Charitable organization

From New World Encyclopedia


This article is about charitable organizations. For other uses of the word charity, see Charity.

A charitable organization (also known as a charity) is a trust, company or unincorporated association established for charitable purposes only. (Trusts or bodies established partly for charitable purposes are sometimes considered as, or treated as, charities: this is a matter of definition.)

Definitions

A charitable organization (also known as a charity) is an organization with charitable purposes only. Trusts, foundations, unincorporated associations and in some jurisdictions specific types of companies, may be established for a charitable purpose or may acquire such purpose after establishment. Charities are non-profit organizations while not all non-profit organizations are charities. Organizations that are only partly dedicated to charitable purposes are sometimes considered as, or treated as, charities, depending on specific regulations at a given jurisdiction. Some charitable organizations may be established by companies as part of tax planning and strategies.

In law, the concept of "charitable" purpose has a technical meaning which is not quite the same as the way that the word is used in normal language. There is no statutory definition of a charitable organization, but case law in England and Wales has identified four principal charitable purposes, namely trust for: (1) the relief of poverty; (2) the advancement of education; (3) the advancement of religion; (4) other purposes beneficial to the community, not falling under the previous heads. [1]

A charity is a group designed to benefit society or a specific group of people. Its purpose may be educational, humanitarian, or religious. A charity goes beyond giving relief to the indigent, extending to the promotion of happiness and the support of many worthy causes. [1]

The law favors charities because they promote goodwill and lessen the government's burdens. They are therefore ordinarily exempt from paying income or property taxes. Charities are usually non-profit organizations.

Charities in different countries

Australia

Under Australian law, there is no centralised system of government regulation or recognition for charities. The notion of a charity touches upon several distinct areas of the law; it is up to each individual agency to decide on what is a charity with respect to the laws it is administering. If an entity disagrees with the decision of the agency, it can challenge it through the Courts. It is possible for an entity to be recognised as a charity by some agencies but not others. For example, in the early 1980s, Scientology was recognised as a religious charity by the governments of most States and Territories, but the Victorian taxation system refused recognition, until Scientology successfully challenged that decision through the courts - see Church of the New Faith for more.

The most important of the laws around charities is the registration with the Australian Taxation Office as deductible gift recipients (DGR). This results in the people being able to deduct donations to the charity from their income tax. However, there are also several other areas where charity comes into play: the States regulate charitable fundraising, to ensure only bona fide charities engage in it; ASIC charges reduced fees for companies established for a charitable purpose; charities can avail themselves of exceptions to the company naming provisions under the Corporations Act; trusts for charitable purposes can escape the rule against perpetuities in trust law.

The definition of trust in Australia is derived through English common law, originally from the Statute of 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.[2]

Hong Kong

The city's tax department, the Inland Revenue Department, grants tax exemption status to charitable institutions or trusts of a public character. Organizations may apply to the Department for recognition as approved charitable institutions or trusts of a public character. The Department stresses that it is not responsible for the registration of charities.

Currently there are over four thousand charitable institutions and trusts registered with the Department. Any group engaged in poverty relief, education and religious advancement, and other beneficial activities can apply for charitable status.

United States

In the United States, there are complex tax law differences between private and public charities.

Donations to charities in the United States are deductible for income tax purposes if the organization has exempt status from the Internal Revenue Service, usually under non-profit organization sec. 501(c)(3) of the tax code. Such organizations file a tax return by using IRS Form 990, which is monitored by watchdog groups like Charity Navigator to analyze their business practices. Any organization meeting the rules of section 501(c)(3) can be classified a charity in the US, including trusts, foundations and corporations. [3]

US tax law also allows trusts that do not qualify as exempt under 501(c)(3) to get significant tax advantages if they are set up with specific provisions.[4] These are called Charitable Remainder Trusts (CRT) and Charitable Lead Trusts (CLT). Charitable Remainder Trusts are so named because the remainder of the assets in the trust passes to a designated charity at the death of the grantor or one or more beneficiaries. A current tax deduction is given for the portion that is determined to be the expected amount the charity will receive in the future, which is called the remainder. During the lifetime of the primary beneficiary, a percentage of assets or a fixed dollar amount are paid to the primary beneficiary. There are two primary types of CRTs: Charitable Remainder Unitrusts (CRUT), where a percentage of assets is received by the lifetime beneficiary, and Charitable Remainder Annuity Trusts (CRAT), where a fixed dollar amount is received every year. Charities or other trustees are also allowed to set up pooled trusts that operate similarly to individual CRTs except that they receive contributions from multiple donors. This allows each donor similar benefits as an individual CRT without the expense of creating the trust themselves. The Charitable Lead Trust is essentially the reverse of a Charitable Remainder Trust. In this form, the lifetime payments go to the charity and the remainder returns to the donor or to the donor's estate or other beneficiaries. Thus the two types of CLTs are CLUTs and CLATs, which are analogous to CRUTs and CRATs.

