Cancer and Bowel Research Association Incorporated as trustee for Cancer and Bowel Research Trust and Commissioner of Taxation

[2013] AATA 336

[2013] AATA 336 

Division	Taxation Appeals Division
File Numbers	2012/3665 and 2013/1720
Re	Cancer and Bowel Research Association Incorporated as trustee for Cancer and Bowel Research Trust
APPLICANT
And	Commissioner of Taxation
RESPONDENT

DECISION

Tribunal	Deputy President D G Jarvis
Date	24 May 2013
Place	Adelaide

1.  In matter No. 2012/3665, the Tribunal:

(a)  affirms the objection decision insofar as it revoked the endorsement of the Cancer and Bowel Research Trust as a tax deductible gift recipient, and decided that that revocation should take effect from 1 July 2000; and

(b) remits the objection decision to the respondent for further consideration pursuant to s 42D of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) insofar as the decision relates to whether the applicant is entitled to be endorsed as an entity exempt from income tax under s 50-105 of the Income Tax Assessment Act 1997 (Cth) and as a charitable institution under s 176-1 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) and s 123E of the Fringe Benefits Tax Assessment Act 1986 (Cth).

2. In matter No. 2013/1720, the Tribunal remits the objection decision to the respondent for further consideration pursuant to s 42D of the AAT Act.

3.  The Tribunal specifies that the period within which the Commissioner is to reconsider the objection decisions remitted to it pursuant to paragraphs 1(b) and 2 above is the period commencing on the date of this decision and expiring on 23 September 2013.

............... [Sgd] ....................

Deputy President D G Jarvis

CATCHWORDS

TAXATION – Endorsements as tax concession charity and as deductible gift recipient – revocation of endorsements – date at which entitlement to endorsement is to be determined - whether trust deed complied with statutory requirements - whether purposes for which trust had been established were charitable - relevance of related party transactions - whether revocation of endorsements should take effect from a retrospective date - objection decision in part affirmed, and in part remitted for further consideration - objection decision that applicant not entitled to endorsement as a health promotion charity remitted for further consideration.

LEGISLATION

Income Tax Assessment Act 1997 (Cth), ss 30-125(1), 50-110

Income Tax Assessment Act 1936 (Cth)
A New Tax System (Goods and Services Tax) Act 1999 (Cth)
Fringe Benefits Tax Assessment Act 1986 (Cth)

Taxation Administration Act 1953 (Cth)

CASES

Bray v Federal Commissioner of Taxation (1997) 140 CLR 560

Brickworks Limited v The Council of the Shire of Warringah (1963) 108 CLR 568
Bwlfa Merthyr Dare Steam Colliers (1891) Ltd v Pontypridd Waterworks Company [1903] AC 426
Commissioner for Special Purposes of Income Tax v Pemsel [1891] AC 531
Commissioner of Taxation (Cth) v Bargwanna (2012) 244 CLR 655
Commissioner of Taxation v Word Investments Limited (2008) 236 CLR 204
Douglas v Federal Commission of Taxation (1997) 77 FCR 112
Freeman v Secretary, Department of Social Security (1998) 19 FCR 342
Incorporated Council of Law Reporting (Qld) v Commissioner of Taxation (Cth) (1971) 125 CLR 659
McCormack v Federal Commissioner for Taxation (1979) 143 CLR 284
Myer Queenstown Garden Plaza Pty Ltd and Myer Shopping Centres Pty Ltd v Port Adelaide Corporation and Attorney-General (1975) 11 SASR 504
Re Bicycle Victoria Incorporated and Commissioner of Taxation (2011) 127 ALD 553
Re Hopkins and Repatriation Commission [2013] AATA 270
Shi v Migration Agents Registration Authority (2008) 235 CLR 286

Stratton v Simpson (1970) 125 CLR 138

SECONDARY MATERIALS

Pearce, D C, Administrative Appeals Tribunal (2nd ed, LexisNexis Butterworths, 2007)

REASONS FOR DECISION

Deputy President D G Jarvis

24 May 2013

1. The Cancer and Bowel Research Trust (Trust) was established by deed made on 20 February 1998 between Nicholas Michael John Baldock as settlor and Cancer and Bowel Research Association Incorporated (applicant) as Trustee.[1]

   [1] Exhibit R1, T3, page 20.

2. There are two matters before me.  The primary matter, No. 2012/3665, arises from an application to review an objection decision made by the Commissioner of Taxation on 20 August 2012 to disallow an objection by the applicant to the revocation of endorsements previously issued for various charity tax concessions, and of endorsement as a deductible gift recipient (DGR).  During the hearing of that application reference was made to an earlier objection decision made by the Commissioner on 29 July 2011 to disallow an objection to the refusal of an application to endorse the applicant as a health promotion charity.  The applicant applied to this tribunal in October 2011 for review of that objection decision, but later withdrew its application.  It became apparent during the hearing of the primary matter that the earlier application raised issues that were relevant to the primary matter.  At my suggestion, the applicant lodged a second application to this tribunal to review the Commissioner’s earlier objection decision to refuse the application for endorsement as a health promotion charity.[2]  This second application is the subject of matter number 2013/1720 in this tribunal.  I granted an extension of time in respect of that application, and directed that that matter and the primary matter be heard together, and that the evidence in each matter should be treated as evidence in the other.

   [2] Under s 42A(2) of the Administrative Appeals Tribunal Act 1975 (Cth) an application is taken to have been dismissed if the applicant applies to withdraw it. As a general rule, it is inappropriate for the tribunal to permit parties to re-agitate proceedings which have already been determined in this tribunal. However, it is sometimes appropriate to permit an application to be dealt with again by the tribunal in fresh proceedings. I canvassed the circumstances where this may occur in Re Hopkins and Repatriation Commission [2013] AATA 270 at paragraphs 11 to 14.

3. It is asserted in the Commissioner’s statement of facts, issues and contentions in matter No. 2012/3665 that as of 1 July 2000, the Trust was endorsed as exempt from income tax as a charitable institution under Division 50-B of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997), and also as a DGR, on the basis that it was an ancillary fund under Division 30-B of the ITAA 1997.[3] 

   [3] Respondent’s statement of facts, issues and contentions, paragraphs 4 and 5.

4. However, on my analysis, the Trust was granted endorsement as a DGR, but it was the applicant as trustee for the Trust, and not the Trust, to which the income tax exempt endorsement was granted. A computer printout produced by the Commissioner indicates that the Trust was endorsed as a DGR with an initial eligibility period from 20 February 1998 to 30 June 2000 pursuant to s 78(5) of the Income Tax Assessment Act 1936 (Cth) (1936 Act).[4] It also appears from a later computer printout that on 19 May 2000, the Trustee applied for exemption from income tax as a tax concession charitable institution,[5] and was subsequently granted that endorsement. The Commissioner later issued formal advices of the endorsements that had been approved with effect from 1 July 2000. These referred to the same ABN, being the Trust’s ABN. The advice referring to DGR status referred to “The Cancer & Bowel Research Trust”, with the endorsement made by reference to Item 2 of the Table in s 30-15 of the ITAA 1997,[6] whereas the advice in respect of the income tax exempt charity status referred to “The Trustee for the Cancer & Bowel Research Trust”, with the endorsement made by reference to “Item 1.1 - charitable institution” as the relevant item in Subdivision 50-5 of the ITAA 1997.[7]  A record of a search of the Australian Business Register, using the same ABN, recorded the same endorsements, except that in the case of the tax concession status, the relevant entity is described as “The Trustee for THE CANCER & BOWEL RESEARCH TRUST, a Charitable Institution”; the search also records that the entity is entitled to a GST concession, and an FBT rebate, in each case from 1 July 2005.[8]

   [4] Exhibit R2, ST1, page 1.

   [5] Exhibit R2, ST3, page 25.

   [6] Exhibit A8.

   [7] Exhibit A9.

   [8] Exhibit A10.

5. According to a letter dated 1 April 2005 from the Commissioner to the Trustee, and the “Notice of endorsement for charity tax concessions” enclosed with it, the applicant had been endorsed to access charity tax concessions in its own right, from 1 December 2002.[9]  Those concessions comprised an exemption from income tax as a charitable institution under Subdivision 50-B of the ITAA 1997, GST concessions from 1 July 2005 as a charitable institution under Subdivision 176 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act), and FBT exemption from 1 July 2005 under s 123D of the Fringe Benefits Tax Assessment Act 1986 (Cth) (FBT Act). It seems likely that a similar letter was sent by the Commissioner to the applicant as trustee for the Trust at about the same time, but neither party could find any such letter.

   [9] Exhibit A3.  The letter and Notice refer to the Trustee’s ABN, and not the ABN issued to the Trust.  The latter ABN was referred to in the formal advices, and in the ABN search referred to in paragraph 4 above.

6. The Commissioner subsequently reviewed what were described as the endorsements of The Cancer & Bowel Research Trust as a “deductible gift recipient and as a charitable institution”.[10] By letter dated 16 February 2012 the Commissioner advised that he had decided that the Trust did not satisfy the requirements for endorsement as a DGR or as a charitable institution for the purposes of the ITAA Act 1997, the GST Act or the FBT Act, and had not satisfied those requirements since 1 July 2000.[11]  The Commissioner further decided to revoke the endorsements from 1 July 2000, and enclosed reasons for the decision.  The letter advising the Commissioner’s decision was addressed to the Trust for the attention of its chairman.

   [10] Exhibit R1, T19, page 108.

   [11] Exhibit R1, T19, page 108.

7. The applicant objected to the above decision by the Commissioner.[12]  In a letter dated 20 August 2012 the Commissioner advised that he disallowed the objection.[13]  The reasons for decision enclosed with that letter are headed “The Trustee for the Cancer & Bowel Research Trust”, but refer to the four relevant endorsements as having been granted to the Trust.

   [12] Exhibit R1, T20, page 145.

   [13] Exhibit R1, T22, page 171.

8. An application was lodged with this tribunal for review of the objection decision in the name “Cancer & Bowel Research Trust”.[14]  The Trust is not a legal entity, and the tribunal initially recorded the applicant as “The Trustee for the Cancer & Bowel Research Trust”.  After the hearing had commenced, I directed that the name of the applicant be amended to the name of the Trustee, namely “Cancer and Bowel Research Association Incorporated as trustee for Cancer and Bowel Research Trust”.  The reference to the capacity in which the Association is acting is necessary because the Trustee acts as the trustee of some five other Trusts, and presumably also carries on business activities in its own right, under its own separate ABN.

   [14] Exhibit R1, T1, page 1.

