Law Institute of Victoria v Commissioner of State Revenue

IN THE SUPREME COURT OF VICTORIA AT MELBOURNE

Not Restricted

COMMERCIAL COURT

TAXATION LIST

S CI 2013 6641
S CI 2014 1632

LAW INSTITUTE OF VICTORIA (ABN 32 075 475 731)	Plaintiff
v
COMMISSIONER OF STATE REVENUE	Defendant

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JUDGE:	Digby J
WHERE HELD:	Melbourne
DATE OF HEARING:	26 and 27 August 2014
DATE OF JUDGMENT:	21 October 2015
CASE MAY BE CITED AS:	LIV v Commissioner of State Revenue
MEDIUM NEUTRAL CITATION:	[2015] VSC 604	First Revision: 26 November 2015

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PAYROLL TAX – Charitable institution – Public benefit – Dominant purpose – Maintenance and sustenance of the law – Nature of characterisation – Effect of activities for benefit of members – Payroll Tax Act 2007 (Vic), s 48(1) and (2) – Taxation Administration Act (Vic) 1997, Part 4 and Part 10 – Taxation Administration Act (Vic) 1997, s 96.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mrs J Batrouney QC with Ms A Lee	Corrs Chambers Westgarth
For the Defendant	Mr P Solomon QC with Mr C Young	State Revenue Office

HIS HONOUR:

Introduction

The Law Institute of Victoria (LIV) in these proceedings seeks to establish that it is entitled to an exemption from liability to pay payroll tax in Victoria. It seeks that exemption on the basis that it is a non-profit organisation having as its sole or dominant purpose a charitable purpose, within the meaning of s 48 of the Payroll Tax Act 2007 (the PT Act).

The LIV seeks a declaration that at all material times it was a non-profit organisation having as its dominant purpose a charitable purpose and also seeks a refund of previously paid payroll tax to the Commissioner of State Revenue (Commissioner), to the extent it can do so.

The LIV has two proceedings against the Commissioner as outlined below.

Objection Proceeding (S CI 2014 1632)

The LIV wrote to the Commissioner and claimed that wages paid and payable in both 1 July 2008 to 30 June 2012 (the First Period) and 1 July 2012 to 30 June 2013 (the Second Period) were exempt wages pursuant to both the former s 48 of the PT Act in operation from 1 July 2008 and to 30 June 2012 and the current s 48, in operation from 1 July 2012. On 25 November 2013 the Commissioner refused the LIV’s exemption claim. An objection was lodged by the LIV on 24 January 2014 under Part 10 of the Tax Administration Act 1997 (Vic) (TA Act) against the Commissioner’s decision of 25 November 2013 (the Objection Proceeding). On 28 March 2014 the Commissioner disallowed the plaintiff’s objection, and on 2 April 2014 the LIV requested the Commissioner to treat the objection as an appeal, and have that proceeding set down in this Court as an appeal under s 106 of the TA Act. The Commissioner did so on 8 April 2014 under Part 10 of the TA Act.

Refund and Declaratory Proceeding (S CI 2013 6641)

In addition to the Objection Proceeding, on 12 July 2013 the LIV initiated a proceeding under Part 4 of the TA Act for the refund of payroll tax paid by the LIV under the PT Act for the whole of the period 1 July 2008 to 30 June 2013 (Refund Proceeding).

The LIV claims that pursuant to s 19 of the TA Act, it is entitled to a refund of overpaid payroll tax (Overpaid Tax), in the sum of $2,514,414.48. The LIV asserts that the Overpaid Tax was paid on wages which were exempt from payroll tax under the current s 48(1)(a)(iii) of the PT Act. The LIV brings this proceeding pursuant to the provisions of s 21(1) of the TA Act for recovery of the Overpaid Tax.

The Commissioner’s procedural objections

The Commissioner raises certain procedural issues directed to persuading the Court that for the First Period, the Objection Proceeding was not properly before the Court, and further that for the Second Period only the Objection Proceeding, and not the Refund Proceeding was properly before the Court.

