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Encyclopedia > Charitable organization

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 all non-profit organizations, however, 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. Allegorical personification of Charity as a mother with three infants by Anthony van Dyck Charity, meaning selfless giving, is one conventional English translation of the Greek term agapē. // Etymology In the 1400, charity meant the state of love or simple affection which one was in or out of regarding one... In modern usage, the practice of charity means the giving of help to those in need. ... A non-profit organization (abbreviated NPO, or non-profit or not-for-profit) is an organization whose primary objective is to support an issue or matter of private interest or public concern for non-commercial purposes, without concern for monetary profit. ...

Contents

Impact

In many countries, the charity sector is quickly growing. Charities often take over services that used to be provided by the state, such as health services or elderly care, when the state ceases to fulfill these traditional social responsibilities. In some cases there have begun to exist Non-profit franchises (charity organizations which create new charity organizations).


Supervision

Charities are normally subject to some form of oversight by a government appointed authority. Most countries require registration of charities, with the requirement to report its activities (especially financial ones) to the government, usually on an annual basis.


Supervision can reduce the possibilities of charity fraud and may be thought particularly justified where charities receive Tax exemptions. However, supervision may also allow the government to influence the scope and agenda of charities. Charity fraud is the act of using deception to get money from people who are making donations to charities. ... A tax exemption is an exemption to the tax law of a state or nation in which part of the taxes that would normally be collected from an individual or an organization are instead foregone. ...


In the United States, because of the principle of separation of church and state, churches and other religious organisations are often exempt from this legal requirement, although they are often overseen by a church hierarchy. Constantines Conversion, depicting the conversion of Emperor Constantine the Great to Christianity, by Peter Paul Rubens. ... For the architectural structure, see Church (building). ...


Origins of common law legal definitions

In law, the concept of "charitable" purpose has a meaning which is not quite the same as in normal language.


In common law jurisdictions the concept derives loosely from the meandering list of charitable purposes in the Charitable Uses Act (also know as the Statute of Elizabeth) 1601, interpreted and expanded in a considerable body of case law. In Commissioners for Special Purposes of Income Tax v Pemsel (1891), Lord McNaughten identified four heads of charity which could be extracted from the Charitable Uses Act and that are recognized by the law of charities today: (1) relief of poverty, (2) the advancement of education, (3) the advancement of religion, and (4) other purposes considered beneficial to the community. A boy from an East Cipinang trash dump slum in Jakarta, Indonesia shows what he found. ...


For a purpose to fall into the fourth category, the courts will usually refer to the preamble of the Charitable Uses Act 1601, and decide by analogy to the purposes listed there. An example of this is the case of Vancouver Regional Freenet Association v Minister of National Revenue (1996), where free Internet access was likened by analogy to the repair of highways found in the preamble to the Charitable Uses Act 1601. The Minister of National Revenue is the member of the Canadian Cabinet responsible for the Canada Revenue Agency and the administration of taxation law and collection. ...


In some jurisdictions, the common law definition has been replaced by a statutory definition, but without greatly changing the underlying concept.


Regulations 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. Church of the New Faith was a name used by the Church of Scientology in Australia from the late 1960s until 1983, owing to various State laws restricting or banning the practice of Scientology. ...


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 Australian Taxation Office (ATO) is the Australian government agency that collects taxes and enforces taxation legislation (except customs and external revenues, which are handled by the Australian Customs Service). ...


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.[1]


Hong Kong

The city's tax department, the Inland Revenue Department, grants tax exemption status to charitable institutions or trusts of a public character. Organisations 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. The Inland Revenue Department (in short, IRD) (Chinese: 稅務局) of Hong Kong Government is one of Hong Kong government departments which is responsible for the administration of the following Hong Kong taxes and duties related Ordinances and the related Rules and Regulations: Betting Duty Ordinance Cap. ...


Currently there are about 4,400 charitable institutions and trusts registered with the Department. Any group engaged in poverty relief, education or religious advancement, or other beneficial activities may apply for charitable status.


United Kingdom

There were over 200,000 registered charities in the UK at the start of 2005.

  • The 190,000+ 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. (The main reason for using a company is to obtain limited liability for the trustees). Major changes to English charity law are contained in the Charities Act 2006.
  • The 5,000 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.

For other uses, see England (disambiguation). ... This article is about the country. ... The Charity Commission is the non-ministerial government department that regulates registered charities (and hence to some extent most churches) in England and Wales. ... Companies House is an Executive Agency of the United Kingdom Government Department of Trade and Industry (DTI). ... The word trustee is a legal term that refers to a holder of property on behalf of a beneficiary. ... The Charities Act 2006 is a piece of UK legislation intended to alter the regulatory framework in which charities operate, partly by amending the Charities Act 1993. ... This article is about the country. ... The Office of the Scottish Charity Regulator (OSCR) is an Executive Agency of the Scottish Executive Development Department with responsibilty for the regulation of Scottish charities. ... Northern Ireland (Irish: , Ulster Scots: Norlin Airlann) is a constituent country of the United Kingdom lying in the northeast of the island of Ireland, covering 5,459 square miles (14,139 km², about a sixth of the islands total area). ... The Inland Revenue was, until April 2005, a department of the British Government responsible for the collection of direct taxation, including income tax, national insurance contributions, capital gains tax, inheritance tax, corporation tax, petroleum revenue tax and stamp duty. ...

Tax treatment of charities and gifts to charity

In common law jurisdictions, charities generally enjoy tax exemption for their income, and donors generally enjoy tax reliefs for gifts to charity. Details vary, of course, from country to country.


In civil law jurisdictions not all charitable organizations are tax exempt. Tax exemption is not automatically attributed to a charitable organization, each charity must apply specifically for tax exemption status if desired. Tax exemption may be attributed in full or in pre-categorised percentage levels. When charitable organizations have been established by companies within a tax planning strategy or by any other reason, those charities are usually legally bound in liability to the parent companies.


