Faith Baptist Church Inc v Chief Commissioner of State Revenue (RD) [2008] NSWADTAP 31

Appeal Panel - Internal

CITATION: Faith Baptist Church Inc v Chief Commissioner of State Revenue (RD) [2008] NSWADTAP 31

APPELLANT Faith Baptist Church Inc PARTIES: RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 079053

HEARING DATES: 14 February 2008, 9 April 2008

SUBMISSIONS CLOSED: 9 April 2008

DATE OF DECISION: 14 May 2008

BEFORE: Needham J SC - Deputy President; Block J - ADCJ (Judicial Member); Blake C - Non Judicial Member

CATCHWORDS: Question of law - leave to extend to the merits

MATTER FOR DECISION: Principal matter

DECISION UNDER APPEAL: Faith Baptist Church Inc v Chief Commisssioner of State Revenue [2007] NSWADT 199

FILE NUMBER UNDER APPEAL: 066102

DATE OF DECISION UNDER APPEAL: 08/30/2007

LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Duties Act 1997

CASES CITED: Central Bayside General Practice Association Limited v Commissioner of State Revenue (2006) 229 ALR The Commissioner for Special Purposes of the Income Tax v John Frederick Pemsel (1891) AC 531

APPELLANT M Robertson, barrister REPRESENTATION: RESPONDENT I Mescher, barrister

ORDERS: The appeal is dismissed.

