CENTRAL BAYSIDE DIVISION OF GENERAL PRACTICE LTD v COMMISSIONER OF STATE REVENUE (VIC)

Members:
Gleeson CJ
Kirby J
Callinan J
Heydon J
Crennan J

Tribunal:
Full High Court

MEDIA NEUTRAL CITATION: [2006] HCA 43

Decision date: 31 August 2006

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Gleeson CJ, Heydon and Crennan JJ

1. The question is whether the wages paid in the period 1 July 2001 to 30 June 2002 by the appellant, Central Bayside General Practice Association Limited, are exempt from pay-roll tax under the Pay-roll Tax Act 1971 (Vic), s 10(1)(bb). That question in turn depends on whether the appellant was in that period a " charitable body " ^[1] Section 10(1)(bb) provides: “ (1) The wages liable to pay-roll tax under this Act do not include wages paid or payable -   …   (bb) by a charitable body (other than a school or educational institution or an instrumentality of the State) to a person during a period in respect of which the body satisfies the Commissioner that the person is engaged exclusively in work of the body of a charitable nature … ” .

2. On 14 December 2001 the State Revenue Office determined that these questions should be answered in the negative, and refused to grant the appellant an exemption from pay-roll tax. The appellant objected to that decision on 29 January 2002, but a delegate of the Commissioner of State Revenue disallowed the objection on 16 July 2002. On 10 September 2002 the appellant requested the Commissioner to refer the matter to the Victorian Civil and Administrative Tribunal. The Taxation Division of the Tribunal agreed that the questions should be answered in the negative. So did the Commercial and Equity Division of the Supreme Court of Victoria (Nettle J) ^[2] Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2003) 53 ATR 473 ; [ 2003 ] ATC 4835 . and the Court of Appeal of the Supreme Court of Victoria (Chernov JA and Osborn AJA; Byrne AJA dissenting) ^[3] Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2005) 60 ATR 151 ; [ 2005 ] ATC 4586 . .

3. At the commencement of argument in the appellant ' s appeal to this Court, the Commonwealth of Australia was given leave to be heard as amicus curiae. It argued in support of the appellant. For the reasons given below the appeal should be allowed.

The constitution and activities of the appellant

4. In order to understand the course of the proceedings below and the arguments advanced in this Court, it is necessary to examine the constitution and activities of the appellant.

5. Appellant ' s object. The appellant was registered as a company limited by guarantee in Victoria on or around 7 February 1994 under the provisions of the Corporations Law (Vic). In the course of the relevant tax year, on 13 November 2001, the appellant adopted a new constitution. This was similar to its initial memorandum and articles of association, and no point was made of any differences. Clause 5.2 provided:

" The company must not distribute any of its profit, income or assets directly or indirectly to its members. "

Clause 5.1 provided:

" The company may only use its income, assets and profit for its object. "

Clause 4.2 provided:

" The company may only exercise its powers for its object. "

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Clause 3 described the object of the appellant as being " to improve patient care and health, primarily in the Central Bayside area of Melbourne " by the following nine methods:

• " (a) improving communication between general practitioners and other areas of the health care system;
• (b) more effectively integrating general practice with other elements of the health care system;
• (c) enabling general practitioners to contribute to health planning;
• (d) providing better access to available and appropriate general practitioner services for patients, and reducing inappropriate duplication of services;
• (e) meeting the special (and localised) health needs of groups (such as Aboriginal and Torres Strait Islanders and those with non-English speaking backgrounds) and people with chronic conditions, particularly where these needs are not adequately addressed by the current health care system;
• (f) advancing general practice, and the health and well-being of general practitioners;
• (g) enhancing educational and professional development opportunities for general practitioners and undergraduates;
• (h) increasing general practitioner focus on illness prevention and health promotion; and
• (i) improving the effectiveness and efficiency of health services at the local level. "

6. Appellant ' s activities. The Central Bayside area covers 92 square kilometres of suburban Melbourne. The activities actually carried out in the relevant year included improving the health information systems used in general practices; extending immunisation coverage within the Central Bayside area; assisting in the professional development of members; assisting and encouraging general practitioners within the Central Bayside area to upgrade their accreditation; implementing a model of care programme in general practice based on decision support software; engaging in collaborative projects with the Pharmacy Guild of Australia to facilitate cooperation between general practitioners and pharmacists in managing patient health and developing a community-based model of falls and falls injury prevention for frail and aged persons.

