FC of T v WORD INVESTMENTS LTD

Judges:
Sundberg J

Court:
Federal Court

MEDIA NEUTRAL CITATION: [2006] FCA 1414

Judgment date: 3 November 2006

Sundberg J

Background

1. John Wycliffe - the "Morning Star of the Reformation" - was one of the most important figures in English theology. Living in the fourteenth century in the depths of the Middle Ages, he became an Oxford don and a popular reformer. His progressive and outspoken political and theological views led to frequent clashes with the church and the university.

2. Wycliffe was critical of the church hierarchy - monks, friars and in particular popes - and their wealth and influence. He saw no basis in scripture for the existence of an ecclesiastical elite and instead encouraged a group of itinerant, poor priests to spread the word of God throughout England. Although he was attacked by the authorities during his lifetime, it wasn't until the Council of Constance in 1415, 31 years after his death, that he was formally declared a heretic. Among his greater heresies were his rejection of the doctrine of transubstantiation (on the grounds that it elevated priests to daily miracle-workers and had no biblical basis) and his denunciation of certain popes as antichrists. The church decreed that his books be burned and his remains exhumed.

3. Fortunately, many of Wycliffe's books survived and it is one of these that is the main reason why Wycliffe is remembered today. Wycliffe was part of an important fourteenth-century movement to bring the English language to the institutions of church, court and


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government. Although parts of the Bible already existed in English, Wycliffe was the first to oversee a full translation. And while scholars today question how much of the translation work was undertaken by Wycliffe himself, and how much by his disciple Nicholas of Hereford, the work they produced continues to bear his name.

4. While John Wycliffe may not have fared well at the hands of the fourteenth-century authorities, his name and his mission continue today. Wycliffe Bible Translators (International) is an organisation with fifty-six members and approximately 5,300 workers world-wide. One such member is Wycliffe Bible Translators Australia ("Wycliffe"). Wycliffe is, and has been since 1 July 2000, endorsed by the Australian Taxation Office as an Income Tax Exempt Charity under sub-division 50-B of the Income Tax Assessment Act 1997 ("the Act"). It is an evangelical missionary organisation that seeks to spread the Christian religion through literacy and translation work, predominantly in the third world. It has been particularly active in areas which previously had no written language and has taught people in such places how to read and write their own language. Its missionaries learn the local language, translate the Bible into that language and then teach the local population how to read the Bible.

5. The respondent, Word Investments Ltd ("Word"), was established by Wycliffe in 1975 to provide financial and fund-raising support to Wycliffe. The two entities are still linked today, with some sharing of staff and common registered offices. Like John Wycliffe, Word has come into conflict with the authorities. The applicant, the Commissioner of Taxation, does not accept that Word is a charity and has refused to endorse it as exempt from paying income tax.

6. The relevant provisions of Division 50 of the Act, as they apply to Word, require Word, in order to be exempt, to be a charitable institution which has a physical presence in Australia and to incur its expenditure and pursue its objectives principally in Australia. They also require it to be endorsed as exempt from income tax. In 2001, Word applied for income tax exemption and the Commissioner refused to endorse it. A further application, which was also refused, was made in 2002.

7. Word then appealed to the Administrative Appeals Tribunal ("the Tribunal") which found that Word was entitled to endorsement from 1 July 2002, but was not entitled to endorsement prior to that date since its primary activity at that time was the running of a commercial funeral business that was not charitable in nature.

8. The Commissioner has appealed the finding of the Tribunal that Word was entitled to be endorsed as a tax exempt charitable entity under the Act for the period from 1 July 2002. There is also a cross-appeal by Word against the finding of the Tribunal that Word was not a tax exempt charitable entity between 1 July 2000 (when the endorsement regime commenced) and 1 July 2002.

The activities of Word

9. Word's memorandum of association includes, in clause 3, a very comprehensive list of objects. The list begins by setting out a number of evangelical objects:

  • "(a) (i) To proclaim preach teach enunciate expound and to propagate evangelise continue carry forward expand and increase the Christian Religion both in Victoria and throughout the rest of the world by all means whether oral printed visual audible mechanical or otherwise.
  • (ii) To provide train maintain and send forth teachers preachers and lecturers who subscribe to the basis of belief of the members of the Company …
  • (iii) To co-operate with encourage and provide assistance both financial and otherwise for Evangelical Missionary Organisations and Evangelical Missionaries operating or to become operative in Victoria or elsewhere throughout the world.
  • (iv) To hold rallies and other meetings in Victoria and when occasion arises throughout the rest of the world.
  • (v) To generally co-operate with Evangelical Churches but not so as to become or resemble a denomination.
  • (vi) To encourage the enlistment of missionary volunteers and to guide these into other Evangelical Missionary

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    Organisations and/or send them to other countries of the world."

10. Further objects in the list set out the financial activities of Word:

  • "(b) To carry on any business or activity which may seem to the Company capable of being conveniently carried on in connection with the objects for which this Company is established.
  • (k) To subscribe and make payments to any fund for religious charitable or benevolent objects of any description.
  • (q) To invest and deal with the moneys of the Company in such manner as may from time to time be determined by the Board of Directors.
  • (t) To take money on deposit at interest or otherwise.
  • (u) To set aside out of the profits of this Company such sums as the Board of Directors thinks proper as reserved, for maintaining the whole or any part of the Company's property or for meeting contingencies and for any other purposes connected with the business of the Company or any part thereof and the Board of Directors may invest the sums so set aside in the business of this Company or in such securities as the Board of Directors selects."

