Case X13

Purvis J

Administrative Appeals Tribunal

Decision date: 21 December 1989.

Purvis J. (Presidential Member)

The matter generally, the assessment and objection

The question at issue in these proceedings is as to whether a gift by the taxpayer to a foundation is allowable as a deduction pursuant to sec. 78(1)(a) of the Income Tax Assessment Act.

In his income tax return for the 1987 financial year, the taxpayer claimed as ``donation'' to a foundation the sum of $2,910. The claim was not allowed by the respondent Commissioner. At the hearing of the matter, it was established that the amounts paid to or on behalf of the foundation in the relevant year by way of donations were not more than $1,564. They could have been no more than $1,056.73. Additional substantiation was needed as to the difference between these two amounts. It was in respect of the latter figure only that the taxpayer discharged the onus of proof resting upon him.

The taxpayer objected to the disallowance of the ``donation'', and in support thereof, stated that the gifts were made to a foundation ``to help needy state school pupils in a definitely disadvantaged area''; and he named the area. He continued:

``I draw to your attention the strict terms of the awards which are:

No staff member can be a trustee;

No trustee's relative can be given an award even if nominated;

No trustee may nominate any pupil for an award;

The Principal of the School must sign a declaration that the child is in necessitous circumstances under Section 81a [sic] of the Act. The four prizes, one in each school, are awarded such that three are for pupils completing Year 6 in their local (feeder) Primary and entering [...] High (Transfer of the prize is not permissible) and the fourth is awarded to a pupil who has completed Year 7, 8 or 9. Thus no pupil is advantaged with a prize beyond the age of 15 years, which makes eny [sic] allusion to `privileged education' risible.

Lastly, I want you to take into consideration the incentive you are prepared to give me to do something genuine for somebody, in perceived need. This year and last, rather than see the Foundation's assets dwindle before my promised target, I personally donated the $1200 (total) prize money.

To show evidence of good faith on my part, I request that eny [sic] refund be paid direct to the Foundation's Account, not to me.''

The objection was itself disallowed and the taxpayer appealed to the Tribunal submitting in his notice and in support of his appeal:

``Briefly, the appended documents incontrovertibly show that the [...] Foundation exists for no other purpose than to pay, directly to one and only one State School, [...] High School, sums of money from time to time to needy, meritorious, pupils as recommended by the Principals of the adjacent feeder Primary schools. In order to ensure that the money is not spent in other, non-educational directed ways, the Foundation's rules (Q.V.) stipulate that the money may not be paid to the recipient nor her/his parents or guardian, but directly to an account in the recipient's name at [...] High School, a school now serving a very depressed population.

Further, in order to ensure that no undue nepotism can occur the Trust Deed at 16 and 11 stipulates that no relative of eny [sic] trustee can be awarded eny [sic] prize, nor can eny [sic] member of [...] High School be a trustee. All of the items in the Trust Deed were incorporated in close liaison with, and advice from the Deputy Commissioner's officers.

It is my understanding of the original (1986) disallowance (disallowance)/letter that were the money to be paid directly to the parents or guardians of the recipient child, then my donations would be fully tax deductible. Unfortunately, in meny [sic] cases it is the total incompetence of the guardianship which is the prime cause of the child's need as perceived by the relevant feeder school's executive. To give the money directly into the hands of such guardianship would advance the child's education not at all, and might in some situations be deleterious to it - situations which the tribunal will be disingenuous enough to envisage.

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If much of this sounds paternalistic and condescending, as indeed it must, then my plea is that it is born of living amongst and working for these people near the bottom of the societal heap. The money has been too hard-earned for me to abide seeing it spent on taxis, or nicotine, or alcohol, or worse. There is always indeed a chance that the money might be spent on food. It is not a chance I am prepared to take, if for no other reason that I fancy myself as an educationalist, not a latterday Joseph in Egypt.

I now appeal to the tribunal to make my donations to the Foundation fully tax deductible, and to make this decision retrospective to all the moneys so far paid in.

In order to demonstrate my bona fides I now request that the Deputy Commissioner be requested by the tribunal to make no payment or refund to me, but insted [sic] to make an ex-gratia payment directly to the Foundation's Trust Account No. [...] and to add to it the $240 attached to this appeal.''

