The Trustees of the Allport Bequest v. Federal Commissioner of Taxation

Northrop J

Federal Court

Judgment date: Judgment handed down 3 May 1988.

Northrop J.

The question raised by these proceedings is whether the Commissioner of Taxation (``the Commissioner'') should issue a certificate of exemption under sec. 11 of the Bank Account Debits Tax Administration Act 1982 (``the Administration Act'') in relation to a bank account kept by the applicants in the name of Henry Allport Estate Account Charities Trust (``the Charities Trust Account''). The answer depends upon whether the applicants, the trustees of the Allport Bequest, constitute a public benevolent institution under the Administration Act and in particular whether they constitute a public institution within the meaning of the phrase public benevolent institution. For the purposes of these proceedings the Commissioner was not concerned to dispute that the Charities Trust Account was benevolent within the meaning of the phrase.

The relevant provisions of the Administration Act and the Bank Account Debits Tax Act 1982 as discussed in detail in
F.C. of T. v. Launceston Legacy 87 ATC 4635; (1987) 75 A.L.R. 122 are applied in these proceedings and need not be repeated.

The Charities Trust Account has its origin in the will of Henry Allport (``the testator'') who died on 21 May 1965. By his will, the testator appointed trustees and, apart from some minor provisions, in substance devised and bequeathed the whole of his estate to his trustees to establish the Allport Library and Museum of Fine Arts to be housed in his home at Sandy Bay, Tasmania. If for reasons set out in the will, that was impracticable, the trustees were to hold his estate upon trust ``to use the nett income thereof in providing donations or gifts of money to such public charities or philanthropic objects in Hobart as they shall in their absolute discretion decide to help''.

It became apparent that it was not practicable to establish the Allport Library and Museum of Fine Arts in accordance with the terms of the will. It was apparent also that the residuary gift would fail ``legally to take effect because of formal invalidity''. To overcome these difficulties, all persons affected entered into an agreement to vary the trusts created by the will. The agreement was dated 7 September 1966 and was made between the Chief Secretary of the State of Tasmania, the Tasmanian Library Board, the trustees and the testator's next of kin. The agreement was approved by the Allport Library and Museum of Fine Arts Agreement Act 1966 (Tas.). The agreement is set out in the Schedule to that Act. Under subsec. 3(2) ``such of the provisions of the agreement as authorize or require the doing of any act or thing by the trustees... have effect as if they were expressly enacted in this Act''. The agreement establishes the Allport Library and Museum of Fine Arts and requires the trustees to endow the Tasmanian Library Board

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with a capital fund of $250,000. For present purposes, para. (f) of the agreement is relevant and is set out in full:

``Authorizing and requiring the Trustees to hold the balance of the estate as a perpetual charitable trust to be known as the `Allport Bequest' upon trust to apply the income thereof in providing donations or gifts of money for such public charitable objects for the citizens of Hobart as they shall in their absolute discretion decide to help, conforming in so doing to the directions as to publication in the Will contained.''

In July 1983, the applicants pursuant to sec. 11 of the Administration Act applied to the Commissioner for the issue of a certificate of exemption in relation to the Charities Trust Account kept by them with the Savings Bank of Tasmania. The Charities Trust Account was used by the applicant for the purpose of paying in income from the Allport Bequest investments and paying out gifts to ``public charitable objects for the citizens of Hobart'' and for purposes in connection with the administration of the Allport Bequest. The Commissioner refused to issue the certificate as ``the account is not a public benevolent institution even though distributions are made to such institutions''. An objection was lodged and a decision made by the Commissioner disallowing the objection. At the request of the applicants, the objection was treated as an appeal and forwarded to the Supreme Court of Tasmania. Under the provisions of the Jurisdiction of Courts (Miscellaneous Amendments) Act 1987, those proceedings have been transferred to the Federal Court for hearing and determination.

For present purposes, the problem can be stated in simple form. The applicants are the trustees of a trust for charitable purposes. The trust was created by an agreement based on a will the relevant part of which offended the rule against perpetuities. The trustees are exercising powers as if those powers were contained in an Act of Parliament. Pursuant to those powers, the trustees are operating the Charities Trust Account. The trustees are liable for a tax imposed on debit transactions within that account unless they are issued with a certificate of exemption under the Administration Act. A certificate cannot be issued unless the debit is made to an account kept with a bank in the name of a public benevolent institution. The question is, are the applicants a public benevolent institution?