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. Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        An income tax is a tax levied on the financial income... Seal of the Internal Revenue Service Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        IRS redirects here. ... A non-profit organization (abbreviated NPO, or non-profit or not-for-profit) is an organization whose primary objective is to support an issue or matter of private interest or public concern for non-commercial purposes, without concern for monetary profit. ... 501(c)(3) is a provision of the US tax code that provides exempt status, for Federal income tax purposes, for some non-profit organizations in the United States (see 26 U.S.C. Â§ 501(c)(3)). The term refers to: Section 501. ... Tax forms in the United States are used by the Internal Revenue Service. ... Charity Navigator is an independent, non-profit organization that evaluates American charities. ...


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.([1]). 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.[2] The Charitable Lead Trust is essentially the reverse of a Charitable Remainder Trust ([3]). 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. Tax law is the codified system of laws that describes government levies on economic transactions, commonly called taxes. ... In common law legal systems, a trust is a contractual relationship in which a person or entity (the trustee) has legal title to certain property (the trust property or trust corpus), but is bound by a fiduciary duty to exercise that legal control for the benefit of one or more... A charitable remainder unitrust is a charitable remainder trust created by 26 USCA 664. ... A Charitable Remainder Annuity Trust, is a Planned Giving vehicle that entails a donor placing a major gift of cash or property into a trust. ...


Similarly named and often confused with CRUTs and CRATs are Grantor Retained Unitrusts (GRUT) and Grantor Retained Annuity Trusts (GRAT) ([4]). The difference is that GRUTs and GRATs do not involve charitable beneficiaries and therefore are not given the charitable deduction.


United Kingdom

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 (22% 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. Gift Aid is a scheme to enable tax-effective giving by individuals to charities in the United Kingdom. ... Jim Callaghan, the Chancellor of the Exchequer who introduced corporation tax in 1965. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        Value added tax (VAT), or goods and services tax (GST), is...


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.[2] Ensign of HM Revenue & Customs Her Majestys Revenue and Customs (HMRC) is a new department of the British Government created by the merger of the Inland Revenue and Her Majestys Customs and Excise which came into formal effect on 18 April 2005. ...


Hong Kong

Charitable organizations are exempt from taxation when they engage in a trade or business from which the profits shall be exempt if used for a charitable purpose within Hong Kong.[3] Furthermore, said trade or business must actually carry out the express purpose of the organization or the benefited persons actually carry on the work of the charitable organization.[4]


A taxpayer may receive a deduction from their income taxes equal to the amount of charitable contributions to tax-exempt charitable organizations.[5] However, the taxpayer must have made such contributions that in the aggregate exceed $100.[6] The taxpayer may not receive a deduction in an amount that exceeds 25% of their total income.[7]


Organizations that evaluate charities

The American Institute of Philanthropy (AIP) was created by Daniel Borochoff in 1993 to address the continuing need for thoughtful information regarding the financial efficiency, accountability, governance and fundraising practices of charities. ... The BBB Wise Giving Alliance (WGA) is an alliance of charities formed by a merger of the National Charities Information Bureau and the Council of Better Business Bureaus Foundation and its Philanthropic Advisory Service. ... Charity Navigator is an independent, non-profit organization that evaluates American charities. ... Development Ratings is part of a growing sector in philanthropy that the Monitor Institute, a leading think tank on philanthropy, has termed infrastructure. According to Monitor, these are organisations that attempt to fix some of the failings of philanthropy by enabling greater sharing of information and best practices, as well... GuideStar, a 501(c)(3) public charity, provides information on other 501(c)(3) organizations. ... Intelligent Giving is a website for charity donors run by a small, not-for-profit company based in Bethnal Green, London. ...

See also

Car donation is the practice of giving away no-longer-wanted automobiles to charity organizations. ... A charitable trust is a trust established for charitable purposes. ... This article or section does not cite its references or sources. ... A charitable foundation is a legal categorization of nonprofit organizations that either donate funds and support to other organizations, or provide the sole source of funding for their own activities. ... A fraternal organization, sometimes also known as a fraternity, is an organization or club that represents the relationship between its members as akin to brotherhood. ... This list is incomplete; you can help by expanding it. ... The following List of Welfare Organizations are Non-profit organizations or Charities that provide a basic level of assistance, and often emergency care, to those in need. ... A non-profit organization (abbreviated NPO, or non-profit or not-for-profit) is an organization whose primary objective is to support an issue or matter of private interest or public concern for non-commercial purposes, without concern for monetary profit. ... Occupational safety and health (OSH) is a cross-disciplinary area concerned with protecting the safety, health and welfare of people engaged in work or employment. ... Program evaluation is essentially a set of philosophies and techniques to determine if a program works. It is a practice field that has emerged, particularly in the USA, as a disciplined way of assessing the merit, value, and worth of projects and programs. ... Social enterprises are organizations which trade in goods or services, and link that trade to a social mission. ...

References

  1. ^ Reference: http://www.aph.gov.au/library/pubs/bd/2003-04/04bd164.pdf
  2. ^ UK Tax
  3. ^ Hong Kong Inland Revenue Ordinance, Chapter 112, section 88
  4. ^ Hong Kong Inland Revenue Ordinance, Chapter 112, section 88
  5. ^ Hong Kong Inland Revenue Ordinance, Chapter 112, section 16D
  6. ^ Hong Kong Inland Revenue Ordinance, Chapter 111, section 16F
  7. ^ Hong Kong Inland Revenue Ordinance, Chapter 112, section 16D

External links

Charity regulating bodies

United Kingdom

United States

Evaluations of charities

United States

United Kingdom


 
 

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