BH Pascoe SM

Administrative Appeals Tribunal


Decision date: 2 May 2003

BH Pascoe (Senior Member)

This is an application to review a decision of the respondent dated 11 June 2002, to disallow an objection to the refusal to endorse the applicant as exempt from income tax pursuant to Subdivision 50-B of Division 50 of Part 2.15 of the Income Tax Assessment Act 1997.

2. At the hearing the applicant, The Triton Foundation (the Foundation), was represented by Professor Ashley Goldsworthy AO, OBE, its executive chairman, and the respondent by Mr J. Moore, of counsel. The Tribunal had the documents provided by the respondent pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975. Evidence was given by Professor Goldsworthy and Mr A. Lamond, the general manager of the Foundation.

3. The Foundation was established in 2000 at the instigation of a Mr George Lewin, a successful investor, following the Federal Government sponsored National Innovation Summit in February 2000. Mr Lewin was committed to contributing $3 million over five years. Only other income to date has been funding from the Victorian and Queensland Governments. The principal object of Foundation, as set out in its constitution and in its Mission Statement, is:

``... the promotion of a culture of innovation and entrepreneurship in Australia, particularly among the young, by visibly assisting innovators to commercialise their ideas.''

The Foundation provides advice to inventors on marketing, intellectual property, technical, business planning, etc, by telephone, facsimile, e-mail or in person. It has an interactive website, which provides information to inventors, including down loadable resources and templates. The website provides a self- assessment module to assist inventors identify gaps in their knowledge and to determine where they are placed in the pathway to a commercial product. The Foundation has case managers who review applications for assistance and provide guidance. Inventions, approved by a case manager, are assessed by an assessment panel of voluntary experienced people who provide comments and suggestions to the inventor. Where professional services are required, the inventor may be referred to an appropriate professional. To date, the Foundation does not charge any fee to an inventor for its services, although Professor Goldsworthy said that, in order to provide future funding in the event of a reduction in Government grants, the Foundation may need to charge for some services and/or enter into an income sharing arrangement for successful inventions. He said that the Foundation's initial services, up to the assessment by a case manager, are available to any person, but the result of the assessment may well be advice to an applicant that there is no point in continuing the process. On the other hand, he accepted that the Foundation was free to decline assistance to any individual. He accepted, also, that the Foundation was more likely to concentrate its resources on ideas that are more likely than others to be successful.

4. In addition to the direct advice and information for individual investors, the Foundation, in conjunction with the Victorian Department of Education and Training and the Education Foundation, promotes ``The Dreams and Schemes Award - Students as Innovators''. This is a competition under various categories for students in years 5 to 10 at government schools. In collaboration with the Australian Design Awards, the Foundation selects 3 inventions, registered with it, to be considered for the Australian Invention of the Year Award. The Foundation actively seeks media exposure to promote innovation in Australia frequently using examples of innovative inventions. Initially, it had intended to develop a television series to be called the ``Clever Country''. While this has not yet been

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proceeded with, Professor Goldsworthy said that the Foundation had now received a specific Federal Government grant to create a pilot of such a programme. He agreed that one role of such a series would be the promotion of a market for inventions featured but maintained that it was equally envisaged as a promotion of the concept of innovation and entrepreneurship in Australia. From time to time, the Foundation arranges seminars and workshops for prospective inventors.

5. Professor Goldsworthy said that the role of the Foundation is to provide structured and organised information to inventors. He maintained that this involved education packages, self-assessment tools, an educational pathway through the commercialisation process and individual review and assessment. He noted a number of inventions which, in his view, may never have been commercially successful without the assistance of the Foundation and which have been of benefit to the community.

6. Sections 50-5 to 50-45 list entities which are exempt from income tax. Section 50-105 provides that the Commissioner must endorse an entity as exempt from income tax if it is so entitled and has applied for such endorsement. Such formal endorsement is required only for entities covered by items 1.1, 1.5, 1.5A or 1.5B of the table in s. 50-5. The objection to the refusal to endorse and the refusal itself dealt solely with the contention that the Foundation was a charitable institution under item 1.1 of s. 50-5. ``Charitable institution'' is not defined. The exemption is conditional upon the entity satisfying s. 50-50 and being endorsed under s. 50-105. In this case, there is no dispute that the Foundation satisfies s. 50-50 by having a physical presence in Australia and incurring its expenditure and pursuing its objectives in Australia.

7. An initial reaction to the claim by the Foundation is that it does not come within the usual or popular definition of being charitable. The Macquarie Dictionary (2nd Revision) defines charitable as:

``1. generous in gifts to relieve the needs of others. 2. kindly or lenient in judging others. 3. pertaining to or concerned with charity.''

Charity is defined as:

``1. almsgiving; the private or public relief of unfortunate or needy persons; benevolence. 2. something given to a person or persons in need; alms. 3. a charitable act or work....''

Charitable trust is defined as:

``a trust for the relief of poverty, the advancement of education, religion, or for other purposes beneficial to the community.''

Here, the Foundation was established for, and operates to provide, assistance to actual or prospective inventors by way of providing information, evaluation and assistance in developing an invention to a commercial product.