   ISSUES BEFORE THE TRIBUNAL

9. The issues before the Tribunal are as follows:

   (a)whether the applicant was entitled to be endorsed as a DGR as at 16 February 2012, being the date of the Commissioner’s decision to revoke its endorsement as a DGR;

   (b)whether the applicant, as trustee for the Trust, was entitled to be endorsed as exempt from income tax, FBT and GST as at 16 February 2012;

   (c)should any revocation of the endorsements granted to the applicant take effect from 1 July 2000, or some other and what date;

   (d)whether the applicant was entitled to be endorsed as a health promotion charity on or after 4 October 2010, being the date of its application for that endorsement; and

   (e)what is the date at which the tribunal should determine the above issues.

10. I had initially been concerned that the primary decision by the Commissioner to revoke the endorsements arguably did not relate to the applicant, because it was addressed to the Trust, and if that were the case there might be an issue as to whether the objection and the objection decision, insofar as they relate to the endorsements as a charitable institution in respect to exemptions from income tax, GST and FBT, were a nullity, with the consequence that this tribunal would then have had no jurisdiction to review the purported revocation of those endorsements.  However, although the Commissioner’s letter that gave notice of the revocation was addressed only to the Trust, it is clear from the reasons for decision enclosed with the letter that the Commissioner had considered the entitlement of the Trustee as trustee for the Trust to the above endorsements, as well as the entitlement of the Trust as a DGR.  I am therefore satisfied that there is no issue as to my jurisdiction.

    BACKGROUND FACTS

11. The following background facts relating to events prior to the institution of the present proceedings are not in contention, and derived largely from the evidence of a Mr Troy Manhire, whose initiative led to the establishment of the Trust, and documents produced by the parties.

12. Mr Manhire gave evidence that his mother had suffered from bowel cancer for many years, and had experienced lengthy periods of hospitalization.  In about 1997 or 1998 he met the Secretary of the Queen Elizabeth Hospital Foundation Inc., one Maurice Henderson.  As a result of a discussion with Mr Henderson, he decided to form an association to raise funds to support a student to undertake research as part of a PhD course.  Mr Henderson agreed to assist with fund raising.  Mr Manhire engaged a lawyer to prepare a trust deed with a view to obtaining DGR status.  As far as he could recall, he drew up the constitution for the association, and the documents were sent to the ATO, who required minor amendments to the trust deed, relating to the application of funds when the Trust vested.  The deed was amended, and DGR status was approved.[15]  Mr Manhire was the public officer of the Trustee and also its Chief Executive at the time when the endorsements to the Cancer and Bowel Research Trust were granted. 

    [15] The computer print-outs to which I referred in paragraph 4 above indicate that “Written Governing Documents” were provided to the ATO: see Exhibit R2, ST3, page 26.

13. The trust deed constituting the Trust provided for the Trustee to hold the Trust Fund upon trust to distribute the net income, and any available surplus, to beneficiaries identified in the deed.  I will refer below to the detailed provisions of the trust deed.

    The Trust’s activities and relevant events following its establishment

14. A letter dated 30 July 2002 from the Queen Elizabeth Hospital Research Foundation Inc. records the receipt of funds paid to it by the Trust in the financial years 2001 and 2002.  It records that the Foundation applied the payments received towards PhD scholarships and the costs of a thermal cyclar machine.[16]

    [16] Exhibit A35.

15. Mr Manhire gave evidence that from 1998 until 2004, the Trust had an arrangement with Michrosill Pty Ltd, a fund raising organisation, whereby the Trust would pay 70% of the funds raised by Michrosill to compensate it for its expenses in fundraising, and the Trust would retain the remaining 30%.  The Trust would pay, out of the 30% it retained, its own costs, which included administration costs (including wages), the issuing of receipts for donors and the cost of stock such as pens supplied to Michrosill for the purpose of its fundraising activities.  The funds remaining after deducting the payments made to Michrosill and meeting the Trust’s own costs were available for charitable purposes.

16. The principal of Michrosill, Mr John Thompson, gave evidence that he was experienced in fundraising, having commenced that activity in the 1980s, and between about 1989 and 1992 he had been asked to represent professional fundraisers on a government working party that had been set up to advise on the regulation of fundraising in South Australia.  He said that historically Michrosill had raised funds for many different charities, including quadriplegics, wheelchair sports, disabled sports, epilepsy, muscular-dystrophy, cystic fibrosis, arthritis, schizophrenia and blind sporting associations or charities, in this State and in other various States.

17. In mid-2004, following a discussion between Mr Manhire and Mr Thompson, the applicant agreed to purchase the business of Michrosill.  The applicant then proceeded to conduct the fundraising activities that Michrosill had previously conducted.  The applicant took over staff and contract workers who had previously been engaged by Michrosill.  It referred to this part of its activities as its National Fundraising Unit (NFU), and Mr Thompson was engaged as a consultant to manage it.

18. About six months after acquiring Michrosill’s business, the applicant also acquired the business of Charity Services Australia (CSA), a telemarketing organisation, which the applicant had also previously employed to undertake fundraising activities on its behalf.

19. Following the acquisition of these businesses, the total of the funds raised by the applicant increased significantly, and it later established other entities, namely Breast Cancer Australia (BCA), the Kids Cancer Research Trust (KCRT) and Prostate Cancer Australia (PCA).[17]  It appears that endorsements for charity tax concessions and as DGRs were granted in respect of BCA, KCRT and PCA, but later their endorsements were also revoked, with retrospective effect to 1 July 2000, at the same time as the applicant’s endorsements were revoked.

    [17] Exhibit R1, T19, page 114.

20. At or about the time of the acquisition of Michrosill, the applicant, through its communications with social workers at hospitals involved in treating cancer patients, became aware of a need to provide accommodation for such patients and their families, since it was beneficial for patients to be accommodated with their families when receiving treatment.  There was a particular need in the case of persons from the country who could not easily travel long distances for treatment.  The applicant then arranged to locate and lease suitable houses in the vicinity of treating hospitals, and to modify them so that they would be safe for patients to use.  Part of the funds raised by the applicant were applied for these purposes.

21. Mr Thompson gave the following evidence in relation to persons who work for the applicant on a contractual basis as door to door collectors, and who work in telemarketing.  An estimated 50% of such persons would be unemployable in the general employment marketplace, through lack of education or because they are elderly or suffer from a variety of disorders.  The nature of the work provided by the applicant means that these people are able to work flexible hours, and can regulate their hours and days of work according to their ability and condition, as required.  They are given training so that they are able to inform persons from whom they solicit donations of the nature and prevalence of bowel cancer, the tests to detect cancer, and the availability of advice and further information from the applicant.  They are given a script containing information that they are to convey to potential donors, and also brochures printed by the applicant containing further information about bowel cancer and the applicant’s activities.  In the case of the telemarketers, the names and addresses of donors are recorded so that a receipt can be sent to them, and a brochure is enclosed with the receipt.

22. Mr Thompson said that the matters described in the preceding paragraph constitute awareness and prevention activities on the part of the applicant.  This assessment is supported by the evidence of Mr Manhire, who said that after the applicant took over the business of Michrosill, he found that members of the public began to contact the applicant and seek information about bowel cancer.  Both Mr Manhire and Mr Thompson considered that it was appropriate to regard part of payments made to collectors as expenditure on awareness and prevention, and as expenditure for charitable purposes.  A letter dated 19 October 2011 from the applicant’s solicitors to the ATO provided particulars indicating the extent of the applicant’s activities in relation to awareness and prevention, and of other activities relied upon as constituting charitable activities.[18]  Mr Manhire confirmed in his evidence the correctness of the information provided in that letter.  The information relevant to this aspect was not challenged, and may be summarised as follows.

    (a)Direct communication with the public, per annum:  Approximately 400,000 contacts from out-bound telemarketing, door knocking approximately 880,000 people, speaking to approximately 1.15 million people at shopping centres, receiving approximately 4,200 calls on the applicant’s in-bound toll-free number, and receiving approximately 70,000 unique/authentic visits to the applicant’s three websites, with approximately 295,000 page visits.

    (b)Research and equipment funding:  Approximately $329,500 was spent between 2006 and 2010 on payments to health facilities/health professionals and on items of equipment provided to them.

    (c)Patient accommodation:  Up to 12 properties had been made available around Australia to patients, carers and their families, and from 2008 to 2010 a total of 5,700 nights of accommodation were provided, at an average cost of $50 - $60 per night, equivalent to about 40% of the applicant’s leasing and holding costs, and with the cost to patients being well below industry norm.

    [18] Exhibit A17.

1. The applicant also called another employee, Ms Liza Campbell.  She said that she holds university degrees in genetics, psychology and law, has worked in the fundraising industry since 1993 and for the last two years has served as the State liaison for the local executive of the Fundraising Institute of Australia.  She has been employed by the applicant since it acquired the business of Michrosill, and had previously been employed by Michrosill.  She said that the applicant currently had eight divisions in three States, and each division would have a staff of up to 40 people in any one week.  She gave evidence that increasing the awareness of the general public regarding bowel cancer was an essential part of the applicant’s functions.  She referred to the reluctance of people to talk about symptoms which might be indicative of bowel cancer, and the difficulties of treating this kind of cancer if it is diagnosed late.  She added that the number of enquiries received on the applicant’s 1800 number indicated that the public were stimulated by the activities of the collectors, and wanted to know more, particularly about bowel cancer, risk factors and diagnosis.

2. In about July 2004 the ATO published a Guide for income exempt charities to advise of new endorsement measures that would be operative from 1 July 2005.[19]  It advised that charities’ income tax, FBT and GST endorsements would be displayed on the Australian Business Register from 1 July 2005.  The Guide further advised that a charity’s existing income tax exempt charity endorsement would continue unless it advised the ATO that its circumstances had changed; that if it had been endorsed as a DGR it need not re-apply for the concession; and that as from 1 July 2005, it needed to be endorsed under FBT and GST laws if it wanted to access charity tax concessions under laws providing for those taxes.  The Guide further advised of the necessity for charities to regularly review their entitlement to the endorsements which they had been granted, and referred to four kinds of entities which could be endorsed, namely for a charitable fund, a charitable institution, a public benevolent institution and a health promotion charity.

   [19] Exhibit A7.  The Guide stated that it contained information that was current as at July 2004.

3. In March 2005, Mr Manhire made an application to the ATO for “The Trustee for the Cancer & Bowel Research Trust” to be endorsed as a tax concession charity with the category of a health promotion charity.[20]  In response to this application, the ATO requested further information regarding the organisation.  Mr Manhire then provided a certified copy of the constitution of the Trustee, a copy of the deed constituting the Trust, a copy of the previous year’s consolidated financial statements of the Trust, its 2004 Annual Report, and the names, addresses and occupations of the Trustee’s then management committee.  The Annual Report was said to detail various research projects funded and conducted by the organisation, together with samples of bowel cancer prevention brochures and a publication featuring recipes which helped in the prevention of bowel cancer.  Mr Manhire also provided a copy of a report as to the need for education, prevention and early detection of bowel cancer, and referred to a marketing and communication plan to increase bowel cancer awareness to assist in a future awareness and prevention campaign.[21]

   [20] Exhibit R2, ST5, page 29.

