P Bayne SM

Administrative Appeals Tribunal (sitting as the Small Taxation Claims Tribunal)

Decision date: 5 February 1999

Peter Bayne (Senior Member)

This is an application to review a decision of the respondent of 20 April 1994 that the applicant was, for the year ended 30 June 1997, liable to pay income tax of $526.32. (It is not apparent how taxable income of $1462 was calculated, but nothing turns on this). The applicant's grounds of objection were that it was exempt under section 23(e) and/or section 23(g) of the Income Tax Assessment Act 1936 (Cth) (ITAA).

2. The applicant is an ``industry training advisory body'' as defined in section 4(1) of the Australian National Training Authority Act 1992 (Cth). It is desirable to approach the ultimate questions which arise in this matter against the wider background of the Commonwealth Government's policies in relation to vocational training. One may start with the functions of the Australian National Training Authority (ANTA), which was created by the ANTA Act. In the words of the long title of this Act, ANTA is ``a national training authority with functions related to the funding of vocational education and training''.

3. Section 3 of this Act states:

``The objects of this Act are:

  • (a) in conjunction with the States, to promote the development of a national vocational education and training system in accordance with the objectives set out in the Statement; and
  • (b) to promote that development in accordance with the planning and decision-making arrangements set out in the Statement.''

4. The objectives of the national vocational education and training system are more fully spelt out in a ``Statement'' which is a schedule to the Act, to which further reference is made below.

5. ANTA works under the general direction of a Commonwealth/State Ministerial Council. It may also consult with governments in Australia, employer and employee bodies, and with industry training advisory bodies. An industry training advisory body is, as defined in section 4(1) of the Act, ``an organisation or body declared by the Ministerial Council to be an industry training advisory body for the purposes of the Statement''.

6. ANTA receives, from Consolidated Revenue, funds for the purposes of a national program. This means ``a program that is related to vocational education and training and for which the Ministerial Council has required the Authority to undertake responsibility''. In this respect, the Ministerial Council lays down ``national allocation principles'', defined in section 4(1) to mean ``principles determined by the Ministerial Council as the principles to be applied by the Authority in the allocation of funds under Part 3''.

7. The terms of the Statement are critical to an appreciation of the objectives of the national vocational education and training system. Clause 1 states the Objectives of the system:

``1. In supporting the proposal for an Australian National Training Authority (ANTA), the main aim would be to promote:

  • • a national vocational education and training system, with agreed objectives and priorities, assured funding arrangements, consistent national strategies and a network of providers delivering high quality, nationally recognised programs at the State and local level;
  • • close interaction between industry and vocational education and training providers, to ensure that the training system operates within a strategic plan that reflects industry's needs and priorities;
  • • an effective training market, with public and private provision of both high level, advanced technical training and further education opportunities for the

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    workforce and for the community generally;
  • • an efficient and productive network of publicly funded providers that can compete effectively in the training market;
  • • increased opportunities and improved outcomes for individuals and target groups, including school leavers, to enhance their employment outcomes; and
  • • improved cross-sectoral links between schools, higher education and vocational education and training.''

8. The role of an industry training advisory body is first mentioned in clause 9, dot point 1:

``9. The functions of the ANTA will include:

  • • based on advice from State training agencies and, where appropriate, in consultation with National Industry Training Advisory Bodies (ITABs), to develop for the consideration of the Ministerial Council:
    • • a draft National Strategic Plan; and
    • • aspects of training policy in response to references from the Ministerial Council....''

9. Clause 12 also provides a role for an industry training advisory body:

``12. Industry would be involved in key aspects of the new National System, including

  • • through membership on the ANTA, by participating in the development of national policy and priorities
  • • through participation in the State training agencies and involvement in the development of State Training profiles

and, in addition,

  • • the National ITABs will be a key source of advice to the ANTA in the development of national policy and priorities
  • • State ITABs will be consulted in the development of State Profiles and provide input to national plans to the State training agencies.
  • • The precise industry consultative mechanism at the State level will be a matter for the State government. It is envisaged that consultative mechanisms will also involve other stakeholders.''

10. Under the heading ``Funding Arrangements'', clause 36 provides at dot point 4:

``36. To the maximum extent possible, Commonwealth government-funded training programs should be funded through ANTA arrangements. Existing Commonwealth programs should be allocated on a functional basis in accordance with a set of guiding principles. Under those principles:

  • ...
  • all general recurrent and capital grants to TAFE currently provided under States Grants (TAFE Assistance) legislation would be passed to ANTA under the arrangements set out at paragraph 34 above. In addition, ANTA would assume responsibility for programs which support training activities and services which are national in scope and purpose (this includes after its establishment the national aspects of the new Australian Vocational Certificate Training System); and provide operating support for the national Industry Training Advisory Body (ITAB) network;...''

