FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v Word Investments Limited [2007] FCAFC 171

TAX – income tax – body seeking endorsement as a charitable institution – whether body instituted to promote or advance a charitable purpose – body seeking endorsement conducted profitable commercial activities and directed profits towards advancement of religion – necessity to examine the purpose of the body’s formation, its constitution and activities – importance of subjective motivations of directors – whether body pursued its objectives principally in Australia – profits donated for overseas evangelisation

WORDS AND PHRASES – “charitable institution”, “pursues its objectives”

Administrative Appeals Tribunal Act 1975 (Cth) s 43

Income Tax Assessment Act 1936 (Cth) s 23

Income Tax Assessment Act 1997 (Cth) ss 50-5, 50-50, 50-105, 50-110, 50-115, 50-130

Judiciary Act 1903 (Cth)

Tax Laws Amendment (2004 Measures No 1) Act 2004 (Cth) item 45 to sch 10

Taxation Administration Act 1953 (Cth) ss 426-30, 426-55

Statute of Elizabeth

Central Bayside General Practice Association Ltd v Commissioner of State Revenue (2006) 228 CLR 168 followed

Chesterman v Federal Commissioner of Taxation (1923) 32 CLR 362 referred to

Chesterman v Federal Commissioner of Taxation [1926] AC 128 referred to

Christian Enterprises Ltd v Commissioner of Land Tax (1968) 72 SR (NSW) 90 followed

Commissioner for the Australian Capital Territory Revenue Collections v Council of the Dominican Sisters of Australia (1991) 101 ALR 417 cited

Commissioner of Inland Revenue v Carey’s (Petone and Miramar) Limited [1963] NZLR 450 approved

Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531 followed

Cotman v Brougham [1918] AC 514 cited

Cronulla Sutherland Leagues Club Limited v Commissioner of Taxation (1990) 23 FCR 82 followed

Dunne v Byrne [1912] AC 407 distinguished

Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 236 ALR 209 cited

Glebe Administration Board v Commissioner of Pay-Roll Tax (1987) 10 NSWLR 352 distinguished

Guaranty Trust Company of Canada in re the will of Dorothy Elgin Towle v Minister of National Revenue [1967] SCR 133 considered

Hester v Commissioner of Inland Revenue [2005] 2 NZLR 172 cited

Incorporated Council of Law Reporting for England & Wales v Attorney-General [1972] Ch 73 distinguished

Incorporated Council of Law Reporting of the State of Queensland v Commissioner of Taxation (1971) 125 CLR 659 distinguished

Inland Revenue Commissioners v Helen Slater Charitable Trust Ltd [1982] 1 Ch 49 referred to

McGarvie Smith Institute v Campbelltown Municipal Council [1965] NSWR 1641 cited

Nunawading Shire v Adult Deaf and Dumb Society of Victoria (1921) 29 CLR 98 explained

Re Introductions Ltd [1970] Ch 199 cited

Re Smith (Deceased) [1954] 1 SASR 151 distinguished

Re Tennant [1996] 2 NZLR 633 cited

Re Tivoli Freeholds Ltd [1972] VR 445 cited

Re Wakim (1999) 198 CLR 511 followed

Roman Catholic Archbishop of Melbourne v Lawlor (1934) 51 CLR 1 distinguished

Royal Australasian College of Surgeons v The Federal Commissioner of Taxation (1943) 68 CLR 436 considered

Salvation Army (Victoria) Property Trust v Shire of Fern Tree Gully (1952) 85 CLR 159 distinguished

Scottish Burial Reform and Cremation Society Ltd v Glasgow City Corporation [1968] AC 138 distinguished

Shi v Migration Agents Registration Authority (2007) 158 FCR 525 cited

Theosophical Foundation v Commissioner of Land Tax (1965) 82 WN (Pt 1) (NSW) 545 explained

Theosophical Foundation Pty Limited v Commissioner of Land Tax (1966) 67 SR (NSW) 70 explained

Vancouver Society of Immigrant & Visible Minority Women v Minister of National Revenue [1999] 1 SCR 10 considered

Ford HAJ Principles of Company Law (2^nd Ed 1978)

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v WORD INVESTMENTS LIMITED

VID 1300 OF 2006

STONE, ALLSOP & JESSUP JJ

14 november 2007

MELBOURNE

THE COURT ORDERS THAT:

1.                  The appeal be dismissed.

2.                  There be no order as to costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

STONE J

1                     I have had the advantage of reading in draft the reasons of Allsop J, with which I agree.  For the reasons given by his Honour the appeal should be dismissed.   As the Commissioner had agreed that the costs of the appeal will be dealt with under the test case programme there should be no order as to costs.

Associate:

Dated:         14 November 2007

REASONS FOR JUDGMENT

ALLSOP J

2                     I have had the advantage of reading the reasons in draft of Jessup J.  His Honour’s description of the background and the approach of the primary judge enable me to express my reasons without repeating those matters.  Whilst I agree with the orders that Jessup J proposes, I would prefer to express my reasons for such orders as follows.

3                     There were three essential questions argued on the appeal and cross-appeal: 

(a)            Whether the primary judge erred in his approach to the assessment of whether Word is a “charitable institution” within the meaning of item 1.1 of the table in s 50-5 of the Income Tax Assessment Act 1997 (Cth) (the “1997 Act”).  As the matter was argued by the appellant Commissioner, on the material before the Administrative Appeals Tribunal and before his Honour it could not be concluded, conformably with the law, that Word was a charitable institution.

(b)           Whether Word satisfies the special condition in s 50-50(a) of the 1997 Act which requires that Word “pursues it objectives principally in Australia”.

(c)            Whether the period from 1 July 2002 was properly before the Tribunal.

The first question:  whether Word was a “charitable institution”

4                     The primary judge approached the question as to whether Word was a “charitable institution” within the meaning of item 1.1 of the table in s 50-5 by examining the motive or purpose of Word in the use of the funds at its disposal from the carrying on of its activities.  At [37] of his reasons, the primary judge said 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”.  See also [52] of his Honour’s reasons, where he said, “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…”

5                     So, in determining Word’s purposes (and whether they were charitable) the question was what Word understood and intended was being done with the funds it made by the profitable activities that it undertook.  The primary judge was in no doubt as to the answer to that question:  Word understood and intended that the funds it raised would be given to other entities for religious (and charitable) purposes.

6                     The primary judge found legal error in the approach of the Tribunal in analysing the funeral business activities of Word as inherently commercial.  This he said was an incorrect focus on the manner of raising money, when the correct question was the purposes of raising money.  If the purpose was charitable, the manner (that is the activity) was irrelevant.

7                     The first significant question is whether this approach of the primary judge is correct.

8                     There was no dispute that the word “charitable” in the 1997 Act bore its technical legal meaning:  Income Tax Special Purpose Commissioners v Pemsel [1891] AC 531 and Central Bayside General Practice Association Ltd v Commissioner of State Revenue (2006) 228 CLR 168 at 178-179 [18].  Nor was there any dispute that the advancement of religion is a charitable purpose.  Nor was there any dispute that Word was an institution.

9                     The debate concerned whether Word was a charitable institution.

10                  The not unimportant point raised in debate on appeal is whether or not a company, having an avowedly charitable purpose in the disposition of all its profits, is to be denied the character of a charitable institution because of the activities by which it gains its profit do not, of themselves, bear the character of charity.

11                  There are a number of authorities to guide one to the answer to these questions.  Principal among these is the Royal Australasian College of Surgeons v The Federal Commissioner of Taxation (1943) 68 CLR 436 (The “Surgeons’ Case”).  As the careful analysis of the various judgments in the Surgeons’ Case by Lockhart J in Cronulla Sutherland Leagues Club Limited v Commissioner of Taxation (1990) 23 FCR 82 at 90-93 shows, the question as to the true character or nature of the entity is to be assessed having regard to its objects, purposes and activities.  See also Beaumont J and Foster J in Cronulla Sutherland Leagues Club at 117 and 123, respectively; and to the same effect by the Full Court in Commissioner for the Australian Capital Territory Revenue Collections v Council of the Dominican Sisters of Australia (1991) 101 ALR 417 at 422-24.

12                  To thus state the principle does not, however, lead to the conclusion that an entity, whose activities were all non-charitable in the sense that the activities in their nature did not bespeak activities recognised by the Statute of Elizabeth, is not a charitable entity.  That conclusion would only be reached by applying another proposition, to the effect that an institution can only be charitable if its activities were of a kind that were to be found in the terms and spirit of the Statute of Elizabeth and Pemsel’s Case [1981] AC 553.  That is, if the notion of charitable purposes is confined to activities which of themselves contain the relevant legal public benefit within the legal concept of charity.

13                  This latter proposition does not emerge from the Surgeon’s Case.  Nor does it emerge from any binding High Court authority or any persuasive authority.

14                  The relevant task, as stated in the Surgeons’ Case, is to assess the true character or nature of the entity by reference to its objects, purposes and activities.  It is an integrated, holistic enquiry directed to whether a body of facts and circumstances satisfies a legal category or conception.

15                  In examining the authorities, one must pay precise attention to the terms of the statute concerned and the precise nature of the enquiry being engaged in.  Sometimes, the words “purposes” and “activities” are used almost interchangeably.  This is due, sometimes, to the form and limits of the relevant question.  For example, some of the cases concern rating statutes that employ the word “use”, such as in rating cases which turn on the user of land.  Such an inquiry inevitably focuses on an analysis of activity.

