CITATION: Social Ventures Australia Limited v Chief Commissioner of State Revenue [2008] NSWADT 331 DIVISION: Revenue Division APPLICANT Social Ventures Australia Limited PARTIES: RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 086007 HEARING DATES: 22 October 2008 SUBMISSIONS CLOSED: 22 October 2008 DATE OF DECISION: 12 December 2008 BEFORE: Verick A - Judicial Member CATCHWORDS: Charity - Exemptions from Payroll Tax Pay-roll Tax Act 1971 Payroll Tax Act 2007 Taxation Administration Act 1996 Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : State Revenue Legislation Amendment Act, 2008 Income Tax Assessment Act 1997 (Cth) Fringe Benefits Tax Assessment Act 1986 (Cth) A New Tax System (Goods and Services Tax) 1999 (Cth) Charitable Fundraising Act 1991 Local Government Act 1919 (NSW) Federal Commissioner of Taxation v World Investments Limited (2006) ATC 4715 Incorporated Council of Law Reporting for England and Wales v Attorney-General [1972] Ch 73 Federal Commissioner of Taxation v Triton Foundation (2005) ATC 489 Tasmanian Electronic Commerce Centre Pty Limited v Federal Commissioner of Taxation (2005) ATC 4219 Ziliani v Sydney City Council (1985) 56 LGRA 58 Young Men's Christian Association v Sydney City Council (1954) 20 LGR (NSW) 35 Aid/Watch Incorporated v Commissioner of Taxation [2008] AATA 652 Presbyterian Church of New Zealand v Beneficiary Fund v CIR [1994] 3 NZLR 363 Re Whites Will Trusts [1951] 1 ALL ER 518 Commissioner of Taxation v Word Investment Limited [2007] FCAFC 171 Royal Australasian College of Surgeons v The Federal Commissioner of Taxation [1943] HCA 34 CASES CITED: Glebe Administration Board v Commissioner of Pay-Roll Tax (NSW) (1987) 10 NSWLR 352 Australian Council of Social Service Inc v Commissioner of Pay-Roll Tax (NSW) 85 ATC 4235 Roman Catholic Archbishop of Melbourne v Lawlor [1934] HCA 14 Commissioners for Special Purposes of the Income Tax v Pemsel [1981] AC 531 Central Bayside General Practice Association Inc v Commissioner of State Revenue (2006) 228 CLR 168 Incorporated Council of Law Reporting (Q) v Federal Commissioner of Taxation [1967-1971] 125 CLR 659 Re Belcher [1950] VLR 11Royal Australasian College of Surgeons v Federal Commissioner of Taxation (1943) 68 CLR 436 Cronulla Sutherland Leagues Club Ltd v Federal Commissioner of Taxation (1990) 23 FCR 82 Commissioner for Australian Capital Territory Revenue Collections v Council of Dominican Sisters of Australia (1991) 22 ATR 213 Australian Council for Overseas Aid v Federal Commissioner of Taxation 80 ATC 4575 Legal Aid Commission of Victoria v Commissioner of Pay-Roll Tax (Vic) 92 ATC 2053 McGarvie Smith Institute v Campbelltown Municipal Council (1965) 83 WN (Pt 1) (NSW) 191 Commissioner of Taxation of the Commonwealth of Australia v Word Investments Limited [2008] HCA 55 APPLICANT A J Payne, barrister REPRESENTATION: RESPONDENT A Tsekouras, barrister ORDERS: The decision under review is set aside and the matter remitted to the Respondent to implement this decision 1 The Applicant seeks a review of an objection decision made by the Respondent to refuse an application by the Applicant for exemption from payroll tax under the Payroll Tax Act 2007 ("Payroll Tax Act '). 2 The only issue before the Tribunal is whether the Applicant is a "charitable body" and exempt from payroll tax under Clause 12 of Schedule 2 to the Payroll Tax Act. In the original application, the Applicant did not specify a time from which the exemption sought was to apply and, by agreement, the parties accept that the Tribunal is required to determine the charitable status of the Applicant as on 1 July 2007. 3 The parties also accept that the decision made by the Respondent to refuse the application for exemption is a "decision of the Chief Commissioner under a taxation law" for purposes of s 86 of the Taxation Administration Act 1996 and that the Tribunal has jurisdiction to review the objection decision made by the Respondent in relation to that decision. Factual Background 4 In addition to the documents filed by the Respondent pursuant to section 58 of the Administrative Decisions Tribunal Act 1997, the Respondent also produced further documents which included a transcript of "Inside Business: Managed fund claims to channel fees to charity" sourced from ABC Online, dated 13 April 2008, and selected images from the Applicant's website. 5 The Applicant placed reliance on two statements (with various exhibits) dated 29 September 2008 and 20 October 2008 made by Michael William Traill a director and the CEO of the Applicant. Mr Traill's statements were admitted as evidence and were not challenged by the Respondent. Both parties also furnished the Tribunal with written submissions. 6 The Applicant was registered as a company limited by guarantee on 9 May 2002. Its founding members were AMP Foundation Limited, The Smith Family, Work Ventures and The Benevolent Society. All the founding members are public charities. 7 The Applicant's objects are set out in Clause 3 of its Constitution. At the time it was registered and when the application for exemption was made the objects were: "1. The objects for which the Company is established are to improve the management and operational performance and to enhance the long term financial viability of charitable organisations by, without limitation, providing educational, mentoring and support services to charitable organizations. 2. The Company must pursue charitable purposes only and must apply its income in promoting those purposes." 8 These objects were expanded sometime in 2008 with the addition of the following two additional objects: "3. Within these objects, the Company will pursue the aims and strategies determined from time to time by the Company by ordinary resolution. 4. The Company's aims and strategies on the date it was incorporated were as set out in the Schedule to this Constitution." 9 Rule 5 of the Constitution provides that: The Company's income and property must be applied solely towards the promotion of the Company's objects. No part of the income or property may be paid, transferred or distributed, directly or indirectly, by way of dividend, bonus, fee or otherwise to any of the Members or Directors 10 On winding up, rule 57 of the Constitution requires the Applicant to apply its property to a fund, authority or institution which is charitable at law and whose constitution prohibits distribution to its members and is listed as a deductible gift recipient under Subdivision 30-B of the Income Tax Assessment Act 1997 (Cth). 11 The Applicant's current portfolio comprises of 15 charitable organisations/ventures. Attached to the statement dated 29 September 2008 provided by the Applicant's CEO, are details of the activities of each organisation/venture and what contribution is made by the Applicant in relation to the activities of each organisation. The following are short extracts from the printed material provided by the CEO which illustrate the activities of these organisations/ventures and the kind of support provided by the Applicant: 1. Beacon Foundation – which has been established to address "the issue of youth employment by working with young people before they leave school to help them develop the skills and confidence needed to achieve personal success for themselves and their community". "Since SVA started working with Beacon in 2002, it has provided the organization with portfolio management, consulting services, mentoring, an independent financial management audit, strategy advice to the Board, financial management training, new program development, funding and networks into the business community. Significantly, it has attracted permanent funding for Beacon projects from AMP and Macquarie Group". 