FEDERAL COURT OF AUSTRALIA Mines Rescue Board of New South Wales v Commissioner of Taxation [2000] FCA 382 TAXATION – Fringe Benefits Tax – underground coal mining – whether the Mines Rescue Board (NSW) was a "public benevolent institution" for the purposes of s 57A of the Fringe Benefits Tax Assessment Act 1986 (Cth) – whether the applicant's activities produced a direct benefit for mine employees – whether the applicant was an institution organised for the relief of poverty, suffering, distress or misfortune – whether the applicant's activities were eleemosynary – discretionary activities incidental to the performance of the principal function did not affect assessment of "public benevolent institution" status WORDS AND PHRASES – public benevolent institution Estate Duty Assessment Act 1914-1928 (NSW) s 8(5) Fringe Benefits Tax Assessment Act 1986 (Cth) ss 7, 25, 57A, 57A(1), 136, 136(g) Judiciary Act 1902 (Cth) s 39B Mines Rescue Act 1925 (NSW) s 14(1)(d) Mines Rescue Act 1994 (NSW) ss 3, 5(2), 6, 7, 8, 10, 12, 14, 15, 16, 31, 31(2), 37, 40, 41, 50, 51, Part 4 Mines Rescue Amendment (Contributions) Regulation 1998 (NSW) Australian Council of Social Services Inc v Commissioner of Pay-Roll Tax [1985] 1 NSWLR 567 cited Perpetual Trustee Company Ltd v Federal Commissioner of Taxation (1931) 45 CLR 224 applied Public Trustee (New South Wales) v Federal Commissioner of Taxation (1934) 51 CLR 75 applied Metropolitan Fire Brigades Board v Commissioner of Taxation (1990) 27 FCR 279 applied Federal Commissioner of Taxation v Royal Society for the Prevention of Cruelty to Animals, Queensland Inc (1992) ATC 4,441 applied Commissioner of Pay-Roll Tax v Cairnmillar Institute [1992] 2 VR 706 cited Maclean Shire Council v Nungera Co-operative Society Ltd (1995) 86 LGERA 430 cited MINES RESCUE BOARD OF NEW SOUTH WALES v COMMISSIONER OF TAXATION NG 1248 OF 1998 HELY J 31 MARCH 2000 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 1248 OF 1998 BETWEEN: MINES RESCUE BOARD OF NEW SOUTH WALES ARBN 072 900 362 APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: HELY J DATE OF ORDER: 31 MARCH 2000 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application is dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 1248 OF 1998 BETWEEN: MINES RESCUE BOARD OF NEW SOUTH WALES ARBN 072 900 362 APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: HELY J DATE: 31 MARCH 2000 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The issue for determination in these proceedings is whether the applicant is a "public benevolent institution" within the meaning and for the purposes of s 57A of the Fringe Benefits Tax Assessment Act 1986 (Cth) ("the Act"). The issue arises pursuant to an application made pursuant to s 39B of the Judiciary Act 1901 (Cth). No objection is taken by the respondent to the issue being brought forward in this way, and the present proceedings were treated as being a convenient and an appropriate vehicle for resolution of the issue. Constitution of the applicant 2 The applicant is a corporation established under the Mines Rescue Act 1994 (NSW) ("MRA"). The applicant is a statutory body representing the Crown in right of New South Wales [MRA: s 5(2)]. There are seven directors of the applicant who are appointed by the Governor on the recommendation of the Minister. Of those directors, three are to be nominated to represent the interests of mine owners, three are to be nominated to represent the interests of mine employees and one is to be a person nominated by the Minister [MRA: s 10]. The Minister may remove a director from office at any time. A director is entitled to receive such remuneration as the Minister may from time to time determine in relation to that director. The Chief Executive of the applicant is appointed by the Governor [MRA: s 12]. Ministerial control 3 The Minister may give written directions to the directors as to the exercise of the applicant's functions (MRA: s 14). The directors must ensure that the applicant complies with any such direction. The applicant is required by s 15 of MRA to: - provide the Minister with such information relating to the applicant's activities as the Minister requires; - keep the Minister informed of the general conduct of its activities, and of any significant development in its activities. Under s 16 of MRA the applicant is required to prepare a corporate plan for each financial year, upon which the Minister may comment when in draft form. As far as practicable, the applicant must exercise its functions in accordance with the corporate plan. Statutory functions 4 The applicant's functions are of two types: - principal functions, as specified in s 6, which may be summarised as the provision of rescue services for underground coal mines in New South Wales; - discretionary functions, as specified in ss 7 and 8, which may be summarised as the provision of rescue services for other mines, and the provision of non rescue services for mines and industry both in New South Wales and elsewhere. Funding 5 The applicant's activities are funded from the Mines Rescue Fund ("the fund") which is established and governed by Part 4 of MRA, and