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History
Until the mid 18th century, charity was mainly distributed through parish relief (such as the
English poor laws of 1601),
churches, almshouses and bequests from the rich. Charities were also
responsible for education, health, housing and even prisons. Almshouses
were established throughout
Europe in the
Early Middle Ages to provide a place of residence for poor, old and distressed people - the first recorded almshouse was founded in
York by
King Athelstan in the 10th century.
[2]
Enlightenment charity
The Foundling Hospital. The building has been demolished.
It was in the
Enlightenment era
that charitable and philanthropic activity among voluntary associations
and rich benefactors became a widespread cultural practice. Societies,
gentleman's clubs and mutual associations began to flourish in
England
and the upper-classes increasingly adopted a philanthropic attitude
toward the disadvantaged. This new social activism was channeled into
the establishment of charitable organizations; these proliferated from
the middle of the century.
[3]
This emerging upper-class fashion for benevolence resulted in the incorporation of the first charitable organizations.
Captain Thomas Coram, appalled by the number of abandoned children living on the streets of
London, set up the
Foundling Hospital in 1741 to look after these unwanted orphans in Lamb's Conduit Fields,
Bloomsbury. This was the first such charity in the world
[4] and served as the precedent for incorporated associational charities everywhere.
[5]
Jonas Hanway, another notable philanthropist of the era established
The Marine Society in 1756 as the first seafarer's charity, in a bid to aid the recruitment of men to the
navy.
[6] By 1763, the Society had recruited over 10,000 men and it was incorporated by an
Act of Parliament in 1772. Hanway was also instrumental in establishing the
Magdalen Hospital to rehabilitate
prostitutes.
These organizations were funded by subscription and run as voluntary
associations. They raised public awareness of their activities through
the emerging popular press and were generally held in high social regard
- some charities received state recognition in the form of the
Royal Charter.
Charities also began to adopt campaigning roles, where they would
champion a cause and lobby the government for legislative change. This
included organized campaigns against the ill treatment of animals and
children and the campaign that eventually succeeded in ending the
slave trade throughout the
British Empire at the turn of the 19th century.
This period also saw growing philosophical debate between those who championed state intervention and those who believed that
private charities should provide welfare.
Thomas Malthus, the political economist, criticized
poor relief for paupers on economic and moral grounds and proposed leaving charity entirely to the private sector.
[7] His views were very influential and informed the
Victorian laissez-faire attitude toward state intervention for the poor.
Growth during 19th century
During the 19th century, a profusion of charitable organizations were set up to alleviate the awful conditions of the
working class in the
slums. The
Labourer's Friend Society, chaired by
Lord Shaftesbury
in the United Kingdom in 1830, was set up to improve working class
conditions. This included the promotion of allotment of land to
labourers for "cottage husbandry" that later became the allotment
movement. In 1844 it became the first
Model Dwellings Company
- organizations that sought to improve the housing conditions of the
working classes by building new homes for them, at the same time
receiving a competitive rate of return on any investment. This was one
of the first
housing associations, a philanthropic endeavour that flourished in the second half of the nineteenth century brought about by the growth of the
middle class. Later associations included the
Peabody Trust and the
Guinness Trust. The principle of philanthropic intention with capitalist return was given the label "five per cent philanthropy".
[8]
There was strong growth in municipal charities. The Brougham Commission led on to the
Municipal Corporations Act 1835 which reorganized local charities by incorporating them into one entity under supervision from the
local government.
Charities at the time, including the
Charity Organization Society
(est. 1869) tended to discriminate between the 'deserving poor' who
would be provided with suitable relief and the 'underserving' or
'improvident poor' who were regarded as the cause of their woes through
their idleness. They also tended to be against the state provision of
welfare, due to its perceived
demoralizing effect.
Although minimal state involvement was the dominant philosophy of the
period, there was still significant government involvement in the shape
of statutory regulation and even limited funding.
[9]
Philanthropy became a very fashionable activity among the expanding middle classes in Britain and America.