16                  The submission of the Commissioner was that a charitable institution could conduct so-called commercial activities, but only as incidental or ancillary to the entity’s charitable activities.  Thus, it was said, the passive holding of investments to produce income for putting a charitable purpose into effect might be permissible.  So, also, it was said that the making of a profit from charitable activity might be permissible.  What was impermissible, however, was the conduct of so-called commercial activities which in their nature and of their character could not be said to be activities legally charitable.

17                  This submission was said to flow from Scottish Burial Reform and Cremation Society, Ltd v Glasgow City Corporation [1968] AC 138; The Incorporated Council of Law Reporting of the State of Queensland v Commissioner of Taxation (1971) 125 CLR 659; Salvation Army (Victoria) Property Trust v Shire of Fern Tree Gully (1952) 85 CLR 159; Roman Catholic Archbishop of Melbourne v Lawlor (1934) 51 CLR 1; In re Smith (Deceased) [1954] 1 SASR 151; and Glebe Administration Board v Commissioner of Pay-Roll Tax (1987) 10 NSWLR 352.

18                  These cases do not support the submission sought to be derived from them by the Commissioner.  The Scottish Burial Case and the ICLR of Queensland Case both stand as authority for the proposition that the making of a profit from the conduct of the charitable activity does not necessarily destroy the charitable nature of the purpose exhibited by the activity.  As Lord Wilberforce said in the Scottish Burial Case [1968] AC at 156:

In my opinion, the fact that cremation is provided for a fee rather than gratuitously does not affect the charitable character of the company’s activity, for that does not consist in the fact of providing financial relief but in the provision of services.

The terms of the Glasgow rating exemption were that the land be occupied by a charity and wholly used for charitable purposes.

19                  In the ICLR of Queensland Case, the memorandum and articles of association made the production of law reports the Council’s sole purpose.  Thus the memorandum made the characterisation of the activity the essential question.

20                  Neither case addressed the present problem.

21                  In Salvation Army v Shire of Fern Tree Gully 85 CLR 159, the Court was concerned with a  rating exemption as to “land used exclusively for – charitable purposes”.  Thus, the inquiry was not as to the character of an entity, but as to the character of the purposes for which land was used.  The focus by the Court on the purposes, in the sense of activities, can be seen in that context.  The land in question was used for the conduct of a training farm for delinquent boys and for homes for difficult, wayward or underprivileged boys.  Pigs and cattle were raised, fruit and flowers were grown and a herd of cows kept and milked.  The produce thus won was used in the maintenance of the institution and feeding of the boys, with the surplus sold.  The sums thereby produced went to defraying the costs of conducting the farm and the homes, which were, overall, conducted at a loss.  The magistrate found that the sole object of the institution in carrying on the various activities was to achieve the charitable purpose of educating the boys in these activities.  Dixon, Williams and Webb JJ said (at 172) that the use of the land did not cease to be exclusively for charitable purposes merely because the charitable purpose (in the activity) produces a profitable by-product as a mere incident of that use.  At 173 their Honours also indicated that the making of a charge for a charitable activity (such as the provision of beds for the needy) did not necessarily destroy the charitable character of the activity.  McTiernan J (at 178-79) dealt with the matter similarly; as did Fullagar J (at 186-87).

22                  Though not relied on by the Commissioner, Nunawading Shire v Adult Deaf and Dumb Society of Victoria (1921) 29 CLR 98 needs to be explained.  It was referred to, and distinguished by, the Court in Salavation Army v Shire of Fern Tree Gully.  Nunawading was also a rating case in which the relevant provision concerned itself with the use of the land being exclusively for charitable purposes.  Land held by the Society was used to grow flowers as a method of training and instructing the deaf and dumb. The flowers were sold at a profit.  The public was also permitted to use the grounds for a fee as a recreational area.  The proceeds of the flower selling and the recreational use were put towards the upkeep of the institution.  The Court focused (see in particular at 108) on the activities undertaken.  That can be seen as a consequence of the terms of the provision in question.  The case also was decided before Chesterman v Federal Commissioner of Taxation (1923) 32 CLR 362 and [1926] AC 128.  In Salvation Army v Shire of Fern Tree Gully this was the basis for distinguishing the case.

23                  In Roman Catholic Archbishop of Melbourne v Lawlor (1934) 51 CLR 1 the testamentary gift was of certain shares and one half the residuary estate to the Archbishop of Melbourne and various Bishops “to establish a Catholic daily newspaper”.   The issue was not how Catholic daily newspapers hitherto could be characterised by their activity, but what the gift permitted to be done.  Since not all religious purposes were charitable, a newspaper conducted as a vehicle for aiding in the advancement of the Roman Catholic faith could not be contained within the legal concept of charity (Rich J at 23).  Likewise, Starke J at 25-6 said that the objects of a Catholic newspaper could not be confined to charitable purposes – given the wide latitude of advancing the views of the Roman Catholic Church.  Dixon J at 30 ff discussed the notion of purpose.  His discussion makes clear that to be a purpose that can be said to be charitable the purpose in the sense of “activity or pursuit” (32) must have the requisite character (here religion):

In order to be charitable the purposes themselves must be religious; it is not enough that an activity or pursuit in itself secular is actuated or inspired by a religious motive or injunction:  the purpose must involve the spread or strengthening of spiritual teaching within a wide sense, the maintenance of the doctrines upon which it rests, the observances that promote and manifest it….

The conduct of a Catholic newspaper was only conducive to religion and not confined to charitable purposes in the legal sense.  An example that would clearly fall within the activity was the dissemination of political views conducive to the religion:  see esp 33-36.

24                  Because the gift was for the conduct of an activity (the establishment of a Catholic newspaper), the question before the Court was whether a gift for the purpose of carrying on that activity was necessarily a charitable purpose.  To answer this the Court examined the limits of the permission and whether all that could fall within that permission were activities that could be characterised as charitable.  The question before the Court was thus one which directed attention to the need to the permission for the relevant activity (the conduct of a Catholic daily newspaper) to be confined by the legal notion of charity.  It was not.  The gift failed.  The case is not authority for the proposition that an entity carrying on so-called commercial activities and constrained by the requirement to employ the profits for charitable purposes or ends is not a charitable institution.

25                  In re Smith [1954] SASR 151 concerned a 1914 will with a residuary gift to the Sydney Sanitarium and Benevolent Association Limited (the “Company”) to be used for the purposes, works and objects of the branch thereof at Adelaide.  The Company had been established by the Seventh Day Adventist Church.  The memorandum of association of the Company included objects which of their character were charitable – such as the establishment of hospitals and sanitariums, and objects which of their character were not charitable – such as the manufacture and sale of health foods and health appliances.  The memorandum of association stated that no dividends were to be paid to members and all profits were to be applied to the extension of the objects of the Company.  The Company was dissolved in NSW in 1938, having been removed from the South Australian Register as a foreign company in 1934.  A second company, the Australian Conference Association Limited (“ACA”), was formed in 1909 with similar objects.  In 1918, the Company transferred its sanitarium and a business for the manufacture and sale of vegetarian foods in New South Wales, and its sanitarium in South Australia to ACA.  ACA sold the South Australian sanitarium in 1920 and from then on its principal activity in South Australia was to conduct a shop and factory for the manufacture and sale of vegetarian goods. 

26                  The ratio of the decision was that the gift failed, the Company having ceased to exist.  There was, therefore, an intestacy as to the residuary.  Obiter, Ligertwood J said that even if the gift of residuary could be construed as one for defined purposes, being those contained in the memorandum, it could not be treated as a good charitable gift because some of the purposes there identified were commercial and non-charitable.

27                  There was no doubt that the motive behind the establishment of the health food company was religious (vegetarianism being a tenet of Seventh Day Adventism).  There was no doubt that the profits were, in fact, used exclusively in aid of the teachings, activities and purposes of a religious kind.  But the purposes (if it be seen to be a gift for purposes) included all the purposes – the charitable purposes (building hospitals and sanatoriums) and the non-charitable purposes (manufacturing and selling health foods).  The memorandum did not restrict the use of the profits to the charitable purposes.  Ligertwood J saw the governing instrument as permitting activities (that is, purposes) wider than those which were capable of being characterised as charitable.  He saw a direct application of Lawlor’s Case.

28                  In re Smith and Lawlor’s Case do not answer the question as to whether an entity can be characterised as charitable if it is permitted to carry on (and does carry on) activities that do not bear a charitable character from their nature, but which permission is limited by an exclusive purpose, in the sense of aim or object, of making a profit solely for an avowed charitable purpose, in the sense of an activity that does bear a charitable character from its nature.  The alternative construction of the gift in In re Smith was for purposes, in the sense of activities, that were both charitable and non-charitable, with the proceeds being required only to go to fund the same mixed group of activities.