is under the control and administration of the applicant. Owners of coal mines are required to make contributions to the Fund, as prescribed by regulations, towards the applicant's expenses in carrying out its principal functions [MRA: s 31]. Regulations are made by the Governor under s 50 of MRA. Before a regulation is made fixing the contribution required by owners of coal mines, the Minister must certify that the amount to be prescribed for a particular coal mine is appropriate having regard to the matters listed in s 31(2). The applicant may charge fees for exercising any of its discretionary functions which are payable into the Fund. Any money appropriated by Parliament for the purposes of the applicant are also payable into the Fund. In fact, the applicant does not obtain, and has not obtained, any funds from government. The Mines Rescue Brigade 6 The Mines Rescue Brigade is established pursuant to s 37 of MRA. The Brigade is comprised of certain employees of each underground coal mine in New South Wales, who, whilst acting as a member of the Brigade, are to be regarded as being employed by the applicant. The function of the Brigade is to provide, under the control and direction of the applicant, a mine rescue service for responding to, and dealing with, emergencies arising at underground coal mines in New South Wales, and at other mines. The applicant is required by s 40 of the MRA to make a determination as to the number of employees which the owner of a coal mine may be required to make available to serve as members of the Brigade and as to the equipment and facilities to be made available by the owner for use by the Brigade. An owner who is dissatisfied with a determination may appeal to the Minister against the determination. The Minister may confirm or modify a determination made by the applicant, or substitute for that determination any determination that the applicant could have made: MRA s 41. Currently the applicant requires the owners of underground coal mines to train five per cent of their workforce as members of the Brigade. Review of MRA 7 After MRA has been in force for five years, the Minister is obliged by s 51 of MRA to undertake a review of MRA to ascertain whether the policy objectives remain valid, and whether the terms of MRA remain appropriate for securing those objectives. The objectives of MRA, as set out in section 3, are: (a) to provide for a rescue service capable of responding to, and dealing with, emergencies arising at underground coal mines in New South Wales; and (b) to enable that rescue service to be used in connection with emergencies at other mines. A report on the outcome of the Minister's review is to be laid before Parliament. The applicant's activities 8 The applicant operates a mines rescue facility in each of the four coal mining regions in New South Wales and has a mines rescue station located there. The mines rescue station is manned by full time staff of the applicant. As at 30 June 1999 there were thirty five employees at the four mines rescue stations. Those employees provide the emergency co-ordination, systems and training to the members of the Brigade in each region to enable them to respond to and deal with an emergency at an underground coal mine. 9 As at 30 June 1999 the applicant had a permanent staff of forty one. Apart from the thirty five persons working at the four mines rescue stations, three people are employed at a laboratory styled "coal mine technical services" and there were three management staff. Members of the Brigade are employed on a part time basis. 10 As the applicant's principal function is to provide an emergency service, its staff must be ready to respond at short notice. However, there is a fair degree of time during which staff can be on call and can also perform the discretionary functions of the applicant under ss 7 and 8 of MRA. From time to time the applicant in the exercise of its discretionary functions provides rescue services and facilities in mines other than underground coal mines, such as surface coal mines and metalliferous mines. It also provides training in safety and emergency response to owners of surface coal mines and metalliferous mines and to organisations in other industries. The purpose of these training activities is to utilise the existing resources of the applicant to obtain additional revenue in order to defray the costs of the applicant in providing the mines rescue service under s 6 of MRA. 11 The applicant's annual report for the period ending 30 June 1998 includes the following: "The Board has continued to provide training and additional services to the coal industry and industry generally. The strategy is to utilise the existing resources (and cost structure) of the Board to obtain additional income and defray the costs of providing mine rescue services to the coal industry. This has been successful as the income from providing these services for the period amounted to $4,184,868 or 48% of total revenue. For the period ending 30 June 1999 income from the performance of the applicant's discretionary functions had risen to 50.5% of total revenue, although the budget for 1999/2000 projects that the income from performance of discretionary functions will fall to about 45.6% of total revenue. The performance of discretionary functions occupies a large proportion of the time spent by the applicant's staff, and generates a significant proportion of the applicant's revenue. 