11. There are other relevant provisions of Word's memorandum of association as follows:

  • (a) Word is prohibited from distributing profits or gains to its members (clause 4);
  • (b) Word's membership is limited to committed Christians who have acknowledged the Christian faith and a belief in the Bible as the infallible word of God (clause 8).

12. The nature of Word's activities has changed somewhat over time. Word was initially involved in raising funds through housing development. This activity ceased in the early 1980s after which there were two or three years of dormancy. In 1986 or 1987 Word's directors approached Wycliffe to seek its views on whether Word should continue. The result was a decision that Word would take over the fund-raising activities then carried on by Wycliffe, which consisted of investing money borrowed at non-commercial rates from people who wished to support its activities.

13. At this time, Word held itself out as offering financial planning advice and investment opportunities. Its information memorandum for investors described Word as existing "for the purpose of offering the public financial planning advice and a sound investment vehicle where interest earned is used to further the work of Bible translation and other Christian work throughout the world." Its investments were to be in "areas that, in the opinion of the administration, are morally and culturally ethical and offer sound investment opportunities." Investment vehicles included government and semi-government securities, banks and other investments. Investors were entitled to up to 25% of the interest earned on their investments, with the remainder to be distributed by Word. In reality, most investors chose not to be paid any interest.

14. Word's investors were members of the Christian public who lent money at low rates of interest. Until 2002 this interest was the only major source of income for Word. The majority of it was distributed to Wycliffe, with the balance going to other Christian organisations. What Wycliffe did with the money given to it by Word was well known to Word and to its investors, but was not the subject of any control by Word. Word did not itself organise translations, send missionaries overseas, train pastors, publish scriptures or engage generally in evangelising work. All of these things were done by Wycliffe, whose activities I have described briefly above at [4]. There is no suggestion that Wycliffe's activities are not charitable, nor is there any doubt that they are conducted almost exclusively outside of Australia.

15. The first significant change in Word's fund-raising activities came in 1996 when moneys in a term deposit stood to be reinvested. It was resolved to establish Bethel Funerals, a funeral business. The purpose statement and philosophy statement of Bethel Funerals referred to the Christian purposes of the business and to the fact that profits were to be


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distributed to two main ministry organisations, one of which was Wycliffe. Word's principal activities after the establishment of Bethel Funerals are set out in its Directors' Report for the year ending 30 June 1999:

"The principal activities of the company during the financial year were to generate working capital for church and missionary organisations proclaiming the Word of God through either oral, printed, visual or audible means.

Bethel Funerals continued to trade well being a considerable contributor to this years operating surplus."

16. From 1 July 2002 Word's directors resolved to create a trust, Word Investments Foundation Trust ("the Foundation"), to hold Bethel Funerals. Word acts as trustee of the Foundation and conducts Bethel Funerals in that capacity. Consequently, from that time, Word's only source of income has been the investment of moneys lent to it by investors. At around the same time, Word paid Wycliffe to carry out a particular translation, rather than giving the equivalent amount directly to Wycliffe. Word's directors said that this was to enable Word to be more closely involved with Wycliffe's activities.

17. In March 2005 the Foundation applied for endorsement as a tax exempt charitable fund. The application was refused and an objection was made against that refusal in May 2005. As at the date of the Tribunal hearing, no decision had been made on the objection.

18. In 2005, apparently because of uncertainty about its status for income tax purposes, the directors of Word resolved to terminate its investment activities.

The relevant legislation

19. Division 50 of Part 2-15 of the Act concerns various entities that are exempt from the payment of income tax. Section 50-1 provides as follows:

"The total ordinary income and statutory income of the entities covered by the following tables is exempt from income tax. In some cases, the exemption is subject to special conditions."

20. The relevant table is contained in s 50-5 and provides as follows:

Item Exempt entity Special conditions
1.1 charitable institution see sections 50-50 and 50-52
   
1.5B fund established in Australia for public charitable purposes by will or instrument of trust (and not covered by item 1.5 or 1.5A) see sections 50-52 and 50-60

21. The special conditions are set out in ss 50-50 to 50-60:

"50-50 An entity covered by item 1.1 or 1.2 is not exempt from income tax unless the entity:

  • (a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or
  • (b) is an institution that meets the description and requirements in item 1 of the table in section 30-15; or
  • (c) is a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident; or
  • (d) is a prescribed institution that has a physical presence in Australia but which incurs its expenditure and pursues its objectives principally outside Australia.

50-52 (1) An entity covered by item 1.1, 1.5, 1.5A, 1.5B or 4.1 is not exempt from income tax unless the entity is endorsed as exempt from income tax under Subdivision 50-B.

50-52 (3) This section has effect despite all the other sections of the Subdivision.