It is necessary to see the context in which the phrase ``public benevolent institution'' is used. It appears in the definition of the words ``excluded debit'' contained in subpara. 3(1)(a)(vi)(A) of the Administration Act. The whole of para. 3(1)(a)(vi) is set out:

```excluded debit' means a debit -

  • (a) made to an account kept with a bank in the name of -
    • ...
    • (vi) any of the following:
      • (A) a public benevolent or a religious institution:
      • (B) a public hospital or a hospital that is carried on by an association or other body of persons otherwise than for purposes of profit or gain to the individual members of that association or other body;
      • (C) a school, college or university that is carried on by an association or other body of persons otherwise than for the purposes of profit or gain to the individual members of that association or other body,

      being a debit made in relation to a transaction or transactions carried out by or on behalf of the institution, hospital, association or body, as the case may be, wholly and exclusively in furtherance of its objects;''

In the Launceston Legacy case, above, the issue was whether Launceston Legacy satisfied the requirement of being ``benevolent'' within the meaning of the composite phrase ``public benevolent institution''. In the present case two issues arise, namely whether the trustees of the Allport Bequest satisfy the requirements of being (a) ``public'' and (b) an ``institution'' within the meaning of the composite phrase ``public benevolent institution''.

In the present case, the applicants are holding the Allport Bequest upon trust to apply the income for ``public charitable objects for the citizens of Hobart''. There seems little doubt that the Allport Bequest is a charitable trust, or to be more precise, is a trust for

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charitable purposes. There is the required element of public benefit available to a sufficient section of the public. Likewise, there seems little doubt that the ``public charitable objects'' must be given their technical or legal meaning in that the Allport Bequest is a trust for the relief of poverty, for the advancement of education, for the advancement of religion and for other purposes beneficial to the community not falling under any of the preceding heads; see
Commrs for Special Purposes of Income Tax v. Pemsel (1891) A.C. 531 per Lord Macnaghten at p. 583. Charitable purposes or objects do not, of necessity, have the same meaning as benevolent purposes or objects, see, for example,
Chesterman v. F.C. of T. (1923) 32 C.L.R. 362 and, on appeal to the Privy Council, (1925) 37 C.L.R. 317 and the decision in the Launceston Legacy case commencing at ATC p. 4641; A.L.R. p. 131. It follows, therefore, that there is much to be said for the view that the objects of the Allport Bequest are not necessarily limited to benevolent objects but the Commissioner was not concerned to argue this issue and I express no opinion on it.

The Commissioner contested first, that the applicants do not satisfy the requirement of being public. Counsel submitted that since the Allport Bequest derived solely from a private source, it could not be public. He argued that in order for the Allport Bequest to constitute a ``public benevolent institution'' there was a need for public contribution of some description, such as donations, government grants or fund raising activities. He relied on
Bray v. F.C. of T. 78 ATC 4179; (1977-1978) 140 C.L.R. 560 which, he contended, was the only case which has sought to contrast the phrases ``public'' and ``private''. In that case the High Court held that in order to be characterised as ``public'', a fund had to originate in public initiative or attract public financial participation to a substantial degree. That is, the public character of the fund is not obtained from the purpose for which the fund is used, but from the sources from which the fund is comprised.

I reject that contention. Bray's case concerned the definition of the composite phrase ``public fund'' appearing in para. 78(1)(a) of the Income Tax Assessment Act 1936. It did not concern the phrase ``public benevolent institution''. In my opinion, it is not appropriate to transfer the meaning given to ``public'' in the phrase ``public fund'' to the meaning of ``public'' in the different composite phrase ``public benevolent institution''. The word must be ascribed a meaning in the context of the entire phrase ``public benevolent institution''.

It is clear that an institution need not be owned or controlled by the government in order to be properly described as a ``public'' institution:
Maughan v. F.C. of T. (1942) 66 C.L.R. 388. However, whether the institution is subject to some form of public control is a relevant factor to be taken into account in determining whether the institution is public. It has been held that ``the main criterion is the extensiveness of the class it is the object of the institution to benefit''; Maughan's case per Williams J. at pp. 397-398. This view was confirmed in
Lemm v. F.C. of T. (1942) 66 C.L.R. 399 where Williams J. at p. 411 again expressed the opinion that if the purpose of an institution is to confer benevolence upon an appreciable needy class in the community, then the most important test of what is a public institution has been met. Lemm's case is also authority for the proposition that a public benevolent institution can be established by will and that it is immaterial whether the institution existed at the time the will was made or whether the institution was established by the will. None of these cases supports the view that the source of the funds is the major factor in determining whether an institution is ``public'' in nature, but rather, the use to which the funds are put.