12 The average employment in underground mines fell from 10,832 in 1991/92 to 6,321 in 1998/99. When open cut mines are included the figures become 16,122 and 10,925 respectively. The genesis of the applicant 13 The Bellbird Mine disaster occurred in 1923, when twenty one miners were killed in an explosion. Extensive press coverage following the disaster highlighted the issue of inadequate safety precautions and facilities in the Hunter Valley mines. The Mines Rescue Act 1925 made provision for rescue stations to be established in the various districts of the State of New South Wales under the control of the Committee of the District. The obligation to contribute to the upkeep and maintenance of the rescue stations was thrown upon the owners of coal mines within the District, although the Act envisaged that monies might be voted by Parliament for the purpose of assisting in the provision and equipment of rescue stations. 14 Rhonda Geale, in her monograph "The First Rescue Station", Newcastle History Monographs No 13 (1989) describes the 1925 Act as a progressive industrial reform brought about by the combined influences of public demand, judicial recommendation, union campaigning and management collaboration (p 9). Industrial reform was achieved entirely at the industry's expense. In her introduction, she said (p 11): "The Act contained the political principle that even though the coal industry operated under a system of private enterprise, it was a function of the State to regulate the industry to the extent where those controlling the operations of coal mines were both morally and legally obligated to provide the facilities necessary to combat disaster and save lives. The extent to which the principle operated was regulated from within an autonomous and traditional administrative structure." 15 The 1925 Act was amended in 1972. The Mines Rescue Board was brought into existence, but not explicitly as a body representing the Crown. One of the disadvantages of the scheme as it had operated up to that particular time was that rates of contribution exacted from mine owners varied from district to district. In his second reading speech the Minister said: "Assurance of safe working conditions in mines and the need for the utmost efficiency, both in personnel and equipment, in rescue operations when such become necessary, is a State-wide responsibility and should not be localized if that is to have the effect of leaving some areas in a greater state of risk than others. I believe that the way to fulfil this responsibility is to have the funds necessary for its implementation raised by contributions assessed on a uniform basis on mine owners throughout the State, and calculated at a rate that will ensure adequacy in personnel, training and equipment. If that be granted, it follows that responsible centralized control is necessary, first, to assume over all general supervision of mines rescue organization and operation; second, to investigate and decide upon the needs of particular areas, not forgetting those isolated mines which may not lie within a district; and, finally, to assess and recommend the rates at which annual contributions to the fund are to be set and to administer and allocate money among the districts and elsewhere as authorized." Second Reading Speech, 14 March 1972. 16 The 1925 Act was repealed by MRA in 1994. The Mines Rescue Board was reconstituted as a statutory body representing the Crown. The Act spelled out the core functions of the applicant, and, for the first time, authorised it to undertake the additional discretionary functions to which reference has been earlier made. When introducing the current legislation into the House, the Minister said: "The board will be a statutory body representing the Crown. As such – and I wish to make this quite clear – it will be bound by such Acts as the Ombudsman Act, Freedom of Information Act, Public Finance and Audit Act, and the Annual Reports (Statutory Bodies) Act. I spell this out because, in the past, some members of the board have been of the view that, as the board is financed entirely by industry, little regard needed to be given to the powers and indeed the limitations of the Act which established it." Second Reading Speech, 27 October 1992. 