Octavia Hill and
John Ruskin were an important force behind the development of social housing and
Andrew Carnegie exemplified the large scale philanthropy of the newly rich in industrialized America. In
Gospel of Wealth (1889), Carnegie wrote about the responsibilities of great wealth and the importance of social justice. He established
public libraries throughout the English-speaking countries
[10] as well as contributing large sums to schools and universities.
It was only towards the end of the century with the advent of the
New Liberalism and the innovative work of
Charles Booth on documenting working class life in
London that attitudes towards poverty began to change, which led to the first
social liberal welfare reforms, including
old Age pensions.
[11] and free school meals.
[12] During the 20th century, charitable organizations such as
Oxfam (est. 1947) greatly expanded, becoming large multinational
Non governmental organizations with very large budgets.
In various countries
Australia
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This section is outdated. Please update this article to reflect recent events or newly available information. (July 2013) |
The definition of charity in Australia is derived through English common law, originally from the
Charitable Uses Act 1601,
and then through several centuries of case law based upon it. In 2002
the federal government established an inquiry into the definition of a
charity. That inquiry proposed that the government should legislate a
definition of a charity, based on the principles developed through case
law. This resulted in the Charities Bill 2003. The Bill incorporated a
number of provisions, such as limitations on charities being involved in
political campaigning, which many charities saw as an unwelcome
departure from the case law. The government then appointed a Board of
the Taxation inquiry to consult with charities on the Bill. As a result
of widespread criticism from charities, the Government decided to
abandon the Bill.
As a result, the government then introduced what became the
Extension of Charitable Purpose Act 2004.
This Bill did not attempt to codify the definition of a charitable
purpose; it merely sought to clarify that certain purposes were indeed
charitable, whose charitable status had been subject to legal doubts.
These purposes were: childcare; self-help groups; closed/contemplative
religious orders.
[13]
To publicly raise money, charities in Australia are required to
register under the State jurisdiction within which they intend to raise
funds and must be registered in each and any State within which they
intend to publicly raise funds. For example, in Queensland charities
must register with the QLD Office of Fair Trading.
[14] An example of a registered charity in Queensland, Australia is
Sunny kids so whilst
Sunny kids
can publicly raise funds for charitable purposes, and whilst such
donations are tax deductible in every Australian State and Territory -
the funds themselves may only be raised in QLD as this is the only State
within which the charity is registered to raise funds. In order for the
charity to raise funds in the remaining seven Australian States and
Territories it would need to register in each State or Territory
individually. Needless to say, many Australian charities are calling on
federal, state, and territory governments to unify legislation to allow
registration in a single State or Territory to allow charities to raise
funds in all 8 Australian States and Territories.
Canada
Charities in Canada must be registered with the Charities Directorate
[15] of the Canada Revenue Agency. According to the Canada Revenue Agency:
[16]
A registered charity is an organization established and operated for
charitable purposes, and must devote its resources to charitable
activities. The charity must be resident in Canada, and cannot use its
income to benefit its members. A charity also has to meet a public
benefit test. To qualify under this test, an organization must show
that:
- its activities and purposes provide a tangible benefit to the public
- those people who are eligible for benefits are either the public as a
whole, or a significant section of it, in that they are not a
restricted group or one where members share a private connection, such
as social clubs or professional associations with specific membership
- the charity's activities must be legal and must not be contrary to public policy
To register as a charity, the organization has to be either incorporated
or governed by a legal document called a trust or a constitution. This
document has to explain the organization's purposes and structure.
United Kingdom
Charity law within the UK varies between (i) England and Wales, (ii)
Scotland and (iii) Northern Ireland, but the fundamental principles are
the same. Most organisations that are charities are required to
registered with the appropriate regulator for their jurisdiction, but
significant exceptions apply so that many organisations are bona fide
charities but do not appear on a public register. The registers are
maintained by the
Charity Commission for England and Wales and for Scotland by the
Office of the Scottish Charity Regulator. The
Charity Commission for Northern Ireland
will maintain a register in due course (see below). Organizations
applying must meet the specific legal requirements summarized below, and
have filing requirements with their regulator, and are subject to
inspection or other forms of review.
