Charitable organization
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{{otheruses4|charitable organizations|other uses of the word charity|Charity}}
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A '''charitable organization''' (also known as a '''charity''') is an organization with [[Charity (practice)|charitable]] purposes only. [[trust (property)|Trusts]], [[Foundation (nonprofit organization)|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 organization]]s, 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.
Most charities rely on third party funds (Donations, [[Grants]], Government funding etc.) for their operations, though on some occasions second parties (service users for example) may make a financial contribution, however this is generally aimed to cover expenses that have not been funded by a third party, and thus remain not for profit and charitable in their nature. Like any business, modern charities have overheads such as salaries, insurances, rent and program expenses which require significant income. Consequently many charities (such as philanthropic Trusts and Foundations)exist purely to raise and distribute funds to other program-based charities. This allows both charities to focus on what they are good at, be that raising and managing money or delivering much needed programs of support. Such charitable Foundations generally disperse funds through [[Grant]]s in one form or another. According to the (US) Foundation Center<ref>[http://foundationcenter.org/ Foundation Center - Knowledge to Build On<!-- Bot generated title -->]</ref>, there are over 88,000 different trusts and foundations in the US alone.
Given the complexity of researching potential charitable grants, many smaller organizations turn to professional [[Grant writing]] services for assistance. Whilst these services operate on a fee for service basis, they allow smaller organizations to compete with larger organizations (who often have their own permanent grant search and writing program) by spreading the overheads associated with running a grant research and writing program across numerous smaller charities.
==Impact==
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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 manage these services. In some cases there have begun to exist [[Non-profit franchises]] (charity organizations which create new charity organizations).
==Supervision==
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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 exemption]]s. However, supervision may also allow the government to influence the scope and agenda of charities.
In the United States, because of the principle of [[separation of church and state]], [[church]]es and other religious organisations are often exempt from this legal requirement, although they are often overseen by a church hierarchy.
==Origins of common law legal definitions==
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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 known 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.
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 (Canada)|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.
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 [[Australia| '''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 [[The Charitable Uses Act 1601|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.<ref>[http://www.aph.gov.au/library/pubs/bd/2003-04/04bd164.pdf Extension of Charitable Purpose Bill 2004 (Bills Digest, no. 164, 2003-04)<!-- Bot generated title -->]</ref>
===Hong Kong===
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The city's tax department, the [[Inland Revenue Department (Hong Kong)|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.
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===
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There were over 200,000 registered charities in the [[United Kingdom|UK]] at the start of 2005.
* The 190,000+ charities in [[England]] & [[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 [[trustee]]s). Major changes to English charity law are contained in the [[Charities Act 2006]].
* The 20,000 or so charities in [[Scotland]] are registered with the [[Office of the Scottish Charity Regulator]] (OSCR), who also publish a Register of charities online.
* 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.
==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 may be deductible for [[income tax]] purposes if the organization is determined by the [[Internal Revenue Service]] to be a qualified organization under IRS Publication 526. Qualified Organizations include nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals.<ref name="IRS Pub 526">[http://www.irs.gov/pub/irs-pdf/p526.pdf IRS Publication 526 - Charitable Contributions]</ref>
Charitable Organizations include Churches, religious organizations, federal, state, and local governments, Salvation Army, Red Cross, CARE, Goodwill Industries, United Way, Boy Scouts, Girl Scouts, Boys and Girls Clubs of America, war veteran’s groups, fraternal lodges, nonprofit schools, hospitals, museums, etc.<ref name="IRS Pub 526"/> IRS Publication 78 is the Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code that lists specific qualified organizations.<ref>[http://www.irs.gov/charities/article/0,,id=96136,00.html IRS Publication 78 - Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code ]</ref> The IRS also provides an online site to look up qualified charitable organizations by name or city.<ref>[http://apps2.irs.gov/app2/pub78 IRS Search for Charities, Online Version of Publication 78]</ref>
Qualified Charitable Organizations have tax 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. US [[tax law]] also allows [[trust (property)|trusts]] that do not qualify as exempt under 501(c)(3) to get significant tax advantages if they are set up with specific provisions.<ref>[http://www.irs.gov/irm/part4/ch52s05.html Internal Revenue Manual - 4.76.5 Non-Exempt Charitable And Split Interest Trusts<!-- Bot generated title -->]</ref>. These are called [[Charitable Remainder Trust]]s (CRT) and [[Charitable Lead Trust]]s (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 unitrust|Charitable Remainder Unitrusts]] (CRUT), where a percentage of assets is received by the lifetime beneficiary, and [[Charitable Remainder Annuity Trust]]s (CRAT), where a fixed dollar amount is received every year. Charities or other trustees are also allowed to set up [[pooled trust]]s 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.<ref>[http://cobrands.public.findlaw.com/estate_planning/nolo/ency/3045416C-EDC6-48F2-A310DAF212E2361D.html Lawyer, Lawyers, Attorney, Attorneys, Law, Legal Information - FindLaw<!-- Bot generated title -->]</ref> The Charitable Lead Trust is essentially the reverse of a Charitable Remainder Trust <ref>[http://web.archive.org/web/20050408090015/http://michiganestateplan.com/CM/ResourceLinks/Glossary.asp Alphabet Soup of Estate Planning (archived page)] </ref>. 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) <ref>[http://www.irs.gov/irb/2005-11_IRB/ar10.html Internal Revenue Bulletin - March 14, 2005 - T.D. 9181<!-- Bot generated title -->]</ref>. 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.