7. Appellant ' s members. The appellant has two categories of members - primary and associate. Any general practitioner of medicine who practises in the Central Bayside area and supports the object of the appellant is eligible for primary membership: cl 7.1. Any person who supports the object of the appellant is eligible to be an associate member: cl 7.2. There is no provision for government representation among the members. In November 2002 all of the appellant ' s members were general practitioners: 180 general practitioners in practice in the Central Bayside area were primary members and 70 general practitioners who were not in practice in that area were associate members. By cll 12.1 and 12.2 the liability of members was limited to a duty to contribute up to $ 10 each on winding up.

8. Appellant ' s directors. The board of directors is responsible for the management of the appellant: cl 42.1. There are nine directors elected at the annual general meeting, with power for the board to co-opt an additional director: cll 29.1, 30.2 and 31.1. There are no government appointees on the board.

9. Distribution of assets on winding up. Clause 62 provided:

• " 62.1 If the company is wound up, its remaining assets must not be distributed to any member.
• 62.2 Instead the remaining assets must be given to a body, trust or fund that:
  • (a) has a similar object to the company; and
  • (b) also prohibits the distribution of profit, income and assets to its members to at least as great an extent as this constitution. "

10. Finally, cl 53 provided:

" The funds of the company may be derived from grants, fund-raising activities, subscriptions, interest and any other sources approved by the Board. "

11. Commonwealth grants to the appellant. The total revenue of the appellant in the relevant year was $ 1,048,979. Of that, $ 1,006,997 came from Commonwealth grants. Approximately 45 percent of that figure came

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from a Commonwealth grant called an " Outcomes Based Funding " grant ( " OBF grant " ). The other grants were predominantly project based. The distinction is that the latter kind of grant funds a particular activity, whatever the outcome, and the former type of grant funds activities directed to the achievement of specified outcomes.

12. OBF Agreement. OBF grants were supplied to the appellant under an OBF Agreement made in 1999 between the Commonwealth " as represented by " the Department of Health and Ageing ( " the Department " ). For reasons discussed below ^[4] See [ 14 ] . , in that agreement the appellant was described as " the Division " . Recital A of the agreement stated that the Department provided funding to bodies like the appellant " to enable general practitioners to conduct activities to improve integration with other elements of the health system and to address identified local health needs " . Clause 2.1 compelled the appellant to conduct " Programs of Activity " as described in Sched 1 in accordance with the requirements set out in Sched 1. Clause 2.3 provided:

" The Division will comply with the requirements regarding identified Outcomes for Outcomes-Based Funding as specified in Schedule 2. "

Schedule 1, cll 1-8 provided:

• " 1. The Division shall conduct the Programs of Activity as described in the following documents:
  • • The Division ' s extended Strategic Plan for the period 1 July 1999 to 30 June 2003 (Attachment 1 to this Agreement);
  • • The Division ' s approved Business Plan for the period 1 July 2002 to 30 June 2003 (Attachment 2 to this Agreement).
• 2. The Division shall undertake Programs of Activity in accordance with the requirements set out in the Implementation Guide for Outcomes Based Funding - May 1999 (Attachment 3 to this Agreement).
• 3. The Division shall provide Programs of Activity which are based on a national framework for Divisions within which decision making and priority setting is focussed on activities in four distinct areas:
  • 1. Population Health
  • 2. Services by General Practitioners to patients
  • 3. Services to General Practitioners by the Division
  • 4. Infrastructure
• 4. The Division shall undertake activities which are linked to the above four sectors in the Division ' s current Business Plan to achieve the Outcomes identified in the Division ' s extended Strategic Plan 1999-2003 .
• 5. The Division shall prepare a Business Plan that is consistent with the extended Strategic Plan for each year of operation of this Agreement.
• 6. The Division ' s approved Annual Business Plan for 2002-2003 submitted to the Department appears as Attachment 2 to this Agreement.
• 7. The Divisions shall submit their Annual Business Plan for 2000-2003 to the Department for approval as follows:
  

  Business Plan 2000-2001	Due 31 March 2000
  Business Plan 2001-2002	Due 31 March 2001
  Business Plan 2002-2003	Due 31 March 2002

• 8. When approved the Business Plan shall be deemed to form part of this Agreement (Attachment 2) and will replace the Business Plan for the previous year. "

Attachments 1, 2 and 3 were not in evidence; however, it is clear that the " Programs of Activity " to be funded were suggested by the appellant in its " extended Strategic Plan " and its annual " Business Plans " . That flows from cl (A) of Sched 2 which obliged the appellant to " conduct activities … that are designed to achieve the identified Outcomes as set out in the [ appellant ' s ] extended Strategic Plan 1999-2003 and [ its ] current Business Plan. " Clause (B) of Sched 2 provided:

" The identified Outcomes shall be in keeping with:

• (i) the Current Aims and Intended Outcomes of the Divisions of General

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  Practice Program as set out in this Schedule; and
• (ii) the Implementation Guide for Outcomes Based Funding - May 1999 (Attachment 3 to this Agreement). "

The " Current Aims and Intended Outcomes of the Divisions of General Practice Program " were then described in rather general terms. The " main aim " , for example, was:

" To improve health outcomes for patients by encouraging GPs to work together and link with other health professionals to upgrade the quality of health service delivery at the local level. "

13. In short, the function of the appellant was to devise a Strategic Plan and Business Plans identifying relevant outcomes. Once the Strategic Plan and Business Plans were approved by the Department, they became part of the Agreement. The appellant ' s duty was then to conduct activities designed to achieve the outcomes described in those plans.

14. The evolution of " divisions " . The expression " division " , when used in relation to general medical practitioners, refers to an organisational structure enabling general practitioners to work together to improve health care, meet local goals and targets, promote preventative care and respond more rapidly to changing community health needs. From the mid 1970s hospital-based departments of general practice began to emerge as a focus for the hospital-related activities of general practitioners. By 1991, there were 31 departments of general practice, but their development was hindered by a lack of substantial infrastructure funding. In 1992 the Commonwealth Government began to provide funding for the establishment of divisions of general practice, and by 1993, there were 100 divisions in place, covering about 80 percent of the geographical area of Australia. By the late 1990s there were a total of 123 divisions across the country receiving Commonwealth funds with a general practitioner membership level of over 80 percent.

15. One technique by which Commonwealth money is made available to fund divisions is the making of OBF grants on the terms of OBF Agreements in the form of the one to which the appellant is a party. There is similarity between these OBF Agreements in the sense that each OBF Agreement is in an identical standard form, but for two differences. First, in each case a different division is party to the OBF Agreement with the Commonwealth. Secondly, each division ' s extended Strategic Plan and approved Business Plans are likely to differ ^[5] The propositions in the last three sentences are not directly supported by the evidence, for only a pro forma OBF Agreement was in evidence, and the Strategic Plan and Business Plans of no division, not even the appellant, were in evidence. However, the propositions stated may be inferred from the form of the appellant ’ s OBF Agreement, from the differences in circumstances between the various parts of Australia, and from the fact that there is evidence that the 123 divisions which by 1998 covered the whole of Australia were “ quite heterogeneous divisions varying in size, number of GP members, resources, organisational structures, management expertise and range of activities ” . These factors suggest that the Strategic Plan and Business Plans of each division are likely to differ. The truth of the propositions in the text was conceded by the Commissioner. .

The proceedings below

16. The course of the proceedings below was affected to some extent by a change in the Commissioner ' s position.

17. Dealings between the appellant and the revenue authorities. Why, in its decision of 14 December 2001, did the State Revenue Office refuse to grant the appellant an exemption from pay-roll tax on the basis that s 10(1)(bb) of the Act did not apply? It gave the following reason: that the appellant was " predominantly a professional body with the aim of promoting the interests of its members " . In its Notice of Determination of 16 July 2002 disallowing the appellant ' s objection to the decision of 14 December 2001 and declining to grant an exemption from pay-roll tax, the Commissioner, through a delegate, adhered to a similar position. The Commissioner said that the appellant " exists for the benefit of its members independently of whether benefits flow to the public. "