29                  The Glebe Administration Board Case 10 NSWLR 352 concerned the question whether the Board which managed and controlled certain commercial properties owned by the Church of England was a “religious institution”.  By majority, the New South Wales Court of Appeal said that it was not.  Priestley JA (with whom McHugh JA agreed), after a detailed examination of the instruments creating the Board and the activities of the Board, said the following at 365:

One matter which this argument does not sufficiently take into account, in my opinion, is that the Board in holding church property was endowed with non-religious managerial powers so that it cannot be said that the property was appropriated to entirely religious purposes. The property was to a substantial extent appropriated to commercial purposes, the net profit from which was to be available for religious purposes. I do not think that McAdam's case helps the Board's argument on the first question.

The situation also seems to me to be different in kind from the sort of case dealt with by Else-Mitchell J in McGarvie Smith Institute v Campbelltown Municipal Council (1965) 83 WN (Pt 1) (NSW) 191; 11 LGRA 321, where he held that the conduct of trade by a charitable trust does not derogate from its charitable character because any gain from the trading operations had to be used to further the purposes of the trust. The kind of case he was then dealing with was one where it was the charitable activity itself which involved an incidental aspect of money-making. In the case now before the Court the religious and trading activities were fully separated in point of legal operation.

Conclusion on first question:

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.

30                  It is possible to see this as a conclusion, using the approach in the Surgeons’ Case, that the independent commercial operation of the Board was such that it could not be characterised as religious.  It may also be possible to extract from his Honour’s approach a proposition that an institution cannot be religious if its activities bear a non-religious character irrespective of the destination of the funds produced.  On balance, I think the former is what the Court decided.  First that is what Priestley JA said.  Secondly, the Board’s purpose can be seen as entirely commercial – not to make profits for religious purposes, but to manage, commercially, the Church’s property.  The distinction is fine, but real.  The following passage at 370-71, dealing with the payment of wages, perhaps exemplifies the distinction:

… The result is that among the purposes to which the Board had to devote its receipts was the purpose of paying the wages of employees working in an ordinary area of commerce. The fact that in working in that area the Board guided its commercial conduct by the principles of the Church and that the whole of the net revenue from its activities was available for the charitable purposes of the Church does not seem to me to make the purpose of the payment of those employees a charitable purpose. To put it slightly differently, the Board in carrying out the duties it was obliged to carry out pursuant to cl 13 of the ordinance was not carrying out solely public charitable purposes but was lawfully using trust property in commerce for revenue earning purposes, some of the net proceeds of which were used and all of which were available to be used (if the Standing Committee so decided) by the Church for public charitable purposes.

31                  I also agree with the comments of Jessup J as to the lack of dispositive effect of the Glebe Administration Board Case to the arguments here.

32                  To the contrary of the Commissioner’s proposition that the predominance of non-charitable activities by an entity deny the possibility of its characterisation as a charitable institution, there is authority to the effect that a company that is incorporated for the object of charitable purposes that conducts activities of a so-called commercial (or relevantly non-inherently charitable kind) for the clear and exclusive purpose (as here) of raising funds to deploy in ways that are charitable is or can be characterised as a charitable institution.

33                  In Christian Enterprises Ltd v Commissioner of Land Tax (1968) 72 SR (NSW) 90 the New South Wales Court of Appeal was concerned with whether the company in question was a “religious society” or a “charitable institution” for land tax purposes.  For reasons that it is unnecessary to discuss here the company was held by the majority (Walsh JA and Asprey JA, Wallace P dissenting on this issue) not to be an institution, and so the company could not be a charitable institution. 

34                  The Court did, however, examine the purpose and activities of the company in order to assess whether it could be characterised as a religious society.  The company’s primary objects were (variously expressed) to raise funds to spread the Gospel and to spread the Gospel.  Another clause (cl 3), expressed to be for the purposes only of carrying these out, gave additional powers and objects to carry on a wide variety of trades and business.  Another clause (cl 7) directed that the income and property be applied solely towards promotion of the objects. Subject to paying wages and the like, no portion could be transferred to members.  The company received moneys interest free and invested them at a profit.  Later, six blocks of land were bought, developed and sold for the purpose of making a profit to be used for the primary objective.  Also, the company received rent for the premises it occupied. The members were in the building industry, contractors and tradesmen.  On the evidence, it was clear that the members were not using the company as a device for their own benefit.  Walsh JA at 103 expressed the view that having regard to the provisions of the objects clause and the evidence, all that was done was for the purposes of carrying out the religious objects in the memorandum.  He said “[f]or that purpose, [that is the religious objects in the memorandum], but not otherwise, it may undertake commercial ventures of many kinds.  But… this does not provide a reason for refusing to describe it as a religious society.” 

35                  The activity of the company was simple: it held land worth £10,195; sums totalling £26,000 had been lent to a finance company to earn interest; sums totalling £39,000 were owed by the company (having been lent by sympathetic persons and on which no interest was paid); in the 1962 year of income £3,270 and £6,100 was received as interest and rent, respectively; and in the same year the company paid out £4,598 in ten separate donations to persons or bodies in evangelical work.  The following year’s accounts revealed that the land had been sold at a profit, loans to and by the company had increased and £3,660 in donations to evangelical bodies were made.  The activities of the company (apart from the donations) were all commercial in character.  They were, however, undertaken for the purpose of making a profit to give to bodies to spread the Gospel, as the company’s objects provided for.  Walsh JA characterised the company as a religious society.  Asprey JA agreed with Walsh JA.  Leaving to one side their Honour’s views that the company was not an institution, this approach to the characterisation of the company as a “religious society” would have been equally applicable to the question whether the company could be characterised as a charitable institution (if it were an institution).

36                  Wallace P disagreed with Walsh JA and Asprey JA about “institution”.  He came to the conclusion that the company could be characterised as a charitable institution saying the following at 72 SR at 94:

Under modern conditions it is sometimes not practicable for a substantial charitable institution to conduct its activities on a permanent basis without incorporation and without having the wide powers which almost of necessity go with incorporation and the acquisition and distribution of money for the purpose of carrying out the charitable object.  This is the way I would view the constitution of the appellant institution, and I do not think in a relevant sense it is carried on for “pecuniary profit”, which is a phrase primarily intended to apply to the shareholders or proprietors of the institution.  All its net income of necessity goes to charity, and there is nothing in the evidence to establish or suggest that the outgoings are excessive or that there was any sham or deception about the company or its activities.

37                  It was necessary for the Court to distinguish Theosophical Foundation Pty Limited v Commissioner of Land Tax (1966) 67 SR (NSW) 70.  The Court of Appeal there had overturned Wallace J (as his Honour then was).  Importantly, the company there had only two members, both corporate.  This was held not to be a “religious society”.  It was said that one could not lift the corporate veil to characterise it by reference to those involved in the two corporations.  The difficulty was, however, that passages in the judgments, especially of Herron CJ, placed weight on the commercial activities of company:  see in particular the discussion by Walsh JA in Christian Enterprises at 100-102.  The conclusion of the Court of Appeal in Theosophical Foundation was principally a factual one and heavily influenced by the corporate state of its two members.  The company, as an individual corporate entity, was incorporated to buy and manage a city property and its association with existing religious bodies, including having as its first object the pursuit of the national society’s objects and including the probability that proceeds from the company’s activities would be channelled into other religious group members, was inadequate upon which to conclude that the company was a religious society.

38                  The later Court of Appeal decision of Christian Enterprises is authority for the proposition that a body which conducts only commercial activity and directs the profits from same by donation solely in accordance with the charitable objects of the body is capable thereby of being characterised as a “religious society”.  That reasoning is equally applicable to addressing the issue whether a body (if an institution) is a “charitable institution”.  The earlier decision, Theosophical Foundation 67 SR (NSW) 70, is authority for the proposition that mere association with religious bodies is an inadequate basis upon which to characterise the entity as a religious or charitable institution:  see 67 SR (NSW) at 78 and 84.  That proposition can be accepted.

39                  To similar effect as Christian Enterprises  is the decision of the New Zealand Court of Appeal (Gresson P, and North and Turner JJ) in Commissioner of Inland Revenue v Carey’s (Petone and Miramar) Limited [1963] NZLR 450.  The company’s memorandum of association contained objects to carry on the business of drapers and furnishing and general warehousemen and to act as trustee.  Under its articles of association the company was required to distribute all its profits to a Board which was required to distributed the profits for charitable purposes.  On a winding up, any surplus funds were to be used for charitable purposes.  The revenue had argued (as the Commissioner argued here) that the commercial character of the activities was fatal to the existence of a charitable trust.  The Court rejected this approach saying at 455:

The contention was advanced by counsel for the Commissioner that inasmuch as the respondent was authorised to use the trust property in conducting a commercial business, the property could not be said to be held upon a charitable trust; that moreover the charities could take no benefit unless and until income was paid over by the respondent to the Board and that it could, if it chose, apply any part of the income in extending the business, and that therefore this could not be regarded as the execution of a charitable trust.  In our opinion the fact that such wide powers – unusual in a trustee – were given, does not negative the charitable nature of the trust.  The conduct of the business is subjected to the dominating consideration that the income, when ascertained, shall be paid to the Board to be apportioned exclusively amongst charities.  All the wide powers given to the respondent are for the purposes of developing the business and increasing the income yield.  It is indeed not uncommon for trustees to be given such powers as to carry on farming or other business for the benefit of the widow or children of a testator; in such a case the whole net income from the investment is held in trust for the nominated beneficiaries.  It cannot be doubted that a trust is thus constituted, and if the objects of such a trust are indubitably charitable, can it be contended that it is not a charitable trust?  Such  trustees, in carrying on the business of the farm would have to buy and sell stock and engage in sundry other commercial operations; but these incidental and intermediate operations, involving no diversion of ultimate income into non-charitable channels cannot, in our opinion, change the essential charitable nature of the original trust if that nature be found to be originally charitable.