   [21] Exhibit R2, ST7, page 36.

4. According to ATO records,[22] on 17 June 2005 Mr Manhire agreed that the organisation had expanded and changed its activities since its constituent document was entered into, and that it was not then an ancillary fund, but was believed to be a health promotion charity, and he further agreed that the constituent document required change to reflect its activities.[23]  There were then further communications with officers of the ATO, culminating in an email dated 9 August 2005 to Mr Manhire requesting that the then current application be withdrawn, on the basis that the trust deed would be amended, and the application would be reviewed.[24]  The ATO sent a further letter dated 20 September 2005 to Mr Manhire which provided references to rulings and other guides that contained the Commissioner’s opinion on issues relevant to the Trust being endorsed a tax concession charity.[25]

   [22] Exhibit R2, ST8, page 58.

   [23] Exhibit R1, T4, page 40.

   [24] Exhibit R2, ST9, page 161.

   [25] Exhibit R2, ST10, page 163.

5. The trust deed was later amended by deeds dated 14 December 2005 and 11 January 2006.  I will refer to these amendments below.  Mr Manhire said that he could not remember why these amendments had been made, but he thought that it was at the request of the ATO.

6. It appears that the application he lodged in March 2005 was not reviewed or pursued, notwithstanding the email dated 9 August 2005 from the ATO, to which I referred in paragraph 26 above.  Mr Manhire apparently thought that it was not necessary for the application to be pursued following the trust deed amendments, and that he could rely upon confirmation that had been received from the ATO that the Trustee had been endorsed for charity tax concessions.  This is consistent with an email chain commencing with an email dated 22 December 2005 from an accountant in the accounting firm PKF to a partner of that firm, a Mr Hayes.  That email related to Taxation Ruling TR 2005/21 (since withdrawn), which set out the Commissioner’s views on the meaning of “charitable institution” and “fund established for public charitable purposes” for the purposes of (amongst other things) the relevant provisions of the FBT Act; the email raised a concern that the Trust would no longer be a rebatable employer for FBT purposes.  Mr Hayes forwarded the accountant’s email to Mr Manhire, who then responded:

   “[W]e have received a ruling earlier in the year that the Cancer & Bowel Research Association INc. (sic). is FBT exempt and that covers all funds as this entity is the employer in each instance, in its capacity as trustee.”[26]

   The “ruling” to which Mr Manhire referred appears to be the letter dated 1 April 2005 from the Commissioner to the Trustee notifying it of endorsements for charity tax concessions, which included an FBT exemption from 1 July 2005, to which I referred in paragraph 5 above.  At all events, nothing more transpired regarding the application for endorsement as a health promotion charity that had been lodged in March 2005.

   [26] Exhibit A38.

7. Mr Manhire said that in about mid-2009, an article was published in a newspaper circulating in South Australia which referred to serious allegations against him and resulted in damaging publicity to the applicant.  He gave evidence of his belief as to the matters that gave rise to these allegations, which may be summarised relevantly as follows.  He believes that the articles arose from allegations made by a former employee of the Trust whom he had dismissed in 2003 for embezzlement.  This person’s parents reimbursed the Trust for the amount involved.  The former employee then went to work for another not-for-profit organisation.  Some years later he was convicted of embezzling an amount in excess of $500,000 from that organisation, and made allegations against Mr Manhire in an endeavour to secure a plea bargain.  The allegations were investigated by the Fraud Squad and were dismissed after a short investigation, and no charges were ever laid against Mr Manhire.  However, in July 2010 the Liquor and Gambling Commissioner declined to issue further charity licences to the applicant and the other three related Trusts because of concerns raised by that Commissioner about the financial statements of the Trusts.[27]  The applicant then took proceedings for judicial review in the Supreme Court of South Australia to challenge the Commissioner’s actions.  The basis of these proceedings was that the Commissioner had imposed standards in respect of the accounts that exceeded those contained in the Australian Accounting Standards.  The proceedings were settled on the first day of the trial, but the Trusts have not been licensed again in South Australia.  As I understand it, the applicant is not licensed in Victoria, but remains licensed in some other jurisdictions in Australia.

   [27] See exhibit R6.

   The application in 2010 for endorsement as a health promotion charity

8. On 4 October 2010, Mr Manhire completed a further application on behalf of the applicant for endorsement as a tax concession charity, and again described the organisation as a health promotion charity.[28]  It appears that further information was requested by the ATO to assess this further application, and that a response was provided to the ATO on 11 January 2011.[29]  An amended trust deed was made on 8 February 2011.  I shall also refer below to the effect and relevance of this deed, but it was clearly intended to reflect the activities of the Trust as at February 2011.

   [28] Exhibit R2, ST11, page 166.

   [29] See email dated 9 March 2011 from Mr Manhire to ATO, exhibit R1, T9, page 67.

9. On 9 March 2011, the applicant requested that its application for endorsement as a health promotion charity be deemed to have been refused on the grounds that the 28-day deadline in which further information was to be provided by the Commissioner had passed, and the applicant advised that it would pursue its objection rights pursuant to Part IVC of the Taxation Administration Act 1953 (Cth) (TAA 1953).[30]  The applicant then lodged an objection to the deemed refusal of the application for endorsement as a health promotion charity.[31]  By letter dated 29 July 2011, the applicant was advised that the objection had been disallowed.[32]  The applicant then applied to this tribunal, in matter No. 2011/4593, for review of the decision to disallow its objection, but discontinued that application on 20 April 2012.

   [30] Exhibit R1, T9, pages 66-67.

   [31] Exhibit R1, T11, page 69.

   [32] Exhibit R1, T12, page 72.

10. In the meantime, as mentioned above, the Commissioner had decided, on 16 February 2012, to withdraw the endorsements previously granted to the applicant.  The ATO had conducted audits of the accounts for the financial years 2007 and 2008 not only of the applicant, but also of the other entities in the group that had previously received endorsements.  Discussions had taken place in 2011 between officers of the ATO and lawyers representing all of the Trusts in the group.  They made submissions in support of a request that the endorsements be reinstated, but the issues between the Trusts and the Commissioner were not resolved.  I was told that the Commissioner has not disallowed claims for tax deductions made by donors to the Trusts over the period during which the endorsements as DGRs remained in force.

11. Mr Manhire ceased to have any involvement with the Trusts on 31 December 2011.  The then chairman of the Trustee’s committee of management, a Mr McLoughlin, took over the management of the Trusts, and in May 2012 Mr Thompson assumed the role of chief executive officer.

12. As mentioned above, the applicant later lodged an objection against the revocation of its endorsements.  Its objection was disallowed, and the applicant then applied, in the primary matter now before me, namely matter No. 2012/3665, for review of the Commissioner’s objection decision.

13. In considering the applicant’s entitlement to endorsement, it is necessary to consider the provisions of the trust deed, as in force from time to time during the period since the date from which the endorsements were revoked.

    The original trust deed of 20 February 1998

14. The trust deed of 20 February 1998, which created the Trust, included a declaration by the Trustee that it would hold the Trust Fund (as defined) upon trust to distribute the net income thereof among the Eligible Beneficiaries in the manner described in the deed.[33]  The deed further provided that on the vesting day the Trustee would stand possessed of the net proceeds of sale of the Trust Fund upon trust to pay the same among some or all of the Eligible Beneficiaries then existing in the shares and proportions determined by the Trustee.[34]  The Trustee was also empowered in its discretion to distribute property of the Trust Fund in excess of the immediate requirements of the Trust among the Eligible Beneficiaries or one or more of them.[35]

    [33] Exhibit R1, T3, page 25.

    [34] Exhibit R1, T3, clause 4, page 25.

    [35] Exhibit R1, T3, clause 6, page 26.

15. The expression “Eligible Beneficiaries” was defined as follows:

    “2.9 ‘Eligible Beneficiaries’ means the Primary Beneficiaries and the Associates of the Primary Beneficiaries and any one or more of them PROVIDED THAT …

    2.9.3the Eligible Beneficiaries have been approved for the purposes of Subdivision 30-B of the Income Tax Assessment Act 1997”.[36]

    [36] Exhibit R1, T3, clause 2.9, page 22.

16. The expression “Primary Beneficiaries” was defined to mean “the Persons named and described in the First Schedule.”[37]  The First Schedule provided as follows:

    “1.A University, College, Institute, Association or Organisation which is an approved Research Institute for the purposes of Section 73a (expenditure on scientific research) of the Income Tax Assessment Act 1936.

    2.A Public Authority engaged in research into the causes, prevention or cure of disease in human beings, animals or plants.

    3.A Public Institution solely in research into the causes, prevention or cure of disease in human beings, animals or plants.”

    [37] Exhibit R1, T3, clause 2.12, page 23.

17. The expression “Associate” was defined as follows:

    “2.4‘Associate’ in relation to a Primary Beneficiary means:

    2.4.1the trustee (in its capacity as trustee) of any Sub-Trust for the Primary Beneficiary or the Primary Beneficiary together with other Persons;

    2.4.2any corporation (‘Eligible Corporation’) at least one (1) share in which is beneficially owned by a Primary Beneficiary or by the trustee of a Sub-Trust;

    2.4.3any other legal entity at least one (1) share or other interest (whether present or contingent) in which is beneficially owned or held by a Primary Beneficiary or by the trustee of a Sub-Trust or by an Eligible Corporation;

    2.4.4in the case of a Primary Beneficiary that is a Company any other company in which the Primary Beneficiary is a shareholder; and

    2.4.5any charitable institution Person or Persons or Company howsoever constituted whom the Trustee in its absolute discretion considers worthy of receipt of funds either for charitable or educational purposes or for the relief of poverty or religious scientific or public educational purposes in Australia including a public hospital or any hospital which is carried on by a society or association otherwise than for profit or gain to the individual members thereof; … .”[38]

    [38] Exhibit R1, T3, page 21.

18. By an amending deed made on 14 December 2005[39] the trust deed constituting the Trust was amended to include the following clause:

    “12.26The income and property of the Trust shall be applied to the benefit of the eligible beneficiaries and no portion thereof shall be transferred, directly or indirectly, by way of dividend, bonus or otherwise, howsoever, by way of profit to the members or relatives of members of the Trust, provided that nothing herein is in good faith of remuneration to any officer, Trustee or servant of the Trust in return for services actually rendered to the Trust.”

    [39] Exhibit R1, T5, page 41.

19. A further deed dated 11 January 2006 was then prepared.  It amended paragraphs 2 and 3 of the First Schedule of the original deed to read as follows:

    “2.  A Public Authority, Organisation, Association or Trust engaged in research and/or the awareness, causes, prevention or cure of the disease of cancer and/or the bowel.

