As a recap of the ACNC Charities Series so far:

  • In Part 1 we discussed registration as a “charity” with the Australian Charities and Not-for-profits Commission (“ACNC”), and identified some of the taxation and other benefits of obtaining “charity” status.
  • In Part 2 we explained the nature of Deductible Gift Recipients (“DGR”), why obtaining DGR status is attractive in encouraging larger and more frequent donations, and how a charity might become eligible to be endorsed as a DGR to issue tax-deductible receipts to potential donors.
  • Part 3 we explored the nature and objectives of Public Benevolent Institutions, their place in the community in providing benevolent relief to people in need, and discussed how an institution might become endorsed as a PBI.

In Part 4, we will now discuss a further category of charities recognised by the ACNC: the Health Promotion Charity.

 

What are Health Promotion Charities?

A Health Promotion Charity (or “HPC”) is an organisation that is registered with the ACNC under the Health Promotion Charity charitable subtype (one of the fourteen different types of charities recognised by the ACNC). To be an HPC, the institution must be an “institution whose principal activity is to promote the prevention or the control of diseases in human beings.”[i]

The definition above shows that an entity seeking registration as a Health Promotion Charity:

  1. Must be ‘charitable’ in nature (i.e. be registered as a charity with the ACNC);
  1. Must be an ‘institution’;
  1. Must have a ‘principal purpose’;
  1. That principal purpose must be:

a. to promote the prevention of diseases; or

b. to promote the control of diseases;

  1. The institution must be targeted towards addressing a “disease”; and
  1. The disease(s) focussed on by the HPC must be diseases in humans.

 

Why Choose the HPC Structure?

Entities successfully registered as HPCs may be entitled to the following tax concessions:

  • Relevant tax concessions available to all registered charities (income tax exemption; GST concessions; potential exemption on franking credits); and
  • Fringe benefit tax exemptions.

Similar to Public Benevolent Institutions, Health Promotion Charities also have their own Deductible Gift Recipient (“DGR”) category. This means a registered HPC may be entitled to whole-of-entity DGR status and to provide to tax deductible receipts to its donors – which is a significant advantage in potentially encouraging larger and more frequent donations to the HPC.

 

Meeting the Eligibility Criteria

Institutions seeking to be registered as HPCs must meet the eligibility requirements of HPCs. These requirements are most clearly set out in the Commissioner’s Interpretation Statement: Health Promotion Charities[ii] and are discussed below.

The “charity” and “institution” aspects of this category are dealt with in our previous articles in this series.

1.   Promotion of prevention or control of diseases in humans

The uniqueness of HPCs derives from its purpose of promoting the prevention or control of diseases in humans. Some notable points arising out of the Commissioner’s Interpretation Statement are outlined below:

  • Definition of Disease: The ACNC interprets the definition of “disease” broadly, with reference to the Income Tax Assessment Act 1997 (Cth) and the case of Waubra Foundation and Commissioner of Australian Charities and Not-for-profits Commission.[iv] The starting point is that the definition “includes any mental or physical ailment, disorder, defect or morbid condition, whether of sudden onset or gradual development and whether of genetic or other origin”.[v] This can include mental health conditions.[vi] Furthermore, “disease” may also include conditions not yet recognised as being diseases if certain prerequisites are met.[vii]
  • What is not a Disease: “Diseases” are more than just general health conditions or symptoms of disease,[viii] or injuries.[ix]
  • “Promote” meansto further the growth, development or progress of; to encourage.[x]
  • Prevention” means “to keep from occurring; to hinder.”[xi]
  • Control” means “to hold in check; to curb or restrain”.[xii] 
  • Diseases in humans: The disease must be diseases arising in humans (as opposed to those exclusive to animals, plant life or other living organisms).[xiii]

Importantly, it is promoting the prevention OR control of diseases in humans which must be the principal activity. This makes the permissible activities for HPC’s quite broad. Examples include:[xiv]

  1. raising public awareness about the symptoms of a disease
  2. raising public awareness about how to seek treatment for a disease
  3. raising public awareness about steps that can be taken to prevent a disease being contracted, such as via vaccination or good hygiene practices
  4. raising public awareness of the prevalence or risk of a disease
  5. research into prevention of disease
  6. research into identification and diagnosis of disease
  7. research into management and treatment of disease
  8. action to reduce the spread of disease, such as providing personal protective equipment
  9. diagnosing, managing and treating disease
  10. training carers and health professionals in methods of controlling disease
  11. fundraising for HPCs or other entities that promote the prevention or control of disease, or directly prevent or control disease, as their purpose
  12. providing support to sufferers of a disease to alleviate their distress and suffering.