17 The contributions payable by the owners of specified coal mines were last fixed by the Mines Rescue Amendment (Contributions) Regulation 1998. Contributions per mine lay in a range between $36,000 and about $100,000. Fringe Benefits Tax 18 The Act, in s 136, contains a definition of "fringe benefit". A fringe benefit includes a benefit provided to an employee by the employer in respect of the employment of the employee. Fringe benefits include car benefits (s 7) and housing benefits (s 25) which have been traditionally supplied by the applicant to certain of its full time employees. There was a time when it was a condition of employment that the employee should at all times be within immediate call of the rescue station (1925 Act s 14(1)(d)). I was told that the provision of housing benefits to the applicant's employees dates back to that time. The annual report for 1999 indicates that tax of approximately $350,000 per annum would be payable if the applicant is exposed to liability for payment of Fringe Benefits Tax. 19 Paragraph (g) of the definition of fringe benefit indicates that it does not include a benefit that is an exempt benefit in relation to the year of tax. Various sections of the Act, particularly Division 13 address the matter of exempt benefits. Sometimes exemption is given by reference to the nature of the benefit provided. On other occasions exemption is given by reference to the character of the provider of the benefit. 20 Section 57A is an example of the latter type of exemption. Section 57A provides: "Where the employer of an employee is a public benevolent institution, a benefit provided in respect of the employment of the employee is an exempt benefit." Thus the issue is whether the applicant is a public benevolent institution. It was common ground that it was sufficient for me to deal with that issue in relation to the year of income ended 30 June 1999, it not being suggested that the position was any different in other years. The application seeks a declaration that the applicant is a "public benevolent institution" within the meaning and for the purposes of s 57A(1) of the Act. Whether that is so or not involves an application of the law as it stands from time to time to the facts. Hence if I were to make a declaration it would necessarily be confined to a period covered by the evidence. 21 The Act does not define "public benevolent institution". It is, however, a description commonly adopted in this country as a basis for exemption in revenue legislation, including legislation in relation to estate duties (since abolished), payroll tax, sales tax and income tax. A threshold question – what the applicant does 22 The respondent submits that the applicant does not conduct rescues itself; the applicant's permanent staff train brigade members who are distinct from the applicant. It is the brigade members who may be required to rescue underground coal miners. The applicant's activities do not produce any direct benefit for underground coal miners: cf: Australian Council of Social Services Inc v Commissioner of Pay-Roll Tax [1985] 1 NSWLR 567, 568C, 575F. 23 I reject this submission. The brigade members, when acting as such, are part-time employees of the applicant, and are part of the applicant's organisation. The permanent staff train and co-ordinate brigade members who conduct mine rescues for the applicant. 24 Underground mining is an inherently hazardous activity which results in loss of life. The principal function of the applicant is the provision of a rescue service and facilities to deal with emergencies in underground coal mines. In that respect, the applicant's activities involve the relief of suffering, distress or misfortune. 25 The 1998 annual report indicates that mines rescue stations were involved in and assisted in seven mine incidents in various locations. The 1999 annual report records involvement of mines rescue stations in two mine incidents. By way of example, one such incident is recorded as follows: "6th July 1998, Newcastle Mine Rescue Station was activated to Wallarah Colliery due to roof fall involving two employees. Both persons were recovered, one suffering ankle injuries, whilst the second was deceased." The respondent's contentions 26 The respondent submitted that for any one or more of the following additional reasons, the applicant is not a "public benevolent institution" within the meaning of s 57A of the Act: - the applicant is a government body performing functions which are a government responsibility; - the applicant's activities do not fall within the terms "relief of poverty, sickness, destitution or helplessness"; - the persons to whom the applicant provides benefits are too limited a class to constitute the public; - that the element of altruism inherent in the concept of benevolence is absent from the circumstances of the applicant's case. Consideration 27 The first case in which the meaning of the term "public benevolent institution" was considered by the High Court is Perpetual Trustee Company Ltd v Federal Commissioner of Taxation (1931) 45 CLR 224. By a majority, the Court held that the Royal Naval House in Sydney was not a public benevolent institution within the meaning of s 8(5) of the Estate Duty Assessment Act 1914-1928 (NSW). Stark J said (at 232): "In the context in which the expression is found, and in ordinary English usage, a 'public benevolent institution' means, in my opinion, an institution organised for the relief of poverty, sickness, destitution, or helplessness." Dixon J said (at 233-234): "... I am unable to place upon the expression 'public benevolent institution' in the exemption a meaning wide enough to include organisations which do not promote the relief of poverty, suffering, distress or misfortune." Evatt J said (at 235): "Such bodies (viz: benevolent institutions) vary greatly in scope and character. But they have one thing in common: they give relief freely to those who are in need of it and who are unable to care for themselves." These tests were applied in Public Trustee (New South Wales) v Federal Commissioner of Taxation (1934) 51 CLR 75, at p 100 (Stark J) and at pp 103-104 (per Dixon J). 