Defending PBI Status Following the “Equality Australia” Decision

Introduction

Following the Federal Court of Australia’s judgment in the Equality Australia case, the Australian Charities and Not-for-profits Commission (ACNC) has released an updated Commissioner’s Interpretation Statement on Public Benevolent Institutions. This new guidance is significant for the not-for-profit sector, as Public Benevolent Institution (PBI) status is essential for accessing valuable tax concessions, and the standards for achieving it have now been clarified.

This guide provides essential information for any charity or organisation on how to defend or apply for PBI status under these new rules, with a focus on proving a “sufficient connection” between an organisation’s activities and direct relief. Given the complexities of an ACNC decision and the appeals process, consulting a not-for-profit lawyer is a critical step in ensuring compliance and effectively managing potential disputes.

Understanding PBI Status & Its Benefits

Defining a Public Benevolent Institution

A PBI is legally defined as a type of charitable institution that is organised, conducted, or promoted for the relief of conditions such as:

• poverty
• sickness
• destitution
• helplessness
• suffering
• misfortune
• disability
• distress

Many organisations that provide support to disadvantaged people, including aged care providers and disability services, are recognised as PBIs.

To be classified as a PBI by the ACNC, an organisation must satisfy three core elements:

Core Element	Definition
Public	The organisation’s work must benefit a sufficient and appreciable section of the general community.
Benevolent	The organisation must be organised for the purpose of providing benevolent relief to people in need.
An Institution	The organisation must be established and conducted to carry out a charitable purpose, rather than simply existing as a trust or fund to manage distributions.

Why PBI Status is the Gold Standard for Tax Concessions

PBI status is highly sought after within the not-for-profit sector because it serves as a gateway to the most valuable tax concessions available to a charity. These significant benefits allow an organisation to maximise its impact and attract support.

The key tax benefits associated with PBI status include:

Tax Benefit	Description
Deductible Gift Recipient (DGR) Status	Allows a PBI to offer tax deductions to its donors for their contributions, which is a powerful incentive for fundraising.
Fringe Benefits Tax (FBT) Exemption	Entitles a PBI to a capped FBT exemption, currently on the first $30,000 of grossed-up fringe benefits per employee, serving as a valuable salary packaging benefit.
Income Tax Exemption & GST Concessions	PBIs are generally exempt from paying income tax and are eligible for various Goods and Services Tax concessions, freeing up more resources for their benevolent work.

Given the complexity of meeting the specific requirements, it is important to consult a not-for-profit lawyer to ensure your organisation’s governing documents and activities align with the criteria for PBI status and its associated tax endorsements.

The “Equality Australia” Case & The Meaning of Direct Relief

Summary of the Equality Australia Federal Court Decision

The case of Equality Australia Ltd v Commissioner of the Australian Charities and Not-for-profits Commission [2024] FCAFC 115 involved Equality Australia Ltd, an organisation registered as a charity for ‘advancing public debate’. The organisation’s work focused on advocacy to change laws and social practices that cause distress to the LGBTIQ+ community.

Equality Australia applied to the ACNC to also be registered with the ‘PBI’ subtype. The ACNC refused the application, leading Equality Australia to seek a review.

The Administrative Appeals Tribunal upheld the ACNC decision, finding that while the organisation’s motives were benevolent, its activities were too focused on advocacy and policy development.

The organisation then appealed to the Full Court of the Federal Court of Australia. The Federal Court found no error of law in the Tribunal’s reasoning and ultimately dismissed the appeal, upholding the decision to refuse Equality Australia registration as a PBI.

How the Court Viewed Advocacy & Direct Relief

The Federal Court’s decision clarified the distinction between different interpretations of ‘direct relief’. It affirmed that while a PBI does not need to provide relief itself and can work through intermediaries, as established in the Hunger Project cases, there is a separate requirement for a ‘sufficiency of connection’ between an organisation’s activities and its benevolent goals.