Similarly named and often confused with CRUTs and CRATs are Grantor Retained Unitrusts (GRUT) and Grantor Retained Annuity Trusts (GRAT). The difference is that GRUTs and GRATs do not involve charitable beneficiaries and therefore are not given the charitable deduction.

United Kingdom

There were over 200,000 registered charities in the UK at the start of 2005. Over one hundred ninety thousansd charities in England and Wales are generally registered with the Charity Commission for England and Wales. The Charity Commission has an online register listing them all. Many charities take the form of limited liability companies and these are also registered with Companies House. Major changes to English charity law are contained in the Charities Act 2006. [5]

The nearly twenty thousand charities in Scotland are registered with the Office of the Scottish Charity Regulator (OSCR), who also publish a Register of charities online. The five thousand or so charities in Northern Ireland are registered with the Inland Revenue. There is no central register or regulatory body for these charities, but this situation is currently under discussion.

In the United Kingdom, Gift Aid is a scheme to enable tax-effective giving by individuals and companies to UK charities. In outline, Gift Aid allows individuals who are subject to UK income tax to complete a simple, short declaration that they are a UK taxpayer. Any cash donations that the taxpayer makes to the charity are then treated as being made after deduction of income tax at the basic rate (twenty two percent in 2006/7), and the charity can reclaim the basic rate income tax paid on the gift, adding approximately 28 per cent to the value of the gift. Higher-rate taxpayers can also claim a deduction for income tax purposes. Charitable companies are also exempt from paying corporation tax on any profits they make. Charities also gain more favourable treatment for value added tax purposes as well. For example, donated materials for charity shops are classed as zero-rated for VAT purposes and adverts placed by charities are also zero-rated in many circumstances. [5]

Although strictly intended for cash donations, HMRC have recently (2006) allowed schemes wherby charities can also claim tax relief on goods donated (such as via charity shops) for sale. [6]

Examples of Charities

  • Amnesty International draws attention to human rights abuses and campaigns for compliance with international standards. It works to mobilize public opinion which exerts pressure on those who perpetrate abuses.
  • Heifer International is a non-profit charitable organization based in Little Rock, Arkansas, dedicated to relieving global hunger and poverty.
  • Knights of Columbus is the world's largest Catholic fraternal service organization.
  • Mercy Home, is an American privately-funded childcare and residential home for abused, homeless and neglected children.
  • Oxfam International is a confederation of 13 organizations working with over 3000 partners in more than 100 countries to find lasting solutions to poverty and injustice.
  • UNICEF promotes developing community-level services to aid the health and well-being of children.

Notes

  1. 1.0 1.1 West's Encyclopedia of American Law. 1998. West Publishing Company. ISBN 978-0314201560. Retrieved October 14, 2007.
  2. Information, Analysis, and Advice for the Pariliament. 2004.Extension of Charitable Purpose Bill 2004. Parliamentary Library. Retrieved October 14, 2007.
  3. Frumkin, Peter. 2006. Strategic Giving: The Art and Science of Philanthropy. University of Chicago Press. ISBN 978-0226266268. Retrieved October 14, 2007.
  4. Internal Revenue Service. Exempt Organizations Examination Procedures. United States Department of Treasury. Retrieved October 14, 2007.
  5. 5.0 5.1 The Regulator for Charities in England and Wales. 2007. Charity Commission. Retrieved October 14, 2007.
  6. HM Revenue and Customs. UK Tax Giving Money Through Gift Aid. Crown Copyright. Retrieved October 14, 2007.

References
ISBN links support NWE through referral fees

  • Friedman, Lawrence. McGarvie, Mark. 2004. Charity, Philanthropy, and Civility in American History. Cambridge University Press. ISBN 978-0521603539.
  • Frumkin, Peter. 2006. Strategic Giving: The Art and Science of Philanthropy. University of Chicago Press. ISBN 978-0226266268.
  • Grossman, Allen. Letts, Christine. Ryan, William. 1998. High Performance Nonprofit Organizations: Managing Upstream for Greater Impact. Wiley. ISBN 978-0471174578.
  • Ott, Steven. 2000. The Nature of the Nonprofit Sector. Westview Press. ISBN 978-0813367859.
  • White, Doug. 2006. Charity on Trial: What You Need to Know Before You Contribute. Barricade Books. ISBN 978-1569803011.

External links

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