40                  Christian Enterprises and Carey’s Case accord with the views of Iacobucci J (with whom Cory, Major and Bastarache JJ agreed) in Vancouver Society of Immigrant & Visible Minority Women v Minister of National Revenue [1999] 1 SCR 10 at [152]-[153] as follows:

While the definition of “charitable” is one major problem with the standard in s 149.1(1), it is not the only one.  Another is its focus on “charitable activities” rather than purposes.  The difficulty is that the character of an activity is at best ambiguous; for example, writing a letter to solicit donations for a dance school might well be considered charitable, but the very same activity might lose its charitable character if the donations were to go to a group disseminating hate literature.  In other words, it is really the purpose in furtherance of which an activity is carried out, and not the character of the activity itself, that determines whether or not it is of a charitable nature.  Accordingly, this Court held in Towle Estate, supra, that the inquiry must focus not only on the activities of an organization but also on its purposes.

Unfortunately, this distinction has often been blurred by judicial opinions which have used the terms “purposes” and “activities” almost interchangeably.  Such inadvertent confusion inevitably trickles down to the taxpayer organization, which is left to wonder how best to represent its intentions to Revenue Canada in order to qualify for registration.  In fact, as may become clear shortly, the Society may have suffered exactly this difficulty in drafting its purposes clause.

See also (though in dissent in the result) the comments by Gonthier J (with whom L’Heureux-Dubé and McLachlin JJ agreed) at [52]-[54].  Also, the discussion in Guaranty Trust Company of Canada in re the will of Dorothy Elgin Towle v Minister of National Revenue [1967] SCR 133 by Ritchie J for the whole Court is worthy of repetition as it assists in the appreciation of the importance of purpose and the affecting of the character of activities by the purposive context in which they occur.  The Court was dealing with a gift to the Medical Alumni Association of the University of Toronto.  The Letters Patent which set up the Association contained objects and purposes some of which were of their own nature charitable and some of which were not.  In that context Ritchie J said the following for the whole Court at 147:

In my view the activitiesof the Association which are calculated to ensure its continued existence are to be distinguished from the purposes for which it exists.  If, as I think to be the case, the objects of promoting the usefulness and influence of the University and generally promotingthe science and art of medicine are exclusively charitable purposes, then it seems to me to be clear that the means by which these purposes are to be promotedconstitute an essential ingredient of the purposes themselves.

It having been established “that by far the greatest part of the Association’s effort” was devoted to charitable purposes “at the time of the making of the gift and the time of the death of the deceased” it remains to be determined whether the other purposes of the Association can be said to be “an end in themselves” to use the language employed by Lord Denning in the British Launderers’ Research Association case.  In this regard I only find it necessary to refer to the objects and purposes described in paras. (a) and (b) of the objects clause of the Letters Patent of the Association.

[emphasis in original]

41                  The same emphasis on purpose as explaining commercial activity can be seen in McGarvie Smith Institute v Campbelltown Municipal Council [1965] NSWR 1641 at 1647; Re Tennant [1996] 2 NZLR 633 at 640; and Hester v Commissioner of Inland Revenue [2005] 2 NZLR 172 at 191.

42                  The decision of the New South Wales Court of Appeal in Christian Enterprises, whichwas not affected by the majority in the Glebe Administration Board Case, most closely conveys the relevant governing principle to be applied.  To that extent, as an expression of principle, it reflects the Australian common law on the subject and should for that reason be followed unless plainly wrong: Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 236 ALR 209 at [135].  It is not plainly wrong.  It is reflective of the almost contemporaneous, as well as the more recent, views of the Court of Appeal of New Zealand and of the Supreme Court of Canada.  It should be followed.

43                  Thus, I would reject the central proposition underpinning the Commissioner’s argument.  It was not an error by the primary judge to fail to conclude from the activities undertaken by Word, including the conduct of the funeral business, that Word could not be a charitable institution.

44                  The primary judge accurately set out the task before him at [27] of his reasons:

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.

45                  He then directed himself to the memorandum and activities of association, saying the following at [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 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.

46                  This approach was entirely conformable with authority.  When one construes the memorandum and objects of a company drafted under the Uniform Companies Acts up to the early 1960s, one must bear in mind the accepted and well known approach taken in the drafting of memoranda and articles of association of distinguishing in the objects section main objects and ancillary powers, even where the drafting made no express distinction.  The practice had grown up of inflated objects, some of which were no more than powers:  see Cotman v Brougham [1918] AC 514 at 521; Re Tivoli Freeholds Ltd [1972] VR 445; Re Introductions Ltd [1970] Ch 199; and Ford HAJ Principles of Company Law (2^nd Ed 1978) at 93-94.  This approach was capable of application to the ascertainment of whether the main objects of a company were charitable:  Theosophical Foundation v Commissioner of Land Tax (1965) 82 WN (Pt 1) (NSW) 545 at 551 (per Wallace J) adopted in Christian Enterprises 72 SR (NSW) at 103 (per Walsh JA).

47                  The primary judge then examined the activities and subjective purposes of the directors of Word.  The purposes in practice conformed with the purposes of Word from its memorandum of association: the charitable religious evangelising purposes.

48                  The activities were investment and the funeral business.  For the reasons I have given, I do not consider that the primary judge erred in concluding as he did that Word was a charitable institution.  In saying that, I should not be taken as agreeing with all the expressions by the primary judge as to the “motivation” of the directors of Word.  The proper question is one of characterisation of the institution.  To that enquiry, the objects activities, the purposes of those concerned and the legal constraint under which the directors were working are all relevant:  see the Surgeons’ Case 68 CLR 436.  Here, on the proper understanding of the memorandum of association, the purpose of all activities was, and could only be, the religious (and charitable) purposes of Word.  The evidence of the subjective motives of the directors conformed with and bolstered those constitutive purposes.  On the basis of the authorities to which I have referred, the commercial nature of the activities did not necessarily destroy the capacity of Word to be characterised as a charitable institution.

49                  It was argued before the primary judge that the Tribunal had erred in law in concluding that the donation of the money was charitable.  The primary judge said the following at [32] of his reasons:

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.

50                  No real argument was put that this reflected error.  I am satisfied that it did not:  see in this respect Inland Revenue Commissioners v Helen Slater Charitable Trust Ltd [1982] 1 Ch 49.

51                  These views make it unnecessary to deal with the further point argued on appeal (though not dealt with by the primary judge) that the activities of Word in the conduct of the funeral business were in their nature charitable as an aspect of the burial of the dead contemplated by the Statute of Elizabeth and within Lord Macnaghten’s fourth class in Pemsel’s Case [1891] AC 531: see the Scottish Burial Case [1968] AC 138.

52                  There being no demonstrated error in the conclusion of the primary judge as to this first question, it is necessary to consider whether s 50-50(a) was satisfied.

The second question: whether the condition in s 50-50(a) of the 1997 Act was satisfied

53                  Section 50-50(a) requires that Word

o           have a physical presence in Australia

o           “to that extent” incur its expenditure and pursue its objectives principally in Australia.

54                  The only issue is the pursuit of objectives in Australia.  The proceeds of Word’s activities were given to Wycliffe and other organisations. This was done in Australia. The funds were employed by these other companies or entities otherwise than in Australia, though for purposes of evangelising which were charitable.

55                  The primary judge focused upon the place of donation (Australia).  At [51]-[52] of his reasons, he said the following:

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?

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.

56                  This was said to display error.  Reference was made to the 1936 Act, s 23(e) and the Explanatory Memorandum to the 1997 Act.  With respect, these do not assist.  The statutory question is:  How and where does Word “pursue its objectives”?  It does so by donating funds in Australia to organisations which will use those funds probably outside Australia for a charitable purpose.  There is no warrant in the legislation to combine the corporate forms of Word and the donee companies:  see in this respect IRC v Helen Slater Charitable Trust [1982] 1 Ch 49.  Word’s objectives are pursued in Australia by the donation of funds in accordance with its objects for evangelising religious purposes, which are charitable.

57                  If the Parliament desires the place of expenditure of funds by the donee to be analysed before the donor can fall within the section, it can say so.  It has not done so in s 50-50(a).

The third question: whether the period after 1 July 2002 was before the Tribunal

58                  In the light of the conclusions to which I have come this issue does not arise.

59                  Word applied for endorsement from 1 July 2000.  The Commissioner by s 50-130 was empowered to endorse Word “from a date specified by [him]”.  He rejected the application.  The Tribunal made the following decision on review:

The Tribunal sets aside the decision under review and, in its stead, decides that the applicant is entitled to be endorsed or exempt from income tax from 1 July 2002 as a charitable institution under item 1.1 of s50-5 of the Income Tax Assessment Act 1997.

60                  The primary judge, after ordering that the appeal be dismissed and the cross appeal be allowed, ordered as follows:

The decision of the Administrative Appeals Tribunal dated 27 September 2005 be varied so as to allow in full the objection to the decision by the applicant to refuse to endorse the respondent as exempt from income tax under subdivision 50-B of the Income Tax Assessment Act 1997 from 1 July 2000.