England and Wales
Definition of charitable organisation
Section 1 Charities Act 2011 provides the definition in England and Wales:
- (1) For the purposes of the law of England and Wales, “charity” means an institution which—
- (a) is established for charitable purposes only, and
- (b) falls to be subject to the control of the High Court in the exercise of its jurisdiction with respect to charities.
The
Charities Act 2011 provides the following list of charitable purposes.
[17]
- the prevention or relief of poverty
- the advancement of education
- the advancement of religion
- the advancement of health or the saving of lives
- the advancement of citizenship or community development
- the advancement of the arts, culture, heritage or science
- the advancement of amateur sport
- the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity
- the advancement of environmental protection or improvement
- the relief of those in need, by reason of youth, age, ill-health, disability, financial hardship or other disadvantage
- the advancement of animal welfare
- the promotion of the efficiency of the armed forces of the Crown or
of the police, fire and rescue services or ambulance services
- other purposes currently recognized as charitable and any new
charitable purposes which are similar to another charitable purpose.
A charity must also provide a public benefit.
[18]
Before the Charities Act 2006, which introduced the definition now
contained in the 2011 Act, the definition of charity arose from a list
of charitable purposes in the Charitable Uses Act 1601 (also known as
the Statute of Elizabeth), which had been interpreted and expanded into a
considerable body of case law. In
Commissioners for Special Purposes of Income Tax v. Pemsel
(1891), Lord McNaughten identified four categories of charity which
could be extracted from the Charitable Uses Act and which were the
accepted definition of charity prior to the Charities Act 2006.
- the relief of poverty,
- the advancement of education,
- the advancement of religion, and
- other purposes considered beneficial to the community.
English charities - such as Age UK,
RSPB [19] and
Must Have Gifts[20] - must comply with the 2011 Act regulating matters such as charity reports and accounts and fundraising.
Charitable organization structure
As of 2011 there are a number of types of legal structure for a charity in England and Wales.
- Unincorporated association
- Trust
- Company limited by guarantee
- Another incorporation, such as by Royal Charter
- Charitable Incorporated Organization
The
unincorporated association is the most common form of organization within the voluntary sector in England and Wales.
[21]
An unincorporated association is essentially a contractual arrangement
between individuals who have agreed to come together to form an
organization for a particular purpose. An unincorporated association
will normally have as its governing document, a constitution or set of
rules, which will deal with such matters as the appointment of office
bearers, and the rules governing membership. The organization is not
though a separate legal entity. So it cannot start legal action, it
cannot borrow money, and it cannot enter into contracts in its own name.
Also the officers can be personally liable if the charity is sued or
has debts.
[22]
A
Trust
is essentially a relationship between three parties, the donor of some
assets, the trustees who hold the assets and the beneficiaries (those
people who are eligible to benefit from the charity). When the trust has
charitable purposes, and is a charity, the trust is known as a
charitable trust. The governing document is the Trust Deed or
Declaration of Trust, which comes into operation once it is signed by
all the trustees. The main disadvantage of a trust is that, as with an
unincorporated association, it does not have a separate legal entity and
the trustees must themselves own property and enter into contracts. The
trustees are also liable if the charity is sued or incurs liability.
A company limited by guarantee is a private limited company where the
liability of members is limited. A guarantee company does not have a
share capital, but instead has members who are guarantors instead of
shareholders. In the event of the company being wound up the members
agree to pay a nominal sum which can be as little as £1. A company
limited by guarantee is a useful structure for a charity where it is
desirable for the Trustees to have the protection of limited liability.
Also, the charity has legal personality, and so can enter into
contracts, such as employment contracts in its own name.