REASONS FOR DECISION Part A Introduction and Preliminary 1 The Appellant lodged an appeal to this Appeal Panel of the Administrative Decisions Tribunal against a decision by Judicial Member Verick ("Mr Verick") dated 30 August 2007, reported as Faith Baptist Church Inc v Chief Commissioner of State Revenue [2007] ADT 199 (referred to in these reasons as "the decision below"). In accordance with the decision below the objection decision therein referred to was affirmed; the objection decision in question was the denial by the Respondent of an exemption from duty under the Duties Act 1997 ("the Act") in respect of the Appellant's purchase of two adjacent blocks of land situated at Lots 42 and 43 "Regency Green," Chisholm Road, Regents Park (referred to as the "Regents Park property" or the "property"). 2 The duty exemption referred to in the preceding clause was sought under section 275 of the Act which provided: 275 Charitable and benevolent bodies (1) Duty under this Act (other than vendor duty) is not chargeable on a transfer, or an agreement for the sale or transfer, or lease, of dutiable property to, or a declaration of trust over dutiable property held or to be held on trust for, or a mortgage given by or on behalf of, an exempt charitable or benevolent body. (1A) Duty under section 58 (Establishment of a trust relating to unidentified property and non-dutiable property) is not chargeable on an instrument that declares a trust over property held or to be held on trust for an exempt charitable or benevolent body. (2) Vendor duty is not chargeable on a transfer, or an agreement for the sale or transfer, of land-related property by, or a declaration of trust over land-related property held or to be held on trust for, an exempt charitable or benevolent body. (2A) Land rich duty is not chargeable on the acquisition or disposal of an interest in land rich landholder by an exempt charitable or benevolent body. (3) In this section: exempt charitable or benevolent body means: (a) any society or institution for the time being approved by the Chief Commissioner for the purposes of this paragraph whose resources are, in accordance with its rules or objects, used wholly or predominantly for: (i) the relief of poverty in Australia, or (ii) the promotion of education in Australia, or (b) any society or institution that, in the opinion of the Chief Commissioner, is of a charitable or benevolent nature, or has its primary object the promotion of the interests of Aborigines and if; (i) (in the application of this definition for the purposes of sub-section (1) or (1A)) the dutiable transaction or instrument is for the purposes as the Chief Commissioner may approve in accordance with guidelines approved by the Treasurer, or (ii) (in the application of this definition for the purposes of sub-section (2)) the land-related property was used or, in the case of a declaration of trust, is to be used by the society or institution for such purposes as the Chief Commissioner may approve in accordance with guidelines approved by the Treasurer, or (iii) (in the application of this definition for the purposes of sub-section (2A)) the land holdings of the landholder are being used or are to be used for such purposes as the Chief Commissioner may approve in accordance with guidelines approved by the Treasurer." 3 The Appellant claimed that it was entitled to the exemption under section 275 (3)(a) of the Act in that it was a society or institution (within that sub-section) whose resources were used, in accordance with its rules or objects, wholly or predominantly for the promotion of education in Australia. It will be noted that section 275(3)(a) of the Act does not in terms focus on any specific transaction; it is referred to in these reasons as "the general ground." 4 The Appellant also claimed that it was entitled to the duty exemption in accordance with section 275(3)(b)(i) of the Act in that its purchase of the property was such that it fell within the provisions of that sub-section; that ground is referred to in these reasons as "the transaction ground". 5 The Appeal Panel heard argument on two separate days; this appeal was originally listed to be heard on 14 February 2008; the period allotted having proved insufficient it was re-listed for further argument on 9 April 2008. The Appeal Panel was furnished with written submissions by both parties; it was referred to the documents lodged (in respect of the decision below) pursuant to section 58 of the Administrative Decisions Tribunal Act 1997 ("the ADT Act") and also to a large tabbed volume containing case reports, statutory provisions and similar material. 6 Although the Appellant's Written Submissions ("AWS") included an application under section 113(2)(b) of the ADT Act for leave to extend this appeal to a review of the merits of the decision below, that application was not in the event proceeded with so that this appeal can succeed only if the decision below was erroneous in law. 7 Having regard to the provisions of the preceding clause the findings of fact contained in the decision below can and should be accepted. In accordance with the Respondent's Written Submissions ("RSW") the facts are set out in clause 2-8, 21-22 and 36-53 of the decision below. It is unnecessary for us to repeat those findings of fact in these reasons; however a brief summary of the findings is set out in Part B below and in other parts of these reasons we include extracts from the decision below, and on the basis that any reference in those quoted sections to "Applicant" should be construed as a reference to the Appellant. 