61                  This order was in accordance with the subject matter for decision that was before the Tribunal.

62                  The question whether the Tribunal had authority to deal with the position of Word as a company its own right from 1 July 2002 only arises if the primary judge erred in varying the order of the Tribunal.  In my view he did not, for the reasons that I have given.

63                  In these circumstances, it is unnecessary to discuss the decision in Shi v Migration Agents Registration Authority (2007) 158 FCR 525 (in respect of which special leave has been granted).  The following can, however, be stated.  The Tribunal, by s 43(1) of the Administrative Appeals Tribunal Act 1975 (Cth), had all the powers and discretions of the Commissioner to decide, pursuant to s 50-130, whether to endorse Word “from a date specified by the [Tribunal]”.  The application was “from 1 July 2000”.  The Commissioner dealt with the matter in 2003.  The Commissioner and the Tribunal had power to endorse Word from 1 July 2000 or from a date specified by either of them, on and from 1 July 2000.  The disallowance was from 1 July 2000.  That did not limit the question before the Tribunal, being the same question as before the Commissioner: should Word obtain endorsement from 1 July 2000, that is from a date specified by the Tribunal from 1 July 2000. 

64                  No argument was put that the Commissioner had been denied procedural fairness by the Tribunal.

Conclusion

65                  For the above reason the appeal should be dismissed.  The costs of the appeal have been dealt with under the Commissioner’s test case programme.

Associate:

Dated:              14 November 2007

REASONS FOR JUDGMENT

JESSUP J

66                  On 16 March 2002, the respondent, Word Investments Limited, applied to the appellant Commissioner for endorsement as a charitable entity pursuant to Subdiv 50-B of Div 50 of Part 2-15 of the Income Tax Assessment Act 1997 (Cth) (“the 1997 Act”) with effect from 1 July 2000.  Pursuant to s 50-110(1) and (2) of the 1997 Act, the respondent was entitled to be so endorsed if it was a “charitable institution” within the meaning of Item 1.1 in the table in s 50-5 and (relevantly for present purposes) if it had “a physical presence in Australia and, to that extent [incurred] its expenditure and [pursued] its objectives principally in Australia” within the meaning of s 50-50(a).  On 13 May 2002, the appellant refused the respondent’s application for endorsement, upon the ground that it was not an organisation “instituted to advance or promote charitable purposes”.  On 18 July 2002, pursuant to s 50-135, the respondent objected to the appellant’s refusal to endorse.  On 24 February 2003, the appellant disallowed that objection.  On a date which does not appear in the materials before the court, the respondent applied to the Administrative Appeals Tribunal for a review of the disallowance.  That application came before the Tribunal on 6 June 2005, and on 27 September 2005 the Tribunal set aside the disallowance, and granted the respondent endorsement as a “charitable institution” pursuant to s 50-5 of the 1997 Act, but with effect only from 1 July 2002. 

67                  On a date which does not appear in the materials before the court, the appellant appealed, on a question of law, from so much of the Tribunal’s decision as set aside the appellant’s disallowance of the respondent’s objection in so far as it related to the period commencing on 1 July 2002.  As set out in his Amended Notice of Appeal dated 18 July 2006, the questions of law sought to be raised by the appellant were as follows:

Whether the respondent is properly to be characterised at law as a charitable institution, within the meaning of item 1.1 of s 50-5 of the Act, that meets the special condition applicable to that item in s 50-50(a) of the Act.

Whether the period from 1 July 2002 was properly before the Tribunal.

By Notice of Cross Appeal dated 16 November 2005, the respondent appealed to the court, on a question of law, from so much of the decision of the Tribunal as found that the respondent was not, before 1 July 2002, entitled to endorsement under Subdiv 50-B of the 1997 Act.  The appeal and the cross appeal came before the trial Judge on 18 July 2006, and on 3 November 2006 his Honour made orders by which the appeal was dismissed, the cross appeal was allowed, and the decision of the Tribunal was varied so as to allow in full the respondent’s objection to the appellant’s decision to refuse endorsement under that subdivision.  On 24 November 2006, the appellant appealed from that judgment. 

THE BACKGROUND FACTS

68                  The respondent, a company limited by guarantee, was established in 1975 by Wycliffe Bible Translators Australia (“Wycliffe”), an organisation which was briefly described by his Honour as follows:

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.

As is apparent from this passage, the major part of Wycliffe’s evangelical work is carried out overseas.  The respondent was established to provide financial and fund raising support to Wycliffe.  His Honour found that the two entities were still linked today, with some sharing of staff and common registered offices. 

69                  His Honour set out a number of the objects contained in the respondent’s memorandum of association, including the following:

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

Additionally, his Honour referred to what he described as the “financial activities” of the respondent which were reflected in other provisions of the objects clause in its memorandum:

(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.

His Honour noted that the respondent was prohibited from distributing profits or gains to its members, and that its membership was limited to committed Christians who had acknowledged the Christian faith, and a belief in the Bible as the infallible word of God.

70                  His Honour found that the fund raising activities of the respondent had changed over time.  Until about the early 1980s, the respondent raised funds through housing development.  After a period of dormancy, from about the late 1980s the respondent offered financial planning and investment advice and opportunities to persons who wished to support its activities, and were prepared to advance moneys to it at non-commercial rates.  An information memorandum for investors described the respondent 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”.  Investors were entitled to up to 25% of the interest earned on their investments but, in reality, most investors chose not to be paid any interest.  The profits which the respondent earned on the investment of moneys advanced to it were distributed, mostly, to Wycliffe, with the balance going to other Christian organisations.

71                  In 1996, the respondent established a funeral business, called Bethel Funerals.  That business operated, it seems, in much the same way as any funeral business: it sold its services to customers, it derived revenue, it incurred expenses and it earned profits.  Its profits were applied to the same destinations as the other profits of the respondent, ie mostly to Wycliffe, but also to other Christian organisations.  In some of the promotional literature of Bethel Funerals which was in evidence, the business described itself as “a not-for-profit organisation, [which distributed] profits generated to selected community ministries and mission work”, and as “a unique Christian funeral company supporting the work of missions”.  The respondent conducted Bethel Funerals until 30 June 2002.  On 1 July 2002, the respondent created a trust to hold and conduct Bethel Funerals, after which the respondent itself was not beneficially engaged in that business.

THE DECISION OF THE TRIBUNAL

72                  The Tribunal held that, before 1996, because the profits of the respondent were distributed to Wycliffe or, to a very limited extent, to other like organisations, the respondent was charitable in the sense of being an institution for the advancement of religion.  However, as to the period between 1996 and 2002, the Tribunal said:

While it may be said that an underlying purpose of that business was the generation of profits for the ultimate benefit of a religious institution, it is difficult to consider a commercial funeral business as having an objective of the advancement of religion.

Referring by analogy to Glebe Administration Broad v Commissioner of Pay-roll Tax (NSW) (1987) 10 NSWLR 352, 365, the Tribunal continued:

While it is accepted that management and staff of the funeral business were all committed Christians, the business was a commercial operation for the purpose of making a commercial profit.  As such, I do not accept that the applicant was itself a charitable institution whilst operating that business.  The result is that the applicant was not entitled to endorsement as a charitable institution from the commencement of the funeral business in 1996 to 30 June 2002 when it was transferred to the trust. 

With respect to both periods, the Tribunal accepted that the respondent had a physical presence in Australia and, to that extent, incurred its expenditure and pursued its objectives principally in Australia. 

THE REASONING OF THE TRIAL JUDGE

73                  The trial Judge considered first whether the respondent was a charitable institution prior to 1996 (when it commenced to conduct Bethel Funerals).  Of the four classes of charitable purpose identified by Lord Macnaghten in Commissioners for Special Purposes of Income Tax v Pemsel [1981] AC 531, his Honour identified the advancement of the religion as being relevant to the present circumstances.  He held that the advancement of religion included missionary work, whether or not the work was conducted within Australia.  In considering the respondent’s purposes, his Honour held that the starting point was its constitution or articles of association.  He held that the respondent’s objects as listed in its memorandum did not leave it unclear what its main purpose was.  Nor was there any evidence that those objects did not reflect the actual purpose of the respondent. 

74                  Dealing with the appellant’s submissions that there had been, before the Tribunal, insufficient evidence to justify the conclusion that the payments made by the respondent to Wycliffe and other like organisations were used by them for charitable purposes, his Honour said that the real question was what the respondent understood was being done with its funds; and there was ample evidence on that subject.  There was also evidence that Wycliffe and the other organisations used the money received from the respondent for charitable purposes, and that the respondent intended and believed that they would do so.  His Honour held, therefore, that no error of law had been established in this respect.