The establishment of the foundation

By a deed made 7 March 1986, the taxpayer as ``the founder'', together with others described as ``the trustees'', structured and established the relevant foundation. The deed recited, so far as is relevant, that:

``A. The Founder and others comprise a group of persons concerned to assist in the education of financially under-privileged children attending [...] High School;

B. It has been found to be necessary to raise moneys for the establishment and maintenance of funds to provide permanent scholarships and prizes for such children;

C. The Founder has requested that there be, and the Trustees have agreed to act as, Trustees of the [...] FOUNDATION upon the terms and conditions herein contained;

D. The founder has paid $2,000 to the Trustees to hold the same and all other receipts, donations and contributions which they may from time to time received from eny [sic] other person for the object of the Trust in perpetuity;''

It was provided by the deed that:

``1. The Trustees shall hold the sum donated by the founder and all other contributions from whatever source to the intent that the same shall be dedicated in perpetuity to the establishment, maintenance and advancement of a fund to provide educational assistance and help for needy and meritorious pupils in [...] High School and the fund shall be known as the [...] Foundation (hereinafter called `the Foundation'). In the event that [...] High School ceases operation then the pupils of the State High School most closely located to [...] High School shall be substituted in lieu thereof.''

The deed defined ``meritorious'' to mean ``meriting the prize as determined solely by the executive of the nominated school'', and the word ``needy'' as meaning ``necessitous as determined by sec. 78(1)(a) op. cit. The nominating school executive will provide a declaration to this effect signed by the principal, the declaration to include a simple supportive statement, e.g. single parent - supporting parent pensioner, housing commission home - reduced rental etc., so as to leave the Taxation Commissioner in no doubt.''

The deed further provided:

``10. Notwithstanding the general objects of the Foundation, so much thereof as consists of moneys in respect of which a deduction is claimed in terms of Section 78(1) of the Income Tax Assessment Act (or eny [sic] other legislation for the time being amending consolidating or relating to the same subject matter) may be applied ONLY to the purposes of providing scholarships as herein defined.


16. The Trustees may, with the consent of the Founder or his executor or administrator and shall upon the written direction of the Founder, alter, add to or revoke all or eny [sic] of the powers, duties and objects of this Trust PROVIDING ALWAYS that the object of the Trust hereby declared shall be the advancement of the interest and welfare of the pupils aforementioned, and that no relative of eny [sic] trustee can be given eny [sic] award.''

ATC 168

The foundation in operation

During the 1987 financial year, a small proportion of the funds placed to the credit of the foundation's account was utilised in payments to the high school. The moneys, being generally $50 for each student, were paid into an account maintained by the school to be used in aid of the particular pupil nominated by the school principal, and for ``school purposes in 1987'', and any ``school related purpose''. On the evidence adduced before the Tribunal, the uses to which the moneys were in fact put included ``school fees'', ``art'', ``Tuesday Hobbytex'', ``Taronga Zoo'', ``H. Science'', ``text and design'', ``Ind. Arts'', ``Canoeing'', ``Sport fees'', ``T-shirts'' and ``wood''. The children so nominated were in the cases illustrated by the evidence living with a single parent or pensioner parents.

In the relevant 1987 financial year, the evidence was in accord with the gifts to the foundation being substantially made by or on behalf of the taxpayer. Thus the gifts the subject of the claim for a deduction here under review constituted substantially the donations for the year.

Although not directly relevant to the Tribunal's determination of this appeal, there was evidence tendered, without objection, showing that in the years subsequent to 1987, the taxpayer, to a major extent, and others to a very minor extent, made funds available to the foundation so that by October 1989, it was said that there was then invested, or held by or on its behalf, approximately $32,000, the income from which was being used to help ``many needy meritorious pupils'' at the high school. Of more recent date, a ``public appeal'', by way of advertisements inserted in a newspaper and a newsletter, was held in aid of raising moneys. A limited amount was contributed.

Representations have been, and the Tribunal was informed are still being, made to Government to obtain deductibility under the income tax legislation.

Evidence was adduced as to various schemes made available by Government in aid of needy students and of the inability of the Department of Education or schools to compel payment of the general service school fee by or on account of pupils.

The relevant legislation and its application to the facts of the appeal

One cannot help but be sympathetic to the motivation of the taxpayer, and to the aims and ideals of the foundation. One can appreciate the conviction of the taxpayer, he having been a teacher for a large part of his working life who, on his retirement, dedicates his time in furtherance, as he sees it, of righting the educational system in New South Wales and in satisfying the wants of others. He said that he seeks to ``relieve impoverishment in the area where I live'', and ``to establish educational assistance''. Commendable objectives. There was and is not any issue as to the honesty of the taxpayer, or as to his dealing with the funds of the foundation, other than as has been set forth in these reasons.

