Cancer & Bowel Research Australia Ltd and Commissioner of the Australian Charities and Not-for-profits Commission

[2021] AATA 3875

Cancer & Bowel Research Australia Ltd and Commissioner of the Australian Charities and Not-for-profits Commission [2021] AATA 3875 (19 October 2021)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2018/3815; 2018/7733; 2018/7732

Re:Cancer & Bowel Research Australia Ltd

APPLICANT IN 2018/3815

Breast Cancer Australia Ltd

APPLICANT IN 2018/7733

Kids Cancer Research Australia Ltd

APPLICANT IN 2018/7732

AndCommissioner of the Australian Charities and Not-for-profits Commission

RESPONDENT

DECISION

Tribunal:Senior Member Dr N A Manetta

Date:19 October 2021

Place:Adelaide

The Tribunal affirms the decision under review in each matter.

................................[Sgnd]........................................

Senior Member Dr N A Manetta

CHARITIES - applicants refused registration under the Australian Charities and Not-for-profits Commission Act 2012 - where applicants are incorporated entities limited by guarantee - whether or not entities are charitable institutions - entities incorporated for the purpose of assisting in the termination of ongoing liabilities of another entity - entities do not have uniquely charitable purposes or ancillary purposes - entities are not “charities” under the Charities Act 2013 - entities not entitled to registration - decisions under review affirmed.

Legislation

Australian Charities and Not- for-Profits Commission Act 2012 (Cth)

Charities Act 2013 (Cth)

Cases

Commissioner of Taxation v Word Investments Ltd [2008] HCA 55; 236 CLR 204

REASONS FOR DECISION

Senior Member Dr N A Manetta

19 October 2021

1. The Tribunal has before it three applications, one by each of three entities in respect of the refusal of the respondent to register it as a charity under the Australian Charities and Not- for-profits Commission Act 2012 (“the Act”). Each of the applicants is an incorporated company limited by guarantee. Each sought registration as a charity under the Act, and when registration was refused, they pursued an internal review mechanism; but the decision to refuse registration in each case was upheld.

   THE TRIBUNAL’S TASK

2. Hearing the matter fresh on the evidence before me, I must decide whether registration under the Act should be permitted or refused.  In reaching my decision, I must undertake what is technically known as a de novo hearing on the merits. This means that I must decide the facts for myself on the basis of the evidence adduced before me, draw inferences from those facts, and apply the relevant statutory provisions. I must reach the correct or preferable decision on the evidence adduced before me whether or not there is a discernible error in the reasoning of the decision-maker.  It follows that the Tribunal may decide the applications before it by reference to evidence that emerges in the hearing, even though that information was not before the respondent.

3. At the hearing before me, the three applicants were represented by Mr Thompson, who is not legally trained but has a leading− in fact, dominant− role in the conduct of the affairs of each applicant. Ms Walker appeared for the respondent.

   STATEMENT OF CONCLUSION

4. I have decided to affirm the decisions under review. The applications involve the same issue, and it is convenient to consider them together.

5. I now set out the background facts and the reasons for my conclusion. Given that Mr Thompson is not legally trained, I shall endeavour to state my reasons as plainly as possible.

   EVIDENCE AND FINDINGS

6. Mr Thompson gave evidence before the Tribunal. That evidence was given honestly and in a straightforward manner.  It was sometimes emphatic.  I accept the bulk of the evidence. The result of his evidence was, in my opinion, to shift the Tribunal’s focus in this de novo review to the circumstances surrounding the incorporation of the applicants and the reasons they have sought registration under the Act.   Registration had been refused on the basis that the entities had a purpose, amongst others, of providing private benefits to those involved in their operation (see Ex R1 at p 272), but, as will become clear, a more fundamental issue arose in the course of the hearing.

7. As a matter of background, I note that Mr Thompson has a long history in fundraising for charities.  He has been particularly active, and effective, in this area since approximately 1983.  From his evidence, I  believe that he is genuinely committed to the charitable work with which he has been associated for many decades.  He is presently the CEO, or chief executive officer, of a company limited by guarantee known as the National Cancer Foundation Ltd. He is also the CEO of an association known as the Cancer and Bowel Research Association Inc (“CBRA Inc”) which he said in his evidence acts as a trustee for three charitable trusts involved in raising funds in respect of different types of cancer.  I need not detail those activities.    

8. Mr Thompson does not formally divide his time amongst the charities with which he is associated. It would be fair to say that he devotes a very significant period of the week (some 70 hours over six days) to the affairs of the various charities.  Hereafter I shall refer solely to CBRA Inc because it appeared to me to be an umbrella organisation, so to speak, for all relevant charitable fundraising work.  When I speak of CBRA Inc, therefore, I should be taken to refer also to the trusts it administers. 

9. CBRA Inc has been heavily involved in fundraising by telephone. Staff have been engaged as telemarketers.  When so engaged, they are given a script and “cold-call” people, who are then invited to donate money.  Money has also been raised though doorknocking campaigns and at stalls set up in supermarkets malls.