8 It is also convenient at this juncture to note that it is not necessary for us to consider whether the Appellant was entitled to a partial exemption under section 275A of the Act. No such claim was made in respect of the decision below and the Appellant did not suggest that it should have been considered or seek to rely on its provisions. 9 It was conceded by the Respondent that the Appellant is a society or institution for the purposes of section 275(3) of the Act. The Respondent also conceded that "education" as a purpose includes religious education. Mr Mescher at the hearing of this appeal said that that concession was made for the purpose of the transaction ground (as defined later in these reasons) only. As to whether that concession was correctly so limited is, as these reasons will demonstrate, of no importance. Part B Summary of the relevant findings 10 The Appellant, which is a church incorporated under the Associations Incorporation Act 1984, purchased the Regents Park property on 14 December 2005. Clause 4 of the decision below sets out that prior to that purchase the Appellant carried out its activities in real property in Croydon Park owned by it Its Croydon Park property has since been sold and the Appellant has carried out its educational activities in rented offices and it has conducted its church activities in rented community halls. 11 Clause 6 of the decision below sets out that in respect of its acquisition of the property an exemption claim was submitted on behalf of the Appellant in February 2006, that application was accompanied by a proposal entitled "Educational Centre Building Proposal" and referred to in these reasons as "the proposal". The proposal made it clear that the Appellant has two distinct arms one an educational arm (referred to as the "education arm") and the other a worship/ministry arm (referred to as "the church arm" or as "the worship arm"). The proposal specified that while the resources of the Appellant would be used for both arms they would be used predominantly for the education arm. 12 The objects of the Appellant were set out in clause 21 of the decision below as follows: 21 The applicant is a "congregation of believers as an incorporated association" and is known as "Faith Baptist Church Inc." The objects of the applicant are set out in clause 4 of its "Constitution & Governing Rules" as follows: "(1) To exalt and glorify the Lord Jesus Christ. (Colossians 1:16-19) (2) To edify the believers in the Church through the Ministry of the Word of God, the practice of New Testament Ordinances, Public Worship and Prayer, Fellowship of Believers, and any other ministries that the Church may be led of God to establish. (Hebrews 10:24-25; 1 Corinthians 11:2; Ephesians 4:11-16). (3) To evangelise the unsaved by the public proclaiming of the Gospel of the Lord Jesus Christ in accordance with the great commission. (Matthew 28:19-20) (4) To minister by serving others and community in deed and in trust (Matthew 22:39; 1 John 3:18) (5) To establish and maintain through Sunday and Weekday schools, Christian Education in a manner consistent with the Holy Scriptures. (Proverbs 22:6)" 13 It will be noted that in respect of the education arm the only relevant object is that set out in clause (5) of the Appellant's objects. That clause in its terms relates to the type of educational activity normally undertaken by a church and often conducted through the medium of "Sunday schools" and in conjunction with the worship arm. Mr Verick found in clause 52 of the decision below and recited in full later in these reasons that the proposal (described by him as a "vision") went beyond the objects of the Appellant as to education. 14 In respect of the hearing below the Appellant furnished an affidavit by its Pastor who also gave oral evidence before the Tribunal. The Pastor's affidavit included the balance sheet of the Appellant at 31 December 2006 and also a budget. Mr Verick referred to that evidence in critical terms in clauses 43 to 46 of the decision below as follows: 43 A copy of the applicant's balance sheet as at 31 December 2006 and a copy of "the budget for the various areas and activities of Faith Baptist" for the years 2005, 2006 and 2007 were also annexed to his affidavit. The balance sheet merely reveals the global financial position of the applicant. It only sets out the applicant's current assets and liabilities. It does not contain any details of resources used for education. The budget statement is not supported by any evidence of the amounts assigned to various expenses and no attempt was made by the Pastor to explain how the percentages for expenses were calculated. 44 There is a reference to resources in his last paragraph but little factual detail is provided as to what resources have been used in the promotion of education as required by section 275(3)(a). It is also important to note that the building proposal was referred to the Auburn Council as a "multi-purpose, educational/church facility but in the submission to the respondent and the Australian Taxation Office to obtain taxation concessions, it was merely referred to as the "Educational Centre Building Proposal". 45 The concept design plan of the proposed building, as drafted by the applicant's architects, indicates that a predominant amount of the space will be devoted to the Church activities of the applicant – the sports and recreation area, church auditorium and the car park for the members of the applicant when attending church services. The evidence of the Pastor also supports this conclusion. He accepted that the applicant at the time the Regents Park property was purchased was predominantly carrying out Church activities. There is no suggestion that the applicant would cease to carry on its religious church activities when the proposed building is built. 