act and the Public Benefits Test - Coursework Example

Charities Act and the Public Benefits Test Introduction The Charities Act 2006 was enacted with the purpose of streamlining the provisions set out ingranting a benefit the status of charity. It is divided into the following categories1: 1. The definition of charity and charitable purposes 2. The regulation of charities 3. Fundraising of charities 4. Other Legal Administrative Provisions This paper shall look at the Charities Act strictly from the point of view of the public benefit test, and how the changes incorporated in the new Charities Act, with regards to Religion, education and poverty, and how the presumption that these three constituted charity has been outlawed in the new Act. Defining Charity Let is look at the Charity Act, to begin with, in order to define and understand the meaning of charity under its ambit. Section 1(a) of the Charity Act 2006 defines a charitable institution as the following: “Established for charity purposes only” The act somewhere fails to denote a concrete meaning of charity. This was the main reason due to which an amendment of the Act was brought about in 2006. However, Section 2(2) of the Act goes further in the denouncement of charity, and what constitutes a charity in order to qualify as a charitable purpose: (a) the prevention or relief of poverty (b) the advancement of education (c) the advancement of religion Understanding from the notes of the act, we arrive to the conclusion that charity amounts to anything which is for the benefit of people, at large, in the context of poverty, education and religion. It should be for the public benefit, which is on the discretion of courts to determine what constitutes a public benefit.2 Section 2 of the Act should be read along with Section 3 to arrive at the solid understanding of the term “charity”. In Incorporated Council of Law reporting for the State of Queensland v Federal Commissioner of Taxation3, the judge had the following observation with what amounts to a charity: “The benefit should be charitable in the Elizabeth sense”. Understanding from the context of the judge, we arrive at the conclusion that any activity which amounts to the benefit of the public, or a section of the public amounts to a charitable purpose. A trust which carries out the duties of helping the needy and the poor sections of the society amounts to charity. This definition of charity encompasses all the above definitions mentioned: "The relief of aided, impotent and poor people, the maintenance of sick and maimed soldiers and mariners, schools of learning, free schools and scholars in universities, the repair of bridges, ports, havens, causeways, churches, sea-banks and highways, the education and preferment of orphans, the relief, stock or maintenance for houses of correction, the marriage of poor maids, the support, aid and help of young tradesmen, handicraftsmen and persons decayed, the relief or redemption of prisoners or captives, the aid or ease of any poor inhabitants concerning payment of fifteens, setting out of soldiers and other taxes”4 Understanding the Ambit of Charitable Trust A charitable trust is a trust which provides charity services to a particular section of the society, and such services should be for charitable purposes only.5 Relief from poverty: The main question that was sought to ask was how poverty could be defined, and within the definition, which kind of people needed to be brought in to given relief to. Poverty is a very relative concept and thus includes people who are not able to provide a lifestyle for themselves that include the basic necessities like shelter, food and clothing. As found in a number of cases, only showing kindness or generosity to someone is not enough to come under a charitable trust or purpose because a factor of poverty must be defined so that it also serves the purpose of having benefit to the public in a way that it is useful to a certain community and helps to fight the problems that those people face with regard to poverty. In the case of Oppenhiem, we understand that a trust created to benefit a part of a society will not amount to a charitable trust, unless and until it caters to a significant proportion of the society. In this case, it was said that a trust will not be called charitable if the benefits of it are on the basis of a personal nexus or in other words, are only received by descendants of certain individuals or employees of a particular individual or company. The rule that was laid down in the Oppenhiem case could also not be confused as a hard and fast rule for all charitable trusts because this was only applicable under the purview of education. On the other hand, in the case of Dingle v Turner, a charitable trust was to be set to improve the conditions of employees working in a company. The only tiff between the two lay in the fact that in the former, a trust was not charitable if it was set for personal nexus or personal benefits, however in the Dingle v Turner6 case, the House decided that the case was valid because it was for the relief from poverty for the employee. Another case of poverty can be highlighted as in the case of Re Scarisbrick where it was noted that instituting a charity in order to relieve an individual of a poverty stricken state cannot be done if there is a familial tie between the people concerned. Charities with regard to religion: Pemsel litigates to convince the court that (a) the Moravian Church is a religious institution, and (b) activities aiming to ‘convert the heathen’ to the Moravian Church qualify for tax privileges as being for the ‘advancement of religion’. A judgement was delivered in 1891under which the charity was divided into the following four aspects: Relief of poverty Advancement of Education