2. Beyond Empathy – this Armidale based organisation has since its inception in 2004 "used arts to deliver meaning, connection and a pathway to community participation for mainly indigenous people in parts of northern NSW and the Illawarra where police, health and community leaders have trouble tackling entrenched anti-social and criminal behaviour". The Applicant has supported Beyond Empathy "with portfolio management advice, mentoring, strategic planning, networks into the business community, financial management training and funding". The funding has allowed Beyond Empathy to expand its projects to additional communities in rural NSW. 3. The Big Picture Company Australia (BPCA) – BPCA was established in Melbourne in 2005 "to introduce vital change into Australia's education system by generating and sustaining innovative, personalised schools that work collaboratively with their greater community". "BPCA is still in development phase in Australia so there is no current evaluation framework. However, BPCA and SVA completed a feasibility study in early 2007 that investigated the financial parameters required to operate a Big Picture school in Australia". 4. Create Foundation – established in 1993 to ensure "children and young people in Australia who are not able to live with their birth family because of sexual, physical or emotional abuse, chronic neglect or family breakdown" and are in care "are listened to and involved in decisions that affect their lives". The Applicant's assistance comprised in 2004 of "a review of the organisation's first 10 years of operations and its programs using SVA consultants". The Applicant established a new plan for Create Foundation to effectively deliver its "offerings for the maximum impact on the lives of those in care". 5. Dream the Pathways – "aims to inspire the dream of life's possibilities in young people in central and far west NSW. The program is designed to expose young people to life opportunities beyond their immediate horizons". "Since 2004, SVA has provided Dream the Pathways with mentoring, funding, strategic planning support, consulting services, financial management support and links to the business community". 6. Future Employment Opportunities (FEO) – established more than 25 years ago and its current focus is job creation for "marginalised people". "Over time, SVA has provided FEO with portfolio management, mentoring, funding and consulting services and training to support its growth and transfer of knowledge in social enterprise. SVA also assisted in the restructure of the organisation which has increased understanding and communication across all of FEO's employment projects". 7. Ganbina - established a decade ago in Victoria's Goulburn Valley region where the indigenous unemployment rate is almost 80%, the Ganbina project motivates "indigenous students to stay at school and then go on to seek a better future". "SVA began working with Ganbina in 2005, appointing a portfolio manager to help support its organisational development. Since then, Ganbina has adopted SVA's performance and reporting framework across all its program areas. SVA has also supported Ganbina with independent financial management audit, financial and other management training, mentoring and funding". 8. Hands on Learning (HoL) – HoL "is a flexible in-school program that tackles the root of student disengagement before it becomes costly to manage and difficult to fix". "Funding and pro bono support from SVA has seen the HoL program replicated from a single presence to seven other Melbourne schools and one on the Cape York Peninsula. There are plans to introduce it into six more schools during 2008". 9. HOME Hospice – "HOME Hospice is a national organization which uses a unique model of community-engaged care-refined over the organization's 27-year history and gaining significant interest internationally – to address the growing demand to die at home in a 'living environment', a circumstance that used to be but has been forgotten". "In our short engagement with HOME Hospice, SVA has helped fund the salary of the venture's first CEO and to develop a Board. We have also assisted in strategic planning for the next three years and in building partnerships for financial independence". 10. Kildonan UnitingCare (Kildonan) – "Kildonan, one of Australia's oldest charities, was established in Melbourne in 1881 with a focus on children and families facing hardship and disadvantage. However, its ever-expanding range of programs is proving effective at empowering people to improve their lives through the provision of community services and addressing issues of social and economic hardship, such as helping struggling households maintain essential services". "Since 2005, SVA has provided portfolio management, funding, consulting services and mentoring services to Kildonan". 11. OzGREEN – "OzGREEN is a non-profit organization working to harness the energy and interest of our people to tackle critical environmental sustainability challenges such as climate change and water. It has an impressive track record of success with its programs consistently turning out individuals who, on discovering that their core value sets include a real desire for a cleaner, safer world, have gone on to introduce positive environmental change not only in their own lives, but in the lives of those around them". "SVA has supported OzGREEN through mentoring, portfolio management and organisation capacity building and scaling of key programs that have potential for larger impact". 12. Pathways Foundation – "The Pathways Foundation runs a series of contemporary programs designed to bolster self esteem and improve life outcomes for Australian boys and girls". "SVA's focus for Pathways is on funding sustainability and program replication through regional expansion during Pathways' strong growth phase. Along with portfolio management, SVA has provided mentoring, strategy advice, and independent financial management audit, funding and networking into the business community". 13. School Aid – "School Aid is an online philanthropy program that empowers our kids to help other kids in need". "SVA has had a significant input to School Aid, providing critical support for its new phase of growth" and in the "future will include attracting new corporate partners who can contribute funding and intellectual resources, such as leadership skills and mentoring support". 14. Brisbane & Parramatta Social Enterprise Hubs – "SVA has set up two Social Enterprise Hubs in Australia to support the development of the social enterprise sector in this country. Their roles are to accelerate the growth and number of social enterprises by providing them with access to resources that would not otherwise be available or affordable. These include consulting, pro bono services, management tools and business skills". 