    3.  A Public Institution, Association or Trust engaged solely in research into the causes, prevention or cure of Cancer and/or bowel disease.”[40]

    [40] Exhibit R1, T6, page 46.

    The replacement trust deed of February 2011

20. On 8 February 2011, a further amending deed (the “2011 Deed”) was entered into between Nicholas Michael John Baldock, the settlor who had established the Trust, and the Trustee.[41]  The 2011 Deed included the following provisions:

    “2.5The Settlor has advised the Trustee that the Original Deed did not encompass all of the objectives and beneficiaries which the Settlor intended by the establishment of the Trust pursuant to the Original Deed, and which have been carried out in good faith by the Trustee, knowing the intentions of the Settlor, and as such wishes the Original Deed to be amended to reflect the intention of the Settlor more accurately.

    2.6To reflect the Settlor’s wishes consistent with the Original Deed as reflected in clause 2.3 hereto, the Trustee has by virtue of the powers contained in clause 32 of the Original Deed, supplemented the terms of the Original Deed and has substituted the within Deed to reflect the terms of the Original Deed and the additional objectives and beneficiaries referred to in clause 2.3 (“the Deed”).

    2.7In accordance with clause 2.4 hereto the Settlor and the Trustee have agreed that the property be held which has been applied since the settlement of the Original Deed shall be and has, at all times, been held and impressed with the trusts and powers provided in this Deed.

    2.8To achieve the purposes of the Settlor, the Trustee will continue to solicit and invite through various appeals the public and business from time to time to raise monies for the Trust for the application in accordance with the charitable purposes as defined in the First Schedule hereto and in accordance with the provisions of this Deed, relative statutory requirements and payments of all expenses required to administer, grow and carry out the charitable purposes herein.”

    [41] Exhibit R1, T8, page 51.

21. The First Schedule to the 2011 Deed included a heading “Charitable Purposes”, and provided as follows:

    “PRIMARY OBJECTIVE

    1.   Educate and increase general community awareness of cancer and measures considered a preventative of cancer.

    ANCILLIARY OBJECTIVES

    1.   Provide accommodation for the benefit of cancer patients and/or their families;

    2.   Support Scientific and medical research into causes, cure or prevention of cancer;

    3.   Purchase equipment used at treatment, research and diagnostic levels;

    4.   Provide financial assistance to cancer patients and/or their families for any purposes considered beneficial to their treatment, or recovery, whether physical or therapeutic;

    5.   To assist, establish and promote in the research or promotion of, and to subscribe to or become a member of or associated or amalgamated with any such association, trust, foundation or any other entity whose objectives are analogous to those of this trust.

    6.   To provide services and support to any other association, trust, foundation or any other entity whose objectives and/or purposes are analogous to this trust.”[42]

    [42] Exhibit R1, T8, page 65.

    LEGISLATIVE PROVISIONS

22. As mentioned above, the Commissioner’s revocation of the relevant endorsements was retrospective to 1 July 2000.  The relevant sub-divisions of the ITAA 1997 that deal with the endorsements have been amended in certain respects over the period since 1 July 2000, but there have been no relevant amendments between the date of the primary decision to revoke the endorsement in issue and the date of the Commissioner’s primary decision.  I will refer to the relevant provisions in force as at the date of that decision.

    Endorsement as a deductible gift recipient

23. Section 30-120 of the ITAA 1997 provides:

    “Endorsement by Commissioner

    If an entity applies for endorsement in accordance with Division 426 in Schedule 1 to the Taxation Administration Act 1953, the Commissioner must endorse the entity:

    (a)as a deductible gift recipient, if the entity is entitled to be endorsed as a deductible gift recipient; or

    (b)as a deductible gift recipient for the operation of a fund, authority or institution, if the entity is entitled to be endorsed as a deductible gift recipient for the operation of the fund, authority or institution.

    Note: For procedural rules relating to endorsement, see Division 426 in Schedule 1 to the Taxation Administration Act 1953.”

1. Section 30-125(1) provides for the circumstances when an entity that is a fund, authority or institution is entitled to be endorsed as a DGR.  It provides as follows:

   “Entitlement to endorsement

   Endorsement of an entity that is a fund, authority or institution

   (1)An entity is entitled to be endorsed as a deductible gift recipient if:

   (a)   the entity has an ABN; and

   (b)   the entity is a fund, authority or institution that:

   (i)is described (but not by name) in item 1, 2 or 4 of the table in section 30-15; and

   (ii)is not described by name in Subdivision 30-B if it is described in item 1 of that table; and

   (iii)meets the relevant conditions (if any) identified in the column headed "Special conditions" of the item of that table in which it is described; and

   (c)   the entity meets the requirements of subsection (6), unless:

   (i)the entity is established by an Act; and

   (ii)the Act (or another Act) does not provide for the winding up or termination of the entity; and

   (d)   in the case of an ancillary fund:

   (i)the fund complies with the rules in the public ancillary fund guidelines or the private ancillary fund guidelines (whichever are applicable); and

   (ii)all of the trustees of the fund comply with those rules.”

2. Section 30-15 makes provision for gifts or contributions to be deductible in situations set out in the table to that section, and for any special conditions that apply. Item 1 of the table in s 30-15 refers to a recipient which is:

   “A fund, authority or institution covered by an item in any of the tables in Subdivision 30-B.”

3. The tables in Subdivision 30-B in turn include in s 30-20 (which sets out the general categories of health recipients) the following entities:

   “Item 1.1.4: “a public authority engaged in research into the causes, prevention or cure of disease in human beings, animals or plants”, (and this item is subject to a special condition that “the gift must be made for such research”);

   Item 1.1.5: “a public institution engaged solely in research into the causes, prevention or cure of disease in human beings, animals or plants”;

   Item 1.1.6: “a charitable institution whose principal activity is to promote the prevention or the control of diseases in human beings.”

   Items 1.1.5 and 1.1.6 are not subject to any special conditions.

4. The entities in Items 1.1.4 and 1.1.4 are identical to the “Primary Beneficiaries” referred to in the First Schedule to the trust deed dated 20 February 1998 which established the Trust.

5. Item 1 of the table in s 30-15 is subject to a number of special conditions, including relevantly a condition that the fund, authority or institution must meet the requirements of s 30-17. That section in turn in effect requires the entity to be endorsed under Sub-division 30-A. That Sub-division includes s 30-120, which requires the Commissioner to endorse the entity if it is entitled to be endorsed as a DGR. Section 30-125 then requires that an entity is entitled to be endorsed as a DGR if certain conditions are fulfilled, including that the entity complies with s 30-125(6). That subsection provides relevantly as follows:

   “Transfer of assets from fund, authority or institution

   30-125(6)   A law (outside this Subdivision), a document constituting the entity or rules governing the entity’s activities must require the entity, at the first occurrence of an event described in subsection (7), to transfer to a fund, authority or institution gifts to which can be deducted under this Division:

   (a)   any surplus assets of the gift fund (see section 30-130); or …”

   Subsection (7) refers to the winding up of the entity and the revocation of the entity’s endorsement, and provides as follows:

   “Events requiring transfer

   30-125(7)   The events are:

   (a)   the winding up of the fund, authority or institution; and

   (b)   if the entity is endorsed because of a fund, authority or institution — the revocation of the entity’s endorsement under this Subdivision relating to the fund, authority or institution.”

   Section 30-130 requires the entity in effect to maintain a separate gift fund which must be used only for the principal purposes of the entity.

   Endorsement as exempt from taxes as a charitable institution

6. Subdivision 50-B of the ITAA 1997 sets out the rules about endorsement of charitable institutions and trust funds for charitable purposes as exempt from income tax. Under s 50-105, the Commissioner must endorse an entity as exempt from income tax if the entity is entitled to be so endorsed and has applied for that endorsement in accordance with any relevant provisions of TAA 1953.

7. Section 50-110 provides for when an entity is entitled to endorsement.  It provides relevantly as follows:

   “General rule

   (1)   An entity is entitled to be endorsed as exempt from income tax if the entity meets all the relevant requirements of this section.

   Which entities are entitled to be endorsed?

   (2)   To be entitled, the entity must be an entity covered by item 1.1 of the table in section 50-5 or item 4.1 of the table in section 50-20.

   Requirement for ABN

   (3)   To be entitled, the entity must have an ABN.

   Requirement to meet special conditions

   (5) To be entitled:

   (a)the entity must meet the relevant conditions referred to in the column headed "Special conditions" of whichever of items 1.1, 1.5, 1.5A and 1.5B of the table in section 50-5 and item 4.1 of the table in section 50-20 covers the entity; or …”

8. The table in s 50-5 is referred to in s 50-1 of the ITAA 1997, which provides relevantly that the income of the entities covered by the ensuing tables is exempt from income tax, and that in some cases, the exemption is subject to special conditions.  The table in s 50-5 is the relevant ensuing table.  There appear to be two items in that ensuing table that are potentially relevant to the applicant, namely items 1.1 and 1.5B.

9. The exempt entity in item 1.1 of the table in s 50-5 is a “charitable institution”.  This item has a notation, under the heading “Special conditions”, reading “see sections 50-50 and 50-52”.

10. Section 50-50 provides relevantly that an entity covered by item 1.1 is not exempt from income tax unless the entity:

    (a)has a physical presence in Australia, and to that extent, incurs its expenditure and pursues its objectives principally in Australia; or

    (b)is an institution that meets the description and requirements in item 1 in the table in s 30-15.

11. Section 50-52 provides in effect that the institution is not exempt from income tax unless it is endorsed as exempt from income tax under Subdivision 50-B.

12. Section 176-1(2) of the GST Act provides that an entity is entitled to be endorsed as a charitable institution if the entity is a charitable institution and has an ABN.

13. Section 123D(2) of the FBT Act provides that an entity is entitled to be endorsed as a health promotion charity if the entity is a health promotion charity and has an ABN. The expression “health promotion charity” is defined in s 136(1) to mean a charitable institution whose principal activity is to promote the prevention or control of diseases in human beings.

    CONSIDERATION

14. Section 14ZZK of TAA 1953 imposes on the applicant the burden of proving that the objection decision should not have been made, or should have been made differently. It provides relevantly as follows:

    “On an application for review of a reviewable objection decision:

    …

    (b)     the applicant has the burden of proving that:

    …

    (iii)  in any other case – the taxation decision concerned should not have been made or should have been made differently.”

    The standard of proof is the civil standard, that is the balance of probabilities, and the burden of proof may be discharged by drawing inferences from evidence before the Tribunal.[43]

    [43] McCormack v Federal Commissioner for Taxation (1979) 143 CLR 284 at 303.