75                  His Honour next dealt with the appellant’s submission that the generation of income from interest earned on deposits was not a sufficiently religious activity to establish the respondent as a charity.  The essential question which this submission raised was whether the earning of money by financial or business activities not of themselves charitable, but where the money so earned would be distributed for charitable purposes, was itself a charitable purpose.  Here his Honour referred to the principle that the pursuit of a charitable purpose by way of business activities which directly achieved that purpose was not rendered non-charitable by reason only of the circumstance that a charge was made for the services provided by the business, or that a surplus was earned, provided only that there was no possibility that any of the surplus might be directed to private gain.  In this respect, his Honour referred to Incorporated Council of Law Reporting for England & Wales v Attorney-General [1972] Ch 73 and to Scottish Burial Reform & Cremation Society Limited v Glasgow Corporation [1968] AC 138.  His Honour recognised, however, that, because the activity in such cases was itself charitable, the cases did not entirely answer the question whether a charitable purpose might be pursued by a profit-earning activity which was not itself charitable.  Nonetheless, he considered that cases such as those referred to made it clear that the ultimate question to be asked was what was the purpose of making the profit.

76                  His Honour referred also to the rating cases, but the support which he derived from them was limited by the fact that they were concerned with the use to which land or premises was put.  They tended, therefore, to deal with a more fragmented issue than the broader, and necessarily more abstract, one of whether an institution itself, overall, was charitable.  His Honour referred also to the United States cases on this subject, but, save to refer to the conclusion that, where a charitable organisation applied any profits made by it to its charitable purposes, it would not thereby lose its charitable status, it is fair to say that his Honour derived little assistance from those cases.

77                  Neither was the trial Judge greatly assisted by the judgment of Dixon J in Roman Catholic Archbishop of Melbourne v Lawlor (1934) 51 CLR 1, upon which the appellant relied.  The question there was whether a testamentary gift for the establishment of a Catholic newspaper involved a charitable purpose.  His Honour considered that Dixon J was concerned with the distinction between activities that had a direct religious purpose, and other activities that were incidental and beneficial to the religious purpose, but which did not themselves have such a purpose.  Apparently the appellant sought to deploy that distinction by analogy, such that the purposes of the respondent should be regarded as not being charitable in themselves, but merely beneficial to the charitable purposes of Wycliffe and other like organisations.  His Honour considered that to be an artificial distinction, in which respect he took judicial notice of the “corporate structure of many contemporary charities which are complex and involve the use of separate legal entities to perform separate functions”.  Where they were all working together to pursue a common charitable purpose, his Honour found, it would be artificial to consider the purpose of each entity separately. 

78                  Thus his Honour held that the respondent was, until the establishment of Bethel Funerals in 1996, a charitable institution. 

79                  His Honour turned next to the question whether, before 1996, the respondent had a physical presence in Australia and, to that extent, incurred its expenditure and pursued its objectives principally in Australia, as required by s 50-50(a) of the 1997 Act.  It was not disputed that the respondent was wholly present within Australia.  His Honour held that, because the respondent provided funds to Wycliffe in Australia, it incurred its expenditure in Australia within the meaning of s 50-50(a).  His Honour was troubled by the relationship between the identification of the respondent’s objectives for the purpose of deciding whether it was “charitable” as an institution, on the one hand, and the identification of the location at which it pursued its objectives for the purposes of s 50-50(a) on the other hand.  Since Wycliffe’s activities were almost wholly conducted outside Australia, and since a conscious purpose of assisting Wycliffe in those activities was the basis of his Honour’s ruling that the respondent was charitable, there was some force, according to his Honour, in the appellant’s submission that, when it came to assigning a place to the respondent’s pursuit of its objectives, one had to take into account the place at which Wycliffe itself undertook its activities.  However, ultimately, his Honour held that there was a distinction between purpose (or “motivation” as he called it) on the matter of the question whether an institution was charitable and the matter with which the third limb of s 50-50(a) was concerned, namely, the physical nexus between what the respondent did and Australia.  Because the respondent physically distributed funds to Wycliffe in Australia, his Honour held that it pursued its objectives principally in Australia.

80                  His Honour then turned to the period between 1996 and 2002, during which Bethel Funerals constituted a substantial element of the respondent’s business activities.  In relation to this period, his Honour held that the Tribunal fell into two errors of law.  The first was to consider Bethel Funerals in isolation from the remainder of the respondent’s operations.  The question was not whether Bethel Funerals was a charitable organisation, but whether the respondent was. 

81                  The second error of law by the Tribunal identified by his Honour was to draw “an unwarranted distinction between active and passive investment”.  Prior to 1996, the respondent had been involved in purely financial investment (ie “passive” investment), the purpose of which was accepted by the Tribunal to have been charitable.  The only thing that changed in 1996, according to his Honour, was that the respondent divided its money-making activities between traditional investments of that kind, and the “active” investment involved in the conduct of Bethel Funerals.  His Honour expressed his conclusion as follows:

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 where the object of raising the funds is the same, I can no see no reason to draw a legal distinction between the two.

82                  In the circumstances, his Honour held that, between 1 July 2000 and 1 July 2002, the respondent was a charitable institution within the meaning of s 50-5 of the 1997 Act, had a physical presence in Australia, incurred its expenditure in Australia, pursued its objectives principally in Australia and, for those reasons, was entitled to endorsement under Subdiv 50-B of that Act.

83                  Finally, his Honour dealt with the period since 1 July 2002.  Although the appellant challenged the Tribunal’s decision in this respect on a number of grounds, the essence of the way in which his Honour dealt with that challenge was to hold that the respondent had applied for endorsement from 1 July 2000, and should have been successful in that application.  Once endorsed, the respondent was entitled to remain so until, by way of some subsequent procedure, it was shown that circumstances had sufficiently changed to deny the respondent that endorsement.  His Honour was not satisfied that the Tribunal’s decision demonstrated an error of law in the way it had dealt with the respondent’s ongoing entitlement to remain endorsed under Subdiv 50-B.

THE GROUNDS OF APPEAL

84                  Although comprehensive in its terms, the appellant’s Notice of Appeal went little further than to assert that the trial Judge was in error to have reached the various conclusions set out in his reasons, and that he ought to have reached different conclusions.  However, the appellant identified the following issues in his outline of submissions dated 2 May 2007:

(d)                        Whether the respondent was a “charitable institution”;

(e)                         Whether the respondent pursued its objectives principally in Australia; and

(f)                          Whether the period from 1 July 2002 was properly before the Tribunal.

CHARITABLE INSTITUTION

85                  On the issue whether the respondent was a “charitable institution”, the appellant’s first point was that the trial Judge focused upon the respondent’s motive, rather than upon its purpose in the objective sense required by the authorities.  However, the only parts of his Honour’s reasons where he expressed himself in such terms were where he was dealing not with the question whether the respondent was a charitable institution at all, but rather with the construction of s 50-50(a) of the 1997 Act.  His Honour was concerned to make the contrast between the axis of inquiry required to determine whether an institution was charitable, on the one hand, and the axis of inquiry involved in the “physical question” under s 50-50(a), on the other hand.  In those parts of his reasons where he dealt directly with the question whether the respondent was a charitable institution, his Honour referred not to motivation, but to purpose, and clearly to purpose in the objective sense referred to in the authorities.  Indeed, as pointed out above, his Honour was very substantially influenced by the stated objects of the respondent set out in its memorandum.  There is, I consider, no substance in the suggestion that his Honour allowed his consideration of the question whether the respondent was a charitable institution to be deflected away from conventional questions of purpose in the objective sense.

86                  The appellant’s next point was that his Honour incorrectly attributed to the respondent the charitable purposes and activities of Wycliffe.  Although the appellant referred to five paragraphs in his Honour’s reasons in this regard, only in one of those did his Honour come close to the attribution of which he is accused in the appellant’s outline.  That is the paragraph in which his Honour dealt with the appellant’s reliance upon Lawlor.  Here, it is clear that his Honour was doing no more than pointing out that the question of purpose (and the associated question of activities) needed to be determined as a matter of substance, and that this might, in many complex charities, necessitate looking beyond the confines of a particular corporation towards the operations of a larger group.  Properly understood, his Honour’s reasons looked only to the purpose of the respondent but, in circumstances where the whole of the respondent’s profits were, as a matter of institutionalised practice, distributed to others, how those others used those profits – or, more correctly, how the respondent intended that those profits should be used by others – was a significant element in the identification of that purpose; and correctly so.

87                  The appellant next submitted that his Honour failed to recognise the importance of the respondent’s non-evangelical objects, and their significance in its commercial undertaking.  I consider, however, that those objects (of which the examples on which the appellant relied are extracted in par 4 above) are of a substantially adjectival nature.  Given the way in which the respondent operates, it is appropriate, as his Honour considered, that it should have powers to invest, and otherwise to deal with, the moneys which it has on hand from various sources.  Perhaps the widest of these adjectival objects is that lettered (b), which permits the respondent to carry on any business activity, but only such activity as “may seem to the company capable of being conveniently carried on in connection with the objects for which this company is established”.  In other words, it must be a business activity capable of being conveniently carried on in connection with the evangelical objects of the respondent.  There is nothing in these objects which detracts from the basic proposition that the purpose of the respondent is the advancement of religion. 

88                  The point just dealt with leads naturally into the next of the appellant’s points, which is perhaps at the core of the appeal.  The question is whether a company which operates a normal commercial business for profit, not being of itself charitable, should be regarded as a charitable institution if, as a matter of purpose and of practice, its profits are wholly given over to other bodies which are charitable.  This is a difficult question and, as his Honour noted, it is not readily answered by authorities directly on point.  It is not answered by reference to those cases (such as Incorporated Council of Law Reporting (UK), Scottish Burial and Incorporated Council of Law Reporting (Qld) v FCT (1971) 125 CLR 659) where it has been held that a productive activity, of itself charitable in accordance with Pemsel, does not become otherwise simply by reason that the body in question charges for its goods or services, provided always that there is no element of private gain.  The present case is concerned with a productive activity which was not of itself charitable.