15. Social Firms Australia (SoFA) – "SoFA is a non-profit organization set up in Melbourne in 2004 to create employment opportunities for people with a psychiatric disability or other severe disadvantage through the development and support of social firms. A social firm is a real business with social and economic objectives that provides good-quality jobs to people with a mental illness or other disadvantage in a supportive, integrated working environment". "SVA contributes commercial advice, business consulting, funding, training and education, mentoring and access to pro-bono services". 12 The Respondent has independently examined the financial information of the Applicant as set out on the Applicant's website and in the Respondent's written submissions summarised the information as follows: "… According to that information: a) 50% of the Applicant's "external" funding comes from individuals and 50% from corporations; b) in the year ended 30 June, 2007, $6.15 million was received by way of "donations" c) income is also generated "internally" from the following sources: i) fees for mentoring services ii) fees for consulting services iii) ticket sales at fundraising events iv) interest on funds invested v) investment returns on the Capital Fund (as to which see below) 65. The donations made to the Applicant from the general public can be made via four options: a) the "Venture Fund" which is channelled to the selected social ventures the Applicant supports less a 20% fee charged by the Applicant in consideration of the Applicant's assistance and expertise in connection with any such donations; b) the "SVA Fund" which goes directly to funding the ongoing operations of the Applicant; c) the "Capital Fund" which is a fund invested "in perpetuity" to support the ongoing viability of the Applicant; and d) the "Intellectual Property Fund" to support the development of "best practice" in various areas connected to the non profit sector." Relevant Legislative Provisions 13 The Applicant seeks an exemption under Clause 12 of Schedule 2 to the Payroll Act, which so far as relevant to this matter and at the relevant time provided as follows: " 12 Continuation of certain exemptions – religious institutions, public benevolent institutions, non-profit and charitable organisations (1) Wages are exempt wages for the purposes of this Act if they are paid or payable by: … (c) by a non-profit organisation (other than a school or college, statutory body or an instrumentality of the State) having as one of its objects a charitable, benevolent, philanthropic purpose, to a person in respect of time when the person is engaged in charitable, benevolent, philanthropic or patriotic work of the non-profit organisation, being a non-profit organisation in existence immediately before the repeal of the Pay-roll Tax Act 1971 , … to a person in respect of time when the person is engaged in the charitable work of the society or institution. (2) Wages are exempt under subclause (1)(c) or (e) only if the organisation, society or institution concerned has not, since the repeal of the Pay-roll Tax Act 1971 , altered its constitution in so far as its constitution relates to it its charitable, benevolent, philanthropic or patriotic purposes." 14 Although only Clause 12 of Schedule 2 to the Payroll Tax Act is in issue in this matter, it is useful to note that s 48 of the Payroll Tax Act also introduced a new and independent test to exempt wages paid by a non-profit organisation and the provisions as at 1 July 2007 were in the following terms: " 48 Non-profit organisations (1) Subject to subsection (2), wages are exempt wages if they are paid or payable by the following: … (c) a non-profit organisation having wholly charitable, benevolent, philanthropic or patriotic purposes (but not including a school, an educational institution, an educational company or an instrumentality of the State). (2) The wages must be paid or payable: (a) for work of a kind ordinarily performed in connection with its religious, charitable, benevolent, philanthropic or patriotic purposes of the institution or body, and (b) to a person engaged exclusively in that kind of work. …" 15 Section 48(1)(c) was amended by the State Revenue Legislation Amendment Act, 2008 which currently reads as follows: "(c) non-profit organisation having as its sole or dominant purpose a charitable, benevolent, philanthropic or patriotic purpose (but not including a school, an educational institution, an educational company or an instrumentality of the State)." 16 The differences between Clause 12 of Schedule 2 and s 48 of the Payroll Tax Act were usefully summarised by the Respondent's counsel in her written submissions as follows: a) clause 12 of Schedule 2 requires that " one of its objects " is a charitable, benevolent, philanthropic or patriotic purpose whereas until 30 June 2008 section 48 required that an organization have " wholly " charitable, benevolent, philanthropic or patriotic purpose and on and after 1 July 2008 that " its sole or dominant purpose " be charitable, benevolent, philanthropic or patriotic purpose; and b) clause 12 of Schedule requires that wages be paid " to a person in respect of time when the person is engaged in the charitable work of the organisation " whereas section 48 requires that the wages be paid for work of a kind " ordinarily performed in connection with the religious, charitable, benevolent, philanthropic or patriotic purposes of the institution " and " to a person engaged exclusively in that kind of work ". Submissions 17 The Applicant's counsel in his written submissions relied on the following propositions (the footnotes are not fully reproduced but the authorities are cited), which counsel submitted "strongly support a finding in SVA's favour": "(a) A charitable purpose may be conducted through one or more entities with different skills ( Federal Commissioner of Taxation v Word Investments Limited (2006) ATC 4715 at 4725); (b) The element of unselfishness (and lack of private individual gain) is an important aspect of charity ( Federal Commissioner of Taxation v Word Investments Limited (2006) ATC 4715 at 23 and Incorporated Council of Law Reporting for England and Wales v Attorney-General [1972] Ch 73); (c) A charitable purpose may be implemented through a strategy of seeking out and promoting innovative and entrepreneurial projects ( Federal Commissioner of Taxation v Triton Foundation (2005) ATC 4891 at 4901), and collecting, co-ordinating and disseminating information; developing websites; raising awareness through media releases, presentations, chairing a committee and speaking engagements; providing financial support and assisting online access centres to become sustainable and funding particular projects ( Tasmanian Electronic Commerce Centre Pty Limited v Federal Commissioner of Taxation (2005) ATC 4219 at 4226 and 4227); (d) A charitable body does not lose its charitable statue (sic) or purpose simply by making a profit ( Ziliani v Sydney City Council (1985) 56 LGRA 58, Young Men's Christian Association v Sydney City Council (1954) 20 LGR (NSW) 35 at 44, Federal Commissioner of Taxation v Word Investments Limited (2006) ATC 4715 at 4723 and Incorporated Council of Law Reporting for England and Wales v Attorney-General [1972] Ch 73); and (e) A charitable purpose can be for a public benefit where that organisation does not deal directly with members of the public or provide direct service delivery ( Ziliani v Sydney City Council (1985) 56 LGRA 58, Aid/Watch Incorporated v Commissioner of Taxation [2008] AATA 652 at [37], Roman Catholic Archbishop of Melbourne v Lawlor (1934) 51 CLR 1, Presbyterian Church of New Zealand Beneficiary Fund v CIR [1994] 3 NZLR 363 and Re Whites Will Trusts [1951] 1 All ER 518). 