The court agreed with the Tribunal that a mere theoretical or logical link between advocacy and relieving distress is not enough to qualify for PBI status. Key findings included:

Key Finding	Implication
Connection is a matter of fact and degree	Whether an organisation’s activities are sufficiently connected to benevolent relief must be assessed holistically, considering all circumstances.
Advocacy is not disqualified	The ruling does not prevent a PBI from engaging in advocacy, but an organisation focused on law reform must demonstrate its activities are not too far removed from the relief of distress.
Substance over form	The ACNC must look at the substance of an organisation’s objectives and activities, not just its structure or stated purpose.

In this instance, the court concluded that the Tribunal was justified in finding that Equality Australia’s focus on advocacy for law and social reform was too indirect to be characterised as providing the benevolent relief required for PBI status.

The Updated ACNC PBI Statement & New Rules

Deconstructing the Sufficiency of Connection Test

After the Federal Court of Australia decision in Equality Australia case, the ACNC updated its Commissioner’s Interpretation Statement on Public Benevolent Institutions. This new guidance from the ACNC entrenches the ‘sufficiency of connection’ test, which requires a charity to demonstrate more than a mere theoretical or logical link between its activities and its benevolent purposes.

Whether a sufficient connection exists is a question of fact and degree, determined by a holistic consideration of all circumstances. The updated PBI interpretation statement clarifies that the more abstract and indirect an organisation’s activities are from the relief of its beneficiaries, the less likely it will be regarded as a PBI.

To prove a sufficient connection, an organisation can provide several types of evidence, including:

• Insights from individuals with ‘lived experience’ of the issues being addressed.
• Peer-reviewed scientific research, expert opinions, and publications by esteemed bodies.
• Evidence of contemporary methods used by other entities to deliver relief for similar benevolent needs.

The Role of Advocacy in the Updated PBI CIS

The updated PBI CIS clarifies that engaging in advocacy does not automatically disqualify a charity from being a PBI. An organisation can engage in advocacy, education, and campaigning, but these activities must meet the sufficiency of connection test by proving a clear link to the benevolent relief of people in need.

According to the ACNC decision impact statement and the updated guidance, there are no rigid rules or specific activities that are determinative. Instead, the ACNC will undertake a holistic assessment of an organisation’s purpose and activities.

If a charity is predominantly organised to address benevolent needs through advocacy for law reform and social change, it must provide evidence of a sufficient connection between its work and the benevolent ends it pursues. Due to the nuances of this guidance on PBIs, it is often beneficial to consult a not-for-profit lawyer to ensure compliance.

A Defence Guide for Your Charity & Proving Connection

Proving a Sufficient Connection to Direct Benevolent Relief

Following the Federal Court of Australia decision in Equality Australia case, a charity must demonstrate more than a mere theoretical or logical link between its activities and its benevolent purposes. The ACNC now requires a ‘sufficiency of connection’ to be proven.

Whether this connection exists is a question of fact and degree, which the ACNC assesses through a holistic consideration of all circumstances.

The updated PBI interpretation statement clarifies that:

• The more abstract and indirect an organisation’s activities are from the relief of its beneficiaries, the less likely it will be regarded as a PBI.
• For an organisation focused on advocacy, it is necessary to provide clear evidence that its work is not too far removed from the direct relief of distress.

Using Lived Experience & Expert Evidence

The updated guidance on PBIs from the ACNC provides clear examples of the evidence a charity can use to demonstrate a sufficient connection. An organisation can strengthen its application or defence for PBI status by presenting compelling evidence that validates its approach to providing relief.

Key types of evidence that can be used to support your organisation’s case include:

Type of Evidence	Description
Insights from lived experience	Evidence from individuals experiencing the issues can powerfully demonstrate which methods of relief are effective within their communities.
Expert opinions and research	Submitting peer-reviewed scientific research, publications by esteemed bodies, or opinions from recognised experts provides authoritative support for an organisation’s methods.
Evidence of contemporary methods	Demonstrating that activities align with common methods used by other entities to deliver relief for similar benevolent needs can be persuasive.

