Angel Loop Ltd and Commissioner of Australian Charities and Not-for-profits Commission (Taxation)

[2021] AATA 3894

Angel Loop Ltd and Commissioner of Australian Charities and Not-for-profits Commission (Taxation) [2021] AATA 3894 (25 October 2021)

Administrative Appeals Tribunal

ADMINISTRATIVE APPEALS TRIBUNAL	)
)	No: 2020/6225
TAXATION AND COMMERCIAL DIVISION	)

Re: Angel Loop Ltd
Applicant

And: Commissioner of the Australian Charities and Not-for-profits Commission
Respondent

DIRECTION

TRIBUNAL:  Deputy President R I Hanger AM QC

DATE OF CORRIGENDUM:            28 October 2021

PLACE:           Brisbane

The Tribunal directs the Registrar, pursuant to subsection 43AA(1) of the Administrative Appeals Tribunal Act 1975 (Cth), to alter the text of the decision in this application, so that the epilogue includes “Counsel for the Respondent – Mr Stephen Rebikoff”. 

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Deputy President R I Hanger AM QC

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2020/6225

Re:Angel Loop Ltd

APPLICANT

AndCommissioner of Australian Charities and Not-for-profits Commission

RESPONDENT

DECISION

Tribunal:Deputy President R I Hanger AM QC

Date:25 October 2021

Place:Brisbane

The reviewable decision dated 2 September 2020 is affirmed.

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Deputy President R I Hanger AM QC

Catchwords

TAXATION AND COMMERCIAL – not-for-profit charity – early investments – charitable purposes – ancillary purposes – facilitating business relationships – public benefit – decision affirmed

Legislation

Australian Charities and Not for profits Commission Act 2012 (Cth)

Charities Act 2013 (Cth)

Cases

Commissioner of Taxation v Triton Foundation (2005) FCR 1319

Inland Revenue Commissioners v City of Glasgow Police Athletic Association [1953] AC 380

Navy Health Limited v Deputy Commissioner of Taxation [2007] FCA 931

Stratton v Simpson (1970) 125 CLR 138

REASONS FOR DECISION

Deputy President R I Hanger AM QC

25 October 2021

1. The Applicant, Angel Loop Ltd (‘Angel Loop’), a public company limited by guarantee, seeks a review of a decision of the Respondent dated 2 September 2020. The effect of the decision is to disallow the registration of Angel Loop as a charity within the meaning of section 25-5 (5) of the Australian Charities and Not for profits Commission Act 2012 and section 5 of the Charities Act 2013.

2. The basis of that decision was that not all of the Applicant’s purposes were charitable purposes for the public benefit. Section 5 of Charities Act 2013 requires that all of the purposes must be charitable purposes for the public benefit, or incidental or ancillary thereto. The Applicant was found to have an independent, non-charitable purpose of facilitating private business relationships for the primary benefit of entrepreneurs and angel investors. That was determined to be not merely ancillary or incidental to a broader charitable purpose for the benefit of the public.

3. The Constitution[1] of the Applicant described its role at paragraph 3.1 as follows:

   [1] Exhibit 1, T Documents, T3.1, pages 74 – 99.

   “Angel Loop is a facilitator encouraging knowledge transfer, sharing, promotion of a code of conduct, and delivering education within the broader community to ensure long-term sustainability of Angel Investors. All Angel Loop activities foster knowledge transfer between Angel Investors, entrepreneurs and the broader community.

   Angel Loop’s focus is to provide:

   •          Awareness and Education

   •          Share experience via the development of case studies

   •Promote ethics and a code of conduct (trust being an integral to this type of investment)

   •          Share governance principles of emerging Angel Groups

   •          Foster collaboration between Angel Groups and the community

   •provide guidance and activities to assist with the incubation/acceleration of Angel Groups

   •          Drive communication and referrals throughout the community

   •          Deliver networking events to support Angel Loops principles

   •          Undertake research into the activity of Angel Investing.”