18 The Applicant's activities were summarised by counsel for the Applicant in his written submissions as follows: "(a) Working with non-profit organisations through its Venture Development portfolio to assist those organisations meet their goals, grow efficiently and effectively and increase the sustainability of the organisation's programs. SVA provides to those organisations strategic planning, financial sustainability and support, and relevant skills development programs. An overview of the charitable activities of each of those non-profit organisations and why SVA supports those organisations is set out at pages 96 to 124 of "Exhibit MWT- 1". (b) Providing consulting and mentoring services to assist non-profit organisations to develop and implement strategic plans and achieve their purpose of assisting disadvantaged people. Through the mentoring program, SVA links members of non-profit organisations with members of the corporate community to provide business advice and insight that otherwise may not be available or readily accessible to non-profit organisations. (c) Developing and providing resources tailored to the non-profit community on the internet to enable non-profit organisations to learn and develop skills to assist them in developing and implementing their plans and achieving their purpose. (d) Providing benefits and money directly to charitable organisations and identifying organisations who could benefit from further assistance." 19 On the basis of the various propositions suggested by the Applicant, it was submitted: ".., the evidence of the SVA's activities strongly reinforces the conclusion that SVA's sole or dominant purpose is charitable. By assisting charitable organisations to better address the problems of their poor and marginalised clients, which is SVA's sole focus, SVA is itself engaged in alleviating poverty and improving the lives of disadvantaged and marginalised people in Australian society. SVA's activities are focussed on outcomes beneficial to the community, which should properly be described as 'indispensables of a settled community'. On the basis of settled authority, this is a charitable purpose." 20 Reliance was also placed by the Applicant's counsel on the fact that the Applicant's charitable purpose has been recognised under various other laws at both the Federal and State level. On 23 May 2007, the Applicant was issued with a charitable fundraising authority under s 16 of the Charitable Fundraising Act 1991 (NSW) and the Australian Taxation Office has endorsed the Applicant as: "(a) a deductible gift recipient under the Income Tax Assessment Act 1997 (Cth); (b) a charitable institution and exempt from income tax under subdivision 50-B of the Income Tax Assessment Act 1997 (Cth) effective from 9 May 2002; (c) entitled to FBT rebate under s 123E of the Fringe Benefits Tax Assessment Act 1986 (Cth) effective from 1 July 2005; and (d) entitled to GST concessions under A New Tax System (Goods and Services Tax) Act 1999 (Cth) effective from 1 July 2005." 21 The Respondent on the basis of the following authorities Commissioner of Taxation v Word Investments Limited [2007] FCAFC 171, Royal Australasian College of Surgeons v The Federal Commissioner of Taxation [1943] HCA 34, Glebe Administration Board v Commissioner of Pay-Roll Tax (1987) 10 NSWLR 352, Australian Council of Social Service Inc v Commissioner of Pay-Roll Tax (NSW) 85 ATC 4235, Roman Catholic Archbishop of Melbourne v Lawlor [1934] HCA 14; (1934) 51 CLR 1 and Ziliani and Anor. v Sydney City Council (1985) 56 LGRA 58 submitted that: "a) for an entity to have charitable, benevolent, philanthropic or patriotic purposes, those must actually be articulated in its constituent documents and reflect the ultimate outcome of its activities; b) an entity will not have the relevant purposes if it carries on activities which are merely motivated by charitable, benevolent, philanthropic or patriotic sentiments, principles or philosophies and conducted according to such principles or philosophies; and c) an entity will not have the relevant purposes if its purposes are merely conducive to but stop short of actual charity, benevolence, philanthropy or patriotism." 22 After considering the constitution, activities and the financial affairs of the Applicant, the Respondent's counsel reached the following conclusion: "a) the Applicant's stated objects in its constitution do not identify any explicit 'charitable, benevolent, philanthropic or patriotic' purpose. Rather, the objects identify a purpose of providing services and support to third party organisations; b) to the extent that the schedule attached to the Constitution identifies the 'aims and strategies' of the Applicant, the 'aims and strategies', it is submitted, merely articulate ideas, ideals and philosophies by reference to which the Applicant intends to conduct its activities. c) Alternatively, at best, the Applicant's Constitution and its 'aims and strategies' are merely 'conducive' to charity, benevolence, philanthropy or patriotism and fall short of actually amounting to any of those things. In this regard, it is noteworthy that such activities as the Third Link Fund involve donations being made by third parties, that is the fund managers donating their fees, rather than the Applicant making any donation. d) the Applicant's Constitution is closer to that considered in the Glebe Administration Board Case and Australian Council of Social Service and is wholly unlike the Constitution considered by the Court in Word Investments . (e) the Applicant's activities are akin to the activities of the taxpayer in Australian Council of Social Service in that they are indirect and focussed on promoting the wellbeing of the community generally. As such they do not amount to 'charitable, benevolent, philanthropic or patriotic'." 23 In relation to the treatment of the Applicant's status by other Federal and State authorities, the Respondent's response was as follows: "71. To the extent that the Applicant has sought to rely on exemptions obtained under Federal statutes such as the Income Tax Assessment Act, 1997 , it is submitted that these exemptions are not relevant in this context. For example, the Applicant has 'deductible gift recipient' status under the Income Tax Assessment Act, 1997 . It is noted that its exemption certificate (see M Traill's statement, Exhibit MWT1 page 27) is conditional upon any funds raised for which a tax deduction is claimed are to be distributed to other deductible gift recipients. 72. In addition, endorsement as a tax exempt institution may also be given under the Income Tax Assessment Act, 1997 if the applicant is a fund established solely to contribute to other funds (see section 50-20 and section 50-110). The Applicant has not put into evidence the basis upon which it was granted tax exempt status. In other words, the Commonwealth Act provides a specific exemption for organisations that act 'indirectly'. Such is not the case, it is submitted under the Payroll Tax Act, 2007 . 