50-60 A fund covered by item 1.5A or 1.5B is not exempt from income tax unless the fund is applied for the purposes for which it was established and:


  • ATC 4720

    (a) incurs, and has at all times since 1 July 1997 incurred, its expenditure principally in Australia and pursues, and has at all times since 1 July 1997 pursued, its charitable purposes solely in Australia: or
  • (b) is a fund which is referred to in a table in Subdivision 30-B or in item 2 of the table in section 30-15; or
  • (c) distributes solely, and has at all times since 1 July 1997 distributed solely, to either or both of the following:
    • (i) a charitable fund, foundation or institution which, to the best of the trustee's knowledge, is located in Australia and incurs its expenditure principally in Australia and pursues its charitable purposes solely in Australia;
    • (ii)a charitable fund, foundation or institution that, to the best of the trustee's knowledge, meets the description and requirements in item 1 or 2 of the table in section 30-15.

50-75 (1) In determining for the purposes of this Subdivision whether an institution, fund or other body incurs its expenditure or pursues its objectives principally in Australia, distributions of any amount received by the institution, fund or other body as a gift (whether of money or other property) or by way of government grant are to be disregarded.

50-75 (2) In determining for the purposes of this Subdivision whether an institution, fund or other body incurs its expenditure or pursues its objectives principally in Australia, distributions of any amount from a fund that is referred to in a table in Subdivision 30-B and operated by the institution, fund or other body are to be disregarded.

50-75 (3) In determining for the purposes of section 50-60 whether a fund:

  • (a) incurs, and has at all times since 1 July 1997 incurred, its expenditure principally in Australia and pursues, and has at all times since 1 July 1997, pursued its charitable purposes solely in Australia; or
  • (b) distributes solely, and has at all times since 1 July 1997 distributed solely, to a charitable fund, foundation or institution described in subparagraph 50-60(c)(i) or (ii);

distributions of any amount received by the fund as a gift (whether of money or property) or by way of government grant are to be disregarded."

22. Section 50-105 obliges the Commissioner to endorse an entity as exempt from income tax if the entity is both entitled to be so endorsed and has applied for endorsement. Section 50-110 provides the circumstances that must exist for an entity to be entitled to endorsement. Relevantly, under sub-s (2), the entity must be covered by one of the specified items in the table in section 50-5 and, under sub-s (5)(a), the entity must meet the applicable special conditions.

The Tribunal's findings

23. The Tribunal made the followings findings of fact and law:

  • • Between 1986 or 1987 and 1996 Word generated income solely from investing deposits made by individuals seeking to support its fund-raising activities. This income was used solely for the benefit of Wycliffe and other similar religious organisations. Its activities were pursued solely in Australia. Consequently, during this period, Word was entitled to be endorsed as exempt from income tax as an institution for the advancement of religion, under item 1.1 in the table at s 50-5 of the Act.
  • • From the commencement of Bethel Funerals in 1996 until 30 June 2002 when Bethel Funerals started operating separately from Word, the business of Word was a commercial operation for the purpose of making a commercial profit. As such, Word was not a charitable institution during that period.
  • • Word's activities from 1 July 2002, after Bethel Funerals had started operating separately, were the same as those prior to 1996 and consequently Word was entitled to endorsement as a charitable institution from 1 July 2002.

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  • • Word was not a fund established by trust, for the purposes of item 1.5B of the table at s 50-5 of the Act, since its memorandum and articles of association did not constitute an instrument of trust and, at any rate, the trust would not satisfy s 50-60 since its distributions to Wycliffe were not to a foundation or institution which incurs its expenditure and pursues its charitable purposes outside Australia.
  • • The question of whether the Foundation was an exempt fund under item 1.5B of the table at s 50-5 of the Act was not properly before the Tribunal.
  • • Word, being a separate legal entity, was not a part of Wycliffe and is not entitled to the exemption which Wycliffe has.

Was Word a charitable organisation prior to 1996?

24. Although the period prior to 1996 was not before the Tribunal and is not before the Court, it was the subject of findings by the Tribunal. In addition, it is necessary as a practical matter for Word to establish that it was a charitable organisation during this time. This is because this period represents the base position from which changes were made in 1996 and 2002. It is not in dispute that if Word's purposes prior to the establishment of Bethel Funerals in 1996 were not exclusively charitable then it cannot succeed in respect of subsequent periods.

25. The advancement of religion is a charitable purpose. Lord Macnaghten in
Commissioners for Special Purposes of the Income Tax v Pemsel [1891] AC 531 at 583 set out the legal definition of charity:

"'Charity' in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community, not falling under any of the preceding heads."

The High Court has recently confirmed that, unless a contrary intention is apparent, the use of the word "charitable" in a statute is a reference to the technical legal meaning as defined by Lord Macnaghten in the above passage:
Central Bayside General Practice Association Ltd v Commissioner of State Revenue 2006 ATC 4610; (2006) 229 ALR 1 at [18] fn 6 per Gleeson CJ, Heydon and Crennan JJ. No contrary intention is apparent in the Act.

26. There is no doubt that the advancement of religion includes missionary work:
Baptist Union of Ireland (Northern) Corporation Ltd v Commissioners of Inland Revenue (1945) 26 TC 335 (Court of Kings Bench of Northern Ireland). This is so whether that work is conducted within Australia or overseas. However, an organisation that does missionary work will not qualify as a charitable institution if its purpose is not exclusively charitable (
Attorney-General (NSW) v Adams (1908) 7 CLR 100 at 113-114) unless the non-charitable purposes are merely incidental to the charitable purposes:
Inland Revenue Commissioners v City of Glasgow Police Athletic Association [1953] AC 380 at 395-396 per Lord Normand, at 402 per Lord Reid, at 405 per Lord Cohen.