18. Proceedings before the Tribunal. Before the Tribunal, the Commissioner attempted to rely on a new ground: " [ T ] hat the Commissioner was not satisfied that the relevant employees were engaged exclusively in work … of a charitable nature. " The Tribunal declined to allow that point to be agitated. The Commissioner maintained the contention that the appellant existed principally for the benefit of its members. The Tribunal rejected that contention, and said that the appellant existed for purposes beneficial to the community. However, it held that the appellant ' s purposes were not charitable ^[6] The Tribunal, the four judges of the Supreme Court of Victoria, and counsel in their arguments in this Court proceeded upon the assumption that “ charitable ” in s 10(1)(bb) was used by the Victorian Parliament in its technical legal sense — that is, as defined by Lord Macnaghten in Commissioners for Special Purposes of the Income Tax v Pemsel [ 1891 ] AC 531 by reference to the spirit and intendment of the preamble to the Statute of Charitable Uses Act 1601. That assumption reflected the general rule that, the word “ charitable ” being a word that has a technical legal meaning, when it is used in a statute it should be understood in its legal sense unless a contrary intention appears. It was not suggested that a contrary intention appears in the statute presently under consideration. It is not easy to see a basis upon which such a suggestion might have been made with any degree of plausibility. The general rule just mentioned has been accepted as the law in this country at least since the decision of the Privy Council in Chesterman v Federal Commissioner of Taxation (1925) 37 CLR 317 ; [ 1926 ] AC 128 . The word is commonly used in statutes. It is reasonable to assume that parliamentary counsel, taxpayers, revenue authorities, settlors, testators and others have acted on the faith of an understanding that the general rule applies. It is the understanding that has been acted upon by those who have presented, argued and decided the present case. It accords with principle and with fairness. There is no occasion to call the rule in question, especially in the absence of any formulation of a reasonably clear alternative, and an examination, by the usual procedures of adversarial litigation, of its implications. , on the ground that services provided by the appellant were " provided in substance at the expense of the Federal Government and, most importantly, as an integrated part of a scheme of national health management presided over by the Federal Government " . The appellant was " too close to being an arm of government or a part of bureaucracy … to be an organisation whose objects come within the concept of

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charity … " . It was " not just an ally of government but an essential part of it " .

19. Proceedings before Nettle J. Before Nettle J, the Commissioner abandoned reliance on the contention that the appellant ' s main purpose was to protect and advance the interests of its members. Nettle J doubted the soundness of this course ^[7] Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2003) 53 ATR 473 at 476 [ 8 ] and 481 [ 13 ] - [ 14 ] ; [ 2003 ] ATC 4,835 at 4837 and 4841. So did the Court of Appeal: Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2005) 60 ATR 151 at 153 [ 3 ] per Chernov JA; [ 2005 ] ATC 4586 at 4588 . but did not in terms depart from it ^[8] Nor did the Court of Appeal: Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2005) 60 ATR 151 at 159-160 [ 21 ] per Chernov JA; [ 2005 ] ATC 4586 at 4593 . The Court of Appeal declined to hear argument from the Commissioner that the abandonment of the contention before Nettle J was erroneous: Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2005) 60 ATR 151 at 153 [ 3 ] per Chernov JA; 161-162 [ 27 ] per Byrne AJA; [ 2005 ] ATC 4586 at 4588 and 4594-4595. . He did, however, disagree with the Tribunal ' s view that the appellant was " an essential part " of government, or " close to being an arm of government " : he said it was not a department or other instrumentality of government, that it was in its own hands as to whether it would seek government funding and subject itself to any conditions attached to the funding, and that the Commonwealth ' s only control over it was the power of the purse ^[9] Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2003) 53 ATR 473 at 486 [ 29 ] ; [ 2003 ] ATC 4835 at 4845 . . Nettle J said that the question whether the appellant was a charitable body turned on its main purposes, and they depended on its constitution, activities, history and control. He said that having regard to these matters " and in particular, to the extent to which the Division ' s activities of providing services to its members are funded and thereby controlled by the Commonwealth " , he was not persuaded that the appellant was a charitable body ^[10] Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2003) 53 ATR 473 at 486 [ 33 ] ; [ 2003 ] ATC 4835 at 4845 . .

20. Proceedings in the Court of Appeal. In the Court of Appeal, Chernov JA dismissed the appeal on the ground that the appellant ' s " core activities are performed pursuant to the dictates of government " ^[11] Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2005) 60 ATR 151 at 160 [ 21 ] ; [ 2005 ] ATC 4586 at 4593 . . These dictates were said to lie in the terms of the OBF Agreement ^[12] Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2005) 60 ATR 151 at 158-159 [ 18 ] ; [ 2005 ] ATC 4586 at 4592 . . Osborn AJA dismissed the appeal on the ground that the appellant was " a creature and agent of government " ; he agreed with Chernov JA ' s reasons and added some of his own ^[13] Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2005) 60 ATR 151 at 171-172 [ 61 ] - [ 62 ] ; [ 2005 ] ATC 4586 at 4602-4603 . . Byrne AJA dissented. He concluded that the appellant was not " the mere creature or agent of the Commonwealth government " . He said ^[14] Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2005) 60 ATR 151 at 170 [ 57 ] ; [ 2005 ] ATC 4586 at 4601 . :

" No government control is exercised over its management. It plays an active role in itself selecting the particular projects which it undertakes for the benefit of its community. These features and the fact that its management is undertaken by its elected members without stipend from the Commonwealth shows that its relationship is more … that of an ally than that of an agent. "

Concessions by the Commissioner

21. The Commissioner disclaimed any submission that the appellant was not a charitable body merely on the ground that:

• (a) most of its funds came from the Commonwealth Government;
• (b) it performed work or functions which the government might have performed or ordinarily performed;
• (c) the funding provided by the government to the appellant was designated to be used for particular purposes; or
• (d) the government supported the appellant ' s purposes and sought to have them implemented and furthered by funding the appellant.