Advancement of Religion Other purposes beneficial to community This was done in order to make better enforcement of the Statute of Elizabeth which was revoked in 1888 in England, but today it still has an effect and influences the definition of charity. This statute was made in order to overlook the charities, whom they were given to, and to administer the use of the funds kept aside for the same. Advancement of education: In the case of Inland Revenue Commissioners v. McCullen, it was stated that the court had refused to bind the term education to only meaning something out of which pleasure or skill could not be derived, or something that only consisted of formal instructions. If the beneficiaries to the process are proved to be negligible then the charitable trust set up for the purpose of education is said not to be charitable. In the case of Re Resch, it was stated that educational institutions can be charitable organizations even if they have a view of making profit. This is because there is direct public benefit in the same. This has also been strengthened over time with regard to the case of Attorney General v. the Earl of Lonsdale as well as Brighton College v Marriott. In both cases, there has been ample public benefit despite the organization trying to siphon profits. Differences between charitable and political purposes: Courts have, in recent times determined that charitable organizations are deemed to have political purposes if they meet the following; They support a political group or further their motives or support their candidacy They, in any way, try to retain or oppose the law that has been laid down Thus, courts have to prove that the purpose of the organization is for a public benefit and not for a political purpose, because in case of political motives, the trust will not be deemed charitable. Activities that include promoting awareness or spreading information through communication can be done if the same is not for a political purpose. However, it has been noted that most organizations today, support political motives within their trusts in order to gather a bigger mass of people to muster support. Certain political activities can be permitted within the boundaries of charitable trusts but they have to be non-partisan, and have to be connected somehow with the interests of the charity as well. However, if the charity takes explicit steps to promote political activities, it will not be charitable anymore. Unearthing the Public Benefit Test Public benefit test involves two key principles which need to be satisfied in order for a charitable trust to prove that it is working for the public, and is thus providing charity to the people.6 Following are the parameters to meet the public benefit test: 1. There must be an identifiable benefit 2. The benefit must be for the society at large, or for a section of the society In the first principle, it should be clear and unambiguous as to what the benefits are exactly, and what they amount to. Benefits which cannot be classified or determined are not considered to be public benefit. It should be for the purpose of that particular charity only, and should amount to a greater good of the public and the people belonging to the society. In the second principle, the benefit must be appropriate to the aims of the public. It should help the section of the public which is indeed in need of some benefit from people who are in better shape to afford their lives. However, it should not be limited to geographical reasons, or by the payment of some kind of fees, and the poor should always be included in this and any private benefit should be incidental. In the case of Gilmour v Coal6, the principle of public benefit test was given a new meaning, where the judge laid down the following foundation to determine what amounts to a public benefit: “It is a clearly established principle of the law of charity that a trust is not charitable unless it is directed to the public benefit. This is sometimes stated in the proposition that it must benefit the community or a section of the community. Negatively it is said that a trust is not charitable if it confers only private benefits.” In the case of Jones v William’s7, the judge had pointed out that in the case of educational purposes the test of public benefit has to be satisfied. The Charity Act 2006 defines public benefit in Section 3 of the Act as the following: Section 3(1): “This section applies in connection with the requirement in section 2(1)(b) that a purpose falling within section 2(2) must be for the public benefit if it is to be a charitable purpose” It is pertinent to note that Section 3(2) removes the assumption that the acts covered in Section 2(2) amount to charity, unless they satisfy the public benefit test: “In determining whether that requirement is satisfied in relation to any such purpose, it is not to be presumed that a purpose of a particular description is for the public benefit.” Despite this, the reason that the Charities Act failed to take better notice was because it failed to incorporate the public benefit test. Analysis between the Present and the Past Act A charity commission was set up in England and Wales on 27th February, 2007 as a non-ministerial quasi government department in order to regulate and facilitate decisions taken on an overall manner by the registered charities in these two places. It is answerable and accountable to the Parliament of the United Kingdom. The law that governs this commission is the Charities Act, established in 1993 amended in 2006. The Charities Act helped to set out a framework and make policies in order to assist the registered charities in the country in order to bring about betterment in the social development and economy. However, the Act does not really gauge at