27. In determining whether an institution is charitable, it is necessary to consider the institution's essential object, which is itself to be determined by a consideration of the purpose of its formation, its constitution and its activities.

28. The starting point in determining the essential object of an institution is its constitution or articles of association. However, this will not always be determinative since "[t]he skill of Chancery draftsmen is well able to produce a constitution of charitable flavour intended to allow the pursuit of aims of a non-charitable or dubiously charitable flavour":
Attorney-General v Ross [1986] 1 WLR 252 at 263 per Scott J. Similarly, the constitution of a legitimate charity may be drafted in such a way as to obscure that legitimacy, whether through the inexperience of the drafter, the mistaken belief that the organisation's charitable nature will never be questioned, or otherwise. Where it is unclear from the listed objects of an organisation what its main purpose is, or where the evidence shows that the listed objects do not reflect the actual purpose of the organisation, it is appropriate to look to the activities of the organisation together with the expressed objects. In my view, this is not a case where the listed objects leave it unclear what is the main purpose of the organisation. Nor is there evidence that the stated objects do not reflect the actual purpose of Word. The first six objects


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in paragraph (a) of the objects (set out above at [9]) are clearly related to Word's evangelising activities. As for the remaining objects, I am satisfied, as was the Tribunal, that their comprehensive nature is more likely to reflect a degree of caution on the part of the drafter to ensure that no necessary or desirable act would be prohibited because of an unintended omission from the list.

29. The Tribunal's finding in respect of the period from 1986 or 1987 to the establishment of Bethel Funerals in 1996 was as follows:

"Between 1986 or 1987 and 1996, the sole activity of the applicant was the generation of income from interest earned on deposits from individuals seeking to support those fund raising activities. Its constituent documents prohibited distribution to members of the company and the income generated was applied solely for the benefits of [Wycliffe] as the primary recipient with small contributions to other similar religious organisations. It pursued those objectives solely in Australia and, as such, satisfied the requirements of Item 1.1 of s 50-5 and s 50-50(a) of the Act and was entitled to be endorsed as exempt from income tax for that period as an institution for the advancement of religion."

30. This finding raises three questions of law which the Commissioner says, for the purposes of the period from 2002, were answered erroneously by the Tribunal. The first is the Commissioner's submission that there was insufficient evidence for the Tribunal to conclude that the payments made by Word to Wycliffe and other organisations were used by them for charitable purposes. No such conclusion expressly appears in the Tribunal's reasons but I agree with the Commissioner's submission that that is the only basis on which the Tribunal could have concluded that Word's activities were charitable.

31. This evidentiary submission invites consideration of the wrong question. It is not relevant whether Wycliffe and the other recipients of Word's funds used those funds for religious purposes; that question is only relevant to the charitable purposes of those organisations. In determining Word's purposes, the question is what Word understood was being done with its funds. On this question, there was ample evidence. Three directors of Word gave evidence before the Tribunal. Two of them were also directors of Wycliffe. All three gave evidence of Wycliffe's activities and the reasons why Word supported those activities. All three were cross-examined by counsel for the Commissioner. Also in evidence was the fact that Wycliffe has itself been endorsed by the Commissioner as an exempt charity and that the directors of Word were aware of this. Finally, in considering the evidence, the Tribunal was required to give Word the benefit of the presumption referred to by Higgins J in
Hardey v Tory (1923) 32 CLR 592 at 595: "where a gift is made to a society having a distinctive charitable purpose, prima facie the gift is for that purpose."

32. In
Collins v Minister for Immigration and Ethnic Affairs (1981) 36 ALR 598, Fox, Deane and Morling JJ said, at 601:

"An appellant who attacks a conclusion of the Tribunal because of deficiency of proof said to amount to an error of law must show, if he is to succeed, that there was no material before the Tribunal upon which the conclusion could properly be based."

Clearly, in this case there was evidence that Wycliffe and the other organisations used the money received from Word for charitable purposes. More importantly, there was also evidence that Word intended and believed that Wycliffe and the other organisations would use the money for charitable purposes. It follows that no error of law has been made out.

33. The second question of law that arises from the Tribunal's findings in respect of this period is whether the generation of income from interest earned on deposits is a sufficiently religious activity to establish Word as a charity. Word relied on a number of cases in support of its contention that fund-raising may be part of a charitable purpose. With one exception, I have not found these authorities to be of great assistance. The exception is
Incorporated Council of Law Reporting for England and Wales v Attorney-General [1972] Ch 73. In that case, the Council was a not for profit organisation that published reports of judicial decisions. It was entitled to and did charge for its services but was prohibited from distributing profits to its members. The Commissioners of Inland Revenue argued that the purpose of the


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Council was to carry on the trade of publishers and sellers of law reports and that this was not a charitable purpose. They said that no legal distinction could be drawn between the Council and a similar publisher that profited from its publishing and selling law reports. The Court of Appeal rejected this argument. Russell LJ said, at 86:

"The fact that the association carries on a trade or business is admittedly not inconsistent with a charitable character in its objects. The difference between the two cases is in my view a vital distinction. The element of unselfishness is well recognised as an aspect of charity, and an important one. Suppose on the one hand a company which publishes the Bible for the profit of its directors and shareholders: plainly the company would not be established for charitable purposes. But suppose an association or company which is non-profit-making, whose members or directors are forbidden to benefit from its activities, and whose object is to publish the Bible; equally plainly it would seem to me that the main object of the association or company would be charitable - the advancement or promotion of religion."