22. The Commissioner also implicitly conceded that nothing in the constitution of the appellant - creating a corporation having a board of directors and members without any government representatives; with an object expressed in the language of charity; with provisions preventing the expenditure of the appellant ' s income or assets otherwise than in furtherance of its object; and with provisions requiring the assets on winding up not to go to members but only to go to a body, trust or fund with a similar object - prevented it being a charitable body.

The Commissioner ' s case

23. In the light of these concessions, the Commissioner ' s case was a narrow one. The appellant posed as the key issue whether a body like the appellant, the sole purpose of which was in this Court conceded to be charitable, was precluded from being a " charitable body " within s 10(1)(bb) because of its relationship with the Commonwealth Government. The Commissioner contended that it was precluded because it acted so much under the control or influence of government that it could be seen to be acting in furtherance of government objectives rather than, or as well as, in the independent performance of its own objects. Counsel for the Commissioner said that his case in a nutshell was that if no more appeared than that the appellant ' s members formed the appellant and caused it to carry out the activities it in fact carried out, it would be a charitable body, but because about 93 percent of its income came from Commonwealth funding,

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with about half of those funds being OBF grants received pursuant to its OBF Agreement, there was control and influence by government to such an extent that the appellant was carrying out, not its own purposes, but the purposes of the Department, which, since it was a government department, could not have charitable purposes ^[15] No counsel advanced argument to suggest that Dean J had been wrong in holding in In re Cain (decd) ; The National Trustees Executors and Agency Co of Australasia Ltd v Jeffrey [ 1950 ] VLR 382 at 387 that “ a gift for carrying on the ordinary activities of a Government department pursuant to a statute … is not a gift for charitable purposes, even if the activities are such that if carried on by private persons they would be charitable ” . .

Issues to be put aside

24. The parties were at issue on the question whether a body with charitable objects could not be a charitable body if it were subject to substantial or complete government control, and, on a related question, whether a body, to be charitable, must independently carry out its charitable purpose. It is convenient at this stage to assume affirmative answers to these questions, that is, answers favourable to the Commissioner, and to turn instead to the question whether in truth there was here governmental control and influence to such an extent that the appellant was carrying out the Department ' s purposes rather than its own purpose.

The Commissioner ' s sub-arguments

25. The Commissioner ' s contention was advanced through particular sub-arguments.

26. Acting at the behest or bidding or as the puppet of the Government. First, the appellant was said to act only at the behest, or at the bidding, or as the puppet, of the Department. However, it turned out that these expressions related only to the process by which the appellant entered its OBF Agreement and to the regime of obligations which that Agreement imposed, and lacked any content independent of those matters.

27. Incapacity to negotiate. The Commissioner contended that divisions like the appellant did not " negotiate … [ the OBF ] Agreements " . It was said that the Agreements were " uniform and are presented by the Commonwealth on a take it or leave it basis " . If a division refused to sign it would " wither on the vine " because it would cease to receive Commonwealth funding.

28. There are three answers to this argument.

29. The first answer is that while the OBF Agreements are in large measure in a standard form, the central obligations created for a division like the appellant depend on the " Programs of Activity " as described in the relevant division ' s extended Strategic Plan and approved Business Plans. Although the plans submitted by the divisions will not become part of a division ' s OBF Agreement unless the Commonwealth agrees, the plans are devised by each division to suit its own purposes, resources, problems and personnel. It is for each division to identify for what it wants the Commonwealth funding. The Commissioner denied that the divisions had any autonomy, because they were obliged by cl 3 of Sched 1 to provide programmes of activity based on a national framework within which decision making and priority setting was focused on activities in four areas (namely, population health, services by general practitioners to patients, services to general practitioners by the division, and infrastructure). The Commissioner submitted that these four areas were not nominated by the divisions but were instead presented by the Department. The problem with this approach is that the Commissioner failed to indicate anything restrictive about those four very general areas, which appear to cover the universe of relations between a division and general practitioners and between general practitioners and the population. Byrne AJA was correct to conclude that the appellant " plays an active role in itself selecting the particular projects which it undertakes for the benefit of its community " ^[16] Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2005) 60 ATR 151 at 170 [ 57 ] ; [ 2005 ] ATC 4586 at 4601 . .