46 On the basis of simple common sense, it is not difficult to question the applicant's position when it says that 26 part-time students doing religious studies as opposed to a facility for more than 250 believers of the faith attending Church services are predominantly using the resources of the applicant. In any case, no evidence was produced by the applicant to establish the use test. The case was in a sense argued by the applicant on the basis that, simply because the applicant will be building an educational centre, the Tribunal had to assume that its resources are being used wholly or predominantly for educational purposes. Part C Pemsel's case 15 The Appellant contended that in accordance with The Commissioner for Special Purposes of the Income Tax v John Frederick Pemsel (1891) AC 531 ("Pemsel's case" or "Pemsel") the term "charitable body" should have its technical legal meaning and so as to include all four of the relevant divisions, those being trusts for relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community, not falling under any preceding heads. 16 The judgment of the High Court in Central Bayside General Practice Association Limited v Commissioner of State Revenue (2006) 229 ALR was cited in support of the proposition that the word "charitable" has a technical meaning (in line with Pemsel's case) which, in the absence of a contrary intention, applies. 17 Mr Verick held that there is just such a contrary intention in section 275(3)(a) of the Act in that it refers in its terms to an exempt charitable or benevolent body and defined as one whose resources are used wholly or predominantly for the relief of poverty in Australia or the promotion of education in Australia. Mr Verick in the decision below accordingly held that the other two Pemsel categories (and in particular the advancement of religion) were thus excluded. We consider that his finding as set out in this clause 17 was correct. Part D The general ground 18 In lengthy and detailed reasons Mr Verick found, in the decision below, that the Appellant could not establish that it was a society or institution falling with section 275(3)(a) of the Act. This was so because it could not establish that its resources would be used either wholly or predominantly for the promotion of education in Australia. He referred in particular to the number of persons engaged in the worship arm, large in comparison with the few persons involved in the education arm. 19 Mr Verick drew particular attention to the fact that the proposal constituted no more than a "vision" We refer in particular to clauses 51 and 52 of the decision below as follows; 51 The Regents Park property, as was submitted by the respondent, remains vacant with "grass and dirt". The building proposal and the statements in the Pastor's affidavit about the future plans remain a "vision" and there is little reality before the Tribunal that the applicant's resources are used or will be wholly or predominantly used for the promotion of education. This was a task for the applicant to establish with some precision that the resources were used as required. The applicant has, unfortunately, not produced any evidence to demonstrate that. The applicant has accordingly, failed to establish that it is entitled to the exemption under section 275(3) (a). 52 In this regard, it is important to note that the "objects" of the applicant as set out in its "Constitution & Governing Rules" in clause 4 require the applicant to be predominantly a Church with a role to "establish and maintain through Sunday and weekday schools, Christian Education in a manner consistent with the Holy Scripture". In a sense, the grand visions of the Pastor, as set out in his affidavit and the Building Proposal, were outside or beyond those authorised objects. There was no evidence that the applicant was ceasing to be a church. On the contrary, the correspondence with the Auburn Council and the plan submitted to the Auburn Council by its architects support the view that what is being built by the applicant is a large complex with predominant facilities for the church services of the applicant. 20 It will be noted (as set out previously in these reasons) that although one of the stated objects of the Appellant could in a sense fall within the concept of education the decision below found that the proposal went beyond its stated objects. 21 For these reasons the decision below held that the Appellant could not succeed under the general ground. We consider that on the facts found by him Mr Verick could come to no other conclusion. This being so the decision below as to the general ground did not contain an error of law and in relation to the general ground the Appellant must fail. Part E The transaction ground 22 In respect of the transaction ground the Appellant can succeed, if and only if, in respect of its acquisition of the property it was a society or institution of a charitable or benevolent nature (and these aspects are not in dispute) where the dutiable transaction was for one of the purposes "as the Chief Commissioner may approve in accordance with guidelines approved by the Treasurer". 23 In clauses 64, 65 and 66 of the decision below Mr Verick cited case authority in favour of the view that both arms, that is the education arm and the church arm fall within the promotion of religion. It is not necessary for us to detail that authority more particularly because as set out previously in these reasons, the Respondent conceded that for the transaction ground education could include religious education. 