But this is not enough. As with the respondent, so with the Tribunal. The law as it is contained in the legislation and principles set forth in cases decided on such legislation, or legislation analogous to it, are each to govern and direct the decision maker. There is not a discretion given to the Commissioner of Taxation or the Tribunal.

The relevant provision of the Income Tax Assessment Act is sec. 78(1), which, so far as it is relevant, provides:

``Section 78(1) The following shall... be allowable deductions -

  • (a) Gifts (not being testamentary gifts) of the value of $2 upwards of money, or of property other than money which was purchased by the taxpayer within 12 months immediately preceding the making of the gift, made by the taxpayer in the year of income for any of the following funds, authorities or institutions in Australia:
    • ...
    • (ii) a public benevolent institution;
    • (iii) a public fund established before 23 October 1963 and maintained for the purpose of providing money for hospitals or institutions specified in subparagraph (i) or (ii), or for the establishment of such hospitals or institutions, or a public fund established and maintained for the

      ATC 169

      relief of persons in Australia who are in necessitous circumstances.
    • ...''

The foundation per medium of the trustees holds the moneys received by it in trust for its declared objects. Can it be said to be a ``public benevolent institution''? I think not.

The Privy Council in Minister of National Revenue v. Trusts and Guarantee Company Limited (1940) A.C. 138 at p. 149 said that it was not easy to give a definition of the word ``institution'' that would cover every use of it. Nevertheless, Lord Romer, in his reasons for decision, said as to the meaning of the word ``institution'':

``Its meaning must always depend upon the context in which it is found. It is 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 organization society, or a society for the prevention of cruelty to children. The trust with which the present appeal is concerned is an ordinary trust society. It can only be regarded as a charitable 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.''

Stratton and Others v. Simpson and Others (1970) 125 C.L.R. 138, Gibbs J., in delivering the majority decision at p. 158, said:

``In its ordinary sense `institution' means `an establishment, organization, or association, instituted for the promotion of some object, especially one of public utility, religious, charitable, educational etc.' (The Shorter Oxford English Dictionary). It means as was said in Mayor etc. of
Manchester v. McAdam (1896) A.C. 500 at p. 511, `an undertaking formed to promote some defined purpose...' or `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'. Although its meaning must depend on its context, it would not ordinarily connote a mere trust (cf. Minister of National Revenue v. Trusts and Guarantee Co. Limited). A school could appropriately be called an institution with the ordinary meaning of the word.''

(See also
Commissioner of Land Tax (N.S.W.) v. Joyce and Others (1974) 48 A.L.J.R. 432 at p. 436.)

The context in which the word is used in the income tax legislation referable to gifts of money or property made by a taxpayer to ``funds, authorities or institutions'' clearly shows that the legislature intended to draw an appropriate distinction between the three types of prospective recipients. There is not anything in this context to denote that the subject trust should be considered as ``an establishment, organization or association'' rather than what it is, namely ``a mere trust''.

Alternatively, it was submitted by the taxpayer that the subject foundation was a ``public fund established and maintained for the relief of persons in Australia who are in necessitous circumstances'', that is (see
Bray v. F.C. of T. 78 ATC 4179 at p. 4180) that the gifts made by the taxpayer to the foundation were gifts to a public fund established and maintained under an instrument of trust for the purpose of providing material assistance to persons in necessitous circumstances. The relevant trust deed might well, by its declared terms, have satisfied the requirements of the Act. A decision in this matter depends, however, upon whether the fund as so established in fact is a ``public fund'' and whether the recipients and prospective recipients are persons in ``necessitous circumstances'' within the meaning of sec. 78 of the Income Tax Assessment Act.

The Act does not define a ``public fund''. As was stated by Barwick C.J. in Bray (supra) at p. 4181:

``this is perhaps understandable because the circumstances which may warrant the conclusion that a fund is a public fund are likely to be various and quite disparate. But at least, in order for a fund to be a public fund, it must, in my opinion, either originate in a public initiative or attract

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public financial participation to a substantial degree. Given one of these conditions, there may yet be other circumstances which must be present to warrant the conclusion that the fund is of a public nature. In any case, a fund cannot obtain its public character from the nature of the purposes for which the fund may be used. The Act requires both that the fund should be a public fund and that it be devoted to the specified purposes. Thus, in this case, the fact that the deed complies with the requirements of the Act affords no reason for the conclusion that the fund constituted under it is a public fund.''