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.<ref>[http://www.hmrc.gov.uk/charities/donors/gift-aid.htm UK Tax]</ref>
===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.<ref>[http://www.hklii.org/hk/legis/en/ord/112/s88.html Hong Kong Inland Revenue Ordinance, Chapter 112, section 88]</ref> 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.<ref>[http://www.hklii.org/hk/legis/en/ord/112/s88.html Hong Kong Inland Revenue Ordinance, Chapter 112, section 88]</ref>
A taxpayer may receive a deduction from their income taxes equal to the amount of charitable contributions to tax-exempt charitable organizations.<ref>[http://www.hklii.hk/hk/legis/en/ord/112/s16d.html Hong Kong Inland Revenue Ordinance, Chapter 112, section 16D]</ref> However, the taxpayer must have made such contributions that in the aggregate exceed $100.<ref>[http://www.hklii.hk/hk/legis/en/ord/112/s16d.html Hong Kong Inland Revenue Ordinance, Chapter 111, section 16F]</ref> The taxpayer may not receive a deduction in an amount that exceeds 25% of their total income.<ref>[http://www.hklii.hk/hk/legis/en/ord/112/s16d.html Hong Kong Inland Revenue Ordinance, Chapter 112, section 16D]</ref>
== Organizations that evaluate charities ==
* [[American Institute of Philanthropy]]
* [[Assured Giving]]
* [[BBB Wise Giving Alliance]]
* [[Charity Navigator]]
* [[Development Ratings]]
* [[GuideStar]]
* [[Intelligent Giving]]
* [[New Philanthropy Capital]]
== See also ==
* [[America's Charities]]
* [[Car donation]]
* [[Charitable trust]]
* [[Cy pres doctrine]]
* [[Foundation (charity)|Foundation]]
* [[Fraternal and service organizations]]
*[[Grants]]
*[[Grant writing]]
* [[List of environmental organizations]]
* [[List of welfare organizations]]
* [[Non-profit organization]]
* [[Occupational safety and health]]
*[[Philanthropy]]
* [[Program evaluation]]
* [[Social enterprise]]
== References ==
<References/>
==List of relevant organizations==
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===Charity regulating bodies===
* [[Australian Taxation Office]]
* [[Canada Revenue Agency]]
* [[Inland Revenue Department (Hong Kong)]]
* [http://www.attorneygeneral.jus.gov.on.ca/english/family/pgt/ Public Trustee (Ontario)]
* [[Charity Commission]] for England and Wales
* [[Office of the Scottish Charity Regulator]]
* United States [[Internal Revenue Service]] (also [http://apps.irs.gov/portal/site/pub78/ confirm a US charity is real])
===Evaluations of charities===
====United States====
* [[American Institute of Philanthropy]]
* [http://www.give.org/ BBB Wise Giving Alliance]
* [http://www.charitynavigator.org/ Charity Navigator]
* [http://www.guidestar.org/ GuideStar]
* [http://www.givewell.net/ GiveWell: Real Change for Your Dollar]
====United Kingdom====
=====National focus=====
* [http://www.guidestar.org.uk/ GuideStar UK] comprehensive information on charities
* [http://www.intelligentgiving.com/ Intelligent Giving] transparency ratings of all types of UK charity
* [http://www.philanthropycapital.org/ New Philanthropy Capital] provides recommendation reports on charities
* [http://www.raisemagazine.co.uk/ Raise Magazine] provides details and video coverage of charities' work
=====International focus=====
* [http://www.developmentratings.com/ Development Ratings] research and recommendations on international development charities
* [[Global Connections]]
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[[Category:Types of organization]]
[[Category:Charities|*]]
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[[Category:Social economy]]
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