34. In the same case, Sachs LJ said at 90 that:

"it is clear that the mere fact that charges on a commercial scale are made for services rendered by an institution does not of itself bar that institution from being held to be charitable - so long, at any rate, as all the profits must be retained for its purposes and none can enure to the benefit of its individual members".

35. A case with some similarity to the present is
Scottish Burial Reform and Cremation Society Ltd v Glasgow Corporation [1968] AC 138. In that case the Society carried on a crematorium for which fees were charged. The fees were not distributed to members and were re-invested in the Society. It was held that the provision of cremation services was a charity for public benefit. It was argued against the Society that the charging of a fee for the cremation services meant that their provision could not be charitable. Lord Reid (with whom Lord Guest agreed) said, at 147-148:

"[I]t has never been held that objects, otherwise charitable, cease to be charitable if beneficiaries are required to make payments for what they receive. It may even be that public demand for the kind of service which the charity provides becomes so large that there is room for a commercial undertaking to come in and supply similar services on a commercial basis. But no authority and no reason has been put forward for holding that when that stage is reached the objects and activities or the non-profit-earning charitable organisation cease to be charitable."

See also at 149 per Lord Upjohn and at 156-157 per Lord Wilberforce. Lord Pearson, at 157, concurred.

36. While these cases are of assistance to Word, they do not entirely answer the question. The proposition for which they stand is that where an organisation engages in an activity that has a charitable purpose, that purpose will not be lost where a profit is made in conducting that activity, provided that the profit is not distributed to members and is used exclusively (save for allowable incidental purposes) for charitable purposes. They do not address the question whether an activity that is not in itself charitable, but that is conducted for the purpose of producing income to be used for a charitable purpose, may itself be charitable.

37. Nonetheless, I think it is clear from the above passages that the making of a profit through trade or business is not necessarily inconsistent with a charitable purpose and that the true question to be asked is the purpose of the making of the profit. If the purpose is commercial then the exclusive purpose of the organisation is not charitable; if the purpose is selfless then it may be. Prior to 1996, the sole profit-making activity engaged in by Word was the investment of moneys provided by public investors who shared Word's beliefs and aims. The profits thereby made were then provided to Wycliffe and similar organisations. If, consistent with my understanding of the passages cited above, the true focus of the enquiry is on the purpose and not the manner of the profit-making, then it is clear that Word's purposes were, up to 1996 and subject to the second matter which I will come to shortly, charitable.

38. 


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Some assistance may be found in the rating cases. Statutes imposing rates on property are frequently subject to exemptions for property used exclusively for charitable purposes. In
Ryde Municipal Council v Macquarie University (1978) 139 CLR 633, the High Court by majority of 3-2 held that a "market" at Macquarie University consisting of retail and business premises let out to banks and shops for the benefit of students and staff was entitled to rating exemption under the relevant statute. The reason was that the enterprises run at the market were desirable for the functioning of the university and a use of the site for the purposes of the university: see
(1978) 139 CLR 633 at 643-644 per Gibbs ACJ and at 650 per Stephen J (with whom Murphy J concurred).

39. Where the commercial activity is not a purpose of the university but is merely incidental to the carrying out of the purpose, the land on which it is conducted will still be used exclusively for charitable purposes. So in
Salvation Army (Victoria) Property Trust v Fern Tree Gully Corporation (1952) 85 CLR 159, the sale for profit of produce grown at a facility for delinquent boys, an activity which the High Court held to be merely incidental to the charitable purpose of the occupier of the land, did not preclude the property from being exempt from the rating statute.

40. However, where the commercial activity is neither part of the charitable purpose of the occupier nor merely incidental to that purpose, and is used only to generate income, the land will not qualify for a "sole use" exemption because the land will not have been "used" by the occupier:
Commissioners of Taxation v Trustees of St Mark's Glebe [1902] AC 416;
Ryde Municipal Council v Macquarie University (1978) 139 CLR 633 at 643-4 per Gibbs ACJ.

41. The difficulty with the rating cases is that they direct attention not to the activities of the organisation, but to the use to which certain property is put. They therefore fragment the activities of the organisation in a way that is not done by Division 50 of Part 2-15 of the Act. The true comparison with the rating cases would be if the Act provided that each "division" of an organisation (including, relevantly in this case, the Bethel Funerals division of Word) must be charitable in order for it to qualify for endorsement. It stands to reason that the lower the level of abstraction at which one examines an organisation, the more likely it is that a particular part of the organisation (or of its property) is found to be of a different character from that of the organisation viewed as a whole at a higher level of abstraction.