8. However, it has long been held by the Courts that charitable in taxing statutes is not to be interpreted according to popular meaning, but according to its technical meaning. In
Incorporated Council of Law Reporting (Qld) v FC of T 71 ATC 4206; (1971) 125 CLR 659 (ICLR case), Barwick CJ said that a purpose will be charitable if it [at 4210]:

``... fairly falls within the equity, or as it is sometimes said, `within the spirit and intendment' of the preamble to the Charitable Uses Act 1601.''

The purposes of this preamble are stated in Jacobs Law of Trusts in Australia, 6th Ed, 1997 as comprising:

``... the relief of the aged, impotent and mariners; the maintenance of schools of learning, and free scholars in universities; the repair of bridges, ports, havens, causeways, churches, seabanks, and highways; the education and preferment of orphans; the relief, stock or maintenance of houses of correction; the marriage of poor maids; the support, aid and help of young tradesmen, handicraftsmen, and persons decayed; the relief, or redemption, of prisoners of captives; the aid or ease of any poor inhabitants concerning payment of fifteens, setting out of soldiers, and other taxes.''

Income Tax Special Purposes Commissioner v Pemsel (1891) AC 531, Lord Macnaghten extracted four heads or categories of charity in its legal sense as:

``1. relief of poverty

2. advancement of education

3. advancement of religion

4. purposes beneficial to the community not falling under any of the preceding heads.''

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The ICLR case was concerned with the fourth category. ICLR was a non-profit company limited by guarantee which was the sole publisher of decisions of the Supreme Court of Queensland. In an earlier decision reported at (1924) 34 CLR 580, it was held that it was not a public educational institution. However, in the later case it was held that it was a charitable institution as, in the words of Windeyer J (at p. 4212):

``... The promotion of the learning of the law and adding to the number of men learned in the law and augmenting their learning are in themselves charitable objects and beneficial to the community.''

9. In this case, the primary argument of the Foundation was addressed to the second of Lord Macnaghten's four heads of charity, the advancement of education. This head was the basis for a decision by this Tribunal in favour of the applicant in
Property Services Industry Training Advisory Board Ltd v FC of T 99 ATC 2076. There the applicant provided formal training packages through educational providers such as TAFE to conduct training courses for trainees in the property security industry. It was held that the main purpose of the taxpayer was to advance education in the industry for the benefit of a class of the public. Here, I am of the view that what the Foundation provides is a structured information package rather than education. The information and self-assessment part of its service may be seen as a means of condensing information which would otherwise need to be obtained by an inventor from a variety of sources of such information, such as books or manuals on preparing business plans, marketing, intellectual property protection, etc. To the extent that it is education, in the sense of enabling users to be better informed, it is difficult to comprehend the service as being the advancement of education.

10. While the main thrust of the submissions related to advancement of education, it is appropriate to consider this Foundation under the fourth of the four heads of charity which was a ground of its objection. The question can be asked as to whether the objects and operations of the Foundation are, to paraphrase the words of Windeyer J, the promotion of innovation, the promotion of the learning of the skills and results of innovation and adding to the number of persons skilled in innovation and augmenting their learning and are in themselves charitable objects and beneficial to the community. It is well established that the community does not mean necessarily the whole community but may mean a section of the community or a section of the public. In
Re Income Tax Acts (No 1) (1930) VLR 211, McFarlane J said:

``... the common characteristic of the sections of the community which can properly be described as `sections of the public' in the relevant sense is roughly speaking, that the right to membership of, or inclusion in them depends only on the possession of natural attributes, or attributes which any member of the community may acquire, and does not depend on the consent of the other members of that section. What is clear is that, generally speaking, if admission to membership of a body or inclusion in a class depends on the consent of the other members or of some of the members (eg a committee) of the body or class it is not `a section of the public' in the relevant sense of the term.''

In this case, it is said that the services of the Foundation are available to any member of the community who has a desire or inclination to use them and the accomplishment of the objects of the Foundation in the encouragement and assistance in innovation and entrepreneurship in Australia is of benefit to the whole community. It is clear, and not in dispute, that the Foundation is a ``not for profit'' institution. It was established with benevolent motives by Mr Lewin, assisted by Government grants and provides much of its services through voluntary work of individuals. In my view, the present objects and operations of the Foundation are for purposes beneficial to the community in the sense of providing direct services to a section of the community and overall future benefits to the community as a whole. Consequently, I find that the Foundation is a charitable institution within the meaning of Item 1.1 of s. 50-5 of the Act and is entitled to be endorsed as exempt from income tax under s. 50-105.

11. It is relevant to note that s. 50-40 provides an exemption under Item 8.2 to:

``a society or association established for the purposes of promoting the development of any of the following Australian resources:

  • (a) agricultural resources;
  • (b) horticultural resources;

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  • (c) industrial resources;
  • (d) manufacturing resources;
  • (e) pastoral resources;
  • (f) viticultural resources;
  • (g) aquacultural resources;
  • (h) fishing resources,

not carried on for the profit or gain of its individual members.''

This head of exemption was not a ground of objection of the Foundation nor argued in the hearing. Consequently, it is not appropriate to express any concluded view on whether or not it could come within s. 50-40 of the Act. However, it was somewhat surprising that the Foundation did not seek to argue that it came within that exemption provision.

12. In view of the foregoing, the decision under review should be set aside and, in its stead, the objection to the refusal to endorse should be allowed and the applicant be endorsed as an entity exempt from income tax.

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