Statutory framework — Payroll Tax Act 2007
Payroll Tax Act 2007 (former section 48)

From 1 July 2008 until 1 July 2012 s 48 of the PT Act (‘former s 48’) provided that:

(1)Subject to subsection (2), wages are exempt wages if they are paid or payable by any of the following -
…
(c)a non-profit organisation having as its sole or dominant purpose a charitable, benevolent, philanthropic or patriotic purpose (but not including a school, an educational institution, an educational company or an instrumentality of the State).

(2) The wages must be paid or payable -
(a)for work of a kind ordinarily performed in connection with the religious, charitable, benevolent, philanthropic or patriotic purposes of the institution or body; and

(b) to a person engaged exclusively in that kind of work.

Payroll Tax Act 2007 (current section 48)

From 1 July 2012 s 48 of the PT Act (‘current s 48’) has provided that:

(1)Wages are exempt wages if the Commissioner is satisfied that the wages are paid or payable -
(a) by any of the following-
…
(iii)a non-profit organisation having as its whole or dominant purpose a charitable, benevolent, philanthropic or patriotic purpose (but not including a school, an educational institution, an educational company or an instrumentality of the State); and

(b)to a person engaged exclusively in work of a religious, charitable, benevolent, philanthropic or patriotic nature for the institution or non-profit organisation.

The LIV Objection Proceeding and the LIV Refund Proceeding are to be determined in this proceeding.

Relevant periods

The LIV claims that the former s 48(1) and (2) applies to wages paid by the LIV during the First Period.

The LIV claims that the current s 48(1) and (2) applies to wages paid by the LIV during the Second Period.

Concessions and agreements

The Commissioner accepts that during the period 1 July 2008 to 30 June 2013 (the Relevant Period), the LIV was a non-profit organisation.[1]
[1]Amended Statement of Claim 5 February 2014, [10]; Defence 11 February 2014, [10].

The Commissioner accepts that the maintenance and sustenance of the law is a charitable purpose.[2]
[2]Commissioner’s Submissions 7 May 2015, [39]. It was further conceded by the Commissioner that LIV Objects 2, 3 and 4 (in part) are charitable objects.

Further, the parties jointly submitted that: [3]
[3]The Parties Joint Memorandum to the Court dated 2 September 2014.

(a) the response to the objection of the LIV was contained in a decision of the Commissioner dated 28 March 2014 (the Determination). That decision is contained at Exhibit MBY-46 to the affidavit of Michael Brett Young sworn 11 April 2014;

(b) in Annexure A to the Determination styled ‘Employees who satisfy the second limb of s 48 (1) of the Act’, there are included 31 staff in the LlV Professional Services Department, whose role is specified to be ‘provides regulatory services and reflects the functions and powers delegated by the LSC and LSB under the LPA’; and

(c) further, for the year 2012/13, the LIV contends, and the Commissioner does not dispute, that if the Court were to conclude that s 48(1)(a) of the PT Act is satisfied, the Court should then find, at a minimum, that each of the employees set out in Annexure A satisfies the terms of s 48(1)(b) of the PT Act.

The 2012 Constitution of the LIV[4] is accepted by the parties as representative of the LIV’s Constitution, notwithstanding that the LIV’s Constitution has been altered from time to time in the relevant tax years.
[4]Exhibit MBY-4 to the Affidavit of Michael Brett Young sworn on 11 April 2014 (‘Michael Brett Young Affidavit’).

The financial evidence adduced by the LIV in relation to the Financial Year 2012/13 is accepted by the parties as representative of the LIV’s position in respect of the same matters in each other relevant year.[5]
[5]Michael Brett Young Affidavit, [18]; Defendant’s Outline of Submissions dated 7 May 2014, [18].

Procedural disputes
Objection Proceeding - factual background

On 12 July 2013, the LIV wrote to the Commissioner and claimed that the wages paid or payable by it throughout the First Period and the Second Period were exempt wages pursuant to the former s 48 and, also pursuant to the current s 48, respectively (the Exemption Claim). Thereafter:

(a) on 25 November 2013, the Commissioner refused the Exemption Claim deciding that the LIV was not a charitable organisation for the purposes of s 48(1)(a)(iii) of the PT Act;

