The Australian Charities and Not-for-profits Commission (ACNC) has issued its final Interpretation Statement on Public Benevolent Institutions (PBI). PBIs are a special class of charity that can obtain additional tax concessions from the Australian Taxation Office. Around 16% of registered charities are PBIs. The Interpretation Statement provides guidance on the ACNC’s view of the meaning and scope of the PBI subtype. The final statement is similar to the draft version but has been altered and expanded to provide greater clarity, particularly for new entities and for PBIs operating overseas.
Public Benevolent Institutions
Public benevolent institutions (PBI) are a type of charity with additional tax concessions not available to most other charities. If a charity is registered with the ACNC under the subtype of PBI, the charity will be able to access the fringe benefits tax exemption. Most charitable institutions are eligible for the FBT rebate only. However, a PBI is entitled to an FBT exemption rather than just a rebate. As a consequence, the salary packaging benefit is much greater and can be effective for any employee whose income is sufficient to pay tax.
Many PBIs are also eligible for Deductible Gift Recipient (DGR) status. As a DGR, donations to the organisation are tax deductible to the donor. As the whole of the entity is a DGR and not just a particular fund of the organisation, donations can be applied to any part of the PBI’s operations. As a DGR, PBIs are also eligible to receive grants from public and private ancillary funds.
The ACNC has released its final Interpretation Statement on PBIs. The Statement sets out the ACNC’s view on the meaning and scope of the PBI subtype. There is no legislated definition of PBI. For ACNC purposes, the ACNC states that a PBI is a charitable institution with a main purpose of providing benevolent relief to people in need. The Interpretation Statement considers the meaning of “public”, “benevolent” and “institution”.
In determining whether a charity is “public”, the ACNC will primarily consider how extensive is the class of individuals that the entity benefits. Other relevant factors might be:
Receipt of public funds
Public control and accountability
Connection with government.
Although not always required, the ACNC will generally expect the entity to have three or more responsible persons who are unrelated to each other (i.e. not family or close friends) and who have a degree of responsibility in the community.
A PBI must have benevolent relief as its main purpose and that relief must be specifically targeted at people in need and provided to relieve the needs of those people. These needs are not restricted to financial needs. A PBI can provide relief of poverty, sickness, disability, destitution, suffering, misfortune or helplessness. The needs being relieved must be more than just ordinary human experiences, but must be of such seriousness as will arouse compassion in the community.
Relief should not be targeted to the broader general community unless all, or nearly all, of the people in the community are people in need. For example it may be acceptable to target an entire disadvantaged community in a developing country.
If the charity has purposes that are not benevolent, it will not be a PBI unless those purposes are ancillary or incidental to the main benevolent purpose. Ancillary purposes might include prevention activities provided the activities further the main purpose.
Institution is not defined but is considered to be an entity that translates “the purposes as conceived in the minds of the founders into a living and active principle.” An entity which merely manages trust property which is applied for a charitable purpose is not an institution.
It can be difficult for a new entity which has not yet commenced activities to show it is an institution. It will need to provide evidence that it has concrete plans to operate within the next year.
PBIs Operating Overseas
Australian entities operating offshore can still be eligible for PBI status. However, there will be greater scrutiny by the ACNC of the organisation’s compliance with the ACNC governance standards. The ACNC will generally expect there to be policies and controls in place to prevent money laundering, terrorist financing, theft and abuse of children and other vulnerable people.
Obtaining PBI Registration
The salary packaging and DGR benefits of being a PBI can be significant. They can substantially improve your organisation’s ability to attract staff and obtain donations and other funding. Saward Dawson has successfully registered many organisations as PBIs with the ACNC. We would be happy to discuss with you the possibility of establishing a new PBI or obtaining PBI registration for your existing charity.