42. There is a large body of law on this question in the United States: see D E Buckner, "Property Used as Dining Rooms or Restaurants as within Tax Exemptions Extended to Property of Religious, Educational, Charitable, or Hospital Organizations" 72 ALR 2d 521. Some decisions favour the taxpayer and others favour the authorities. In some cases, the different results can be explained by differences in the wording of the relevant statutes or the degree to which the property of disputed use is integrated into the remainder of the property of the organisation. The leading textbook on trusts in the United States, Scott on Trusts, cites the decision of the Supreme Court of Illinois in
School of Domestic Arts and Science v Carr 322 Ill 562, 153 NE 669 (1926) and concludes that where a charitable organisation applies any profits made by it to its charitable purposes, it will not thereby lose its charitable status: A Scott & W Fratcher, The Law of Trusts, 4th edn, Little, Brown & Company, 1989) 376. The School of Domestic Arts case was concerned with a tax on the property occupied by the School. The School conducted a restaurant located within its premises. The Court said at 322 Ill 562 at 569-570, 153 NE 669 at 672:

"In the case at bar the school is supported by pay students, the proceeds from the public restaurant, and gifts from various people. The facts alleged and admitted are that no profit whatever is made; that a deficit exists each year and is paid by gifts from benevolent women; that every cent of revenue goes toward the operation of the school … It cannot be questioned that such teaching in all its several branches is a benefit to the students, makes it possible for some of them to earn a living, and indirectly benefits the public and improves the happiness of man. The premises at No 6 North Michigan Avenue comprise the entire fifth floor of the Tower building and are


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primarily used as a school; 699 students receiving instruction when the bill was filed. Though the restaurant is also operated upon the same premises it is used in connection with the school and as an outlet for food cooked by the students, some of whom act in the capacity of waitresses. The restaurant also furnishes practical training for some of the students studying that branch of work. No part of any of the property was used for any purpose except in connection with and for the benefit and advancement of the school. We are of opinion appellant is a charitable organization and the property here involved is actually and exclusively used for the charitable purpose for which appellant was organized and is therefore exempt from taxation …"

To the same effect is
Decatur Sports Foundation v Department of Revenue 177 Ill App 3d 696, 532 NE 2d 576 (Il Ap Ct, 4th Dist, 1988). As will have been apparent, I agree with this approach. It accords with the thrust of the decisions I have cited at [33]-[35].

43. The Commissioner argued that, consistently with the judgment of Dixon J in
Roman Catholic Archbishop of Melbourne v Lawlor (1934) 51 CLR 1, it is necessary to draw a distinction between purposes of religion and things conducive to the good of religion. He characterised the generation of funds and distribution of those funds to Wycliffe as possibly being conducive to the good of religion, but as not being for the purposes of religion. The distinction is derived from the decision of the Privy Council in
Dunne v Byrne [1912] AC 407, where it was held that an activity may be conducive to the good of religion but not itself be charitable. An example, taken from the judgment of Griffith CJ in the High Court in the same case ((1910) 11 CLR 637), is of advances made to government bodies for the purposes of obtaining funding to be used for religious purposes. Such advances would not themselves be for the purpose of religion although they might be conducive to the good of religion.

44. I do not think the distinction referred to by Dixon J in Lawlor assists the Commissioner. It is clearly directed at the difference between activities that have a direct religious purpose and other activities that are incidental and beneficial to the religious purpose but are not themselves directly religious in purpose. The distinction that the Commissioner really calls for is one between an activity that is clearly religious in purpose and that, on the one hand, is conducted by the taxpayer itself and, on the other hand, is conducted through an intermediary such as Word. That is a wholly artificial distinction. The charitable purpose of an activity cannot depend on whether it is conducted from start to finish by one entity or whether two or more entities with different skills join together to jointly conduct it. The Commissioner's argument is inconsistent with the corporate structure of many contemporary charities which are complex and involve the use of separate legal entities to perform separate functions. Where they are all working together to pursue a common, charitable purpose it is artificial to consider the purpose of each entity separately.

45. The final question of law which the Commissioner contends was wrongly answered by the Tribunal in the paragraph cited above at [29] concerns the place where Word conducted its business. It will be remembered that s 50-50 of the Act requires a charitable institution to satisfy one of four alternative tests, one of which (paragraph (a)) is that the institution "has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia". The Tribunal held that Word satisfied this test. It is not suggested that Word could satisfy any of the other tests in s 50-50.

46. Paragraph (a) of s 50-50 is curiously drafted. It requires three tests to be met: (a) that the institution has a physical presence in Australia; (b) that the institution incurs its expenditure principally in Australia; and (c) that the institution pursues its objectives principally in Australia. Each of these tests is, of itself, relatively straightforward to apply. The difficulty is the words "to that extent" that connect requirement (a) to requirements (b) and (c). The words appear to cover the situation of an institution that has a presence both in Australia and elsewhere. In such a case, it seems that the institution is only required to incur its Australian expenditure principally in Australia and pursue its Australian objectives principally in Australia. In other words, were an


ATC 4726

institution to have an office in Australia and a similar office in New Zealand, and the expenditure of the Australian office was incurred principally in Australia and the objectives of the Australian office were pursued principally in Australia, then the fact that the New Zealand office may incur expenditure and pursue objectives principally in a place that is not Australia, does not disqualify the institution from satisfying the paragraph.

47. This is not the position of Word. It is not disputed that Word has a physical presence in Australia and therefore satisfies requirement (a). There was no evidence before the Tribunal that Word has any physical presence outside Australia. It follows that the words "to that extent", which might otherwise qualify requirements (b) and (c) do not have such an effect in the case of Word.