scrutinizing the requirements of all the charitable organizations that exist, and that is where it began to falter. There are an ample number of differences that make the Act a little more distinct from what it came to be in 2006 and what it was earlier in 1993. The main reason why this Act was amended was because too much emphasis or presumption was given to public interest in the 90s and that is why, the government sought that social improvement could only be brought about by including awareness and promoting the betterment of the public, by making the main objective of setting up charitable organizations to be for public interest. Only after setting up such strong notions for the public in 2006, was the Charities Commission set up in 2007. This was one of the main parliamentary interventions that was taken up, however, soon the power decentralized and passed into the hands of ministers that were solely elected for the purpose of serving this Commission. According to this Act, the various attributes that come under as being charitable and are required for public benefit are advancement in the fields of education, religion, health as well as saving lives, eradication of poverty, community development and animal and environmental welfare to name a few. In the Act of 2006, a new section 1A was inserted into the Act of 1993, in section 6 which stated the hierarchical level of authority within the Charities Commission for England and Wales. It also stated that the Commission will have certain rights and powers and enjoy the status of not being attached to the government directly, or of being free from a certain amount of government intervention. The Act of 1993 was also amended with regard to the actual definition and inclusion of what is public benefit and what sectors of the public need to be helped in order to bring about a social balance in society. This section also differs from the one in 2006 because the objectives came to be specified with more clarity. This included aiming at increased levels of public confidence (sections 1B(2)1 and 1B(3)1) and to promote and spread awareness among people so that the operations and goals of the charitable institutions can be carried out with more ease because only through better public participation an organization can hope to benefit. Thus, better comprehension of what lies within the morals of actual public interest and adhering to the legal obligations helped to strengthen this motive. There are changes in the functions of the Act as well. Section 7 of the Charities Act of 2006 inserted facilitation and encouragement of better administration in order to look after the Charities present in the country better, through section 1C(2)2. Section 1C(2)3 within the same suggests the identification and investigation of misconduct and mismanagement within any organization and to take immediate measures to reform if need be, whereas the next sub section, 1C(2)4 states the need for the determination of public collection of certificates. IC(2)5 states obtaining, dissemination and evaluation of information to the public in view with a connection to the objectives and goals of the Charities Commission, and the last sub section, IC(2)6 aims to provide advice and any other information to the government. In recent years however, it has been witnessed by a number of reports and research work that the main aim behind setting up of this Charities Act and having the commission created was purely for political reasons alone. The main aim of this Act was to address legal problems within society and try and cater to the needs of the people, however, with time, the level of participation with a view to improving social development and bringing about betterment in society is decreasing, and the amount that could have been done for the public, has not. It is true, that the Act was amended in 2006 so that new instances could be inserted within its purview and that it could in fact improve the condition of the public. However, it merely states the same and does not really give an insight or provide a picture as to how charities can really hope to meet this requirement of improving the social status of the English economy. This has led to a large amount of funds going waste which could have otherwise been put to better use in helping people. In January 2008, there were charities especially established to improve the status of poverty, advance education as well as religion. These matters were brought to light during consultations and issue of the draft of Charities Bill which aimed to amend the act and bring about a better situation. It is pertinent to note that there was a significant change brought about in the charity act of 2006 with regards to the presumption that charity towards poverty; education and religion ultimately end up in public benefit. We have seen that this is not necessarily true, and the act has incorporated these changes, as mentioned earlier in the paper. Now, any charitable trust under the current act has to make it clear to the commission that it is working for the public benefit. This was not there in the previous act, where it was held as a standing presumption that the act of a charitable trust does amount to public benefit. In Re Compton8, Lord Green had the following observation to make: “The difficulty arises where the trust is not for the benefit of any institution either then existing or by the terms of the trust to be brought into existence, but for the benefit of a class of persons at large. Then the question is whether that class of persons can be regarded as such a "section of the community" as to satisfy the test of public benefit. These words "section of the community" have no special sanctity, but they conveniently indicate (i) that the possible (I emphasise the word "possible") beneficiaries must not be numerically negligible, and (ii) that the quality which distinguishes them from other members of the community, so that they form by themselves a section of it, must be a quality which does not depend on their relationship to a particular individual.” It is clear from the observation of the judge that a trust cannot be held as a charitable trust if it is catering to the needs of a private group of individuals. Judicial Discretion and Legislature Intent in Charity Law According to what is written in Charity Law and Social Policy, it is stated that if the charitable organizations under the purview of the Charities Act 2006 are free from judicial intervention then they will also remain free of any objectives solely based on the political status of the country. Also, by doing the same it was noticed that as the power was passed into the hands of the Commission created to regulate the workings of registered charities, judicial intervention also lessened to a great degree. Looking back at the legislation changes made in the charity act, we can understand that a foolproof definition of public benefit has still not been arrived at. Judiciary on the other hand had tried on numerous occasions, especially in the case of Re Income Tax Acts (No 1)9, where the judge had the following argument to make: “If an organisation is open to the public, even though not everyone joins, this group will be a section of the public sufficient for the charitable purpose test. If on the other hand the organisation sets up an arbitrary test for membership such as many clubs, literary societies or trade unions do then the members cannot be considered a section of the public.” The test to determine a public benefit is not unambiguous, and depends from facts to facts of each case. But one thing is obvious, that is should amount to the people belonging to the society, and not just only private individuals belonging to a group.10 The judiciary has over time tried to simplify the concept of the public benefit, and has developed new ideas and insights as to what amounts to a public benefit. In conclusion, charity law is something that has been created for the betterment of society and for the people, and so if its aim drifts off in another direction, it does not really aim to help anyone. Political motives should be left out of such charitable ideas because the sole purpose of this Act is to try and eradicate poverty, and make advancements in the field of education and religion. Only when political considerations are left out can such causes for charity succeed. This Act has been amended and renewed in 2006 and looks very promising, however a considerable decline has been noticed in displaying and doing something for the people through such charitable organizations and that is what leads to apprehension among the people and perplexes them. Charity, or helping people can lead to a better environment with positive attitudes and better thoughts, and this in turn can transform society and make it much more presentable. Bibliography Books 1. Pearce, Stevens & Barr: The Law of Trusts and Equitable Obligations, OUP (2010 edition)  2. Statute Book Blackstone’s Property Law Statutes OUP 3. Kerry OHalloran, Myles McGregor-Lowndes, Karla W. Simon, Charity law & social policy: national and international perspectives on the functions of the law relating to charities 4. Kerry O’Halloran, Charity law and social Inclusion: An International Study. Websites 1. http://www.walkersglobal.com/files/Publication/396e92a5-d199-4fbb-8546-6fbc0b855524/Presentation/PublicationAttachment/2d2a5dd7-d0b2-49fe-af57-746a19bd052b/(Cayman)%20Charity%20Law.pdf 2. http://www.fairplayforchildren.org/pdf/1247924874.pdf 3. http://www.legislation.gov.uk/ukpga/1993/10/schedule/6/paragraph/18 4. http://www.lawstudentforum.co.uk/case-law/4005-oppenheim-v-tobacco-securities-trust-co-1951-ac-297-hl.htmlhttp://www.austlii.edu.au/au/journals/eJTR/2007/3.html 5. https://www.forbessolicitors.co.uk/docs/newsletters/charity_newsletter.pdf 6. http://www.stewardship.org.uk/Charities%20Act%202006%20update%20October%202010.pdf 7. http://www.stewardship.org.uk/documents/public_benefit_and_advancement_religion.pdf 8. http://www.christianconcern.com/press-release/concern-over-public-benefit-test-christian-charities 9. http://www.istr.org/conferences/dublin/workingpapers/ohalloran.pdf 10. http://www.newworldencyclopedia.org/entry/Charitable_organization 11. http://www.fractalmyth.com/essay/charity.html#N_12_ 12. http://www.charity-commission.gov.uk/Library/guidance/respov1208.pdf 13. http://www.charity-commission.gov.uk/About_us/Regulation/charbill.aspx 14. http://www.vanuatu.usp.ac.fj/courses/la302_equity_trusts_and_succession_1/LA302_Cases/Dingle_v_Turner.html 15. http://www.lawstudentforum.co.uk/case-law/3985-mcgovern-v-attorney-general-1982-ch-321-a.html 16. http://www.makdap.com.au/docs/charity/case/Pemsel%20case%20summary.pdf 17. http://www.parliament.the-stationery-office.co.uk/pa/jt200304/jtselect/jtchar/167/4070703.htm 18. http://www.carters.ca/pub/seminar/church/2005/tsc0929.pdf 19. http://www.icnl.org/knowledge/ijnl/vol3iss1/ar_KBromley.pdf 20. http://www.lawsociety.ie/Documents/members/charityreport.pdf Cases 1. Incorporated Council of Law reporting for the State of Queensland v Federal Commissioner of Taxation (1971) 125 CLR 659 2. Oppenheim v tobacco securities trust co. [1951] AC 297 (HL) 3. Dingle v Turner [1972] 4. Gilmour v Coat [1949] AC 42 5. Jones v William’s ((1767) (Amb. 652)) 6. Re Compton ([1945] 1 All E.R. 206) 7. Re Income Tax Acts (No 1) [1930] VLR 211, 223 8. Income Tax Special Purpose Commissioners v Pemsel [1891] AC 531 9. Gilmour v Coates [1949] AC 426 10. Re Scarisbrick [1951] 11. Attorney General v The Earl of Lonsdale 12. Brighton College v Marriott Read More