11. It is useful now to consider the nature of the applicant. It is a company limited by guarantee. Under its Articles of Association, bodies which are representative of employers and employees in the property security industry comprise its members. The membership of its board reflects the same interests.

12. The memorandum of association specifies the objectives for which the applicant is established. On this hearing, the respondent pointed in particular to the first three objectives:

  • ``(a) identify and recommend education and training arrangements in order to ensure an adequate supply of skilled people to meet the long term needs of the property services industry;
  • (b) present whenever necessary a national view on training and education matters of the property services industry;
  • (c) establish and maintain close links with all advisory bodies and relevant training providers to ensure the maximum productivity of arrangements for the development of education and training for the property services industry;

    ATC 2079

  • ...''

13. There is no doubt that the applicant may be characterised as a body which, in part, presents to governments views of the property security industry in relation to vocational training in that industry. The question whether this is determinative of its status as a charitable institution is taken up below.

14. The applicant provided information as to how the applicant operates. Mr Radford, who appeared for the applicant, described it, correctly as I consider, as ``a critical element in a co-operative program between government and industry for training'' in the property security industry.

15. In this respect, a major dimension of its role (and this is apparent from the way in which it spends its funds - see below) is to provide training packages to a body called Property Services Training Company Ltd (PSTC). In turn, this body arranges with educational providers, such as TAFEs, for those providers to conduct training courses which are attended by trainees in the property security industry. This is explained in Exhibit 2, being a letter from the applicant's accountants to the respondent. (No challenge was made to the veracity of the statements made in this letter.)

16. The applicant and PSTC have the same directors and staff, and they work in tandem. PSTC receives funding from the Commonwealth Department of Employment, Education, Training and Youth Affairs to develop traineeships in the property security industry. In part, it subsidises the placement of unemployed in that industry. Such persons as are placed in employment must receive vocational training. A major role played by the applicant ``is to develop training packages in conjunction with industry which can be used in training persons who receive traineeships from PSTC'' (Exhibit 2, at 2). The training packages developed by the applicant - largely if not entirely by contracting out this function and deploying the bulk of its funds for this purpose - see Exhibit 4 - aim to provide, through the educational providers arranged by PSTC, an element of formal training to run alongside the on-the-job training provided by the employers.

17. Exhibit 2 concludes by saying that ``PSITAB and PSTC were established in order that the Federal Government could direct its expenditure on training in a more accurate manner rather than providing funds for general education and training without knowing the specific needs and requirements of industry''.

18. It is also asserted that ``PSITAB is part of the Government's program aimed at assisting groups such as the long term unemployed, not in assisting those persons who are already employed in an industry''. There is some evidence to support this view to be found in statements made by the applicant (see immediately below). That the objective of the system of which the applicant is a part is to enhance the employment opportunities of persons who are not in the property security industry workforce is indicated in clause 1 of the Statement, which states as an objective of the system that there will result from it ``increased opportunities and improved outcomes for individuals and target groups, including school leavers, to enhance their employment outcomes''.

19. Mr Radford also drew attention to the annual Report of the applicant for the year 1997/98 (Exhibit 3). This report asserts that the applicant seeks to achieve the goals set by the Ministerial Council, and that its work is ``designed to ensure that industry's views are reflected in the national commitment to improvements in vocational education and training delivery'' (at 2). It also says that ``[o]f particular interest is the extent to which publicly funded training is of direct benefit to the long term unemployed and to new entrants seeking employment in any of the sectors covered by the Board's membership'' (at 4).

20. In relation to its role as a training advisory body to government, the Annual Report noted that the applicant had devised and presented to ANTA three training packages covering 6 sectors of the industry. These packages provided performance-based assessment and a set of qualifications. It also sponsored feasibility studies into school-to- work transition programs (see at 6).

21. Turning to its sources of income, Exhibit 4 provides the information that for 1997 the applicant received from ANTA a grant of $300,000. The applicant was obliged by its funding agreement with ANTA to raise from the property security industry at least $106,400. This document states that some $112,788 was raised by way of ``in kind'' contributions (largely by ascribing a money value to the time spent by ANTA directors on its business). Of the $300,000, some $176,382 was expended on

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``Staff and subcontract''. The Tribunal was informed in the hearing that the subcontract work related to the preparation of the training packages.

22. Section 23(e) of the ITAA provides:

``23 Subject to section 22A, the following income shall be exempt from income tax:-

  • ...
  • (e) the income of a religious, scientific, charitable or public educational institution which:
    • (i) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or
    • (ii) is an institution to which a gift by a taxpayer is an allowable deduction because the institution is referred to in a table in subsection 78(4); or
    • (iii) is a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident; or
    • (iv) is a prescribed charitable or religious institution that has a physical presence in Australia but which incurs its expenditure and pursues its objects principally outside Australia;


23. The first question is whether the applicant should be characterised as a ``charitable... institution''. (The applicant did not object to paying tax on the basis that it was exempt as a ``public educational institution''.)