 

2.   Principal Activity

The prevention or control of diseases in humans must be the “principal activity” of the entity seeking registration as an HPC. This means ‘main’ or ‘predominate’.[xv] Paragraph 51 of the Commissioner’s Interpretation Statement is instructive:

An organisation’s principal activity does not need to take up the majority (meaning more than 50%) of its time and resources. The principal activity is the activity that takes up a greater share of the organisation’s time and money than each of its other activities. For example, an organisation could spend 40% of its time and money on one activity, 30% of its time and money on a second activity, and 30% of its time and money on a third activity. The activity that takes up 40% of the organisation’s time and money is its principal activity, even though it takes up less than 50% of its overall time and money.

This principal activity test is notably more flexible than the test applied for Public Benevolent Institutions, meaning that this category may be appropriate for charities looking to have a number of related activities which are not all strictly the prevention or control of diseases in humans but still obtain the benefits this category allows.

The ACNC will undertake a thorough assessment of the organisation’s activities to ensure that the entity has a principal activity of promoting the prevention or control of diseases in humans.

This article is general information only and is current only as at the time of publication. If you are considering or are in the process of establishing a charity and are wondering whether a Health Promotion Charity might be the right structure for you, Corney & Lind Lawyers can help. Contact our friendly team today on (07) 3252 0011 or email us at: enquiry@corneyandlind.com.au

 

 

 

 

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[i] See Australian Charities and Not-for-profits Act 2012 (Cth) s 25-5.

[ii] See a link to the Commissioner’s Interpretation Statement: Health Promotion Charities available here: https://www.acnc.gov.au/tools/guidance/commissioners-interpretation-statements/commissioners-interpretation-statement-health-promotion-charities

[iii] See ACNC Charities Part I for the requirements of “charity” status, and ACNC Charities Part III for the requirements of “institution” status.

[iv] [2017] AATA 2424. See Australian Charities and Not-for-profits Commission, ‘Commissioner’s Interpretation Statement: Health Promotion Charities’, Version 4, published 30 June 2023, at [24].

[v] Income Tax Assessment Act 1997 (Cth) s 34-20(3).

[vi] Australian Charities and Not-for-profits Commission, ‘Commissioner’s Interpretation Statement: Health Promotion Charities’, Version 4, published 30 June 2023, at [27].

[vii] Ibid, [30]-[34].

[viii] Ibid, at [28].

[ix] Ibid, at [37].

[x] Ibid, at [40].

[xi] Ibid, at [41].

[xii] Ibid, at [42].

[xiii] Ibid, at [38].

[xiv] Ibid, at [43].

[xv] Ibid, at [50].

 

Leasing out real property can be an attractive value proposition for charitable and not-for-profit entities. Such arrangements can be a useful method of maximising the value of a charity’s assets and generating additional finances for the charity to use in pursuing its charitable purposes and objectives.

Typically, leases of property may be attractive to charitable entities as legal ownership over a leased asset remains vested in the charity – rather than ownership being transferred to the Buyer under a Contract of Sale. Additionally, charitable or not-for-profit entities often enjoy the following benefits from leasing arrangements:

  • Steady income generation and diversification of revenue streams – charities who lease their property broaden their revenue sources and increase their capacities to pursue charitable purposes through additional rental income. This is especially useful in situations where charities seek to derive benefit out of land which is idle or unused.
  • Taxation minimisation – where a property is used for charitable purposes, the property may be eligible to receive specific types of taxation concessions or exemptions (such as state-based land tax exemptions or local council general rates rebates/exemptions). A charity may seek to lease out its property to ensure that property owned by a charity is being used for charitable purposes (which may be necessary for it to qualify for state taxation benefits).
  • Certainty of rights and obligations – Charities will often enter into leases to ensure they have certainty over the particular rights, responsibilities and potential liabilities of the parties to the agreement, which is particularly useful in solidifying and documenting tenancies which have previously existed as more informal arrangements (such as those which may occur between parties/entities related to the charity).
  • Alignment with charitable purposes – some charities, such as those established to provide housing assistance or affordable housing schemes, might acquire and develop property to lease out at reduced rates to persons experiencing hardship or disadvantage. Accordingly, entering into leases may form part of the charity’s charitable mission.

What should a charity consider before leasing its property?