73. To the extent that the Applicant relies on the authority granted to it under the Charitable Fundraising Act, 1991 , it is submitted that all that that authority does is to permit the applicant to conduct a 'fundraising appeal' under that Act (see definition in section 5 of that Act). It does not follow that such an activity or the granting of such an authority constitutes the Applicant as a charitable institution." Decision and Reasons 24 It was not in dispute that the word "charitable" found in Clause 12(1)(c) of Schedule 2 to the Payroll Tax Act, in the absence of any contrary intention, has its technical legal meaning from the preamble of the Statute of Elizabeth 1601 and the following divisions referred to in the speech of Lord Mcnaghten in Commissioners for Special Purposes of the Income Tax v Pemsel [1891] AC 531 at 583: "Charity in its legal sense comprises four principal divisions: trusts for the 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 of the preceding heads." 25 Both parties also referred to the recent High Court decision in Central Bayside General Practice Association Inc v Commissioner of State Revenue (2006) 228 CLR 168 where all members of the High Court accepted that "charity", when used in its technical sense was determined by reference to Pemsel and the Statute of Elizabeth 1601. 26 There was also no dispute that the Applicant was a non-profit organisation. The only issue for the Tribunal was whether Clause 12(1)(c) of Schedule 2 to the Payroll Tax Act applied to exempt the Applicant from payroll tax at the time when the application was made. The short question for determination was whether on the relevant date the Applicant was a charitable institution. 27 The Applicant's case was essentially that the Applicant was a non-profit organisation and has, as one of its objects, a charitable purpose. The principal submission on behalf of the Applicant was that the Applicant was a charity within the fourth division of charitable trusts set out in Lord Macnaghten's dictum in Commissioners for Special Purposes of the Income Tax v Pemsel (at 563) namely, "trusts for other purposes beneficial to the community, not falling under any of the preceding heads". 28 In considering the fourth division of charitable trusts not "every purpose beneficial to the community is a charitable purpose but only those which are within the equity of the preamble to the Statute of Elizabeth. The purpose must not merely be beneficial; it must also be charitable" (per Barwick CJ in Incorporated Council of Law Reporting (Q) v Federal Commissioner of Taxation [1967-1971] 125 CLR 659 at 667). In a recent decision of the Administrative Appeals Tribunal in Aid//Watch Incorporated v Commissioner of Taxation [2008] AATA 652 (at para. 16) the President, Justice Downes, made the following useful observation in relation to the essential characteristics of charitable purposes: 16. There have been various attempts to describe what it is to be within the spirit and intendment of the Statute of Elizabeth. Public or community benefit is at the heart of it. The absence of private gain is important. Barwick CJ, in the Law Reporting Case (at 669), referred to a "broad concept… of the kind of object of public utility which will satisfy the quality of charity". He instanced "the provision of some of the indispensables of a settled community as charitable". He referred to charitableness including "fundamentals of the society seen to be within the concept of charitable public benefit as much as assistance to the needy and as education of the generations". Fullagar J, speaking of Lord Macnaghten's fourth division, in re Belcher [1950] VLR 11 at 13 referred to: " … purposes whose fulfilment may reasonably be thought to minister to the safety or happiness or well-being or good conscience of the community and which might reasonably be the subject of outlay at the public expense. " 29 His Honour went on, importantly, to qualify that statement: 17. While the essential characteristics of charitable purposes do not change, what will satisfy those purposes changes with society ( National Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31 at 69 per Lord Simonds and Inland Revenue Commissioners v McMullen [1981] AC 1 at 15 per Lord Hailsham). What is charitable is to be determined in accordance with contemporary values. A contemporary activity may be charitable now, though it would not have been charitable a century ago, or less. 30 And as to the nature of the inquiry to determine whether an organisation is a public charity, his Honour Allsop J in the Full Federal Court decision in Federal Commissioner of Taxation v Word Investments Ltd (2007) 164 FCR 194 at 197-198 suggested the following approach: "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 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 Ltd v Federal 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 Ltd 23 FCR at 117 and 123, respectively; and to the same effect by the Full Court in Commissioner for Australian Capital Territory Revenue Collections v Council of Dominican Sisters of Australia (1991) 22 ATR 213 at 217-219; 101 ALR 417 at 422-424. … The relevant task, as stated in the Surgeons' Case 68 CLR 436, is to assess the true character or nature of the entity by reference to its objects, purposes and activities. It is an integrated, holistic inquiry directed to whether a body of facts and circumstances satisfies a legal category or conception. In examining the authorities, one must pay precise attention to the terms of the statute concerned and the precise nature of the inquiry 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." 31 The Respondent's case was that the Applicant's constitution did not identify any explicit charitable purpose but merely identified a purpose of providing services and support to third parties and that the Applicant's activities "are indirect and focussed on promoting the wellbeing of the community generally" and do not amount to "charitable" activities. 32 The Respondent relied on the decisions of the New South Wales Court of Appeal in Australian Council of Social Services Inc. & Anor v Commissioner of Pay-roll Tax (N.S.W.) 85 ATC 4235 and Glebe Administration Board v Commissioner of Pay-Roll Tax (1987) 10 NSWLR 352 for the proposition that the Applicant's activities "are indirect and focussed on promoting the wellbeing of the community" and as such do not amount to charitable activities. This was the Respondent's principal submission before the Tribunal. 