48. It seems to me to be equally clear that requirement (b) is met. Word's principal expenditure is the provision of funds to Wycliffe. This it does exclusively in Australia. It should be remembered that while Wycliffe Bible Translators (International) is a worldwide organisation, Wycliffe itself is an Australian entity. It would, I think, be wrong to say that because Word knows that the money it passes to Wycliffe will be expended principally outside of Australia, its expenditure is thereby incurred overseas.

49. Requirement (c) is more difficult. On the one hand, Word must argue that Wycliffe's activities, including their location, are relevant to whether Word has a charitable purpose, since without reference to them, Word's activities consist of no more than making payments to an empty shell organisation. But on the other hand, in order to satisfy requirement (c), Word must say that even though it knows that the funds it provides to Wycliffe are used predominantly overseas, this is not relevant to the enquiry under paragraph (a) of s 50-50.

50. It is clear from the passages from the Incorporated Council of Law Reporting case and the Scottish Burial case that the key to determining charitable status is motive. An investigation of motive cannot be conducted without considering the ultimate object of an organisation's activities. It follows that Word is right to argue that Wycliffe's activities are relevant to whether Word is entitled to charitable status. I also accept the corollary, namely that the location of Wycliffe's activities is also relevant.

51. It is not disputed that Wycliffe's activities are conducted principally outside of Australia. Wycliffe apparently had a small presence in Darwin, but this has diminished over time. Other than this, the evidence was that Wycliffe's activities were conducted principally in the third world. If the motivation behind the requirement that a charity's objects be pursued principally in Australia is that "charity begins at home", does this not mean, as the Commissioner contends, that Word's objects are not pursued principally in Australia?

52. The answer to this is that paragraph (a) of section 50-50 addresses a fundamentally different question from that asked in an enquiry as to the charitable nature of an organisation. Whether an organisation is charitable depends in large part on the motivation of the organisation - it is a question about the mental state of the organisation and so cannot be answered without a consideration of the knowledge (including knowledge of the destination of funds raised) informing that motive. On the other hand, paragraph (a) of section 50-50 asks a physical question, a nexus question. Viewed in this light there can be no doubt that Word's nexus is exclusively with Australia. What it does, namely handing money to Wycliffe, it does in Australia. There is nothing it does that has any connection to any other country.

53. It follows that, for the period prior to 1996, Word satisfied the requirements of paragraph (a) of s 50-50 of the Act and was a charitable organisation.

The effect of the funeral business

54. By its Notice of Cross-Appeal, Word appeals against the finding of the Tribunal that it is not entitled to endorsement for the period from 1996 to 2002. It does so broadly on two grounds. Firstly, it says that it is a charitable institution under item 1.1 in the table at s 50-5. The fact that it conducted a funeral business does not change the essential character of Word, namely an institution committed to raising funds for provision to Wycliffe and other similar organisations for the advancement of the Christian religion. Secondly, Word says that the Tribunal erred in finding that its


ATC 4727

memorandum and articles of association did not constitute an instrument of trust. Properly characterised, Word is a fund established for public charitable purposes.

55. Word does not need to succeed on both of these bases since the itemised list at s 50-5 comprises alternatives. If Word is a charitable institution it need not also be a fund established for public charitable purposes.

56. The Tribunal found that "it is difficult to consider a commercial funeral business as having an objective of the advancement of religion" and that "the business was a commercial operation for the purpose of making a commercial profit". The Tribunal relied on the decision of Priestley JA (with whom McHugh JA agreed) in
Glebe Administration Board v Commissioner of Pay-roll Tax 87 ATC 4825; (1987) 10 NSWLR 352, where his Honour said, at 365:

"In my opinion the Board was not at any relevant time a religious institution. It was a statutory corporation doing commercial work within limitations fixed by reference to religious principles. It was staffed by persons who wished to observe the religious principles giving rise to the limitations on the Board's commercial activities. The property in its ownership both increased in value and gave rise to revenue. Capital was held for the benefit of a religious institution and large amounts of revenue were handed over to that institution. To my mind all these matters result in it being accurate to describe the Board as a legal entity working in a commercial area, guiding its commercial conduct by the principles of a religious institution and, in ordinary language, working for that religious institution. I do not think that this legal entity can either by an ordinary or a technical use of language be accurately called a religious institution."

57. This case does not aid the Commissioner. Its facts are distinguishable from the present case. It concerned a statutory body exercising property ownership and investment powers given to it by statute. The Board was required by statute to hold and invest church property and to deal with any proceeds. Its purposes were thus defined by statute. This is to be contrasted with Word, which is an independent organisation which has chosen to apply funds that it raises to Wycliffe and other religious bodies. The Board's manner of operation was also different from Word's. It lent money for short terms at commercial interest rates and applied funds for church activities generally, rather than the specific activities supported by Word. Finally, the Board claimed to be a religious institution not, as in the present case, a charitable institution. Word concedes that it cannot be a religious institution.

58. In my view, in concluding that the running of a funeral business could not advance religion, the Tribunal fell into two errors. The first was to consider the funeral business in isolation from the remainder of Word's operations. There was no evidence to suggest that, from the commencement of Bethel Funerals, Word ceased receiving money from investors. The entity claiming to be a charitable organisation is Word, not the Bethel Funerals operations of Word. Word's activities as a whole must be considered when determining whether its purposes were charitable.