15. Notwithstanding the incidence of the onus of proof, it remains incumbent upon the Commissioner to comply with the relevant conditions of the AAT Act.  In particular, the provisions of s 33(1AA) of the AAT Act are applicable, and require the Commissioner to use his best endeavours to assist the Tribunal to make its decision in relation to the objection decision.

    Relevance of 2011 Deed

16. In his reasons for the decision to revoke the relevant endorsements, the Commissioner concluded that the 2011 Deed was legally ineffective, primarily because the provision in the original trust deed to vary the trusts on which the Trust Fund was held empowered the Trustee to effect variations, whereas (as I understand it) the Commissioner claimed that it was the Settlor, and not the Trustee, who had amended the Deed.[44]  This proposition was reiterated in the Commissioner’s reasons for the objection.  In my view, this aspect of the Commissioner’s reasons was misconceived.  I consider that the 2011 Deed constituted a valid variation of the trusts of the original deed, because clause 2.6 of the 2011 Deed provides expressly that it is the Trustee, and not the Settlor, which is exercising the power of variation conferred by the original deed.[45]

    [44] Exhibit R1, T19, at page 124.

    [45] Clause 2.6 of the 2011 Deed is included in the extracts set out in paragraph 42 above.

17. The Commissioner’s reasons also referred to provisions in the 2011 Deed which purported to give the variations to the Trust retrospective effect, and stated that the original deed, and the beneficial interests created by the original deed, could not be varied so as to have retrospective effect.[46]

    [46] Exhibit R1, T2, at page 17.

18. I agree that the 2011 Deed could not retrospectively vary the terms of the trusts created by the original deed.  By virtue of the general law relating to trusts, the 2011 Deed could only operate from the date when it was made, namely 8 February 2011.  But in my opinion, the 2011 Deed was valid and effective from that date.

19. The revocation of the endorsements as a DGR and as a charitable institution occurred on 16 February 2012.  The 2011 Deed was in effect by then, and in my opinion the question of whether the applicant was entitled to the relevant endorsements should be considered by reference to that deed.[47]

    [47] A further deed of variation was entered into on 9 August 2012 which deleted all of the provisions of the 2011 Deed and replaced it with new provisions.  However, that replacement deed was not entered into until after the date of the primary decision.  I consider that it is not relevant to the determination of these proceedings.

    Entitlement to DGR endorsement

20. This issue can be disposed of shortly.  As mentioned above, under ss 30-125(6) and (7) of ITAA 1997, to be eligible for endorsement as a DGR, the document constituting the entity or rules governing the entity’s activities must require the entity, on the winding up of the fund, authority or institution or the revocation of the entity’s endorsement as a DGR, to transfer any surplus assets to another fund, authority or institution which is itself endorsed as a DGR.  Clause 6.1 of the 2011 Deed requires any surplus assets on a winding up to be transferred to an entity to which income tax deductible gifts can be made.  However, the 2011 Deed does not require such a transfer of funds to be made in the event that the Trust’s endorsement as a DGR is revoked.  Further, clause 6.1 also contemplates that on a winding up, surplus assets can be transferred to any other organisation with similar charitable purposes as the Trust, and does not require that any such other organisation be endorsed as a DGR.[48]  The Trust is therefore not eligible for DGR endorsement because its Trust Deed does not comply with s 30-125(6).  The winding up clause in the original trust deed had a similar omission, and I therefore consider it appropriate that the revocation of the DGR endorsement should take effect on and from 1 July 2000.  In addition, the Trust has expended funds on the provision of patient accommodation, and this was not authorised by the original trust deed.

    [48] Exhibit A1, T8, at page 55.

21. I appreciate that no doubt the Trustee relied upon its professional advisers to draft the deed in a form which complied with the ITAA 1997.  It was submitted on behalf of the Trust that consistently with the ATO’s Taxpayer’s charter, the ATO should have recognised the above omission after the deed was lodged with it, and if this had occurred, the Trust could easily have rectified the omission, and it would have done so.  The deficiency in the deed is most unfortunate, and of course the circumstances in which clause 6.1 might have operated had not occurred prior to the date of the revocation of the endorsements.  However, s 30-125 is mandatory, and there is no power for the non-compliance to be waived or excused.

    Entitlement for endorsement as a tax concession charity

22. I turn now to the question of whether the applicant is entitled to endorsement as a tax concession charity as a charitable institution pursuant to Sub-division 50-A of the ITAA 1997 and the relevant provisions of the GST Act and the FBT Act. That question raises a number of sub-issues, to which I will refer in turn.

23. There is no dispute that the applicant has an ABN, or that it has a physical presence in Australia, and incurs its expenditure and pursues its objectives principally in Australia.  However, counsel for the Commissioner, Mr Stuart Cole, contended that the applicant is not a charitable institution within the meaning of Item 1.1 of the Table in s 50-5.

    (a)     First sub-issue: was the applicant an institution

24. Mr Cole first contended that the applicant is not an “institution”, on the grounds that the original trust deed provided for the income and assets of the Trust to be distributed to the Primary Beneficiaries listed in the First Schedule, and so the deed established a fund, and its entitlement to endorsement should be considered on that basis.  It follows from that argument that the Commissioner should not, in 1998, or on any subsequent occasions, have endorsed the Trust as a charitable institution, but should have endorsed it as an ancillary fund.

25. The meaning of the word “institution” was considered by Gibbs J in Stratton v Simpson,[49] where his Honour said:

    “In its ordinary sense “institution” means “an establishment, organization, or association, instituted for the promotion of some object, especially one of public utility, religious, charitable, educational etc.”  (The Shorter Oxford English Dictionary).  It means, as was said in Mayor etc. of Manchester v McAdam, … “an undertaking performed to promote some defined purpose …” or “the body (so to speak) called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle”.  Although its meaning must depend on its context, it would not ordinarily connote a mere trust.”[50]

    [49] (1970) 125 CLR 138.

    [50] (1970) 125 CLR 138, at 158.

26. Guidance as to the requirements for an entity to be an institution as opposed to a trust is also provided in Taxation Ruling 2011/4 – Income tax and fringe benefits tax: Charities.  This indicates that whether an institution exists will depend on the circumstances, and that relevant factors include an entity’s activities, size, permanence and recognition.[51]  The Ruling goes on to compare the situation of an entity that constitutes an institution with an entity which merely acts as a trustee.  It states:

    “Although an institution ‘need not be a body corporate, and need not be restricted to bricks and mortar’, it must possess a quality or function which can justify it being categorised as an institution as opposed to, say, ‘a mere trust.’  For example, a trust that simply provides money in order for charitable services or activities to be carried out by others is not an institution.  Nor is a trust where the role of the trustees is ‘simply to apply the income of the trust in providing gifts and donations to such public charitable objects as they, in their discretion, determine.’” 

    Reference is then made to examples in cases where the only function of the trustees in question was to manage trust property consistently with the relevant trust deed, or where trustees administer a trust fund in order that services provided by others can be availed of, and where it was concluded that the entity could not be said to be an institution.[52]

    [51] TR 2011/4, paragraph 170.

    [52] TR 2011/4, paragraph 171, and cases there cited.

27. I have referred above to the activities of the Trust over the years since its creation in 1998.  It appears that initially, the Trust did function as an ancillary fund, and applied the amounts available for charitable purposes in the manner contemplated by the original trust deed.  It also appears that the activities and functions of the Trust changed over time, following the acquisition of the business of Michrosill and of CSA, and the provision of accommodation for patients receiving treatment from nearby hospitals.  From that time onwards, I think that the applicant should properly be regarded as an institution.

28. If the proper construction of the original trust deed was to create an ancillary fund, then the Commissioner should not have endorsed the Trust as a charitable institution in the first place.  It would appear that the applicant continued to carry out its activities in reliance upon the endorsement issued to it, and there is no evidence that the applicant realised that the endorsement was inappropriate until 17 June 2005, when Mr Manhire agreed with an officer of the ATO that the Trust had expanded and changed its activities since the original trust deed was executed, and that it had ceased to be an ancillary fund, so that the constituent document required changes to reflect its then activities.[53]  As against this, the Commissioner would no doubt rely upon the self-assessment obligations imposed on the applicant (notwithstanding the difficulty of doing so having regard to the maze of legislative cross-references and periodic amendments that had to be negotiated in order to ascertain entitlement to endorsement), and also on the principle that a public authority cannot be estopped from carrying out its statutory functions.[54]  However, because of the conclusion I have reached above, it is not necessary for me to determine the relevance of the above matters in the present case.

    [53] Exhibit R1, T4, page 40.

    [54] Brickworks Limited v The Council of the Shire of Warringah (1963) 108 CLR 568; Myer Queenstown Garden Plaza Pty Ltd and Myer Shipping Centres Pty Ltd v Port Adelaide Corporation and Attorney-General (1975) 11 SASR 506.

29. Whatever the position might have been originally, I find that after the applicant had acquired the business of Michrosill and engaged in the activities that Michrosill had previously engaged in, it should properly be characterised as an “institution” within the meaning of item 1.1 of the table in s 50-5 of the ITAA 1997.

    (b)     Second sub-issue: relevance of activities not authorised by 1998 trust deed

30. It was also contended on behalf of the Commissioner that the applicant’s endorsements should be revoked because the original trust deed established an ancillary fund, and not an institution, and to the extent that the applicant had, following the change in its functions, carried out the activities of an institution, it was acting beyond the purposes for which it had been established by the original trust deed, namely to receive donations for an ancillary fund and then distribute them to the beneficiaries entitled.

31. In order to consider the contention referred to in the preceding paragraph, it is necessary to decide the time at which the question of whether or not to revoke the applicant’s endorsement should be determined.  The Commissioner determined to revoke the applicant’s tax concessions in a primary decision made on 16 February 2012, and decided further to revoke the concessions from 1 July 2000.  The decision which this tribunal is empowered to review under the ITAA is the objection decision, which was made later, on 20 August 2012.  However, when reviewing the objection decision, I must also determine whether the primary decision made on 16 February 2012 was correct.  I consider, for the reasons explained above, that that question should be determined by reference to the provisions of the 2011 Deed, and not the original trust deed made in 1998 and subsequently amended in 2005 and 2006.  The 2011 Deed records that the Trustee shall hold the Trust Fund upon trust to apply the net income for the “Charitable Purposes” referred to in the deed.  These are contained in the First Schedule to the deed, and are expressed in wide terms, which would appear to encompass the principal activities in which the applicant was engaged in February 2012, when the primary revocation decision was made.[55]  The applicant’s involvement in fund raising activities is further recognised in clause 2.8 of the 2011 Deed.  I have therefore concluded that the appropriate time to consider whether the applicant was authorised by its constituent trust deed to engage in its various activities was 16 February 2012, and that as at that date, the applicant was not acting as an institution in breach of the purposes or powers provided for in its trust deed.