30. The second answer is that the evidence does not reveal that there was in fact any incapacity to negotiate. There was no legal compulsion on the appellant to seek funding from the Commonwealth, and the evolution of divisions suggests that the Commonwealth felt some pressure to ensure that divisions like the appellant entered OBF Agreements so that the Commonwealth ' s desires could be carried out. The Commonwealth referred to evidence by the Chief Executive Officer of the appellant that after the late 1990s the Commonwealth " moved to a [ system of ] block grant [ s ] and set some broad outcome indicators and said, ' You shall do a variety of things that will meet these outcomes " ' . This summary was directed only to the distinction between activity funding and outcome funding, not to the precise way the Commonwealth behaved in its communications with divisions. That apart, as the Commissioner accepted, there was no admissible evidence of

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how the appellant and the Department had behaved when the appellant proposed its extended Strategic Plan and its Business Plans, and whether any process of bargaining or amendment to those Plans had taken place or could take place.

31. The third answer is that even if it were the case that the Commonwealth declined to negotiate about Strategic and Business Plans, and even if a failure by the appellant or any other division to enter an OBF Agreement would impair or destroy its capacity to function, it does not necessarily follow that the fact of entry by the appellant into an OBF Agreement of itself establishes that the appellant is under the control of the government. However, its terms might create that control, and the Commissioner submitted that in this case they did.

32. Ongoing contractual management and control. The Commissioner relied on two aspects of the OBF Agreement. One was that it compelled the appellant to conform with the Strategic Plan and the Business Plans. The second was that the Agreement provided for periodic reporting by the appellant (cl 7.1 and Sched 3), provided for liaison by the appellant with the Department as required (cl 8.1), provided for the Department to have access to the appellant ' s premises and records (cl 19), prohibited subcontracting without the Department ' s consent (cl 22), gave the Department power to procure the replacement of personnel undertaking work in relation to Programs of Activity (cl 23) and gave the Department power at any time to terminate the Agreement or reduce the scope of the Programs of Activity (cl 24.1).

33. It is common for the donors of funds for charitable purposes to attach conditions to the gift or to stipulate mechanisms pursuant to which the funds are to be expended. These conditions or stipulations do not affect the charitable character of gifts. In addition, the Department is obliged by s 44 of the Financial Management and Accountability Act 1997 (Cth) to manage its affairs in a way that promotes the efficient, effective and ethical use of its resources. Recital C of the OBF Agreement refers to this obligation:

" The Department is required by law to ensure the accountability of Program Funds and accordingly, the Division is required to be accountable for all Department Funds received. "

The expression " Program Funds " means funding supplied by the Department under Sched 4 for the programmes of activity to be carried out by the appellant pursuant to Scheds 1 and 2. The clauses which make the appellant accountable are not properly characterised as forms of control by the Department, but simply as methods of ensuring that the Department itself complies with the law.

34. Ongoing review by the Department. The Commissioner relied on a letter of 14 September 2001 from the Department foreshadowing the " development of a strategic planning and performance reporting framework " . The Commissioner also relied on a letter dated April 2002 from the Department to the appellant (and presumably all other divisions) indicating that the Department proposed " to undertake a more considered approach in developing future funding agreements with Divisions and identifying the services the Commonwealth wishes to purchase from Divisions. " Finally, the Commissioner relied on the existence of a Commonwealth Government review of the future role of Divisions of General Practice.

35. The Commissioner did not make clear how these events supported the argument. They add nothing to the arguments relating to the capacity of the Commonwealth to attach conditions to the advance of funds by inserting appropriate terms in the OBF Agreements. The Commissioner relied on Osborn AJA ' s statement that the Chief Executive Officer of the appellant " implicitly accepted " in evidence " that it would be the Commonwealth Government which determined the ongoing role of the Division " ^[17] Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2005) 60 ATR 151 at 172 [ 62 ] ; [ 2005 ] ATC 4586 at 4602 . . That overlooks the fact that the role of divisions will in truth evolve as a compromise between the desires of the Commonwealth and those of the divisions.

36. Implementing government purposes. The Commissioner, while accepting that a public hospital which received all its income from grants by the Commonwealth or a State subject to conditions was a charitable body, failed to explain how the appellant was different. The Commissioner said that the hospital was acting primarily in furtherance of its own purposes,

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but that the appellant did not: it " acted to implement certain government purposes directly " . The Commissioner said that the government prescribed the purpose: in fact the appellant prescribed the purpose and the government agreed.