[23]
A small number of charities are incorporated by
Royal Charter,
a document which creates a corporation with legal personality (or, in
some instances, transforms a charity incorporated as a company into a
charity incorporated by Royal Charter). The Charter must be approved by
the
Privy Council
before receiving Royal Assent. Although the nature of the charity will
vary depending on the clauses enacted, generally a Royal Chartered will
offer a charity the same limited liability as a company and the ability
to enter into contracts.
The Charities Act 2006 legislated for a new legal form of incorporation designed specifically for charities, the
Charitable Incorporated Organization,
with powers similar to a company but without the need to register as a
company. Becoming a C.I.O. was only made possible in 2013, with
staggered introduction dates, with the charities with highest turnover
eligible first.
The word Foundation is not generally used in England and Wales.
Occasionally a charity will use the word Foundation as part of its name
e.g.
British Heart Foundation,
but this has no legal significance and does not provide any information
about either the work of the charity or how it is legally structured.
The structure of the organization will be one of the types of structure
described above.
Charity registration
Charitable organizations that have an income of more than £5,000, and
for whom the law of England and Wales applies, must register with the
Charity Commission for England and Wales, unless they are an "exempt" or "excepted" charity.
[24][25]
For companies, the law of England and Wales will normally apply if the
company itself is registered in England and Wales. In other cases if the
governing document does not make it clear, the law which applies will
be the country with which the organization is most connected.
[26]
Where an organization's income does not exceed £5,000 it is not able to register as a charity with the
Charity Commission for England and Wales. It can, however, register as a charity with
HM Revenue and Customs
for Tax purposes only. With the rise in mandatory registration level,
to £5,000 by The Charities Act 2006, smaller charities can be reliant
upon
H.M.R.C. recognition to evidence their charitable purpose and confirm their not-for-profit principles.
[27]
Some charities which are called
exempt charities
are not required to register with the Charity Commission and are not
subject to any of the Charity Commission's supervisory powers. These
charities include most universities and national museums and some other
educational institutions. Other charities are excepted from the need to
register, but are still subject to the supervision of the Charity
Commission. The regulations on excepted charities have however been
changed by the Charities Act 2006. Many excepted charities are religious
charities.
[28]
Northern Ireland
Charities in
Northern Ireland are registered with the UK
HM Revenue and Customs. The
Charity Commission for Northern Ireland was established in 2009
[29]
and has received the names and details of over 7,000 organisations that
have previously been granted charitable status for tax purposes. The
entering of these organisations onto a new and temporary list under the
heading of "Organisations that have previously been known as charities"
is continuing. This list is not the new register, but will be made
publicly available on the CCNI website.
Scotland
The 20,000 or so charities in
Scotland are registered with the
Office of the Scottish Charity Regulator (OSCR), which also publishes a Register of charities online.
Taxation of charities
Charitable organisations, including charitable trusts, are eligible
for a complex set of reliefs and exemptions from taxation in the UK.
These include reliefs and exemptions in relation to income tax, capital
gains tax, inheritance tax, stamp duty land tax and value added tax.
These tax exemptions have led to criticisms that private schools are
able to use charitable status as a
tax avoidance technique rather than because they offer a genuine charitable good.
[30]
Ireland
There is no legal framework for the registration of charities in
Ireland. The Office of the Revenue Commissioners, Charities Section maintains a database of organisations
[31]
to which they have granted charitable tax exemption. In granting tax
exemption Charities Section give the body a CHY reference number. The
full list of bodies granted exemption is published on the Revenue
Commissioners website.
The Irish Nonprofits Database was created by Irish Nonprofits
Knowledge Exchange (INKEx) to act as a repository for regulatory and
voluntarily disclosed information about Irish public benefit nonprofits.
The organisation is currently looking for government funding to
continue to provide the service.
United States
In the
United States, a charitable organization is an organization operated for purposes that are beneficial to the
public interest.
[32] There are different types of charitable organization.