24. It was accepted that the words ``charitable... institution'' are used in their technical legal sense. Nor was any question raised against the proposition that the applicant was an ``institution''.

25. The relevant legal principles were stated by the High Court in
Incorporated Council of Law Reporting (Qld) v FC of T 71 ATC 4206; (1971) 125 CLR 659. The Council was comprised of members of the legal profession and its purpose was to prepare and publish reports of the decisions of the Supreme Court of Queensland. The issue for the High Court was whether the income of the Council was exempt under section 23(e).

26. Chief Justice Barwick said (at ATC 4210; CLR 666-667):

``... is the Council... a `charitable institution' within the meaning of sec 23(e)? If its purposes are charitable, it will be such an institution for the nature of the institution inheres in the purposes it is created to and does pursue. There is no need in this connection to consider what is the main purpose of the Council as, in my opinion, it has in substance but one purpose, namely the production of law reports, both in the form of weekly or periodical notes and of annual volumes....

The Act attempts no definition of charity or of what for its purposes will be charitable. But having regard to the decision of the Privy Council in
Chesterman and Others v. FC of T 37 CLR 317 it must be taken that whether or not the institution is relevantly charitable will be determined according to the principles upon which the Court of Chancery would act in connection with an alleged charity. That means that the indications contained in the preamble to the Statute of Elizabeth 1601 and the classifications in Lord Macnaghten's speech in
Commissioner for Special Purposes of Income Tax v. Pemsel (Pemsel's Case) (1891) AC 531 at 583 are to be observed in deciding whether or not the institution is charitable for the purposes of the Act.

The reported cases may in some instances afford a guide by analogy to the decision whether a particular trust, or a particular purpose is charitable. In addition, the many dicta found in the reasons for judgment in such cases, though by no means of one accord, provide valuable assistance in resolving such a question. But in the long run, it seems to me, it is a matter of judgment whether the trust or purpose fairly falls within the equity, or as it is sometimes said, `within the spirit and intendment' of the preamble to the Charitable Uses Act 1601. This is clearly so in Australia....

The instances given in that preamble are not exhaustive. Charity is not limited to activities ejusdem generis with those instances, if indeed a genus is really to be found in them. But the preamble does give an indication and, it would seem, a definitive indication, of what will be charitable, whether in point of trust or of purpose. Lord Macnaghten in Pemsel's Case

ATC 2081

extracted from this indication four heads or categories of charity of which the first three heads or categories are capable of more certain application than the last category, which is the one with which the Court must be concerned in this case.

The question here is whether the production not for private gain of law reports, recording the decisions of a superior court in a judicial system in which the decision of an earlier case may itself in terms or by analogy, or in association with other such decisions determine the result of a later case, is a purpose beneficial to the community within the scope of the fourth head of charity as expressed in Pemsel's Case.

Not every purpose beneficial to the community is a charitable purpose but only those which are within the equity of the preamble to the Statute of Elizabeth. The purpose must not merely be beneficial: it must also be charitable....''

Justice McTiernan agreed with Barwick CJ, but Windeyer J, although agreeing in the result, held that ``the educational aspects of [the Council's] objects tell in favour of its being a charitable institution. The advancement of education was the second of Lord Macnaghten's four heads of charity'' (71 ATC at 4212; 165 CLR at 671).

27. To apply the law to the facts, it is necessary to address two questions: (i) are the purposes of the applicant within the spirit and intendment of the Statute of Elizabeth 1601, and, if so, (ii) are these purposes beneficial to the community? (See too
Royal National Agricultural and Industrial Association v Chester (1974) 3 ALR 486 at 487-488.)

Are the purposes of the applicant within the spirit and intendment of the Statute of Elizabeth 1601?

28. The advancement of education is of course one of the four recognised heads of charity, and my conclusion is that the applicant is a body whose purposes are charitable in this sense. The evidence upon which I base this conclusion is set out above. Generally speaking, I have had regard to the purposes of the applicant as stated in its constituent documents, the purposes of ANTA, and the evidence as to what the applicant in fact does.

29. I conclude that the applicant plays a critical role in the acquisition of skills by those who seek to enter (and do enter) the workforce of the property security industry. (In so saying, it is to be noted that the entrants receive both formal and on-the-job training and instruction.) These skills may be a long way removed from the skills of a lawyer, but no narrow view should be (or has been) taken of the kinds of education which may fall within the purposes of an education charity. Relevant cases are considered, in a context closely analogous to that before the Tribunal, in
Barclay & Ors v Treasurer of Queensland 95 ATC 4496. See too H Picarda, The Law and Practice Relating to Charities (2nd ed, 1995), Ch 3.