37. The Commissioner also accepted that if a wealthy foundation had approached the appellant and offered it money for the purposes and in the terms set out in the OBF Agreement, that would be a valid charitable gift, because the donor would not have " independent non-charitable purposes " of its own which it would require to be furthered. But just as the appellant ' s purposes would be identical with the foundation ' s, so the appellant ' s purposes are identical with those of the Department.

38. The Commissioner submitted that the difference between a hospital receiving funds from the government, or the appellant receiving funds from a foundation, on the one hand, and the appellant receiving funds under the OBF Agreement, on the other, was that in the latter instance " the whole system was set up to implement government policy " .

39. The appellant, while receiving funds under the OBF Agreement, was not independently pursuing its own charitable purposes, but was rather implementing government policy, even if its purposes " are consonant with or coincide with government policy " . This argument is unsound. The appellant had a certain charitable purpose. The government wanted to advance the very same purpose. The appellant decided to advance its purpose by receiving funds from the government and spending them in the manner it did. These events did not cause the appellant to cease to be a charitable body merely by reason of the fact that the government is not a charitable body. Many charities implement government policy in the sense that their goals - providing education, aiding the sick and the poor - are the same as those of the government. Thus " a trust for the benefit of inmates in government mental asylums, or for the benefit of children under the care of the Children ' s Welfare Department would be charitable " ^[18] In re Cain (decd) ; The National Trustees Executors and Agency Co of Australasia Ltd v Jeffrey [ 1950 ] VLR 382 at 388 per Dean J, citing Diocesan Trustees of the Church of England in Western Australia v Solicitor-General (1909) 9 CLR 757 at 772 per O ’ Connor J. . The history of general practice divisions suggests that medical practitioners originally began to cooperate for charitable purposes of their own volition. The Commonwealth Government perceived that those purposes, which it shared, could be more effectively carried out by government-influenced reorganisation of, and government funding for, the activities of local private medical practitioners, than by enlisting the aid of more remotely located public servants.

40. The appellant submitted that the Commissioner ' s stand rested on a confusion between the purpose of the appellant in acting " to improve patient care and health " , which is a purpose shared by the Commonwealth, and the purpose of a body to give effect to government purposes, whatever they might be. The mere fact that the appellant and the government both have a purpose of improving patient care and health does not establish that the appellant has the purpose of giving effect to government purposes, abdicating any independent fulfilment of its own. The appellant ' s purpose is charitable. It remains charitable even though the government is the source of the funds it uses to carry out that purpose. Its consent to the attachment by the government of conditions to the employment of those funds does not establish that the appellant is not independently carrying out its purpose.

41. These submissions are correct. To carry out the object of the appellant may be said to assist the achievement of government policy, but it does not follow that the appellant ' s object has changed from improving patient care and health to achieving government policy. The appellant ' s object continues; all that has happened is that it has seen entry into a beneficial agreement with the government as a means of achieving that object.

42. It follows from the rejection of the Commissioner ' s arguments that Chernov JA, with respect, erred in holding that the appellant carried out its functions " in order to discharge the responsibility assumed by government to support and ensure the provision of efficient, integrated, quality local health care " ^[19] Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2005) 60 ATR 151 at 159 [ 20 ] ; [ 2005 ] ATC 4586 at 4593 . . Rather, the appellant carried out its functions in order to fulfil its object, improving patient care and health, and the government entered the OBF Agreement in order to discharge its own responsibility for patient care and health.

43. It also follows that Chernov JA, with respect, erred in concluding that the appellant ' s core activities were performed pursuant to the

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dictates of government. Even if, by fulfilling its own purpose, the appellant performed " the work or function of government " ^[20] Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2005) 60 ATR 151 at 160 [ 22 ] ; [ 2005 ] ATC 4586 at 4593 . , that did not prevent it from being a charitable body.

44. Osborn AJA erred, with respect, in concluding that the appellant was " a creature and agent of government " . The precise sense in which these expressions were employed was not indicated, but an otherwise charitable body which accepts conditional grants in order to fulfil its object does not thereby become in any sense an agent, let alone a creature, of government. His Honour also erred in concluding that the Commonwealth controlled the appellant ' s activities.

45. Accordingly, the appeal must be allowed.

" Public benevolent institution " cases

46. The Commissioner relied on three cases ^[21] Metropolitan Fire Brigades Board v Commissioner of Taxation (1990) 27 FCR 279 ; Mines Rescue Board (NSW) v Commissioner of Taxation (2000) 101 FCR 91 ; Ambulance Service of New South Wales v Commissioner of Taxation (2003) 130 FCR 477 . for the proposition that it is " inappropriate to characterise activity organised or controlled by government, or predominantly by government, and thus activity effectively funded by taxpayers, as activity of a public benevolent institution according to its established meaning " ^[22] Ambulance Service of New South Wales v Commissioner of Taxation (2003) 130 FCR 477 at 493 [ 48 ] per Hill, Goldberg and Conti JJ. . From that proposition it inferred the proposition that activity organised and controlled by government which was funded by taxpayers was not charitable.