59. When such a consideration is undertaken, the second error becomes clear. Word's purposes as a whole were to raise money for provision to Wycliffe and similar organisations. This was true both before and after the establishment of Bethel Funerals. It was only the manner of raising the money that changed; the purpose for doing it remained the same. The Tribunal's error appears to have involved drawing an unwarranted distinction between active and passive investment. It seems to have assumed that it may be charitable for an organisation to receive funds from investors who may or may not have been encouraged to support its goals and ideals, but that it cannot be charitable for the organisation to actively establish a business to derive similar income.

60. The Tribunal's distinction is at odds with the practice of contemporary charitable organisations. With the decline of the welfare state, charitable organisations are expected to do more with the same resources. Reliance on donations alone will, in many cases, be insufficient. Hence many charitable organisations have established business ventures to generate the income necessary to support their activities. There may appear to be a vast difference between selling lamingtons at a church fête and selling funeral services, but


ATC 4728

where the object of raising the funds is the same, I can no see no reason to draw a legal distinction between the two. I again refer in this connection to the cases referred to at [33]-[35].

61. It follows that, for the period from 1 July 2000 to 1 July 2002, Word was a charitable institution under item 1.1 of the table at s 50-5 of the Act and is entitled to endorsement accordingly. The cross-appeal is therefore allowed. Word's alternative argument - that its articles and memorandum of association created an instrument of trust - need not be considered.

The period from 1 July 2002

62. As set out above at [16], Word established the Foundation from 1 July 2002 to carry on the business of Bethel Funerals. This effected a significant change from the position prior to that date, when Bethel Funerals was merely a part of Word rather than run through a separate legal entity. The Tribunal held that "the activities after 1 July 2002, being the same as those prior to 1996, entitle [Word] to endorsement as a charitable institution from that date."

63. The Commissioner challenges this finding on three grounds. First, he says that even assuming the factual finding is correct, Word was not entitled to endorsement prior to 1996 and so cannot be entitled to endorsement from 1 July 2002. I have already set out my reasons for concluding that Word was a charitable organisation prior to 1996. The Commissioner's first submission therefore fails.

64. Secondly, the Commissioner says that the period from 1 July 2002 was not, as a matter of law, properly before the Tribunal. The difficulty arises because Word applied for endorsement prior to the establishment of the Foundation. The Commissioner's decision not to endorse Word was therefore made on the basis that Bethel Funerals was a part of Word, and was not run separately by the Foundation. Consequently, according to the Commissioner, argument and evidence in the Tribunal was directed to this situation. The decision on appeal was the decision that, at the time that Bethel Funerals was part of Word, Word was not entitled to endorsement as a charitable entity.

65. This argument must be rejected. A decision to endorse (or not to endorse) an entity as charitable under the Act is not for a limited period. It operates until such time as the Commissioner decides that circumstances have changed or the taxpayer applies to have a different decision made. In this case, the Commissioner made one decision. Namely, that Word was not entitled to endorsement under sub-division 50-B of the Act. This decision, were it to stand, would have continued operation until Word re-applied for endorsement. The appeal brought by Word in the Tribunal was against the decision at large, not merely against the decision as it operated up until 30 June 2002.

66. Section 43 of the Administrative Appeals Tribunal Act 1975 provides that, for the purposes of reviewing an administrative decision, the Tribunal may exercise all the powers and discretions that are conferred on the original decision-maker. In
Fletcher v Commissioner of Taxation 88 ATC 4834; (1988) 19 FCR 442 at 453, Lockhart, Wilcox and Burchett JJ said, referring to s 43:

"In exercising those powers and discretions the Tribunal was bound to consider the facts as they were proved in evidence before the Tribunal, making the decision which, upon that evidence and at that time, was the correct or preferable decision to be made in considering the objection. The Tribunal was not confined either to the material which was before the Commissioner, as primary decision-maker, or the events which had occurred up to that time …"

67. It follows that not only was the period from 1 July 2002 before the Tribunal, but indeed the Tribunal was obliged to consider that period.

68. Thirdly, the Commissioner says that the evidence before the Tribunal was insufficient to establish the finding that the activities of Word from 1 July 2002 were the same as those prior to 1996. The Commissioner points to the relative paucity of material in evidence for the period from 1 July 2002. I accept that if the only question for the Tribunal had been Word's operations from 1 July 2002 and there had been no evidence of its operations prior to then, the Tribunal would have had difficulty reaching a view on whether Word qualified for charitable status. However, this was not the situation. Word's case was that the only significant change in its operations from the period


ATC 4729

immediately prior to the establishment of Bethel Funerals in 1996 to the termination of its activities in 2005 was the existence and operations of Bethel Funerals. A taxpayer that seeks to establish that it is a charity is not required to prove that status on every single day in the period for which it claims that status. Once it has established that it is a charity at a particular time, it is entitled to rely on that finding until such time as it is proved that its activities have changed to the extent that it is no longer charitable. The Commissioner has not pointed to any additional changes to Word's operations from 1 July 2002. He did not seek to cross-examine Word's witnesses on its activities from 1 July 2002. In these circumstances, there was evidence before the Tribunal that entitled it to find that Word's operations from 1 July 2002 were the same as those prior to 1996.

69. It follows that the appeal must be dismissed. The Court was informed that the Commissioner has agreed to fund Word's legal costs under his test case program. In those circumstances, I will make no order as to costs.


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