See also
O'Farrell v. The Council of the Municipality of Bathurst (1923) 40 W.N. (N.S.W.) 78 where Campbell J. in considering the phrase ``public benevolent institution'' said at p. 80:

``I am of opinion that the question as to whether a benevolent institution is public in the sense in which that word is to be read in the exempting provision referred to, is less dependent upon the particular circumstances of its constitution and domestic government, than upon the character and objects of its benevolence.

What are the benefits which the institution dispenses and to whom are the benefits extended are inquiries the answer to which must be decisive on the question of whether

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or not the institution in question is public in the statutory sense.''

In the present case, the class of persons entitled to benefits from the Allport Bequest constitutes ``the citizens of Hobart''. The trust is said to be for ``public charitable objects''. The class of persons which may receive benefits from the Allport Bequest constitutes a sufficient section of the public to make the Allport Bequest ``public'' within the meaning of the composite phrase ``public benevolent institution''.

Counsel for the applicants contended that the Allport Bequest was an ``institution'' within the composite phrase ``public benevolent institution'' since it possessed what counsel argued were the two main indicia of an institution, namely, a recognised identity and a permanent nature. He contended that the Allport Bequest obtained its recognised identity from the fact that it was established by an Act of Parliament, that the moneys were distributed in accordance with the Act and that pursuant to the terms of the will, regular publications of such distributions were published in the Mercury newspaper. The Allport Bequest had a perpetual nature in that it was capable of continuing forever. Counsel could not refer the Court to any authority in which it had been held that these two criteria were the main indicia of an institution.

The meaning of the term ``institution'' has been the subject of substantial judicial comment. In
Mayor of Manchester v. McAdam (1896) A.C. 500, Lord Macnaghten said at pp. 511-512:

``It is a little difficult to define the meaning of the term `institution' in the modern acceptation of the word. It means, I suppose, an undertaking formed to promote some defined purpose having in view generally the instruction or education of the public. It is the body (so to speak) called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle. Sometimes the word is used to denote merely the local habitation or the headquarters of the institution. Sometimes it comprehends everything that goes to make up the institution - everything belonging to the undertaking in connection with the purpose which informs and animates the whole.''

The Shorter Oxford English Dictionary defines ``institution'' inter alia, as:

``7. An establishment, organization, or association, instituted for the promotion of some object, esp. one of public utility, religious, charitable, educational, etc. The name is often popularly applied to the building appropriated to the work of a benevolent or educational institution.''

It is clear that the existence of a building is not essential:
Young Men's Christian Association v. F.C. of T. (1926) 37 C.L.R. 351 at p. 361.

In the
Minister of National Revenue v. Trusts and Guarantee Co. Ltd. (1940) A.C. 138, the Privy Council had to determine whether a Canadian company, which was the trustee of an indenture, was liable to be assessed to income tax in respect of income accumulated by it pursuant to the trust contained in the indenture. One of the contentions of the taxpayer was that the trust, regarded as a whole, was a charitable institution and as such, was exempt from tax by virtue of sec. 4(e) of the Income War Tax Act 1927 which exempted from taxation "the income of any religious, charitable, agricultural and educational institutions, boards of trade and chambers of commerce'. Lord Romer, who delivered the opinion of their Lordships, rejected that contention. At pp. 149-150, he said:

``It is by no means easy to give a definition of the word `institution' that will cover every use of it. Its meaning must always depend upon the context in which it is found. It seems plain, for instance, from the context in which it is found in the sub-section in question that the word is intended to connote something more than a mere trust. Had the Dominion Legislature intended to exempt from taxation the income of every charitable trust, nothing would have been easier than to say so. In view of the language that has in fact been used, it seems to their Lordships that the charitable institutions exempted are those which are institutions in the sense in which boards of trade and chambers of commerce are institutions, such, for example, as a charity organisation society, or a society for the prevention of cruelty to children. The trust with which the present appeal is concerned is an ordinary trust for charity. It can only be regarded as a charitable