47. The analogy between the institutions in those cases and the appellant breaks down, because in those cases the relevant institutions were created by statute, were subject to extensive ministerial control and were " virtually part of a Department of State " ^[23] Ambulance Service of New South Wales v Commissioner of Taxation (2003) 130 FCR 477 at 487 [ 28 ] per Hill, Goldberg and Conti JJ quoting Allsop J in Ambulance Service of New South Wales v Deputy Commissioner of Taxation (2002) 50 ATR 496 at 526 [ 151 ] ; [ 2002 ] ATC 4681 at 4708. or represented the Crown ^[24] Metropolitan Fire Brigades Board v Commissioner of Taxation (1990) 27 FCR 279 at 280-281; Mines Rescue Board of New South Wales v Commissioner of Taxation (2000) 101 FCR 91 at 92 [ 2 ] ; Ambulance Service of New South Wales v Commissioner of Taxation (2003) 130 FCR 477 at 480-481 [ 9 ] . , or were " governmental " bodies ^[25] Metropolitan Fire Brigades Board v Commissioner of Taxation (1990) 27 FCR 279 at 280. . The appellant was not created by, and is not subject to, any statute generating those characteristics.

A further submission by the appellant

48. Apart from the submissions advanced by the appellant supporting the conclusion that the appeal must be allowed, it argued that a body with charitable objects was a charitable body " even if it is subject to substantial or complete government control " . The Commissioner contended that no statement in the authorities supported that submission. This is not strictly correct. Question 5 in one of the authorities referred to by the appellant, Re Sutherland, deceased ; Queensland Trustees Ltd v Attorney-General ^[26] [ 1954 ] St R Qd 99 at 101. , was:

" Whether hospitals which are wholly maintained at the public expense and are subject to the entire control of government officers are qualified for selection by the plaintiffs to participate in the [ income of the trust funds ] ? "

The Full Court of the Supreme Court of Queensland answered that question " Yes " . However, the authority is of very limited weight, since no party before the Court contended for a different answer. The appellant relied on other authorities ^[27] Attorney-General v Heelis (1824) 2 Sim & St 67 at 76 [ 57 ER 270 at 274 ] ; Attorney-General v M ’ Carthy (1886) 12 VLR 535 ; Robison v Stuart (1891) 12 LR (NSW) Eq 47 at 49-51; In re Morgan ’ s Will Trusts ; Lewarne v Minister of Health [ 1950 ] Ch 637 ; In re Frere decd ; Kidd v Farnham Group Hospital Management Committee [ 1951 ] Ch 27 at 32; Tasmanian Electronic Commerce Centre Pty Ltd v Commissioner of Taxation (2005) 142 FCR 371 . , but they do not explicitly support the proposition, partly because they do not make clear the degree of government control, if any, present, partly because questions of government control were not central to the reasoning, and in one instance, because the outcome turned on the terms of legislation ^[28] Construction Industry Training Board v Attorney-General [ 1973 ] Ch 173 . . In view of the fact that the appeal must be allowed on other grounds, it is undesirable and unnecessary to decide on the correctness of this submission, or to determine the related issue of whether a body, to be charitable, must independently carry out its charitable purpose.

Orders

49. The following orders should be made.

• 1. Appeal allowed.
• 2. The respondent to pay the costs of the appellant in this Court.
• 3. Set aside the orders of the Court of Appeal, Supreme Court of Victoria, made on 1 July 2005 and, in their place, order:
  • (a) Appeal allowed.
  • (b) Set aside the orders of the Supreme Court of Victoria made on 15 August 2003.
  • (c) The appellant ' s appeal from the decision of the Victorian Civil and Administrative Tribunal made on 22 November 2002 be allowed.
  • (d) The Notice of Determination issued by the respondent dated 16 July 2002 to disallow the appellant ' s Objection dated 29 January 2002 be set aside.
  • (e) The appellant ' s Objection dated 29 January 2002 against the respondent ' s

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    ATC 4621

    decision dated 14 December 2001 be allowed.
  • (f) The respondent pay the costs of the proceedings in the Court of Appeal of the Supreme Court of Victoria, and in the Supreme Court of Victoria.