    [55] See paragraphs 42 – 43 above, where I set out the relevant provisions of the 2011 Deed.

    (c)   Third sub-issue: power to revoke endorsements retrospectively

1. In reaching the above conclusion, I have not overlooked the recent decision of the High Court of Australia in Commissioner of Taxation (Cth) v Bargwanna.[56]  In that case, the trustees of a trust applied in 2004 for endorsement by the Commissioner of the Trust with effect from 1 July 2000 as a fund established in Australia for public charitable purposes by instrument of trust.  The endorsement would have qualified the trust as an entity exempt from income tax under Division 50 of Part 2-15 of the ITAA 1997, but under s 50-60, that exemption would only apply if the fund was applied for the purposes for which it was established.  There was evidence that the fund had not been wholly applied for the purposes for which it was established, and that part of the assets of the fund had been applied for extraneous purposes not authorised by the instrument of trust.  The High Court held that in refusing the endorsement, it was appropriate to have regard to the whole of the evidence, including acts of maladministration between 2002 and 2007, that is, over a period prior to the application of endorsement and up to a date that was subsequent to the date of the objection decision.

   [56] (2012) 244 CLR 655.

2. However, the present case is not one involving an application for endorsement. Rather, it involves considering the power of the Commissioner to revoke an endorsement previously granted. In the case of endorsements granted pursuant to ss 30-120 and 50-105 of the ITAA 1997, that power is contained in s 426-55 of Schedule 1 of the TAA 1953. This section provides relevantly as follows:

   “(1)   The Commissioner may revoke the endorsement of an entity if:

   (a)   the entity is not entitled to be endorsed; or

   …

   (2)   The revocation has effect from a day specified by the Commissioner (which may be a day before the Commissioner decided to revoke the endorsement).”

   The right to review the revocation of an endorsement is provided for in Part IVC of the TAA 1953. There is a right to object to the revocation decision, and a further right to apply to this tribunal for review of the objection decision, and the rights of review will entail determining the correctness or otherwise of the revocation decision.

3. It is well established that this tribunal, when determining applications for review, stands in the shoes of the decision-maker, and can exercise the powers of that decision-maker. In the present case, the practical effect of the revocation decision and its retrospective operation to 1 July 2000 is that the applicant was not entitled to endorsement in any of the taxation years from and after the 2001 financial year. However, the power to make the decision to revoke the endorsements is provided for in s 426-55 of Schedule 1 to the TAA 1953. This section entailed determining whether, as at 16 February 2012, the Commissioner’s discretion to revoke the applicant’s endorsement should be exercised. It follows from the express words of s 426-55(1) that it is only if that discretion is exercised that the power in s 426-55(2) to decide that the revocation should take effect from an earlier date is enlivened. I also observe that s 426-55(1)(a) is expressed in the present tense. If Parliament had intended the discretion to be exercised by reference to the entity’s ineligibility to be endorsed in earlier tax years, one might have expected s 426-55(1)(a) to have read: “the entity is not, or has not previously been, entitled to be endorsed”, but that is not how paragraph (a) is worded.  I therefore consider that in the present case (unlike the situation where a new endorsement is applied for and under consideration) I am required to consider the applicant’s entitlement to endorsement as at 16 February 2012, and not during earlier taxation years.  That is not to say, of course, that evidence as to events in earlier taxation years might not inform the position as at 16 February 2012.

4. I have concluded for the above reasons that any failure by the applicant to comply with the original trust deed will not disentitle the applicant to endorsement as at the date of the Commissioner’s revocation decision, and that it is necessary to consider whether there has been compliance with the 2011 Deed, that being the deed that was in force at the date of the Commissioner’s revocation decision. 

   Were the activities of the applicant charitable?

5. It was contended on behalf of the Commissioner that having regard to the manner in which the funds raised by the applicant had been applied, it had not demonstrated that its activities could properly be described as charitable.

6. In considering the predecessor to s 50-50 of the ITAA 1997, Barwick CJ, with whom McTiernan J agreed, said in Incorporated Council of Law Reporting (Qld) v Commissioner of Taxation (Cth)[57] (omitting citations):

   “The Act attempts no definition of charity or of what for its purposes will be charitable.  But having regard to the decision of the Privy Council in Chesterman v. Federal Commissioner of Taxation … it must be taken that whether or not the institution is relevantly charitable will be determined according to the principles upon which the Court of Chancery would act in connexion with an alleged charity.  That means that the indications contained in the preamble to the Statute of Elizabeth 1601 and the classifications in Lord Macnaghten’s speech in Commissioner for Special Purposes of Income Tax v. Pemsel … are to be observed in deciding whether or not the institution is charitable for the purposes of the Act.

   The reported cases may in some instances afford a guide by analogy to the decision whether a particular trust, or a particular purpose is charitable.  In addition, the many dicta found in the reasons for judgment in such cases, though by no means of one accord, provide valuable assistance in resolving such a question.  But in the long run, it seems to me, it is a matter of judgment whether the trust or purpose fairly falls within the equity, or as it is sometimes said, “within the spirit and intendment” of the preamble to the Charitable Uses Act 1601 (Imp.). …”

   [57] (1971) 125 CLR 659 at 666.

7. In Commissioner for Special Purposes of Income Tax v Pemsel,[58] Lord Macnaghten said:

   “… ‘Charity’ in its legal sense comprises four principal divisions: trusts for the relief of property, 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.  The trusts last referred to are not the less charitable in the eye of the law because incidentally they benefit the rich as well as the poor, as indeed every charity that deserves the name must do, either directly or indirectly.”

   [58] [1891] AC 531 at 583.

8. In the present matter, we are concerned with the fourth category of trusts identified by His Lordship.  In the case of entities which are trusts, the purpose of the trust can be ascertain by considering the trusts on which, according to the trust’s constituent instrument of trust, the trust property is required to be held.  The applicant’s purposes can be ascertained from the provisions of the 2011 Deed, and in particular from the first schedule, which sets out the Trust’s “Charitable Purposes”.  The primary objective is to “(e)ducate an increased general community awareness of cancer and measures considered a preventative of cancer”.  This purpose would clearly fall within the fourth category of charity referred to in Pemsel, and I think that the same comment should be made regarding the six ancillary objectives also set out in the First Schedule to the 2011 Deed under the heading “Charitable Purposes”.

9. It is also, however, necessary to examine the activities of the Trust.  If the activities do not achieve the charitable purposes for which an entity is established, the entity could not properly be regarded as a “charitable” institution within the meaning of Item 1.1 in the Table in s 50-5.  That follows from the comments of Gummow, Hayne, Heydon and Crennan JJ in Commissioner of Taxation v Word Investments Ltd,[59] where, after referring to relevance of a company’s objects as set out in its memorandum of association, their Honours said:

   “That is, it is necessary to examine the objects, and the purported effectuation of those objects in the activities, of the institution in question.”[60]

   Kirby J delivered a dissenting judgment, but as to this aspect, was apparently disposed to place relatively more significance on the actual activities of the institution there being considered, since he said:

   “… [I]n my opinion, the real discrimen for the characterisation of an entity propounded as a ‘charitable institution’ is what the entity actually does and what purposes it actually pursues.”[61]

   [59] (2008) 236 CLR 204 at [17].

   [60] (2008) 236 CLR 204 at [17].

   [61] (2008) 236 CLR 204 at [174].

10. Mr Cole submitted that the beneficiaries entitled to receive distributions pursuant to the original trust deed were not confined to charitable organisations, first because the Primary Beneficiaries included a “Public Authority” and a “Public Institution”, and this description would include a government hospital which could not be said to be a charity, and second, because the definition of “Eligible Beneficiaries” included “Associates of Primary Beneficiaries”, and the definition of “Associate” would be wide enough to include entities other than entities engaged in charitable purposes.  The first ground of this submission appears not to take account of the terms of the original deed that refer to a “Public Authority” or a “Public Institution”, namely that it was to be engaged in research into the causes, prevention or cure of disease in human beings, animals or plants; such research would be a charitable purpose, and funds paid by the applicant to such institutions could have been donated conditionally upon the institutions applying the funds for the purposes of such research.[62]  The second ground appears not to take account of the proviso in clause 2.9.3 to the definition of “Eligible Beneficiaries”, which in effect requires that they have been approved as DGRs.  However, it is unnecessary to determine these issues, since I have concluded that the question of whether the applicant’s revocation should be revoked must be determined by reference to the 2011 Deed, and not the original deed.

    [62] See Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204 at [43].

11. As I have said above, the ATO audited the applicant’s accounts for the financial years 2007 and 2008. Extracts from the applicant’s ledgers, prepared as part of the audit, were tendered,[63] and were the subject of detailed cross-examination of three witnesses called by the applicant, namely Ms Liza Campbell and Messrs Thompson and Manhire. These extracts were later supplemented by the applicant with supporting documents that provided some further explanation as to various ledger entries.[64]  It was contended on behalf of the Commissioner that the funds raised by the applicant were not solely or predominantly used for charitable purposes, and further that substantial sums were paid to persons described as related parties, that some of the payments were not on commercial or arm’s length terms, and that other payments conferred personal benefits on individuals and could not be said to be used for charitable purposes.  Similar criticisms were made in the reasons for the revocation of the applicant’s endorsements. 

    [63] Exhibit R4.

    [64] Exhibit A40.

12. The Commissioner’s contentions were founded on the information obtained during the course of the audit, which as I have said, related to the 2007 and 2008 financial years.  For the reasons I have explained above, I believe that it is necessary to consider the position as at the date of the revocation decision, that is, 16 February 2012.  Many of the Commissioner’s concerns related to the position of Mr Manhire, and payments made to persons who were said to be related to him, or who had previously been involved in some way in the management of the Trust.  However, Mr Manhire’s involvement with the Trust had ceased on 31 December 2011, and after that the Chairman of the Board, Mr McLoughlin, became the applicant’s chief executive officer, and Mr Thompson resumed the management of the fund raising activities of the applicant as a consultant.  In May 2012, Mr McLoughlin ceased to be the chief executive officer, and Mr Thompson took over that position, and he has been assisted by Ms Campbell, who is now the General Manager of the Trust.  After the Trust was the subject of press publicity which adversely affected its ongoing operations, Ms Campbell left the Trust’s employment for a period of six months, and obtained alternative employment, but during that period she returned to work for the applicant at night, and continued to perform her former duties on an unpaid basis, in order to assist the applicant to continue to function.  She did so to save the cost to the applicant of her wages and so assist it to continue, because she believed in the benefit to the community that resulted from its activities.  She returned to the Trust on a paid basis at the end of the six months’ period of absence.