In the present case, it cannot be said, on the evidence, that the foundation originated in a public initiative or that it had attracted a substantial degree of public financial participation. Whilst the deed of trust may have proclaimed purposes for which the funds could be used, it was apparent, as set forth earlier in these reasons, that in the subject year, the funds were not devoted to such purposes but to other uses.

Jacobs J., in his reasons for decision in Bray (supra) at p. 4187, having referred to the perceived need for funds to be collected for the provision of benefits consistent with sec. 78(1)(a), said:

``The need for such funds, contributions to which would not necessarily be immediately available to any of the named authorities or institutions, could be reconciled with the general intention disclosed in sec. 78(1)(a) that no mere setting aside or appropriation of money or property would be sufficient to qualify for a deduction by providing that only a gift made to a public fund should be deductible. The implicit distinction is between a public fund and a private fund. A private fund as much as a public fund may as a result of the trusts created be irrevocably devoted to the required purposes; but that was not to be sufficient.

A consideration of these circumstances leads me to conclude that the principal distinguishing characteristic of a public fund is that contributions thereto are sought from the public or a significant section of the public. If a member of the public contributes to such a fund as a result of an invitation or request so to do, that, it seems to me is positive, and probably irrefutable, evidence that the fund to which he contributes is a public fund and, if the purposes of the fund fall within sec. 78(1)(a), the contribution will be deductible.


A fund is a public fund when the purpose of its establishment is the raising of funds from the public or a significant section of the public so that the objects will benefit to an extent greater than the benefit which a founder (if any) confers by his own contribution. The question is one of fact in each case and the conclusion would not be lightly reached that promoters or founders did not have the requisite intention or purpose. The fact that members of the public unassociated with the promoters or founders did in fact contribute in response to an invitation or request extended to them would no doubt be very strong evidence that the promoters or founders had extended the invitation to the public with the purpose, intention and expectation that that result would follow.''

The facts and circumstances as earlier detailed in these reasons show that the involvement of persons other than the taxpayer in the foundation was minimal and that the cause being promoted, worthy as it is, was and is established and maintained as a private cause of the taxpayer, he forgoing his own personal use of the moneys. The foundation, on the evidence, was clearly what has been described as a ``private fund'' in the relevant period.

Even if, however, the foundation could be shown to have been and now be ``a public fund'', still it needs to be one established and maintained for ``the relief'' of persons in ``necessitous circumstances''. In
Ballarat Trustees Executors and Agency Company Limited v. F.C. of T. (1950) 80 C.L.R. 350 at p. 355, Barwick J., in considering the meaning to be ascribed to the words ``necessitous circumstances'' said:

``I should say that a person is in necessitous circumstances if his financial resources are insufficient to enable him to obtain all that is necessary, not only for a bare existence, but for a modest standard of living in the Australian community. Such an attempted explanation of the expression is perhaps hardly less vague than the expression itself;

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but it serves to bring out what I think is important in this case, namely, that s. 8(5) refers to inability to afford what may fairly be regarded as necessities for persons living in Australia, as distinguished from things which are merely desirable advantages.''

There was not any evidence as to the financial resources of the student beneficiaries other than that their parents or parent were or was in receipt of social security. There was not any evidence of an inability on the part of a parent or the student to afford the necessaries associated with living in Australia.

It was further submitted that whilst the deed in this matter recites the concern of the taxpayer ``and others'', no doubt including thereby the trustees, ``to assist in the education of financially under-privileged children attending'' a designated high school, this intent is one extending to assistance in the education of students, and not ``for the relief'' of their poverty, or in the words of the Act, ``necessitous circumstances''. If the Act was here intending to cover expenses of education, then it was said the word ``relief'' would not have been inserted in it. The money was here paid by the foundation to the school, not the parents, for educational purposes and for meritorious students. The nature of the use to which the moneys were put, payment to the school in respect of fees that could not otherwise be recovered from parents, hobbies and excursions, whilst eminently desirable, were not, on the evidence before the Tribunal, in relief of necessitous circumstances of the students or the parents. The fund was not established and maintained for relief of persons in ``necessitous circumstances'' within the meaning given to those words in the income tax legislation.

Accordingly, and for the various reasons hereinbefore set forth, the objection decision is affirmed.

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