28 The authorities in this area have been reviewed by Full Courts in Metropolitan Fire Brigades Board v Commissioner of Taxation (1990) 27 FCR 279; Federal Commissioner of Taxation v Royal Society for the Prevention of Cruelty to Animals, Queensland Inc (1992) ATC 4, 441 and Commissioner of Pay-Roll Tax v Cairnmillar Institute [1992] 2 VR 706. There is no point in undertaking that review again. 29 The expression "public benevolent institution" is a compound expression and not one to be fragmented into its component parts (Public Trustee (New South Wales)). Whilst "public charity" is not synonymous with "public benevolent institution", the ordinary meanings of the two expressions are somewhat similar: see Metropolitan Fire Brigades Board at 283. It is not enough that a particular institution exists for the promotion of the public good. Hence, applying Perpetual Trustee, while it is acknowledged that the relief of financial hardship is not an essential characteristic (Cairnmillar; Australian Council of Social Services), the body will not qualify as a "public benevolent institution" unless it promotes the relief of one or other of poverty, suffering, distress or misfortune. 30 Furthermore, as Thomas J explained in RSPCA, the authorities have basically confined the concept of "public benevolent institution" to institutions whose primary activities are eleemosynary. That is the authorities import an underlying conception of "charity" or "gratuity" as the fundamental foundation for their understanding of "benevolence" in this context. In short the authorities propound, and I adopt, a notion of benevolence which involves an act of kindness, or perhaps most particularly, the rendering of assistance voluntarily to those who, for one reason or another are in need of help and who cannot help themselves. 31 Given this context, the applicant is not, in my view, appropriately characterised as a public benevolent institution. There is no element of "charity" to miners in the provision by a statutory body constituted for that purpose, of a rescue service capable of responding to emergencies in underground coal mines. Rather, MRA recognises that it is the responsibility of mine owners to provide the funds, personnel, and equipment to maintain the service, given the hazards inherent in the underground coal mining they undertake. This recognition of responsibility is emphasised by the passages of the Second Reading Speech set out at par 15 above. The fact that the applicant's actions are predicated by statutory obligation; indeed, that the applicant is constituted in order to give effect to that responsibility, is fatal in this regard. 32 Finally, whilst there are obvious points of detail in which the present case is to be distinguished from that considered by the Full Court in Metropolitan Fire Brigades Board, there are obvious points of similarity between the two cases. Here the applicant is a governmental body, under the control of the Minister, brought into existence to give effect to government policy that owners of underground coal mines should fund, man and equip the provision of a rescue service capable of dealing with emergencies in underground coal mines. The provision of a rescue service by a statutory body incorporated to discharge that function is outside the ordinary conception of benevolence. 33 Accordingly, the applicant is not a public benevolent institution. In coming to that conclusion I have left out of account the discretionary functions and activities of the applicant. Similarly, I have not taken into account the fact that about half of the applicant's total income is sourced in the conduct of those discretionary activities. The discretionary activities of the applicant are purely incidental to the performance of its principal function both in the sense that they enable what would otherwise be idle time on the part of permanent staff to be gainfully used and because they assist in funding the mines rescue activity which is the raison d'etre of the applicant. If I were otherwise of the opinion that the applicant is a "public benevolent institution" I would not come to a different opinion by reason of the fact that the applicant also engaged in these discretionary activities: see Maclean Shire Council v Nungera Co-operative Society Ltd (1995) 86 LGERA 430 at 432.9. Conclusion 34 The application is dismissed with costs. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely. Associate: Dated: 31 March 2000 Counsel for the Applicant: Mr B Sullivan SC and Mr M Richmond Solicitor for the Applicant: A J Law & Co Counsel for the Respondent: Ms R Henderson Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 15 March 2000 Date of Judgment: 31 March 2000