13. The relationships and transactions which the Commissioner sought to impugn were historical matters.  I consider that they were not matters of concern as at the date of the primary decision, or subsequently.  Mr Thompson and Ms Campbell were impressive witnesses, and there is no basis for doubting their integrity in managing the Trust and the application of its funds from the time when they assumed its management, from January 2012 onwards.

14. Nevertheless, the evidence and contentions of the parties concentrated on the earlier activities of the applicant and the terms of the original constituent trust deed.  Some of the concerns raised by the Commissioner are potentially relevant to the period after the deed had been amended in 2011, and earlier events must be considered in relation to the applicant’s application for endorsement as a health promotion charity, as I will explain below.  I will therefore consider various issues raised by the Commissioner in respect of the period prior to the making of the 2011 Deed.

15. At the request of lawyers who were previously acting for the applicant, the Commissioner identified particular transactions that had given rise to his concerns.  Mr Manhire then provided a detailed response to the Commissioner’s concerns as to those transactions under cover of an email dated 7 October 2011.[65]  On the sixth day of the hearing,[66] a copy of the response enclosed with that email (but minus the attachments to the response) was provided by the Commissioner, at my request, in additional further supplementary documents.  The attachments were provided later again by the applicant.  This response addressed many of the Commissioner’s concerns in detail, but the Commissioner’s subsequent reasons for revoking the endorsements paid scant regard to the detailed information in the response.  The reasons listed a number of payments in the 2007 and 2008 years under the heading of payments to associates, and included some very significant payments that had been explained in the response.  For example, by far the most significant item in the total for 2008 was a payment of $355,495 to one Bruce Beythien, and I would have expected the Commissioner to have reviewed that payment carefully in the light of the applicant’s response to the audit queries.  In fact, the response explained that $325,030.93 of this total represented the repayment of funds previously advanced to the Trust by him pursuant to an agreement that was attached to the response, and the balance represented what on the evidence before me appears to be reasonable remuneration for services rendered by him.[67]  The omission from the reasons for decision of this substantial repayment gave a distorted picture of the significance of payments to the persons who were described as related parties.

    [65] Exhibit R8, ST28, page 597.

    [66] Exhibit R8, ST27.

    [67] See Exhibit A39, pages 9-10, and paragraph 94 below.

16. The Commissioner asserted that the amount of salary paid to Mr Manhire himself was excessive.  It appears that the members of the committee of management of the Trustee became aware of this concern, and obtained advice from two independent human resources consulting firms.[68]  After receiving reports from these firms, the remuneration committee concluded that Mr Manhire’s then current salary was too low and the bonus component too high, and resolved to adopt a salary package which varied the weighting of the components.  However, the reports did not indicate that the package previously applicable to Mr Manhire was excessive or out of keeping with industry standards.

    [68] See Exhibit A28.

17. Reference was also made to the salary paid to Mr Manhire’s wife.  She worked as Mr Manhire’s personal assistant, and worked at the applicant’s office in Adelaide, as well as doing after-hours work.  Ms Campbell confirmed that Mrs Manhire had a busy workload and described the amount of time she spent at work at the applicant’s office during working hours.  Mr Manhire said that Mrs Manhire’s salary was fixed at a commercial rate and was not excessive, but quite low.  He was also asked about payments made to a company called Finn Devon Pty Ltd, of which Mrs Manhire was a director and shareholder.  He said that this company had undertaken the task of re-writing the applicant’s software program.  He said that the company had other employees, that quotes had been obtained from other organisations to re-write the software, and Finn Devon completed the task at a lower cost than the quotations that had been received.  I accept Mr Manhire’s evidence as to these matters.

18. Reference was also made to the payments to entities controlled by one Bruce Beythien to which I have already referred in paragraph 91 above.  Mr Manhire explained that a very large component of these payments was the repayment of funds that he had advanced to the Trust to finance a new venture to raise funds for the Trust pursuant to a contract which he produced.  When Mr Beythien decided not to continue with this new venture, the funds advanced were repaid.  The applicant also produced a copy of the Trust’s bank statement as evidence of the amount that Mr Beythien had previously advanced to the Trust.[69]

    [69] See Exhibit A34, being the Trust’s bank statement showing the relevant deposit.  Other payments made to Mr Beythien are satisfactorily explained in Exhibit A39 and in evidence before me.

19. The list of payments to so-called “associates” also included two substantial payments, in the 2007 and 2008 financial years, to Michrosill Pty Ltd.  The principal of that company was Mr Thompson.  I do not regard it as appropriate to describe him or Michrosill as an associate of the applicant or of Mr Manhire in 2007 or 2008.  Mr Thompson explained each of the payments that made up the total amounts paid to Michrosill, and also a smaller total of payments made to the Trustee of Mr Thompson’s superannuation fund, Ruffino Pty Ltd.  These payments included payments of rent at commercial rates for a property in Brisbane owned by Michrosill and used by the applicant; a consultancy fee paid in accordance with a contract entered into at the time when the applicant had acquired Michrosill’s business; instalments of the purchase price paid for that business; Michrosill’s agreed 49% of the profit made from maison-eltes which the applicant arranged to construct as a profit making venture, on the basis that it would receive 51% of the resulting profits; and the refund of monies advanced to acquire a further telemarketing operation.  Mr Thompson gave evidence that all of these payments were made at commercial arm’s length terms, and I accept his evidence.[70]

    [70] Indeed, it appears that Mr Thompson fell out with Mr Manhire and their relationship became very strained, and at one stage the Trust reduced the instalment payments that it owed.

1. The further considerations which seem to me to be relevant, taking into account the limited information that I have as to matters that have occurred since the years of the audit, seem to me to include the following:

   (a)determining the amount of the surplus funds (if any) that were generated by the applicant in the period from 1 July 2011 to 16 February 2012, and whether those funds had been applied during that period for charitable purposes and in accordance with the purposes referred to in the 2011 Deed;

   (b)evaluating the prospects, as at 16 February 2012, of the applicant continuing to generate the surplus funds, and the likelihood that it would apply such surplus funds for charitable purposes and in accordance with the purposes referred to in the 2011 Deed;

   (c)reviewing the accounts of the applicant for the years ended 30 June 2011 and 2012, and the financial position of the applicant at present, in order to inform the inquiry referred to in paragraph (b);

   (d)determining the amount of the applicant’s total liability for FBT, calculated on the assumption that it was entitled to endorsement as a health promotion charity from the date of the 2011 Deed, namely 8 February 2011 (an issue that I will discuss in paragraphs 118 to 129 below), and the ability of the applicant to repay that amount pursuant to a mutually acceptable repayment plan;

   (e)ascertaining whether Michrosill Pty Ltd would be prepared to forgive the applicant’s indebtedness to it for the balance of the purchase price of its business, so that future donations made to the applicant would not be applied towards the applicant’s indebtedness to Michrosill;[81]

   (f)considering the relevance of the change in the management of applicant since the cessation of Mr Manhire’s involvement with the applicant, including whether there remains any basis for any concerns regarding related party transactions, or expenditure on entertainment;

   (g)ascertaining whether the applicant is willing to amend its constituent trust deed, first to remedy the deficiency winding up clause to incorporate the eventuality that surplus assets would be applied to other entities that are endorsed as DGRs, and second to add an additional charitable purpose, namely employment of persons suffering a disability or who would not be employable on the general labour market; and

   (h)ascertaining whether the applicant would be prepared to alter its management structure to comply with relevant requirements so as to be characterised as a charity.

   [81] I raise this issue because it was referred to during the hearing in the context of the possible further negotiations between the parties to resolve the present proceedings.  Mr Thompson referred in his evidence to the assets that Michrosill sold, which included plant and equipment (including a number of motor vehicles and buses), computer programs and intellectual property.  I do not want my above query to be understood as implying that Michrosill is under any legal obligation to waive the balance of the applicant’s indebtedness to it, or to suggest that there was anything inappropriate about the sale of the business to the applicant or the purchase price negotiated between the parties.

2. Whilst the matters to which I have referred in the preceding paragraph, should, I think be assessed as at the date of the review of the decision on 16 February 2012, that assessment can be made in the light of evidence available after that, in accordance with the principles relating the use of retrospectant evidence.  I refer in this regard to Bwllfa Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Company[82] where a notice had been given requiring the closure of a mine, and it was held that evidence was admissible as to increases in the price of coal that had occurred after the date of the notice in order to determine the compensation payable to the owners of the mine.  Lord Macnaghten said that the arbitrator should:

   “… avail himself of all information at hand at the time of making his award which may be laid before him.  Why should he listen to conjecture in a matter which has become an accomplished fact?  Why should he guess when he can calculate?  With the light before him, why should he shut his eyes and grope in the dark?”[83]

   I accordingly think that in considering the matters to which I have referred in the preceding paragraph, it would be permissible and appropriate for the Commissioner to take into account information and evidence which the applicant can provide relating events up until the date of the further investigation to be carried out by the Commissioner in consequence of my decision to remit the matter to the Commissioner for further consideration.  That information will no doubt include up-to-date details of the management structure of the Trust since the date of the revocation decision, and up to the date of that further investigation.

   [82] [1903] AC 426.

   [83] [1903] AC 426 at 431.

3. Ordinarily, once it had become apparent that the evidence before the Tribunal did not address what I now perceive to be the relevant period of time, I would have further adjourned the hearing to enable the parties to adduce further evidence.  However, it did not seem appropriate to do that in this case.  The Commissioner has not considered this matter by reference to what I consider is the correct approach, namely that the matter must be determined by reference to the 2011 Deed and not the original Trust Deed, or by reference to the events applicable as at the date of the revocation of the endorsements.[84]  There were also practical difficulties because of my impeding retirement from the tribunal and because counsel for the Commissioner will be unavoidably unavailable until after that.  The considerations which I have identified in paragraph 114 above are such that it will be necessary for the applicant to have an adequate opportunity to investigate the further action to which I have referred above, and to place further information before the Commissioner, and then for the Commissioner to have an adequate opportunity to investigate and consider the applicant’s proposals.

   [84] See the cases discussed in Pearce D C, Administrative Appeals Tribunal, (2^nd ed, LexisNexis Butterworths, 2007) at [9.12].

4. I am mindful that the situation of the applicant might be different in significant respects from the situation on which the Commissioner’s decisions were based, having regard not only to the 2011 Trust Deed and the change in management (which I assume has resulted in many of the persons previously identified as being associated with Mr Manhire no longer either being involved with the applicant or regarded as related parties), but also because not-for-profit organisations, including charities, are now subject a new regulatory regime under the auspices of the Commissioner of the Australian Charities and Not-for-profits Commission.[85]  I am also mindful that the applicant is an established organisation with experienced managers and employees who have been trained in its activities, and has a database of donors and procedures that it employs to pursue its charitable activities.  I assume that the applicant will be making an application to obtain endorsement as a DGR, and if that application is successful, its capacity to raise additional funds and so increase expenditure on charitable purposes will be enhanced.  I am also mindful that on the evidence before me, the applicant has up to 200 employees and contractors for whom it provides employment, and a significant proportion of those people might otherwise be unemployable, and become dependent on social welfare, if the issues that have arisen cannot be resolved, and the applicant is wound up.[86] In all of the circumstances, to enable all of these factors to be taken into account to the extent that they are relevant, I think it appropriate to remit the matter for further consideration pursuant to s 42D of the AAT Act.