(b) on 24 January 2014, the LIV objected to the Commissioner’s refusal. The LIV’s objection was advanced on a number of bases, including that the Commissioner should allow the LIV’s Exemption Claim because the LIV was and continues to be a non-profit organisation having as its whole or dominant purpose, a charitable purpose. The LIV also argued that from 1 July 2012 wages to employees were paid, or payable, to persons engaged exclusively in work of a charitable nature (current s 48(2) of the PT Act) and that prior to 1 July 2012 wages to employees were paid or payable to persons engaged exclusively in work of a kind ordinarily performed in connection with the charitable purpose of the LIV (former s 48(2) of the PT Act);

(c) on 28 March 2014, the Commissioner made a Determination disallowing the LIV’s objection. By that Determination the Commissioner communicated his decision that the LIV was not an organisation the dominant purpose of which is a charitable purpose. The Commissioner also concluded that the LIV’s objection was not a valid objection in relation to that part of its claim which related to the period prior to 1 July 2012, because s 48 of the PT Act did not empower the Commissioner to make a decision prior to that date. Additionally, the Commissioner determined that if the LIV was able to satisfy the first limb in s 48(1) of the PT Act, the Commissioner accepted that certain employees of the LIV, set out in Annexure A to the Commissioner’s Determination, would satisfy the requirements of s 48(1)(b) of the PT Act after 1 July 2012;

(d) on 2 April 2014, the LIV requested that the Commissioner treat the objection as an appeal and cause it to be set down for hearing at the next sitting of the Supreme Court pursuant to s 106 under Part 10 of the TA Act, and the Commissioner did so on 8 April 2014;[6]

(e) the Commissioner by letter dated 8 April 2014 filed in this Court and thereby referred the LIV’s Objection to the Commissioner’s Determination of 28 March 2014, to be heard and determined by this Court, pursuant to Rule 7.05 and Rule 7.06 of the Supreme Court (Miscellaneous Civil Proceedings) Rules 2008; and

(f) no application has been made by the LIV in these proceedings for an order granting leave, or otherwise enabling the LIV’s grounds of appeal in the Objection Proceeding, to be enlarged pursuant to s 109 of the TA Act.

[6]See Exhibits “MBY-42”, “MBY-43”, “MBY-45”, “MBY-46”, “MBY-47” and “MBY-48” to the Michael Brett Young Affidavit.

Refund Proceeding - factual background

On 12 July 2013, in addition to the Exemption Claim, the LIV lodged an application for a refund in the form approved by the Commissioner pursuant to s 19 of the TA Act (the Refund Application) under Part 4 of the TA Act.

The LIV submits that the Commissioner did not take any of the actions referred to in s 21(1)(b) of the TA Act within the period of three months after the Refund Application was lodged.

On 23 December 2013, within three months after the end of the period referred to in the preceding paragraph, the LIV commenced proceedings for a declaration including that it was a non-profit organisation and it had a dominant purpose that is a charitable purpose and also seeking the recovery of the amount of a refund of $2,514,414.48 pursuant to s 21(1) of the TA Act.[7]
[7] See Exhibits “MBY-41”, “MBY-42” and “MBY-44” to the Michael Brett Young Affidavit.

The Commissioner’s Procedural Submissions

The Commissioner contends that, for the First Period, only the Refund Proceeding, and not the Objection Proceeding, is properly before the Court.

The Commissioner argues that the Objection Proceeding is not properly before the Court because, in the First Period, the Commissioner made no “decision” under the PT Act in respect of which the LIV was entitled to pursue an objection.

Section 96 of the TA Act provides:

96 Objection
(1)A taxpayer may lodge a written objection with the Commissioner if the taxpayer is dissatisfied with—

…
(d)a decision of the Commissioner under the Payroll Tax Act 2007.

(1A)A reference in subsection (1)(d) to a decision does not include a refusal by the Commissioner to refund tax paid or purportedly paid by the taxpayer.
(2)No court or administrative review body, including the Tribunal, has jurisdiction or power to consider any question concerning an assessment or decision referred to in subsection (1), except as provided by this Part.

The Commissioner points out that the payroll tax up until 12 July 2013 had been paid by the LIV without the Commissioner being required to make a decision upon the applicability of s 48 of the PT Act to the LIV.