89                  Both before his Honour and on appeal, the appellant placed considerable emphasis upon Lawlor, particularly upon the judgment of Dixon J.  To the Hierarchy of the Roman Catholic Church in Victoria, a testator had bequeathed certain property “as a nucleus, to establish a Catholic daily newspaper”.  The question was whether this was a valid charitable bequest.  The Supreme Court of Victoria (In re Lawlor [1934] VLR 22) had held not.  The Full Court had said ([1934] VLR at 26):

We are of opinion, however, that the establishment of a newspaper, as that word is always understood, even though qualified by the word “Catholic,” is not a charitable object either within the original meaning of the Statute of Elizabeth or within the extensions which have been given to those objects by judicial decision.

In the High Court, a bench of six was evenly divided, Gavan Duffy CJ, Evatt and McTiernan JJ taking the view that the bequest was charitable, and Rich, Starke and Dixon JJ taking the view that it was not.  Accordingly, pursuant to the provisions of the Judiciary Act 1903 (Cth), the judgment of the Supreme Court was affirmed.  In the result, although Lawlor “disposed finally of the appeal and bound other courts in Australia to arrive at a like result on the issues it dealt with, it established no principle or precedent having authority” in the High Court: Re Wakim (1999) 198 CLR 511, 571 per Gummow and Hayne JJ.

90                  The appellant relied upon Lawlor for the limited purpose of drawing attention to the distinction, referred to by Dixon J (51 CLR at 34), between the purposes of religion as such and things conducive to the good of religion.  In that respect, his Honour in turn relied upon the opinion of the Judicial Committee in Dunne v Byrne [1912] AC 407.  In the facts leading to that case, a testator had left the residue of his estate to the Roman Catholic Archbishop of Brisbane and his successors “to be used and expended wholly or in part as such Archbishop may judge most conducive to the good of religion in this diocese”.  Their Lordships pointed out that a gift might be “conducive” to the good of religion in a particular diocese, or in a particular district, without being charitable in the legal sense ([1912] AC at 410).  Relevantly to the point made by the appellant, Dunne v Byrne and, therefore, the observation of Dixon J in Lawlor, were concerned only with the question whether a gift of property to be used in ways that were “conducive” to the good of religion set up a sufficiently closely-defined discrimen for the gift to be recognised as one for the advancement of religion as such.  More importantly for present purposes, perhaps, Lawlor was not concerned with the particular question which came before his Honour in the present case.  Lawlor was not decided by reference to the destination, or likely destination, of the profits to be had on the conduct of any such newspaper.  The case was considered wholly by reference to the question whether the publication of a Catholic newspaper, as such, was a charitable purpose. 

91                  More directly relevant are two other cases upon which the appellant relied, the first of which was Re Smith (Deceased) [1954] SASR 151.  A testatrix had directed that her residuary estate be held in trust for “the Sydney Sanatarium and Benevolent Association Limited having its registered office at Sydney in the State of New South Wales to be used and applied by the said Sydney Sanatarium and Benevolent Association Limited for the purposes works and objects of the branch thereof at Adelaide…”.  The limited company referred to had been established by the Seventh Day Adventists, whose teachings and practices were described by Ligertwood J as follows ([1954] SASR at 156):

Among the teachings of the Denomination is the doctrine that a full Christian life demands a healthy body and that sound health must be based only upon a strictly vegetarian diet.  As part of what the members regard as their religious functions, they not only seek to instruct mankind in general in the principles of health, but also engage in activities designed to help in the maintenance of good health and to relieve the physical sufferings of their fellow men.  Thus they establish sanitariums, conducted on vegetarian physiatrical and hydropathic lines, and also factories and shops for the manufacture and sale of vegetarian foods in an attractive form.  They publish, sell and distribute books, periodicals and pamphlets, containing articles on health and elementary medical matters

For presently irrelevant reasons, Ligertwood J found that the gift to the limited company failed.  However, his Honour added, by way of obiter, (at 159):

I have already pointed out that the objects of the Sydney Sanitarium resolve themselves into two classes.  On the one hand there is the establishment and conduct of sanitariums, hospitals &c., which is unquestionably a charitable purpose.  But on the other hand there is the establishment and conduct of a business for the manufacture and sale of health foods, which prima facie is a commercial and not a charitable purpose.  In respect of the latter object I would hold myself bound by the decision of the High Court in Roman Catholic Archbishop of Melbourne v Lawlor.  There a gift to establish a Catholic newspaper was held to be for a non-charitable purpose, notwithstanding that the newspaper and any resulting profits would be used for advancing the Roman Catholic faith.  So here, I find it impossible to regard the business of the Sanitarium Health Food Company as other than commercial and non-charitable.  The motive behind the establishment of the Health Food Company was no doubt religious and its profits were no doubt used exclusively in aid of the teachings, activities, and purposes of a religious body, but according to the decision in Lawlor’s Case, those considerations would not make the establishment and conduct of the Health Food Company a charitable purpose within the spirit of the Statute of Elizabeth. 

This passage is of some assistance to the appellant in the present case, since it expresses the opinion, obiter though it be, that the exclusive use of the profits of a non-charitable business for charitable purposes does not justify the conclusion that the business itself is conducted for charitable purposes only.  It will be seen, however, that Ligertwood J based his opinion wholly upon a particular reading of Lawlor.  With respect to his Honour, I do not think that Lawlor stands as authority for the proposition that a company which is bound by its objects to apply its profits to charitable purposes, but which earns those profits by activities not of themselves charitable, may not be a charitable institution.

92                  The appellant relied also on Glebe Administration, the judgment of the New South Wales Court of Appeal in which informed the Tribunal’s disposition of the question whether the respondent was a charitable institution during the period when Bethel Funerals was being conducted by it.  That was a pay-roll tax case, and involved the question whether wages paid by the Glebe Administration Board were “paid or payable … by a religious … institution”.  The board was incorporated under an Act of 1938, but appears to have been established as an operating entity by an ordinance made by the Synod of the Diocese of Sydney of the Church of England in Australia in 1930.  It was the terms of that ordinance in 1970 that substantially defined what the board did, and what were its purposes.  The Board had “absolute and full powers of managing and controlling” certain glebes and other property that were vested in it.  Subject to certain restrictions, it was empowered to lease and to subdivide the properties under its control.  The board derived substantial revenue from those properties.  The Standing Committee of the Church was, under the ordinance of 1930, empowered to determine such amount, from the net revenue of the board, as would be remitted to the Church each year.  Thus the board was a corporation in which was vested Church property, which was required to administer that property, which was empowered (and, presumably, expected) to derive revenue from that property, which was subject to the direction of the Church to remit its net surplus to the Church and which, in practice it seems, did so.

93                  In a judgment which McHugh JA agreed, Priestley JA said (10 NSWLR at 365):

In my opinion the position in the present case was that a religious institution, the Church of England Diocese of Sydney had been given power by statute to confer by its own ordinance management powers of a commercial kind upon the Board as a corporate body.  Thus the religious institution was enabled to, and did, create an entity controlled by but distinct from the religious institution, namely a non-religious Board whose duty was to raise money in a commercial way, for the purposes of the religious institution. 

When the relationship between the board and the Church is thus described, the parallel with the like relationship between the respondent and Wyclifffe is quite apparent.  Viewed in this way, Glebe Administration provides considerable support for the appellant’s position. 

94                  I am, however, of the view that his Honour was correct to regard Glebe Administration as not dispositive of the question arising in the present case.  Of themselves, the board’s purposes in that case were not religious at all.  There was no memorandum, charter or the like that gave the board any such purposes.  It was the Church that had the religious purposes, and which had the power to require the board to remit funds to it.  Undoubtedly the board existed for the purposes of the Church, and the Church was a religious institution, but the board was not such an institution itself.  By contrast, the respondent has objects in its memorandum which demonstrate that its own purpose is the advancement of religion.  The object in (a)(iii) of the relevant clause in the memorandum is most directly on point.  The present case has largely been conducted on the basis that Wycliffe’s purposes and activities effectively became the respondent’s, because the majority of the respondent’s profits were directed to Wycliffe.  However, as a matter of analysis, the utility of that circumstance lies in the fact that it confirms that the respondent’s objects were truly reflected in what it did.  At base, it is the objects themselves which gave the respondent its essential character.  By contrast, the board in Glebe Administration was a purely administrative and property-holding body with no objects of its own which could sustain the proposition that it was a religious institution. 

