Non-Profit News Service No. 0157 - Federal Court decision in Word Investments Ltd
On 3 November 2006, Sundberg J handed down a decision in the case of Commissioner of Taxation v Word Investments Ltd. The case was an appeal and cross-appeal from a decision of the AAT Case 11/2005, 2005 ATC 202. Word Investments was a company set up primarily to raise funds for Wycliffe Bible Translators, a charitable institution which provides funds for overseas missionary and bible translating activities, and to a lesser extent for other organisations and persons performing similar activities. Its objects included those for the spread of Christianity as well as carrying on of any business conveniently able to be carried on in connection with its objects. Initially it operated as a land developer in the early 1980s, but ceased this, then later raised funds by borrowing from Christians at low or no interest and investing these funds at commercial rates of interest. A number of different business options were considered, they held themselves out for a time to be financial planners, then in 1996 began operating as commercial funeral directors. Part of the profits from these investment and business activities were distributed to Wycliffe (primarily) and other similar organisations.
In 2002 the funeral directors business was transferred into a separate foundation. The Administrative Appeals Tribunal held that while the funeral parlour activities were carried on, Word was carrying on a commercial activity and not entitled to endorsement as a charity, but before commencing business as funeral directors and after transferring the business activities into a trust, while the investment activities were carried out, the entity was entitled to charitable status. The Commissioner appealed to the Federal Court, and Word cross-appealed. The Federal Court dismissed the appeal and upheld the cross-appeal, holding that the objects relating to carrying on business were included merely out of an abundance of caution, and that where an organisation raises funds exclusively for a charitable purpose, the fact that it does so through a commercial enterprise does not preclude it from being a charity.
The Federal Court also held that where an organisation raises its funds exclusively in Australia for the purpose of providing funding for overseas activities, and distributes these to a charitable organisation in Australia which in turn uses these funds to pursue its objectives overseas, it pursues its objectives in Australia.
We are currently considering the implications of this decision. The last day for lodging an appeal is 24 November 2006. We will issue a further News Service item when we have decided whether to appeal.
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