24 It is important for the purposes of a consideration of the transaction ground to be clear as to the relevant findings of fact in the decision below; in this context: (a) it was found that the Appellant had not demonstrated that in respect of its acquisition of the property, its activities under the education arm were predominant; we refer in particular in this context to clause 46 of the decision below and which has been set out in full earlier in these reasons. (b) it was found (and see clause 67 of the decision below) that the predominant purpose, in respect of the acquisition of the property was the promotion of religious activities. (c) insofar as it could be said that the proposal (described as a "vision") envisaged something more ambitious than a Sunday school activity, it was not within the Appellant's objects. 25 The legislature determined in respect of the transaction ground, that the exemption would be permitted only in relation to purposes approved by the Respondent in accordance with the Treasurer's guidelines. 26 That religious purposes were excluded is not surprising having regard to the definition of "exempt charitable or benevolent body" contained in section 275(3) of the Act. As set out previously in these reasons the legislature did not intend that all of the Pemsel categories would be included and in particular religious purposes were excluded. 27 The relevant purposes in respect of the acquisition by the Appellant of the property are, so the Respondent contended, set out in Ruling DUT 034 ("Ruling 034") A consideration of Ruling 034 indicates: (a) pursuant to clause 11 the exemption is available only to an applicant whose objects include the relief of poverty or the promotion of education in Australia and whose resources are predominantly used for that purpose. (b) clause 17 of Ruling 034 provides (in part) that: The following are purposes, which may be approved in accordance with guidelines approved by the Treasurer: the relief of poverty the relief and prevention of sickness and disability the relief of suffering and distress caused by old age the promotion of education the establishment of organisations to assist sections of the community with special needs the relief of distress caused by natural disasters or sudden catastrophes, (c) clause 18(d) provides that: "Property acquired by religious organisations must be used for approved charitable and benevolent purposes of the organisation and not for predominantly religious purposes. (d) Clause 25 (a) provides that: "Although most religious bodies are charitable Institutions, property used for churches, residences or religious activities (including religious instruction or religious education) are not used for approved purposes. 28 It is clear then that pursuant to clause 25 of Ruling 034 religious education is proscribed. It is relevant to note that even if religious education had not in specific terms been proscribed the Appellant would nevertheless fail under clause 18(c) of Ruling 034 because it was found in the decision below that the acquisition of the property was made for predominantly religious purposes. 29 The Respondent accepts (for the purposes of the transaction ground and as set out previously) that education can encompass religious education but contends (correctly in our view) that religious education is proscribed under Ruling 034. 30 Ruling 034 was issued on 9 March 2007 replacing Rulings DUT006 ("Ruling 006"and DUT007)"Ruling 007") (collectively "the prior rulings") in relation to transactions occurring after 1 June 2004 and thus including the acquisition of the property by the Appellant. Ruling 034 was thus retroactive in its effect and would apply to the acquisition of the property even though it had not, when that acquisition occurred, been issued. 31 In clause 37 of AWS the Appellant contended that the relevant ruling was not Ruling 034 but rather the prior rulings and which were replaced by Ruling 034. The Appellant contended that at the time when the property was acquired and also at the time when the Respondent originally determined that the exemption could not be granted the prior rulings were in force. We include in this context clause 37 of AWS as follows: The Tribunal should note the curiosity that after he made his decision he promulgated a different revenue ruling (DUT 34) purporting by way of an example plainly directed at the present case to proscribe religious education. He asserts that the subsequent ruling is applicable, rather than DUT 007. His contention should be rejected in law and in fact. See section 64 of the Administrative Decisions Tribunal Act 1997, which relevantly provides: In determining an application for a review of a reviewable decision the Tribunal must give effect to any relevant Government policy in force at the time the reviewable decision was made except to the extent that the policy is contrary to law or the policy produces and unjust decision in the circumstances of the case. 32 The Respondent in RWS contended that the correct ruling was in fact Ruling 034 and expressly denied that it was promulgated for the purposes of this matter; clauses 18 to 23 of RWS read (omitting footnotes) as follows: 18. In exercising its discretion under section 275(3) of the Act, the Tribunal below was generally entitled to take the administrative policy of the Chief Commissioner into account as a relevant factor in the achievement, inter alia, of a desirable consistency in decision-making. 19. In the Respondent's submission, the Tribunal below should not, and did not, lightly depart from the Chief Commissioner's own guidelines as to how he would apply the section 275 discretion. In Swift, French J stated: " ... [Appropriate] guidelines are essential for the avoidance of administrative chaos and for the achievement of reasonable consistency. The need to maintain the perception and reality of equal treatment is an important factor in the administration of all laws and not least in those relating to taxation. These guidelines are contained in DUT 034.