The Commissioner submits that:

(a) the LIV's contention that the Commissioner's refusal of a refund constitutes a “decision” is wrong. Section 96(1A) of the TA Act provides that “a decision does not include a refusal by the Commissioner to refund tax paid or purportedly paid by the taxpayer”;

(b) during the First Period there was no “assessment” issued to the LIV; and

(c) the Commissioner had no power to make a decision under s 48 of PT Act as in force during that First Period as to the status of the LIV. It follows that, during the First Period, the Commissioner’s view as to the status of the LIV was not a “decision”.

The Commissioner contends that for the Second Period, only the Objection Proceeding, and not the Refund Proceeding, is properly before the Court.

In the Second Period, s 48 of the PT Act empowered the Commissioner to make a decision about the status of the LIV and he did so by his decision of 25 November 2013.

Further, by reason of s 96(2) of the TA Act, the Court only has jurisdiction pursuant to Part 10 of the TA Act.

Section 96(2) of the TA Act provides:

No court or administrative review body, including the Tribunal, has jurisdiction or power to consider any question concerning an assessment or decision referred to in subsection (1), except as provided by this part.

The Commissioner submits that although the difference between the two proceedings makes no difference in relation to the first key issue identified above, namely, whether the LIV was a non-profit organisation having as its dominant purpose a charitable purpose, it is relevant, on the Commissioner’s submission, to the second key issue identified above, namely, whether each of the LIV's employees are engaged in work of an exclusively charitable nature.

The Commissioner argues that the difference between the proceedings is relevant because, firstly, in the Objection Proceeding the LIV must identify reviewable legal error in the Commissioner’s Determination,[8] but the LIV has not purported to do so nor has it done so. Secondly, the Commissioner argues that if in the Objection Proceeding the LIV fails to show that all of its employees are engaged in work of an exclusively charitable nature then it fails on the objection it has made.
[8]Conte Mechanical and Electrical Services v Commissioner of State Revenue (2011) 85 ATR 120 (‘Conte’).

However, by its oral submissions the Commissioner clarified that it was not the Commissioner’s submission that the LIV should be taken as falling between stools, as between the Refund Proceeding and the Objection Proceeding.[9] The Commissioner submits that the Court should however determine the first four of the five years on the Refund Proceeding, because for the purposes of the TA Act, in those four years there was no relevant “decision” by the Commissioner.[10] The Commissioner conceded that such declaratory relief may be granted under s 21 of the TA Act.
[9]T149.6-11.
[10]T149.11-18.

The Commissioner also clarified in submissions that it does not take any point as to process or timing in relation to the LIV’s declaration and refund claim in respect of the first relevant four years.[11]
[11]T149.16-23.

The Commissioner submits that in the last relevant tax year, after commencement of the current PT Act providing for the need for the Commissioner’s satisfaction, there has been a relevant decision under that Act, and therefore the process of objection, determination and referral to the Court, is the appropriate process.[12]
[12]T149.20-28.

Ultimately, neither the Commissioner nor the LIV sought in their cases to specifically address the Commissioner’s Determination of 28 March 2014[13] and the LIV’s Objection of 24 January 2014[14] so as to identify error in respect of the application of s 48(2) of the PT Act, or the incorrect application of that section requiring the relevant persons to be exclusively engaged in charitable work.
[13]Exhibit MBY-46 to the Michael Brett Young Affidavit.
[14]Ibid Exhibit MBY-45.

LIV’s Procedural Submissions

The LIV submits that by its letter dated 12 July 2013, and the attached refund form, it applied for a refund of payroll tax, pursuant to the exemption provided for by s 48 of the PT Act. That application was applicable to the five years from 1 July 2008 to 30 June 2013.

In respect of the First Period, the LIV submits that the Commissioner’s “refusal”[15] to make a refund, or failure to act in relation to s 21(1)(b) of the TA Act, constitutes a “decision” of the Commissioner under the PT Act for the purposes of s 96(1)(d) of the TA Act.
[15]Within the ambit of s 21 of the TA Act (Tab 18 of Court Book, Volume 1 tabs 10 and 11).