10. Mr Thompson became the CEO of CBRA Inc in 2012.  Mr Thompson gave evidence, which I accept, that he believes that CBRA Inc’s affairs had been very seriously mismanaged before his appointment. CBRA Inc now owes a significant debt which he put at some $146,000 plus interest and penalties. This debt is owed to the Australian Taxation Office (“ATO”) and reflects entirely, or at least includes substantially, superannuation guarantee amounts not paid in respect of employees.

11. Mr Thompson does not dispute that this debt is owed to the ATO as a matter of law.  As I have said, he expressly blamed previous mismanagement of CBRA Inc’s affairs for the accumulation of the debt. Mr Thompson emphasised, and I accept, that CBRA Inc’s affairs are now being properly administered. 

12. Mr Thompson gave clear evidence concerning the formation of the three applicants in these applications.  It is clear from his evidence that they were incorporated in May 2017 to duplicate and take over the fundraising activities presently being undertaken by CBRA Inc. They were established because a large proportion of the funds being raised at the present time on behalf of CBRA Inc will need to be diverted to the ATO to meet debts owing to it. Mr Thompson was candid.  He did not believe it was fair that CBRA Inc should be saddled, so to speak, with an ongoing debt to the ATO because of the prior mismanagement of its affairs.  It seemed, therefore, appropriate for CBRA Inc’s activities to be scaled down and, indeed, for CBRA Inc to be wound up in due course. Any residual debt owing to the ATO on the eventual dissolution of CBRA Inc would be met by the Federal Government as Mr Thompson understood the situation.  In particular, those employees owed compulsory superannuation contributions by CBRA Inc would not be left to suffer a financial penalty, because the Federal Government would meet the obligation from General Revenue.

13. Mr Thompson genuinely and strongly believes that funds donated by the public should not be applied henceforth to reduction of the debt to the ATO.  Donations should be devoted solely to charitable purposes (after deduction of reasonable and proper administration expenses).

14. One important finding of fact I have made is that Mr Thompson sought the incorporation of each of the three applicants as a company limited by guarantee for the reason I have explained at [12] above. Once incorporated, each company then formally sought registration under the Act. I note further that Mr Thompson gave evidence that one important asset of CBRA Inc is proposed to be transferred to, or shared with, the three applicants in due course. This asset comprises the lists of past donors, which is valuable information.

    REASONS

15. I do not doubt the sincerity of Mr Thompson’s desire to put an end to what he believes is a most unfair situation, one, where, because of past mismanagement, CBRA Inc is unable to advance its charitable endeavours as adequately as it might because of the debts owing to the ATO. I do not doubt, as I say, that this view is genuinely held. 

16. It is the case, nevertheless, that it is not, generally speaking, a proper purpose for the incorporation of a company or corporation that it be used to take over the functions and property of another entity without also assuming the liabilities of that entity or making arrangements for the liabilities to be met.  It may or may not be, in any individual’s view, a morally justified action to take; but the law is quite clear, in my opinion, that the avoidance of the due repayment of a debt, whether the debt is owed to a private individual or to the Federal Government, is not a proper purpose for the incorporation of a company or corporation.

17. Given the evidence Mr Thompson gave, the real issue in this case became, therefore, how wide the jurisdiction of the respondent was when considering the applications for registration.  The Tribunal, standing “in the shoes” of the respondent, will have the same jurisdiction and the same limitations on jurisdiction.

18. I turn now to summarise the legal regime governing this matter. Under s 30–20 of the Act, the Commissioner “must” register an applicant for registration if the applicant is entitled to registration under Division 25. Section 25–5, in Division 25, provides than an entity “is entitled to registration” if the entity is of a type specified in Column One of a table that appears in subsection (5).  Column One of that table refers to “charity”.  A note refers the reader to the definition of charity in the Charities Act 2013.

19. The term charity is defined in s 5 of the Charities Act 2013 to mean:-

    “an entity:

    (a)        that is a not‑for‑profit entity; and

    (b)        all of the purposes of which are:

    (i)    charitable purposes (see Part 3) that are for the public benefit (see Division 2 of this Part); or

    (ii)  purposes that are incidental or ancillary to, and in furtherance or in aid of, purposes of the entity covered by subparagraph (i); and

    Note 1:    In determining the purposes of the entity, have regard to the entity’s governing rules, its activities and any other relevant matter.

    Note 2:    The requirement in subparagraph (b)(i) that a purpose be for the public benefit does not apply to certain entities (see section 10).

    (c)  none of the purposes of which are disqualifying purposes (see Division 3); and

    (d)  that is not an individual, a political party or a government entity.”