30. It might be noted that it is thought by scholars that the preamble to the Statute of Elizabeth 1601 was influenced by the fourteenth century poem The Vision of Piers the Plowman. The poet advised wealthy merchants to devote their wealth to charitable purposes, including ``(to) put scholars to school or to some other craft''. No doubt, at that time, the word ``craft'' may have received a meaning somewhat more limited than it has today. But the poem does show that the medievalists who constructed the law of charities took a broad view of what kinds of education could be undertaken by a charitable body.

31. The respondent did not - somewhat surprisingly - cite the Barclay case, but did rely strongly on a statement by Devlin J, when sitting as one member of a three-judge panel of the Queen's Bench Division in
Chartered Insurance Institute v Corporation of London [ 1957] 2 All ER 628. That case was concerned with the interpretation of a statutory provision which contained the words ``the advancement of... education'', and it is by no means clear that it is an authority on the application of the Statute of Elizabeth 1601. Be that as it may, the respondent nevertheless argued that what Devlin J said is applicable to the application of section 23(e) of the ITAA.

32. In particular, the respondent points to these words of Devlin J:

``In one sense the word `education' may be used to describe any form of training, any manner by which physical or mental aptitude, which a man may have for the purposes of his work, may be acquired. If that was what was intended it would not be apt, in my judgment, to use the words `for the advancement of education'. Those words suggest that the organisation is to be

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concerned with education for its own sake.''

(at 643)

33. I do not accept that this reasoning is applicable to the application of section 23(e). I was not referred to any Australian authority which had applied these sentiments, and, indeed, the decision of at least Windeyer J in Incorporated Council of Law Reporting (Qld) v FC of T 71 ATC 4206; (1971) 125 CLR 659 may be said to proceed upon a rejection of this view. Legal education - in regard to which the publication of law reports was seen by Windeyer J to be indispensable - is hardly education for its own sake. Rather, it is education for a career in the legal profession. The decision in Barclay & Ors v Treasurer of Queensland 95 ATC 4496 would also appear to involve a rejection of the view expressed by Devlin J.

34. Moreover, if applied to the law of charities, application of the distinction drawn by Devlin J would operate to exclude many educational bodies from the legal definition of charity. Many of those bodies take as axiomatic the point made by Eve J in
Re Noailles (1916) 85 LJ Ch 807:

``The mere stuffing of information into a boy or girl may make them very priggish, but it does not make them of much use in life unless they know how to apply that information for the purpose of becoming useful citizens.''

Are the purposes of the applicant beneficial to the community?

35. In
Thompson v FC of T (1959) 102 CLR 315 at 321, Dixon CJ said:

``The tendency of the trust must be to benefit the public, a condition that is satisfied if it tends to the benefit of the public at large, or a class or section of the public. The trusts may be limited in their operations by reference to locality, to conditions of people, to their disabilities, defects or misfortunes and by reference to many other attributes of men and things, yet the trusts may retain their `public' character. Not a little difficulty has been felt in defining the conception of `public', `public charity' or `public benefit' which this involves but the contrast is, of course, to private advantage.''

36. In a real sense, the purposes of the applicant may be said to tend to the benefit of the public at large. It is now widely appreciated that the whole community benefits from an educated and well-trained workforce. The better trained the workforce, the more likely it is that its rate of production will increase, and the less likely it is that work injuries will occur.

37. But of course, the more particular beneficiaries of the activities of the applicant will be those who enter the workforce of the property security industry. It is, however, clear that the fact that only a particular group of the public may be the target and the beneficiaries of the activities of the educational body does not preclude that body from being regarded as a body which benefits the community. All of the judgments in Incorporated Council of Law Reporting (Qld) v FC of T 71 ATC 4206; (1971) 125 CLR 659 make this clear.

38. The group that will most immediately benefit from the activities of the applicant are, for the purposes of the law of charity, ``a class or section of the public''.

39. The respondent relied strongly on the links between the applicant and the industry representatives which make up its membership and control its activities. The applicant no doubt puts an ``industry view'' to the Federal Government about the nature of vocational training in the industry, which view will be consistent with industry's views about what will benefit the industry. The objects (a), (b) and (c) of the applicant's memorandum of association, which were relied upon by the respondent, make this clear.

40. I find, however, that such benefits are incidental to the main purpose of the applicant, which is to advance education in the property security industry for the benefit of a class of the public (cf Barclay & Ors v Treasurer of Queensland 95 ATC 4496 at 4500).


41. The Tribunal sets aside the decision under review and in substitution therefor decides that the applicant is exempt from income tax by reason of its being a charitable institution for the purposes of section 23(e) of the Income Tax Assessment Act 1936 (Cth).

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