   [85] The questions of whether the applicant is entitled to maintain its endorsement, and to be endorsed as a health promotion charity, will be determined under the ITAA 1997, in accordance with Part 4 of the Acts Interpretation Act 1901 (Cth). However, a primary object of the legislation establishing the Commission is to maintain, protect and enhance public trust and confidence in the not-for-profit sector, and any application to re-establish DGR endorsement may need to be considered under the new regime. Neither party presented argument on this issue, and I note that certain proposed changes were announced in the 2013-2014 Federal Budget handed down on 14 May 2013 which will affect the commencement date of some aspects of the new regime.

   [86] It appears that the Liquor and Gambling Commissioner sought to permit the continuation of charities to continue to support research and treatment into bowel cancer, breast cancer, children’s cancer and prostate cancer in South Australia by issuing new licences to new trusts for this purpose, but Mr Thompson explained that the person to whom the new licences were issued was not able to meet the costs of complying with the audit conditions on which the new trusts were licensed, and those new trusts have ceased to operate.  This illustrates the difficulty of replacing the applicant and the related Trusts with new entities, and the potential advantage of the parties resolving their differences, so as to enable the applicant to re-establish its activities on a proper basis.

   Matter No. 2013/1720: application for endorsement as a health promotion charity

5. As mentioned above, the applicant lodged an application on 3 May 2011 for endorsement as a health promotion charity.  The applicant responded in January 2011 to a request by the ATO for further information, and also amended its Trust Deed on 8 February 2011 by adopting the 2011 Deed.  In March 2011, the applicant requested that its application for endorsement as a health promotion charity be deemed to have been refused by reason of the fluctuation of time since it had provided the further information to the ATO.  There was then an objection to the deemed refusal of the application, and the objection was disallowed in July 2011.

6. It is clear that the 2011 Deed, made on 8 February 2011, authorises the applicant to conduct a health promotion charity, having regard to the primary objective referred in the First Schedule to that deed.

7. The FBT Act was amended in 2004 to make provision for benefits provided in respect of the employment of employees to be exempt benefits if the employer was a health promotion charity endorsed pursuant to the FBT Act.[87]

   [87] FBT Act, s 57A(5).

8. Section 123D(1) of the FBT Act requires the Commissioner to endorse an entity as a health promotion charity if it is entitled to be endorsed as a health promotion charity and has applied for that endorsement in accordance with the relevant division of the TAA 1953. Under s 123D(2) an entity is entitled to be endorsed as a health promotion charity if the entity is a health promotion charity and has an ABN. The expression “health promotion charity” is defined in s 136(1) as follows:

   “health promotion charity means a charitable institution whose principal activity is to promote the prevention or the control of diseases in human beings.”

9. I referred in paragraph 24 above to the Guide published by the ATO in about July 2004 advising of the effect of the amendments to the FBT regime.  I note that a health promotion charity was described in the glossary to this Guide in the following terms.

   “Health promotion charity

   A health promotion charity is a non-profit charitable institution whose principal activity is promoting the prevention or control of diseases in human beings. The characteristics of a health promotion charity are that:

   ·   its principal activity is promoting the prevention or the control of diseases in human beings, and

   ·   it is a charity which is a charitable institution.

   Examples of activities that can promote the prevention or control of disease include:

   ·providing broad-based education to carers and service providers

   ·engaging in medical research into the causes, prevention and treatment of a disease, and

   ·engaging in activities to raise community awareness of a disease and other similar diseases.”[88]

   [88] Exhibit A7, page 14.

10. The GiftPack current at April 2011, being the ATO’s then Guide for DGRs and donors, provided some examples of health promotion charities, including charitable institutions that:

    ·provide relevant information to sufferers of a disease, health professionals, carers and the public

    ·research how to detect, prevent or treat diseases in people

    ·develop or provide relevant aids and equipment to sufferers of a disease.[89]

    The Gift Pack then provided the same four non-exhaustive examples of prevention or control as were listed in the Guide referred to in the preceding paragraph.

    [89] Exhibit A30, page 27.

11. In Re Bicycle Victoria Inc. and Commissioner of Taxation[90] Deputy President Forgie reviewed an objection decision arising from the rejection by the Commissioner of an application by Bicycle Victoria Inc. to be endorsed as a DGR, an income tax exempt charity, a health promotion charity and a charitable institution. She pointed out that the relevant Division of the TAA 1953 makes no reference to any particular year of income, and nor do the individual provisions establishing qualification for endorsement, and the Commissioner is not restricted by the date on which an entity applies for endorsement, and may endorse it on an earlier date. After considering relevant provisions of the ITAA 1997 and the TAA 1953 she concluded:

    “These provisions suggest to me that the commissioner is required to look at Bicycle Victoria’s entitlement to be endorsed from a time before its applications for endorsement up until the date of his decision.  If he is satisfied that it satisfies all of the requirements for endorsement at any time within that period, he may endorse it under the relevant provision.”[91]

    I agree with respect with Deputy President Forgie’s analysis, and consider that the Commissioner (and this tribunal standing in the shoes of the Commissioner when reviewing a reviewable objection decision) could grant endorsement as a health promotion charity with effect from an antecedent date, if he were satisfied that the entity concerned met the requirements for such endorsement.

    [90] (2011) 127 ALD 553.

    [91] (2011) 127 ALD 553 at [107].

12. In addition to his other submissions as to why the applicant should not be entitled to be endorsed as a charitable institution, Mr Cole reiterated his submission that the original trust deed did not authorise the applicant to act other than as an ancillary fund, and therefore it was not entitled to be endorsed as a health promotion charity until, at the earliest, the date of the 2011 Deed.  I agree with this submission, for the reasons referred to in paragraph 63 above.

13. As to the period after the 2011 Deed entered into, Mr Cole repeated his contention that the applicant should properly be characterised as a fund-raising business, and not as a charity.  He also submitted that the provisions by the applicant of patient accommodation did not constitute the prevention or control of diseases in human beings within the meaning of the definition of “health promotion charity” in the FBT Act.

14. In order to determine this aspect of the proceedings the Tribunal also needs to be fully informed as to the activities of the applicant during the period commencing from 8 February 2011, being the date of the 2011 Deed. As this issue entails considering an application for a new endorsement, I consider that the relevant period in which the entitlement to endorsement must be considered will extend to the date when this application is ultimately determined by this tribunal (or by the Commissioner, following the remittal of this issue to the Commissioner under s 42D of the AAT Act). This follows from Bargwanna (supra), where the High Court held that it was appropriate, when considering an application for endorsement, to have regard to relevant evidence of events that occurred over a span of years, extending beyond the date of the objection decision.[92]  This approach is also consistent with Shi v Migration Agents Registration Authority,[93] where the High Court held that when the tribunal was reviewing a decision that required determining whether it was satisfied that a person was not a fit and proper person to give immigration assistance, the tribunal should have regard to the state of affairs existing at the time when it made its decision, and was not confined to the position that obtained when the reviewable decision was made.  Kirby J said:

    “When making a decision, administrative decision-makers are generally obliged to have regard to the best and most current information available.  This rule of practice is no more than a feature of good public administration.”[94]

    [92] See paragraph 77 above.

    [93] (2008) 235 CLR 286.

    [94] (2008) 235 CLR 286 at [41].

15. For the reasons referred to in paragraph 113 above, I consider that the applicant should be given the opportunity to take the further steps and provide the further information to the Commissioner, to which I referred in paragraph 114 above.  It would also be appropriate for the applicant to provide information as to the relative extent of the funds expended on patients’ accommodation.  Some expenditure for this purpose would not disentitle the applicant to endorsement as a health promotion charity, because the definition of health promotion charity in the FBT Act only requires the prevention or control of disease in human beings to be the “principal activity” of an entity seeking this form of endorsement.

16. I would add that the information as to the applicant’s activities to which I referred in paragraph 22 above, and also the information in the attachment to the 2010 application for endorsement as a health promotion charity,[95] strongly favours the applicant’s entitlement to be endorsed as a health promotion charity. If those activities and that information remain applicable, then in my opinion the applicant should properly be characterised as a health promotion charity and be entitled to endorsement from and after 8 February 2011 as a health promotion charity. However, for reasons to which I referred in paragraph 122 above, I have decided that it is appropriate also to remit matter No. 2013/1720 to the Commissioner for further consideration pursuant to s 42D of the AAT Act.

    [95] Exhibit R2, ST11, at pages 170-182.

17. I will extend the period in which the Commissioner should reconsider the matters remitted to 23 September 2013.  I assume that this will give the applicant ample time to provide the further information to the Commissioner to which I have referred above, and for the Commissioner to reconsider the matters.  If this is not the case, either party may apply for an extension of that period prior to 23 September 2013, and the tribunal will consider whether or not to grant any such extension.

    DECISION

18. In matter No. 2012/3665, the Tribunal:

    (a)affirms the objection decision insofar as it revoked the endorsement of the Cancer and Bowel Research Trust as a tax deductible gift recipient, and decided that that revocation should take effect from 1 July 2000; and

    (b)remits the objection decision to the respondent for further consideration pursuant to s 42D of Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) insofar as the decision relates to whether the applicant is entitled to be endorsed as an entity exempt from income tax under s 50-105 of the Income Tax Assessment Act 1997 (Cth) and as a charitable institution under s 176-1 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) and s 123E of the Fringe Benefits Tax Assessment Act 1986 (Cth).

19. In matter No. 2013/1720, the tribunal remits the objection decision to the respondent for further consideration pursuant to s 42D of the AAT Act.

1. The tribunal specifies that the period within which the Commissioner is to reconsider the objection decisions remitted to it pursuant to paragraphs 131(b) and 132 above is the period commencing on the date of this decision and expiring on 23 September 2013.

I certify that the preceding 133 (one hundred and thirty-three) paragraphs are a true copy of the reasons for the decision herein of Deputy President D G Jarvis

... [Sgd] ...

Associate

Dated 24 May 2013

Dates of hearing	28 February 2013, 2, 3 and 5 April, 11, 12, 17, 18 and 19 April 2013
Date final submissions received	26 April 2013
Advocate for the Applicant	Mr N Birdseye Nicholas Birdseye & Associates
Counsel for the Respondent	Mr S Cole
Solicitors for the Respondent	ATO Legal Services Branch