Non-Profit News Service No. 0373 - Bargwanna Case: High Court allows appeal

On 29 March, the High Court handed down its decision in Commissioner of Taxation v. Bargwanna [2012] HCA 11 allowing the Commissioner's appeal against the Full Federal Court decision.

The High Court held that the trustees' administration of the Kalos Metron Charitable Trust had not complied with the requirement for tax exemption under section 50-60 of the Income Tax Assessment Act 1997 (ITAA 1997) because the fund was not 'applied for the purposes for which it was established'.


Does a fund which is applied 'substantially', but not wholly, for the charitable purposes for which it was established satisfy the requirement of section 50-60 of the ITAA 1997 that 'the fund is applied for the purposes for which it was established'?

Has a deliberate misapplication occurred only if the trustee was intending to breach the terms of the charitable trust?


In 2004 the trustees, Mr and Mrs Bargwanna, applied for tax concession charity endorsement for the trust on the basis that it was a charitable fund. The Commissioner refused their application and also disallowed their subsequent objection.

The Commissioner contended that the fund was not entitled to endorsement as it was not applied for charitable purposes but was actually applied for the benefit of the trustees in several identified respects. The trust was also applied for the benefit of the trust's authorised administrator.

Trust money was paid into the administrator's trust account where it was mixed with money held by him on behalf of others. Interest from this account was credited to a separate bank account and used to defray the costs of maintaining his trust account and its related requirements. Additionally, in 2004 the trustees transferred trust money into their personal home loan offset account. Payments were made into this account from other sources but these were exceeded by the sums withdrawn, with the excess representing assets of the trust.

The primary issue on appeal was the meaning of the phrase 'the fund is applied for the purposes for which it was established' in section 50-60 of the ITAA 1997.


The High Court unanimously allowed the appeal. The court considered that the relevant provisions of the Act direct attention to the terms of the instrument of trust by which the fund is established in Australia for public charitable purposes. Section 50-60 of the ITAA 1997 requires that the fund be 'applied' for those purposes, and does not require only that the fund be 'substantially' or 'on the whole' applied for those purposes.

In the present case, the acts of maladministration relied upon by the Commissioner were not related to carrying out the charitable purposes for which the trust deed provided. The High Court found that the Commissioner was correct to refuse the trustees' application.

We previously advised you of developments in the Bargwanna case in:

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    Last modified: 16 Apr 2012QC 25845