4. On 21 August 2019, Angel Loop added rule 3.3 by resolution, an additional objects clause to its constitution which stated:

   Angel Loop is established for public charitable purposes and for the following core purposes:

   (a)to further and improve the economic, personal and social circumstances of communities throughout Queensland, including those that are disadvantaged by providing investment, increases in employment and economic opportunity.

   (b)Advancing social and public welfare by promoting and educating participants in Angel Investing and providing the Facilities.

   (c)Provide for the establishment and maintenance of the Facilities under charitable auspices without profit.

   (d)Promote public debate and advocate the development of law and regulation to facilitate angel investing.

   (e)All such other things that are incidental or conducive to furthering the core purpose of the company in clause 0.

5. In order to characterise the purpose of the Applicant I must take into account not just its constitution and objects but also what it actually does and what purpose it actually pursues .

6. Mr Simon Horne, the Applicant’s CEO and a director, is the driving force behind the Company. He appeared for it in the hearing. In referring to the Applicant he said:

   “We are here to promote a culture of innovation and entrepreneurship in Australia, particularly in our regional areas, through the establishment and support of local community Angel groups, so interested members of the public may come together and collectively donate their time, commercial expertise, and more particularly the money they need to assist innovators with aspects of their business to enable innovation to be brought to commercial fruition for the benefit of the Australian public, as well as – more specifically – and more generally for the local community”[2]

   [2] Transcript of Proceedings, Angel Loop Ltd and Commissioner of Australian Charities and Not-for-profits Commission (Administrative Appeals Tribunal, 2020/6225, Deputy President Hanger, 29 July 2021) Page 5, lines 10 – 18.

7. Mr Horne explained that an Angel investor is usually a successful commercial member of the community who wants to give back to the community in a lasting and meaningful way. Inventors can come up with ideas that if developed might change the community. The Applicant seeks to assist inventors to connect with entrepreneurs who could assess the inventor’s idea and provide the capital to take it through to commercialisation. Mr Horne pointed out that a very good invention may fail in the process of being developed because of a lack of capital. He referred to an invention going through the “valley of death” and that in Australia there is a lack of risk capital. He seeks to overcome that difficulty for the benefit of the nation.

8. His idea is that inventors and the investors have to be introduced to each other; decide that they can work together for the benefit of each of them; that may entail putting together money from a few investors to take a project from invention to marketing.

9. The Applicant submits that[3]:

   1.Angel Loop is a not-for-profit established to promote greater Angel (early-stage) investing. It achieves this by forming and supporting regional marketplaces (Angel Groups) that foster greater connections between inventors and prospective investors for the purposes of mentorship and direct investment to enable more Innovations to be brought to commercial fruition.

   2. Angel Loop does not charge introductory fees to either the inventor or investor and does not facilitate or have any fiduciary interests in any investments made.

   3. Angel Loop does provide facilities such as a “Financial Literacy” course for potential investors in universities (currently University of Queensland) to increase the numbers skilled in the art (of early-stage investing).

   4. Angel Loop currently does not have members or represent the interests of individual Investors, Inventors or the Groups it creates and supports.

   5. Angel Loop has assisted 116 inventors connect with investors since its inception to June 2020, of which 62 (53%) were able to gain support and funds to assist bringing their ideas to commercial fruition.

   [3] Applicant’s Statement of Facts, Issues, and Contentions dated 1 April 2021, page 1 (‘Applicant’s SFIC).

10. In December 2019 Angel Loop was a syndicate of 11 independent Angel groups.[4] Angel groups agree to hold a minimum of five meetings per year in their region. Each group is responsible for organising its own meeting and notifying members thereof. Angel Loop was responsible for running the meeting and to source and supply, where possible, presenters (referred to as “pitchers” by Mr Horne) for the scheduled meeting. Angel Loop is responsible for assisting the Angel group both to source and to screen local pitchers as well as assisting them to share the opportunity with other groups to assist them to raise capital. Angel Loop is responsible for establishing an investment vehicle for a proposal[5] accepted for further development.

    [4] Exhibit 1, T Documents, T14.1 page 160.

    [5] Ibid, 173.