33 In Australian Council of Social Services Inc v Commissioner of Pay-roll Tax the New South Wales Court of Appeal considered whether the Australian Council of Social Services was a "public benevolent institution" and exempt from payroll tax under s 10(1)(b) of the Pay-roll Tax Act, 1971. The principal judgment was given by Priestly JA with whom Street CJ and Mahoney JA agreed. In his judgment Priestly JA set out (at 4239) the factual background as follows: "Evidence describing the activities of the association was given by the person who had been its secretary in the years in question. Rath J summarised the evidence in a way not now challenged by the appellants. His findings include the following. The association did not give direct relief to poverty, destitution, sickness, helplessness or distress. The association's activities were directed towards providing indirect aid for the relief of poverty or distress. The association did this by providing indirect aid for the relief of poverty or distress by performing advisory, informative, research and advocacy functions. Its activities were directed at changing the circumstances which either create or aggravate poverty or distress. The association did this by providing to its member organisations information and advice on social matters and by providing research assistance in regard to ascertaining factual material relevant to a variety of matters concerned with social welfare work. The association also conducted its own research into similar matters. Some of these were aspects of poverty, income security, unemployment, welfare provisions, and child welfare. The association also conducted policy studies and had an advocacy function aimed at improving or altering the circumstances which result in poverty and distress. In the course of its work the association also produced many publications … : publications dealing exclusively with matters concerning poverty, destitution, sickness, helplessness or distress; publications dealing with one or more of those matters and more general issues and publications dealing with issues of general community concern which may or may not touch on any of the foregoing topics." 34 His Honour turned next (at 4242) to consider the meaning of "benevolence" and whether the activities of the appellants satisfied the test as follows: "To me, the word 'benevolent' in the composite phrase 'public benevolent institution' carries with it the idea of benevolence exercised towards persons in need of benevolence, however manifested. Benevolence in this sense seems to me to be quite a different concept from benevolence exercised at large and for the benefit of the community as a whole even if such benevolence results in relief of or reduction in poverty and distress. Thus it seems to me that 'public benevolent institution' includes an institution which in a public way conducts itself benevolently towards those who are recognisably in need of benevolence but excludes an institution, which although concerned, in an abstract sense, with the relief of poverty and distress, manifests that concern by promotion of social welfare in the community generally. On this approach, even if the appellants' submission that public benevolent institutions are not limited to those who give direct relief to poverty and distress is correct, a matter now unnecessary to be decided, the association could not, in my opinion, be brought within even the wider conception of the words. The appellants also relied upon a decision of Connor A.C.J. in Australian Council for Overseas Aid v. F.C. of T. 80 ATC 4575; (1980) 49 F.L.R. 278. There are portions of the judgment in that case which lend support to the appellants' submission that an institution may be a public benevolent institution even though it does not make funds or services directly available to the objects of the benevolence. But as I have already sought to explain in regard to the present case, even if that proposition be correct I do not think it assists the appellants here. Among other points of distinction between the facts of the two cases there is the important one that the activities of the Australian Council of Overseas Aid could not be characterised as indirectly aimed at the relief of poverty and distress in the community generally. It is the fact that the association's activities were able so to be characterised that prevents the association from falling within the description of a public benevolent institution with the meaning of sec. 10(1)(b) of the Pay-roll Tax Act . It follows that the appeal should be dismissed with costs." 35 In Glebe Administration Board v Commissioner of Pay-Roll Tax the principal issue was whether the Board which managed and controlled several properties belonging to the Church of England was a "religious institution" and exempt from payroll tax under s 10(b) of the Pay-roll Tax Act 1971. It was held by Priestly JA (with whom McHugh JA agreed) that the Board was not a "religious institution" for the following reasons (at 365): "So, for the Board it was argued that like the Manchester Corporation it held property appropriated for particular purposes, in the Board's case of a religious kind and in paying the wages of its employees it was doing so on behalf of those religious purposes and thus was, for and in respect of those purposes a religious institution. 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 the 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 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 was 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 technical use of language be accurately called a religious institution." 36 Both these cases can be distinguished from the present matter and in my opinion neither case assists in addressing the present problem. 37 The Australian Council of Social Services Case was decided against a very special and clearly extreme factual background. The extreme nature of the facts in Australian Council of Social Services was recognised by the Victorian Administrative Appeals Tribunal in Legal Aid Commission of Victoria v Commissioner of Pay-Roll Tax (Vic) 92 ATC 2053. In that case the Victorian Administrative Appeals Tribunal accepted that the taxpayer, a statutory body established to provide legal aid was a public benevolent institution and in rejecting the argument that taxpayer did not provide direct aid because it used external lawyers made the following observation (at 2060): "It is true that the authorities contain reference to the direct provision of aid, but in my view those references are directed to the kind of issue that arose in the ACOSS Case , above. That was a very different case, of an umbrella organization providing propaganda, rather than actual assistance. (Emphasis added) What seems to me to be critical in this case is that the Commission is involved in delivering aid to those who need it, and I do not think for the relevant purposes that aid should be regarded as any less direct simply because the aid is delivered by an outside rather than an inside lawyer, by an agent rather than an employee." 38 In Australian Council of Social Services Case the Court of Appeal was concerned with the question whether the Council was a public benevolent institution and reached the conclusion that because the Council had failed to identify direct beneficiaries "in need of benevolence" the Council could not satisfy one of the principal elements to determine the status "which involves the ascertainment of the identity of the persons to benefit from the benevolence of the institution in question". The Council could only identify the beneficiaries as the community generally. The Court in the circumstances did not have to consider the submission that a "public benevolent institution" is not limited to those who give direct relief to poverty and distress. It was therefore not necessary for the Court to conclusively deal with that question. More recently in cases like Federal Commissioner of Taxation v The Triton Foundation (2005) ATC 4715 and Tasmanian Electronic Commerce Centre Pty Ltd v Commissioner of Taxation (2005) ATC 44219 that question has received some attention. 