Given the detailed evidence required to meet the sufficiency of connection test, consulting a not-for-profit lawyer is a critical step to ensure your charity presents the strongest possible case to the ACNC.

Managing Dispute Risks & Challenging ACNC Decisions

Assessing the Risk of an ACNC Review or Revocation

The ACNC actively reviews charities to ensure their ongoing eligibility for registration and tax concessions, making it crucial to understand how to prepare your charity for an ACNC compliance review. PBIs are a primary focus for these reviews due to the significant tax benefits they receive, such as FBT exemptions, making them a higher-risk category.

An organisation may face an increased likelihood of review by the ACNC if it meets certain criteria, including:

• Having been registered as a charity and PBI before the ACNC’s establishment on 3 December 2012, as these entities have not been previously assessed by the ACNC.
• Not having a governing document uploaded to the ACNC portal.
• Listing no, or only one, Responsible Person on the ACNC register.

Common compliance issues that can place PBI status at risk include:

Compliance Issue	Description
Outdated Purposes	Having purposes in a governing document that no longer reflect the organisation’s actual activities.
Inconsistent Activities	Engaging in activities that are not consistent with its benevolent purpose, which must be its main purpose.

A charity can face scrutiny if its activities are not aligned with its stated benevolent purpose.

The Process for Appealing a Refusal or Revocation

If the ACNC refuses or revokes an organisation’s PBI status, there is a formal process for challenging the ACNC decision.

The first step is to request an internal review from the ACNC, which must be done within 60 days of receiving the original decision. This application requires a detailed explanation of the reasons for objecting to the decision.

Following the internal review, the ACNC will issue an ‘objection decision’. If the charity disagrees with this outcome, it can then appeal to the Administrative Review Tribunal (ART), which will conduct a merits review of the ACNC decision.

A decision from the ART can be further appealed to the Federal Court of Australia, but only on a question of law. This may include situations where the ART incorrectly interpreted a statute or denied procedural fairness.

Given the complexity of drafting a notice of appeal and arguing points of law, it is strongly recommended that a charity seeks assistance from a not-for-profit lawyer for any ART or Federal Court proceedings.

The Importance of Consulting a Not-for-profit Lawyer

Why Legal Advice is Critical During Reviews & Appeals

Challenging an ACNC decision regarding PBI status involves a formal and complex process. If the ACNC refuses or revokes PBI status, an organisation can:

• Request an internal review
• Pursue further appeals to the ART or the Federal Court of Australia

Appealing to the Federal Court of Australia is restricted to questions of law. These may include:

• Whether the ART incorrectly interpreted a statute
• Whether the ART denied procedural fairness

Drafting a notice of appeal and arguing these intricate legal points is exceptionally difficult. For this reason, it is strongly recommended that any charity or organisation seeks assistance from a not-for-profit lawyer for any ART or Federal Court proceedings.

Ensuring Compliance with Governing Documents & Standards

A not-for-profit lawyer can provide essential guidance on NFP governance and ACNC compliance, helping to review an organisation’s governing documents to prevent common issues that put PBI status at risk. The ACNC may review a PBI if:

• Its purposes are not clearly benevolent
• Its activities are inconsistent with its stated main purpose

Legal experts can ensure a charity’s governing document contains required clauses, such as those for:

• Winding up
• DGR status

They also help confirm that the purposes listed in the document accurately reflect the organisation’s current activities, ensuring alignment with the strict requirements for maintaining registration as a PBI.

Conclusion

The Federal Court of Australia’s ruling in the Equality Australia case and the subsequent updated guidance from the ACNC have solidified the ‘sufficiency of connection’ test for any charity seeking PBI status. An organisation must now provide clear evidence that its activities are directly linked to providing benevolent relief to people in need, rather than relying on a theoretical connection.

Given the detailed requirements for proving this connection and managing potential ACNC decisions, securing specialised legal advice is essential for any not-for-profit organisation. To ensure your charity complies with the updated PBI interpretation statement and is prepared for any review, contact the expert not-for-profit lawyers at LawBridge for tailored guidance.

Frequently Asked Questions