11. A breakdown of the time spent by the Applicant on each of its activities establishes that it spent 50% of its time on presentations at roadshows which were Angel group meetings as well as educational sessions with entrepreneurs and investors as part of those roadshows; 25% of its time on training/screening/mentoring sessions including individual discussions with entrepreneurs and coaching for presenters helping them to present their pitch as well in screening business ideas; 5% of its time connecting with national Angel groups; 20% of its time probably associated with planning and booking Angel roadshows and working out the logistics of who is pitching where.

12. Mr Horne described his role in evidence. A person with a good idea which he describes as a start-up would come to him and say, for example, that they need to find $300,000. Mr Horne might say that he knows how you can get $100,000 from one group and some more from another group. He would invite the start-up proposer to accompany him on a road tour throughout Queensland to make presentations to possible investors.  He would help them “showcase” the invention taking them to various communities where they would present their proposal to possible investors. Before he was prepared to take somebody on such a road trip he insisted that they have the local Angel group supporting them.  They would therefore begin with some backing and he would take them on the road trip to attempt to gain the necessary further backing.[6]

    [6] Transcript of Proceedings, Angel Loop Ltd and Commissioner of Australian Charities and Not-for-profits Commission (Administrative Appeals Tribunal, 2020/6225, Deputy President Hanger, 29 July 2021) Pages   48 – 49. 

13. In cross-examination Mr Horne agreed that he did screen and select businesses that he would present to regional Angel groups. He does that to ensure that the innovation has some commercial benefit.

14. If an Angel group decides to proceed with a proposal, Mr Horne would assist that group to get finance from another group. He said:

    “our role is to fill that bucket up with money so that they can commercialise their idea. That’s our role. And if somebody wants to put – you know, literally wants to put, you know, 5000 into 25 start-ups or 5000 into 10 start-ups, that’s their choice. It’s not us telling them they have to do it, we don’t control. What we’re saying is their motives are totally up to them and it’s important to understand that maybe their motives aren’t altruistic, and some of those members aren’t, let me be clear, I’m not going to try and divulge that. But that does not distinguish the fact of what – the activity we do. We are there to fill that bucket up for that entrepreneur.” [7]

    [7] Transcript of Proceedings, Angel Loop Ltd and Commissioner of Australian Charities and Not-for-profits Commission (Administrative Appeals Tribunal, 2020/6225, Deputy President Hanger, 29 July 2021) Page 53, line 4 – 12.

15. Mr Horne agreed that Angel Loop by working with Angel groups was able to raise more money to enable the idea to be commercialised.[8]

    [8] Transcript of Proceedings, Angel Loop Ltd and Commissioner of Australian Charities and Not-for-profits Commission (Administrative Appeals Tribunal, 2020/6225, Deputy President Hanger, 29 July 2021) Page 58.

16. I am satisfied that the effect of what Angel Loop does is to expose inventors to a wider range of investors than they would otherwise normally have access to; and to expose investors to a wider range of inventors than they would otherwise have access to.  The effect of this work is that makes it much more likely that an inventor will get the necessary funding to be able to develop his proposal.

17. Mr Horne says that achieves a public benefit.

18. The Respondent argues that those benefits are not just a by-product of Angel Loop’s activities but that they are at the centre of the whole enterprise.

19. Mr Horne was quite frank in his evidence. There was no suggestion made of a lack of integrity in what he or Angel Loop is doing. The issue is whether Angel Loop should be registered as a charity.

20. The Respondent submits that the result of the activities of Angel Loop is to confer a benefit on both the investors that choose to take up particular investment opportunities and the owners of the business ventures that are the beneficiaries of those investments. The investors acquire an interest in the business which has the potential to increase significantly in value; and the business owner obtains capital and other assistance to support the growth of the business. It is irrelevant that the investment was likely to be of little value unless the business was successful. What the investor is getting is the chance of making a lot of money. The presentations enabled the investors who make up Angel Loop’s member groups to identify a range of investment opportunities of which they might not otherwise have been aware, and to spread the risks associated with those investments by pooling their resources with others and thus investing in a wide range of different businesses.