39 In the Triton Foundation case the foundation, a non-profit organisation was established by Mr George Lewin a successful inventor with the principal object to promote "a culture of innovation and entrepreneurship in Australia, particularly among the young, by visibly assisting innovators to commercialise their ideas". Besides funds from the founder, the foundation also received grants from the Federal Government and two State governments. The foundation's activities included advice to inventors on marketing, intellectual property and business planning by telephone, facsimile, email and in person. It had an interactive website that provided a self-assessment "to assist inventors identify gaps in their knowledge and to determine where they are placed in the pathway to a commercial product". In addition, the foundation had case managers who reviewed applications for assistance and promoted school competitions for students in years 5 to 10 at government schools and from time to time organised workshops for prospective inventors. 40 The Federal Commissioner of Taxation refused to endorse the foundation as a charitable institution under s 50-5 of the Income Tax Assessment 1997. The foundation in the first instance took the matter to the Administrative Appeals Tribunal which held that the foundation provided a structured information package rather than education but its objects and operations were for the purposes beneficial to the community in the sense of providing direct services to a section of the community and overall future benefits to the community as a whole and it fell within the fourth of Lord Mcnaghten's four heads of charity. On an appeal to the Federal Court, Kenny J confirmed the decision of the Administrative Appeals Tribunal. In confirming the decision Kenny J (at 4902) rejected the Federal Commissioner's submission that the foundation's objects "were too vague and imprecise and the benefit to the community too remote to qualify for 'charitable' status." 41 In Tasmanian Electronic Commerce Centre Pty Ltd v Federal Commissioner of Taxation (2005) ATC 4219, Heerey J in the Federal Court held that, in assisting Tasmanian business to adopt electronic commerce, the Tasmanian Electronic Commerce Centre was pursuing a charitable purpose within Lord Macnaghten's fourth category. The shareholders of the Centre were the State of Tasmania and the University of Tasmania and it was established to assist Tasmanian business and industry to adopt electronic commerce and to compete in the electronic market place. In the first instance the Administrative Appeals Tribunal accepted the Federal Commissioner's submission that assisting "persons, be they corporate or otherwise to improve their position without regard to their existing circumstances is too broad to be regarded as coming within the spirit and intendment of the Statute of Elizabeth". His Honour rejected this submission and held (at 4232) as follows: "56. Once it is accepted that assistance to business and industry can provide a public benefit of the kind which the law recognises as charitable, a proposition which does not seem to be in dispute in the present case, I do not see how the fact that individual businesses may benefit can be a disqualifying factor. On the contrary, if business in general is assisted, it seems inevitable that some firms at least will become profitable, as a result of that assistance." 42 The decision of the New South Wales Land Environment Court in Ziliani and Anor v Sydney City Council (1985) 56 LGRA 58 has some bearing on the present matter. In Ziliani, the appellants were trustees of the Agricultural Societies Council of New South Wales, an unincorporated association the members of which were 207 agricultural societies who organised rural shows. The Agricultural Societies Council's objects were to protect and promote the interests of pastoral, agricultural, horticultural and industrial societies, coordinate country shows by preparing suitable calendars and schedules, providing lists of judges, setting standard rules for various country show activities, printed handouts and circulars to assist its members to set up shows and it was involved in the running of courses designed to train judges for livestock and produce and to encourage young men and women to undertake these courses. It was held by Perrignon J that the Agricultural Societies Council of New South Wales was a public charity and that its premises was at the relevant time used and occupied for charitable purposes and exempt from rating under the Local Government Act 1919 (NSW). 43 Counsel for the Respondent "submitted that Ziliani is wholly distinguishable from this case because even though the Agricultural Societies Council was providing indirect support to charitable organisations (that is, the various agricultural societies), its sole reason for existence was the support of those agricultural societies." I reject the submission that Ziliani can be distinguished on the grounds suggested. On the contrary, I think the facts in the present matter are stronger than those that were before the court in Ziliani. 44 At the time the Applicant was established, its members comprised AMP Foundation Limited, The Smith family, Work Ventures and the Benevolent Society. It was not in dispute these members are all well-known public charities. The Applicant's objects are "to improve the management and operational performance and to enhance the long term financial viability of charitable organisations by, without limitation, providing educational, mentoring and support services to charitable organisations", to "pursue charitable purposes only" and "apply its income in promoting those purposes". The Applicant's activities are confined to various public charities. It is difficult when these activities are examined in some detail to conclude that the Applicant's role was indirect or merely "abstract". The Applicant's role in relation to the charitable organisations is best described as a "hands-on" role. The Applicant provides direct assistance to these organisations to "meet their goals, grow efficiently and effectively and increase the sustainability of the organisation's programs". The Applicant provides these "organisations strategic planning, financial sustainability and support, and relevant skills development programs". In addition, it provides "consulting and mentoring services to assist non-profit organisations to develop and implement strategic plans and achieve their purpose of assisting disadvantaged people". The Applicant also provides financial assistance to a number of the charities it is associated with. The present matter would in my opinion fall within the category of cases like Triton, Tasmanian Electronic Commerce Centre Pty Ltd and Ziliani and with a much stronger claim for charitable status under the fourth head. 45 The decision of the New South Wales Court of Appeal in the Glebe Administration Board Case also does not aid the Respondent. The facts of that case can be easily be distinguished from those in the present matter. The Full Federal Court in Word Investment