Every U.S. and foreign charity that qualifies as
tax-exempt under Section
501(c)(3) of the
Internal Revenue Code is considered a "
private foundation"
unless it demonstrates to the
IRS
that it falls into another category. Generally, any organization that
is not a private foundation (i.e., it qualifies as something else) is
usually a public charity as described in Section 509(a) of the Internal
Revenue Code.
[33]
In addition, a
private foundation
usually derives its principal funding from an individual, family,
corporation, or some other single source and is more often than not a
grantmaker and does not solicit funds from the public. In contrast, a
foundation
or public charity generally receives grants from individuals,
government, and private foundations, and while some public charities
engage in
grantmaking activities, most conduct direct service or other tax-exempt activities.
This leads to another distinction: Foundations that are generally grantmakers (i.e. they use their
endowment
to make grants to other organizations, which in turn carry out the
goals of the foundation indirectly) are usually called "grantmaker" or
"non-operating" foundations. These of course tend to be private
foundations, but some private foundations (and most public charities)
use their received funds to directly engage in service activities
themselves and achieve their goals "personally," so to speak.
Examples of a non-operating private foundation are the
Rockefeller Foundation and the
Bill & Melinda Gates Foundation.
Examples of operating foundations or public charities include the
Elizabeth Glaser Pediatric AIDS Foundation,
American Cancer Society, Inc.,
Make a Wish Foundation, and the
World Wildlife Fund.
The requirements and procedures for forming charitable organizations
vary from state to state, as do the registration and filing requirements
for charitable organizations that conduct charitable activities,
solicit charitable contributions, or hire professional fundraisers.
[34][35]
So in practice the detailed definition of "charitable organization" is
determined by the requirements of state law where the charitable
organization operates, and the requirements for federal tax relief by
the IRS.
Resources exist to provide information, even rankings, of US charities.
[36]
According to studies by the
Chronicle of Philanthropy,
those making over $100,000 a year give a smaller share, averaging 4.2%,
to charity than those making between $50,000 and $75,000, who give an
average of 7.6%.
[37][38]
Federal tax relief
Federal tax law provides tax benefits to nonprofit organizations
recognized as exempt from federal income tax under section 501(c)(3) of
the Internal Revenue Code (IRC). The benefits of 501(c)(3) status
include exemption from federal income tax as well as eligibility to
receive tax deductible charitable contributions. To qualify for
501(c)(3) status most organizations must apply to the Internal Revenue
Service (IRS) for such status.
[39]
There are several requirements that must be met for a charitable
organization to obtain 501(c)(3) status. These include the organization
being organized as a corporation, trust, or unincorporated association,
and the organization’s organizing document (such as the articles of
incorporation, trust documents, or articles of association) must limit
its purposes to being charitable, and permanently dedicate its assets to
charitable purposes. The organization must refrain from undertaking a
number of other activities such as participating in the political
campaigns of candidates for local, state or federal office, and must
ensure that its earnings do not benefit any individual.
[32] Most tax exempt organizations are required to file annual financial reports (
IRS Form 990)
at the state and federal level. A tax exempt organization's 990 and
some other forms are required to be made available to public scrutiny.
The types of charitable organization that are considered by the IRS
to be organized for the public benefit include those that are organized
for:
- Relief of the poor, the distressed, or the underprivileged,
- Advancement of religion,
- Advancement of education or science,
- Construction or maintenance of public buildings, monuments, or works,
- Lessening the burdens of government,
- Lessening of neighborhood tensions,
- Elimination of prejudice and discrimination,
- Defense of human and civil rights secured by law, and
- Combating community deterioration and juvenile delinquency.
A number of other organizations, including those organized for
religious, scientific, literary and educational purposes, as well as
those for testing for public safety and for fostering national or
international amateur sports competition, and for the prevention of
cruelty to children or animals, may also qualify for exempt status.
The IRS, except in rare circumstances, refers to all organizations qualifying for exemption under
501(c)(3) as charities.
[40