20. The respondent was obliged to decide (under paragraph (b)(i) and (ii) of this definition) what the purposes of each applicant were and whether they were all charitable (or incidental or ancillary thereto).  One issue that arises is whether the respondent, in deciding this question, was required to have regard only to any recorded purposes of the applicants, i.e., those that appeared in the documentation accompanying the incorporation of the applicants.  Mr Thompson contends this is the case. The respondent does not dispute, and I am prepared to accept, that all the purposes disclosed in writing to the respondent are charitable (or strictly incidental or ancillary thereto).      

21. If Mr Thompson is correct in his submission, the respondent had no jurisdiction to consider the wider question of the circumstances of the applicants’ incorporation and that this Tribunal’s jurisdiction on review is similarly curtailed. The critical question to my mind is whether Mr Thompson’s intention as discussed at [12] above is relevant to ascertaining the “purposes of” the three applicants under para (b)(i) and (ii) of the definition of charity. 

22. In a directly analogous circumstance, the High Court of Australia in Commissioner of Taxation v Word Investments Ltd [2008] HCA 55; 236 CLR 204 had to consider whether or not an incorporated company limited by guarantee, Word Investments Ltd, was a “charitable institution”. This raised the issue of whether the company had exclusively charitable purposes.

23. The majority of the High Court first held that it was relevant to examine the objects which the institution had been explicitly established to pursue as expressed in its memorandum of association: see at [17]. These were found to be exclusively charitable. That was not the end of the Court’s inquiry, however. At paragraph [25] the Court expressly said:

    “In addition to what flows from the construction to be given to the memorandum of association, it is necessary to take into account the circumstances in which Word[1] was formed.[2]” 

    That is an important observation in my opinion.  The Court would not have considered the circumstances of Word Investments Ltd’s incorporation if an analysis of its memorandum of association had been legally sufficient.  The Court in fact proceeded to set out and analyse those circumstances.

    [1] This was a reference to “Word Investments Ltd”.

    [2] Reference to supporting case authority has been omitted.

24. Similarly, I believe the respondent was obliged here to take into account the circumstances in which each of the applicants was formed in deciding whether it answered the description of “a charity”, as defined.  The Tribunal, too, should take these circumstances into account.  I do not believe, therefore, that the jurisdiction of the respondent is limited in the way Mr Thompson contends. 

25. I have concluded that one clear reason explaining the incorporation of each of the three applicants was Mr Thompson’s intention to seek to terminate, for all practical purposes, the ongoing liability of CBRA Inc to the ATO, or at least to reduce it substantially, by transferring CBRA Inc’s functions and lists of donors to the applicants while leaving it with insufficient assets to meet its liability.  It was not suggested by Mr Thompson that the three applicants would do anything other than largely duplicate the work of CBRA Inc (and of the trusts it administers).

26. Mr Thompson is a director of all three applicants according to the written submissions made by him on the applicants’ behalf.  He is clearly the dominant figure in the operation of each applicant and in the operations of CBRA Inc.  That emerged quite clearly in his oral evidence.  I believe it is appropriate to impute his state of mind and intention to each of the three applicants when they sought registration under the Act.  Bearing that in mind, and when I take into account, as I believe I ought to, the circumstances in which the three applicants were incorporated, I have concluded that Mr Thompson’s intention was “a purpose” of each applicant.  That intention (namely, the avoidance of the payment of a taxation liability so that the substantive charitable work of CBRA Inc might continue untrammelled, so to speak, by debt) is in my opinion “a purpose” of each applicant, amongst other purposes, to which the respondent was entitled to have regard, and one to which this Tribunal ought to have regard in its de novo review, when applying the definition of charity.  

27. It follows, in my opinion, that when regard is had to the circumstances in which each applicant was formed, the applicants do not have solely charitable purposes (or ancillary purposes) as required by the definition of charity.  Indeed, the purpose I have identified may well be a “disqualifying purpose” (cf paragraph (c) of the definition of charity).  I note that a “disqualifying purpose” is defined to include activities that are contrary to public policy.

28. Given this conclusion, it is not necessary for me to address the ground on which the respondent refused the applications for registration; namely, that a purpose of registration was to secure a benefit to a person or persons associated with the applicants.

    SUMMARY AND FORMAL DECISION

29. My principal and decisive conclusion is that in determining the purposes of the applicants in this de novo review, I should take into account the circumstances in which they were formed, and that these circumstances indicate a non-charitable purpose of the type that I have explained earlier in these reasons.  From this it follows in my opinion that none of the three applicants is a charity, as defined, and none is entitled to be registered under the Act.

30. My formal decision will be, therefore, to affirm the decisions under review.

I certify that the preceding 30 (thirty) paragraphs are a true copy of the reasons for the decision herein of Senior Member Dr N A Manetta.

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Administrative Assistant Legal

Dated:  19 October 2021

Date of hearing:

27 February 2020 & 19 May 2020

Advocates for the Applicant:

John Thompson, Cancer & Bowel Research Australia Ltd

Lisa Campbell, Cancer & Bowel Research Australia Ltd

Advocate for the Respondent:

Gillian Walker, Counsel