95                  The judgment of the New Zealand Court of Appeal in Commissioner of Inland Revenue v Carey’s (Petone and Miramar) Limited [1963] NZLR 450 also has some bearing on the present question.  The facts of that case were somewhat complicated, but, ultimately, the question was whether a particular trust was a charitable trust.  The deed by which the trust was established required the trustee to stand possessed of the income of a fund (net of expenses etc) for charitable purposes and, looked at that way, the trust was charitable.  However, the deed also gave the trustee very wide powers, presumably to facilitate earning the income which would then be used for those purposes.  At its widest point in relevant respects, the deed gave the trustee power “to engage in and carry on any business whatsoever for such time as the trustee might think fit”.  Giving the judgment of the Court of Appeal, Gresson P summarised the provisions of the deed “as imposing a charitable trust while reposing somewhat unusual powers in the trustee”.  His Honour continued ([1963] NZLR at 455):

In our opinion the fact that such wide powers – unusual in a trustee – were given, does not negative the charitable nature of the trust.  The conduct of the business is subjected to the dominating consideration that the income, when ascertained, shall be paid to the Board to be apportioned exclusively amongst charities.  All the wide powers given to the respondent are for the purpose of developing the business and increasing the income yield.  It is indeed not uncommon for trustees to be given such powers as to carry on farming or other business for the benefit of the widow or children of a testator; in such a case the whole net income from the investment is held in trust for the nominated beneficiaries.  It cannot be doubted that a trust is thus constituted, and if the objects of such a trust are indubitably charitable, can it be contended that it is not a charitable trust?  Such trustees, in carrying on the business of the farm would have to buy and sell stock and engage in sundry other commercial operations; but these incidental and intermediate operations, involving no diversion of ultimate income into non-charitable channels cannot, in our opinion, change the essential charitable nature of the original trust if that nature be found to be originally charitable. 

It is true that Carey’s involved a single legal entity (the trustee) both carrying on the business and applying the proceeds thereof to charitable purposes, but the judgment of the Court of Appeal at least stands as authority for the proposition that conducting business activities not themselves charitable does not disqualify an otherwise charitable trust from characterisation, overall, as charitable.  Like his Honour below, I cannot discern a justification, in point of principle, for reaching a different conclusion in the case of a free-standing company which is bound, by its memorandum, to apply its profits to charitable purposes, and in practice does so. 

96                  Given the relative paucity of authority on the question with which the court is here concerned, I would not go further than is necessary to decide the present appeal.  In particular, I do not say anything about the large question whether a trading company, regardless of the nature of the activities which it undertakes, would necessarily be a charitable institution merely because, as a matter of practice, it distributes all its profits to charities.  There are two aspects of the present case which make it unnecessary to address such a large question.  The first is that it was not simply the practice – even the institutionalised practice – of the respondent which gave its purposes and activities a charitable dimension.  Rather, it was the terms of the respondent’s own memorandum by which its objects were, to the extent that they dealt with substantive rather than adjectival matters, wholly charitable.  I agree with the trial Judge that the present was not a case in which there appeared to be any proper basis to doubt that the respondent, in its actual activities, confined itself to those objects. 

97                  The second aspect relates to the nature of the commercial enterprise which the respondent did conduct between 2000 and 2002.  In part, the respondent’s activities were purely financial ones, by way of the investment of funds advanced to it at less than commercial rates (or for no return at all).  In part, the activities consisted of the conduct of Bethel Funerals.  There is authority for the proposition that the selfless conduct of cremations should be regarded as charitable (Scottish Burial), but the respondent did not propose, in its submissions on appeal, that the purpose of carrying on a funeral business was necessarily charitable.  It did submit that the nature of its business, and the terms in which the business was presented to potential customers, was at least in harmony with its general religious purposes.  I accept that submission, and consider that, seen in the context of the objects of the respondent itself in its memorandum, and of its other activities, the fact that Bethel Funerals was a commercial business operating for reward did not disqualify the respondent from characterisation as a charitable institution. 

98                  For the above reasons, I am unable to discern any error in the way in which the trial Judge dealt with the question of law which related to the matter of whether the respondent was a “charitable institution”.

THE PLACE OF THE PURSUIT OF THE RESPONDENT’S OBJECTIVES

99                  Turning to the question arising under s 50-50(a) of the 1997 Act, the appellant’s case has a certain symmetry which was recognised by the trial Judge.  The appellant points out that Wycliffe pursued its charitable objectives principally overseas, and that the respondent pursued its charitable objectives principally by distributing its profits to Wycliffe.  It follows, according to the appellant, that the respondent should be regarded as having pursued its charitable objectives principally overseas.  The appellant also drew attention to the explanatory memorandum accompanying the introduction of the corresponding provision by way of an amendment to s 23(e) of the Income Tax Assessment Act 1936 (Cth) in 1997.  The memorandum identified the legislative purpose as follows:

5.24          The Government has decided to remove these exemptions for these organisations if they are located or pursue their objects offshore in order to prevent:

-                     certain tax avoidance arrangements which could use these organisations to shift untaxed funds overseas; and

-                     a transfer of revenue from Australia to a foreign country where income is exempted in Australia but not in the organisation’s country of residence.

The appellant submitted that, if the respondent secured exemption under Subdiv 50-B of the 1997 Act on the basis that it pursued its objectives principally in Australia, there would be an obvious means by which the legislative purpose, as identified in the explanatory memorandum, could be sidestepped. 

100               By expressing itself through the metaphor of pursuit, the legislature has not simplified our task of construction of the words in question in s 50-50(a) of the 1997 Act.  I consider that the expression “pursues its objectives” effectively means “does the things by which it attempts to realise its objectives”.  In the present case, everything which the respondent did, it did in Australia.  I agree with his Honour that the third requirement in par (a) of s 50-50 connotes a physical – specifically a spatial – nexus.  Looked at in this way, there is no error in his Honour’s conclusion that the Tribunal made no error of law in finding that the respondent pursued its objectives principally in Australia.

101               I do not see this as an appropriate occasion to anticipate the kind of avoidance problems that might arise in fact situations not presently before the court.  I could not regard his Honour’s conclusion as endorsing an attempt to use the provisions of Subdiv 50-B of the 1997 Act as a means of transferring off-shore moneys that should have been, but were not, taxed as income in Australia.  I understand that Wycliffe itself is a prescribed institution that pursues its objectives principally outside Australia within the terms of par (d) of s 50-50, in which circumstances its own activities must be regarded as legitimately within the underlying policy of these provisions.  That the respondent should likewise be held legitimately to fall within the terms of par (a) of the section, substantially because it devoted the most part of its profits to Wycliffe, should not, in my view, be regarded as antagonistic to the objects of relevant provisions of the legislation considered as a whole. 

THE DATE OF EFFECT OF THE ENDORSEMENT

102               Turning to the third issue identified by the appellant, it was submitted that the trial Judge was in error in failing to find that the Tribunal did not have jurisdiction or power to decide that the respondent was entitled to be endorsed in respect of the period commencing on 1 July 2002.  It was submitted that the only question before the Tribunal was the one which had been before the appellant himself, namely, whether the respondent’s application for endorsement, with effect from 1 July 2000, should be granted. 

103               In order to deal with this submission, it is necessary to examine the relevant statutory provisions.  When the respondent made its application for endorsement in March 2002, that application was made under s 50-115 of the 1997 Act.  The appellant’s decision was made under s 50-105 of that Act.  Had the appellant decided to grant endorsement, he would have been required to specify a date of effect thereof under s 50-130 of that Act.  When he made his decision on 24 February 2003, there is no reason why he might not have specified 1 July 2002 as the relevant date.  He was not, in my view, limited to the date specified by the respondent in its application. 

104               By the time the Tribunal came to give its decision in September 2005, some of the provisions of the 1997 Act to which I have referred had been repealed, by the Tax Laws Amendment (2004 Measures No 1) Act 2004 (Cth).  Corresponding, and substantially identical, provisions had been inserted into the Taxation Administration Act 1953 (Cth).  Item 45 of Schedule 10 to the 2004 Act referred to a number of provisions of the 1997 Act which were repealed by that schedule, including the provisions with which I am presently concerned, and dealt with the situation when an “act or thing” had been done before the commencement of that item, and was done under, or for the purposes of, a repealed provision.  It was provided by item 45(3) that the act or thing had effect as if it had been done under, or for the purposes of, the corresponding provision of the 1953 Act, as amended. 

105               In the circumstances, when the Tribunal decided this matter in September 2005, it was exercising the appellant’s then administrative power under Subdiv 50-B of the 1997 Act together with the applicable provisions of Subdiv 426-B of Part 5-35 of the 1953 Act.  Assuming that the Tribunal granted the application for endorsement (which it did in the present case), it was required by s 426-30 of the 1953 Act to specify a date of effect of that endorsement.  That is exactly what the Tribunal did in its decision of 27 September 2005.  Thus the trial Judge made no error in declining to find that the Tribunal lacked power to specify 1 July 2002 as the effective date of endorsement of the respondent for the purposes of Subdiv 50-B of the 1997 Act. 

106               Once his Honour determined the respondent’s cross appeal from the Tribunal’s decision in the way he did, the propriety of the Tribunal specifying 1 July 2002 as the effective date of endorsement became moot.  His Honour decided that the effective date should have been 1 July 2000 and, as appears from the foregoing, I am not persuaded that there was any error in that finding.  Having been endorsed, the respondent will remain so until some further action is taken, such as, perhaps, a revocation by the appellant pursuant to s 426-55 of the 1953 Act.  Such issues were not before the Tribunal, and are not before the court.

DISPOSITION OF THE APPEAL

107               The appeal should be dismissed. 

Associate:

Dated:         14 November 2007