Ltd case reviewed the real scope of the Glebe Administration Board decision in the context of a factual situation with some similarity to the present matter. In the Word Investment Ltd, the taxpayer was established to provide financial and fundraising support through investment and funeral business activities for the Australian member of an evangelical missionary organisation with fifty-six members and approximately 5,300 workers world-wide that sought to spread the Christian religion through literacy and translation work, predominantly in the third world. The appeal to the Full Federal Court concerned a decision made by the Federal Commissioner of Taxation refusing to grant the taxpayer charitable institution status under s 50-5 of the Income Tax Assessment Act 1997 (Cth). Various questions were before the court, in particular and relevant to this matter was the objection by the Federal Commissioner to the commercial activities of the organisation, which the Federal Commissioner submitted, "in their nature and of their character could not be said to be activities legally charitable". 46 In considering this question, his Honour Allsop J in the Full Federal Court (at 202) examined the effect and scope of the majority decision handed down by Priestly JA in Glebe Administration Board Case as follows: "… 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 Priestly 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." 47 In Word Investments Ltd the Full Federal Court (Stone, Allsop and Jessup JJ) held that the taxpayer was a charitable institution within the meaning of s 50-5 of the Income Tax Assessment Act 1997(Cth). In his judgment Allsop J (with whom Stone J agreed) provided (at 207) the following basis for reaching that conclusion: "The proper question is one of characterisation of the institution. To that inquiry, the objects activities, the purposes of those concerned and the legal constraint under which the directors were working are all relevant: see the Surgeon's Case 68 CLR 436. Here, on the proper understanding of the memorandum of association, the purpose of all the 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." 48 The decision of the Court of Appeal in the Glebe Administration Case does not assist in the disposition of the issue in this matter. The Board's purposes in that case were clearly not religious. It did not have any constitution or charter giving it any religious purposes. Its activities were commercial and the business of managing the properties was conducted to make a profit. It was the Church of England that had the religious purposes and the power to require the Board to remit funds from time to time to carry out those purposes. The Board functioned quite independently as a commercial enterprise. 49 By contrast, the Applicant in this matter has in its constitution clear charitable purposes and carries out its activities directly with other public charities. The Applicant has been created by well-known public charities with objects to benefit charitable ventures. There are no private individuals or entrepreneurs as beneficiaries. All funds, other than those used to pay staff and other proper expenses of the Applicant are utilised for charitable purposes. It does not carry out any commercial activities for the whole community at large or in the "abstract". 50 There is some similarity with the Word Investment Ltd case, which generally assists the Applicant's case. But there are also important differences in this matter that support a much stronger case for charitable status than was the case in the Word Investment Ltd. In the present matter, there is direct dealing by the Applicant with the organisations, which carry out the charitable ventures. The Applicant also, unlike in Word Investments Ltd, does not undertake any independent business activity for profit. The Applicant's activities are essentially to ensure that public charities function efficiently and effectively to help those in need and the disadvantaged. That must satisfy the requirement of benefit to the community or the public. 51 I must, therefore, reject the Respondent's submission that the Applicant's activities are indirect and focused on promoting the wellbeing of the community generally and do not amount to charitable activities. 52 I conclude that the Applicant was a charitable institution within the meaning of those words in Clause 12 (1)(c) of Schedule 2 to the Payroll Tax Act on 1 July 2007. In coming to this conclusion I have not considered the additions made to the Applicant's purposes sometime in 2008. The parties had agreed that the question for the Tribunal was the determination of the status of the Applicant as on 1 July 2007. In passing, I should in any case mention that the addition of two new objects in 2008 were merely to direct the Applicant to pursue the charitable aims and strategies as determined from time to time by the management by ordinary resolution. These additional objects did not alter the Applicant's constitution so far as it relates to its charitable purposes and they were not alterations in terms of Clause 12 (2) of Schedule 2. Order 53 The decision under review is set aside and the matter remitted to the Respondent to implement this decision. Postscript 54 Before the publication and release of this decision, the High Court (Gummow, Kirby, Hayne, Heydon and Crennan JJ) handed down on 3 December 2008 its decision in Commissioner of Taxation of the Commonwealth of Australia v Word Investments Limited [2008] HCA 55, which was an appeal by the Federal Commissioner of Taxation against the decision of the Full Federal Court referred to above. In dismissing the appeal the majority of the High Court in a joint judgment (Gummow, Hayne, Heydon and Crennan JJ) held, inter alia, that Word's purposes were charitable and that it was a charitable institution, and that that character was not lost by the fact that it did not advance charitable purposes directly but gave its profits to other religious institutions which carried out charitable work. The majority in this regard held that (at 26): "The activities of Word in raising funds by commercial means are not intrinsically charitable, but they are charitable in character because they were carried out in furtherance of a charitable purpose" 55 The above observation would equally apply to the Applicant's activities, which may not be seen in isolation to be charitable but when fully examined in the context of the various charitable ventures, the activities are carried out essentially "in furtherance of a charitable purpose". 56 The majority also, for similar reasons as advanced above, regarded the decision of the New South Wales Court of Appeal in the Glebe Administration Board Case as one that should be confined to its special facts (at 31): "That case, then, is a decision about a particular statute different from the one under consideration in this appeal, and a decision about a different entity. In contrast to the view which the Court of Appeal took of the board in that case, the correct view in this case is that Word was using its powers to employ commercial methods to raise money for its purposes: it was not doing commercial work within limitations fixed by reference to religious principles." DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.