A decision by a charity or not-for-profit entity as to whether to lease out its property should never be made rashly or hastily – there are a multitude of factors which should carefully considered before entering into such a lease. Generally, laws governing leases of property differ across different States and Territories, but some general considerations to which a charity or not-for-profit entity should turn its mind include:

  • Lessee – who is the lessee in relation to the Charity? If the proposed lessee is a related party to the charity, then you should seek legal advice to ensure that you are not breaching your charitable purpose and that the lease is at market rates (or rates more beneficial to the charity).
  • Termwhen will the lease commence? When will the lease expire? Will there be any options for the Tenant to extend the term? Charities should be very careful in ensuring that the term for which property will be leased out is reasonable, and that the term’s length does not bring about any unintended consequences (for example, Queensland’s deemed subdivision laws for leases over a part of a parcel of land where the lease extends for a term beyond 10 years).
  • Type and Description of Property is the lease for residential property, commercial property or for personal property? If commercial, will the lease be for a retail shop, or will it be for some other kind of commercial space? Is the lease for the whole or part of the property, and in what state or territory is the property located, Specificity in the description of leased property is essential, and depending on the nature of the property being leased the lease agreement may be governed by different rules and laws.
  • Rent and Outgoingshow much rent will the Tenant pay, and how will this be calculated? Will usage costs for critical services such as water, electricity and air-conditioning be included in the rent, or will the Tenant pay for these separately? Typically, charities should ensure that the rent and outgoings amounts are set high enough to cover its costs for maintaining the property (plus some), but not so high as to be uncommercial. This is especially important for charities registered with the Australian Charities and Not-for-profits Commission (“ACNC”), given requirements of Directors of registered charities to act in the best interests of the charity. This means that generally any lease terms should be on market terms or on terms more favourable to the charity. Consider taking specialised financial advice on these aspects.
  • Rent Review How will the rent increase in each year – will it be annual increases in accordance with CPI? Will it be fixed percentage increases every period of time? Charities should ensure that rental increases maintain the value of the rent and keep up with the rising costs of living. A charity should seek financial advice to determine an appropriate figure.
  • Permitted Use for what purposes is the Tenant intending to use the premises? Can the property be lawfully used for that purpose? Does the charity wish to restrict the Tenant’s use of the property for particular purposes? For leases of commercial land, also consider whether the Tenant is to receive Exclusive Use – i.e. will the Charity guarantee to the Tenant that it will not lease another part of the property to a business similar in nature to the Tenant’s.
  • Privacy – if a charity leases its property, the Tenant will often require quiet enjoyment of the property free from unreasonable interference from the Lessor. How much will these privacy conditions impact upon the charity’s operations if the charity cannot access/use the property?
  • Retail Shop Leases – are the premises caught by your state’s respective retail shop lease legislation? If so, there are implications for the form of the lease and the disclosures you must make to the lessee. You should seek legal advice to determine whether these rules apply and how to comply with them.
  • Insurances, Maintenance and Damage to Property who is responsible for rectifying damage to a property and ensuring the property is maintained to an appropriate standard? Who will revert the property to its original condition at the end of the lease? Who bears the costs of taking out insurances over the property? Clarity on the answers to these questions are important to ensure each party understands its rights and obligations under the lease.
  • Prior Encumbrances – are there any encumbrances (such as mortgages, security interests or caveats) on the property title which may act as a barrier to the charity leasing out its property? These may need to be resolved prior to a lease agreement being signed.
  • Implication for State Land Tax exemptions – If you are currently recipient of state land tax exemptions as a charity, then you should seek legal advice to ensure that the proposed lease does not jeopardise any ongoing entitlement to such an exemption.
  • Termination Rights In what circumstances does the charity wish to be able to terminate the lease with the Tenant? Are there any actions of the Tenant which would justify immediate termination by the charity? Are these terms fair and reasonable?
  • Security How will the charity ensure that the obligations of the Tenant will be fulfilled? Will a bank guarantee, a security bond, or a personal guarantee be required from the Tenant as collateral?
  • Sub-letting and Assignment will the Tenant be permitted to assign or sublease their rights under the lease to a third party? Must the third party be approved by the charity prior to the Tenant entering into an agreement to sublet/assign.
  • NSW Schools and Education Act considerations – Before looking to lease a property owned by a school in NSW, careful consideration will need to be given to compliance with the Education Act and, relevantly, compliance with the section 83C components of the Act.

Before you sign any form of leasing arrangement, it is always prudent (and, in some cases, necessary) to obtain specialised legal advice from a qualified professional. The experienced team at Vocare Law can assist you with preparing a lease agreement that is tailored to suit your charity’s needs. Contact us today on 1300 862 529 or send us your enquiry here. We look forward to meeting with you.

This article was written by Jackson Litzow & Simon Mason.