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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.)

Legal definitions

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In many common law jurisdictions, the common law definition has been replaced by a statutory definition, but without greatly changing the underlying concept.

Charities are non-profit organizations.

Charities are sometimes referred to as foundations.


In many countries, the charity sector is fast growing. Charities often take over services that used to be provided by the state, such as health, old age and unemployment, as the state ceases to fulfill these traditional social responsibilities.


Charities are normally subject to some form of supervision by the government. Most countries require registration of charities, and the charity is then required 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.

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.

Charities in different countries


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 recognized as a charity by some agencies but not others. For example, in the early 1980s, Scientology was recognized 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.


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.

Currently there are about 4,400 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 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 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.

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.

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.

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.

See also


External links

Charity regulating bodies

United Kingdom

United States

Evaluations of charities

United States

United Kingdom

  • Intelligent Giving - transparency ratings of all types of UK charity
  • Keystone - thinktank developing accountability methods for international NGOs
  • Development Ratings - research and recommendations on development charities
  • GuideStar UK - comprehensive information on charities

Starting a charity

eo:Karitata organizaĵo nl:Goed doel

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