21. On the one hand the Applicant contends that its facilitation of private investment through the roadshows, screening, coaching, combination of groups is simply part of its objective of promoting a culture of innovation and entrepreneurship and should be considered as similar to the organisation which was accepted as charitable in Triton[9].  On the other hand the Respondent submits that the pursuit of a benefit, sought to be achieved through the roadshows and associated work by the Applicant should be characterised as an independent and substantial purpose of the Applicant.

    [9] Commissioner of Taxation v Triton Foundation (2005) FCR 1319 (‘Triton’)

22. Since the decision of the Federal Court in Triton it is accepted that the promotion of a culture of innovation and entrepreneurship is capable of being a charitable purpose as an aspect of the promotion of industry or commerce. There is no dispute about that in this matter.

23. In Triton, the Applicant was a company. Its main and overarching object was to promote a culture of entrepreneurship for the ultimate benefit of Australian society. It focused on inventors with ideas that were most likely to have commercial success. It provided advice in different forms on matters of probable commercial concern to inexperienced inventors. It provided a means for an inventor to increase his or her commercial knowledge using case managers who reviewed applications for assistance and gave guidance and, if appropriate, assessment by a panel of experienced volunteers. It provided media exposure for the concept of innovation. Its services were free.

24. The Federal Court held that having regard to its constitution, activities and history its essential purpose was beneficial to the community and it was charitable.

25. The facts in the present case are somewhat different from those in Triton. In Triton all of the help was given to the inventor. In the present case help is not only given to the inventor; the Applicant brings the inventor and the investor together,  screens the proposals, and assists the Angel group or groups to put together the necessary finance to fund the proposal in the hope of obtaining a huge commercial benefit for both inventor and investor.

26. There is no doubt that if the main purpose of a body is charitable, it does not lose its charitable character simply because some of its incidental or concomitant and ancillary objects are noncharitable.[10]

    [10] Triton, [20].

27. In order to qualify for registration as a charity the Applicant must show, inter alia, a that all of its purposes are charitable purposes that are for the public benefit or that the purposes are incidental or ancillary to and in furtherance of, or in aid of those purposes.

28. While it is true that the activities of the Applicant in this matter would be likely to increase entrepreneurial business activity in a positive way and provide encouragement for innovation and entrepreneurship, the evidence does not show that that is the sole or predominant purpose of the Applicant. The Applicant goes further than encouragement. Part of its essential activities is obviously to bring about an arrangement between an inventor and an entrepreneur(s). Its core function is not simply to educate and encourage or assist.  A core function is to bring about a commercial deal between investor and inventor.  That cannot be said to be ancillary to the charitable purpose. It is a purpose, if not the main purpose, of the Applicant. It is a noncharitable purpose even though it is doubtless a worthy purpose.

29. An ancillary purpose has been described as one which is not “of substance in its own right”,[11] “only lawfully to be pursued as conducive to promoting,”[12] the main purpose and is merely a means of achieving the main purpose or is otherwise an “unsought consequence” of the pursuit of the main purpose, [13] as was pointed out in the decision to refuse to register.

    [11] Navy Health Limited v Deputy Commissioner of Taxation [2007] FCA 931, [65]

    [12] Stratton v Simpson (1970) 125 CLR 138 at 148-9

    [13] Inland Revenue Commissioners v City of Glasgow Police Athletic Association [1953] AC 380, 396

30. The facilitation of the possible deal between investor and inventor is not ancillary to the charitable purpose.

    DECISION

31. The Applicant has failed to establish that the Refusal Decision should not have been made or should have been made differently. The Objection Decision was correct in disallowing the Applicant’s objection to the Refusal Decision.

32. The decision under review is affirmed.

33.     I certify that the preceding 32 (thirty-two) paragraphs are a true copy of the reasons for the decision herein of Deputy President R I Hanger QC

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Associate

Dated: 25 October 2021

Date of hearing:	29 and 30 July 2021
Applicant:	Simon Horne (CEO)
Solicitors for the Respondent:	Australian Government Solicitor
Counsel for the Respondent	Mr Stephen Rebikoff