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institution within the meaning of the sub-section if every such trust is to be so regarded, and this, in their Lordships' opinion, is impossible. An ordinary trust for charity is, indeed, only a charitable institution in the sense that a farm is an agricultural institution. It is not in that sense that the word institution is used in the sub-section.''

In so deciding, their Lordships denied the proposition that every charitable trust is to be regarded as an institution.

The High Court accepted this proposition in
Stratton v. Simpson (1970) 125 C.L.R. 138. In that case, a testator, by his will, directed that his residuary estate should be held by trustees upon trust to distribute the net income therefrom to certain institutions and bodies. Gibbs J., with whom Barwick C.J. and Menzies J. agreed, said at p. 158 that although the meaning of ``institution'' will depend on its context, the term would not ordinarily connote a mere trust. However, Windeyer J. doubted the correctness of that statement with respect to all cases. At p. 145 he noted that the word ``institution'' is of wide denotation. He referred to the Privy Council judgment and continued:

``But I can seen no reason why, unrestrained by context, a fund raised by public contributions and administered by trustees could not be properly called an institution. Whether or not it would be a charitable institution would, of course, depend upon the trusts on which it was held. Funds raised for the relief of distress caused by bushfires or other disasters are well known. If the object to which the fund must be devoted is the continuing advancement of charity in the legal sense, it is a charitable institution.''

That type of trust is very different from the Allport Bequest and has no application here.

Counsel for the respondent referred also to
Commr of Land Tax (N.S.W.) v. Joyce (1974) 48 A.L.J.R. 432 which concerned the Land Tax Management Act 1956 (N.S.W.). Section 10(1) of that Act exempted from land tax ``(d) land owned by or in trust for a charitable... institution...''. The High Court held that there was no trust in favour of an institution. To be exempt from tax it was necessary that the legal owners of the land, namely, the trustees, should be an ``institution''. The Court held that the trustees could not properly be regarded as an institution. Stephen J., with whom Menzies J. and Gibbs J. agreed, said at p. 436:

``Accordingly the land, if it is to fall within this exemption, must be capable of being regarded as owned by an institution. In fact the only owners of the land are the four trustees; are they, then, such an institution as is described by the subsection, an institution `formed or constituted' and capable of being `carried on' for certain purposes? It is not the verbal infelicities involved in these two phrases when sought to be applied to the trustees that principally influence me to answer `No' to this question. Rather it is because the evidence, when examined, establishes to my satisfaction that the respondents are no more than simple trustees and possess no quality or function which could justify their being described as an institution.''

And later:

``The trustees' only function is the management of the trust property consistently with the trust deed and with the wish it expresses that the trust property should primarily be devoted to providing a meeting place for Christians. The performance of this function cannot, in my view, confer upon these four trustees the quality of an `institution' however widely that term may be construed.''

In my opinion, the fact that the Allport Bequest has the force of an Act of Parliament does not alter its essential character which is that of a mere trust. The applicants are no more than simple trustees. Under sec. 4 of the Act they are empowered to do all acts or things as may be required or necessary in order to give effect to the agreement, but that is all. Their role is simply to apply the income of the trust in providing gifts and donations to such public charitable objects as they, in their discretion, determine. In my opinion, they are not an ``institution'' within the composite phrase ``public benevolent institution''.

Having come to the conclusion that the applicants are not a public benevolent institution under the Administration Act, I do not need to consider other submissions based upon the fact that the applicants are not benefiting directly members of the public but are making donations or gifts to institutions

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which are public benevolent institutions. That fact, however, supports the view that the applicants are not an institution carrying out the objects of those public benevolent institutions.

In the result, the appeal is dismissed and the decision of the Commissioner not to issue to the applicants a certificate of exemption under the Administration Act with respect to the Charitable Trust Account is confirmed.

The Court orders that:

1. The appeal be dismissed.

2. The decision of the respondent to refuse to issue a certificate of exemption under sec. 11 of the Bank Account Debits Tax Administration Act 1982 in respect of the bank account kept by the applicants in the name of Henry Allport Estate Account Charities Trust be confirmed.

3. The applicants pay the respondent's costs of the appeal.

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