The LIV submits that the relevant “decision” for the purposes of the Objection Proceeding is the decision of the Commissioner not to do any of the matters referred to in s 21(1)(b) of the TA Act:

(1) If—
(a)a taxpayer has lodged an application for the refund of an amount in accordance with section 19; and
(b)within the period of 3 months after the application was lodged—
(i) the Commissioner has not—

(A) refunded the amount; or
(B) applied the amount in accordance with section 20(d)(i); or
(C)refunded part of the amount and applied the remainder in accordance with section 20(d)(i); or
(ii)the Commissioner has, in writing given to the taxpayer within that period, refused to make a refund—

the taxpayer, within 3 months after the end of that period or after that refusal, whichever first occurs, may bring proceedings for the recovery of the amount or, if the Commissioner has refunded or applied part, the remainder of the amount.

In this regard, the LIV notes that in Drake Personnel Ltd v Commissioner of State Revenue[16] Phillips JA, with whom Ormiston and Buchanan JJA agreed, said:

… As the judge herself observed [at first instance], in the Taxation Administration Act 1997 (which came into force on 1 July 1997) s 96 permits an objection to “a decision of the Commissioner under the Pay-roll Tax Act 1971” and such a description would appear to fit a decision of the commissioner, even under the original s 19, not to grant a refund.[17]

[16](2000) 2 VR 635.

[17]Ibid, [77]. The “original s 19” provided that where the Commissioner “finds in any case that tax has been overpaid he may refund [it] to the employer who paid the tax” (at [76]).

The LIV also seeks to rely on Central Bayside General Practice Association Ltd v Commissioner of State Revenue,[18] where the litigation proceeded from VCAT to the High Court on the basis that the question of whether the appellant was a “charitable body” for the purposes of s 10(1)(bb) of the Pay-roll Tax Act 1971 (Vic) was an appealable decision. At first instance, Nettle J held that the question of whether the appellant was a charitable body involved a question of law.[19]
[18](2006) 228 CLR 168 (‘Central Bayside’).
[19]Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2003) 53 ATR 473, [5].

Further, the LIV contends that the Commissioner’s reliance on Conte[20] is misplaced. The LIV submits that Conte was impliedly overruled by the High Court in Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue (NSW).[21] The LIV’s submission is that, under the current state of the law, the dichotomy between the powers of the Supreme Court and the Tribunal has been abrogated,[22] and it is not necessary for the LIV to show that the Commissioner has erred on the material before the Commissioner or to show that the exercise of the discretion by the Commissioner was vitiated by error of law of the kind referred to in Avon Downs Pty Ltd v Federal Commissioner of Taxation.[23]
[20](2011) 85 ATR 120.
[21](2011) 245 CLR 446 (‘Tasty Chicks’).
[22] Ibid [20]; and compare s 111(1) and s 112(1) of the Taxation Administration Act 1996 (NSW).
[23](1949) 78 CLR 353 (‘Avon Downs’). This principle was stated in Tasty Chicks (2011) 245 CLR 446, [22].

The LIV submits therefore that it is entitled to invoke the objection and review/appeal process provided for in Part 10 of the TA Act.

The LIV submits in relation to the Commissioner’s position that the objection process is not open to the LIV under the former s 48,[24] that if the position asserted by the Commissioner is correct then it is particularly appropriate for the LIV to bring proceedings in relation to the First Period (which it has done) seeking:
[24]See pp 7-8 of Exhibit “MBY-43” to the Michael Brett Young Affidavit.

(a) a declaration that wages paid by it during that period were exempt from payroll tax; and

(b) recovery of the Overpaid Tax pursuant to s 21(1) of the TA Act.

The LIV submits that this is one reason why it has instituted the Refund Proceeding.

The second reason the LIV mentions in relation to why it has instituted the Refund Proceeding is because it seeks a refund under Part 4 of the TA Act of payroll tax paid throughout the Second Period, and beyond.

In relation to the Second Period, the LIV submits that the current s 48 requires the Commissioner to make a decision[25] about whether the wages paid by the LIV are exempt wages pursuant to that section.
[25]That is, to be “satisfied”, see subsection (1) of the current s 48.

The LIV has applied to the Commissioner for a decision that the wages paid by it throughout the Second Period, and also in effect from 1 July 2013 onwards, are exempt wages. That application was rejected by the Commissioner and the LIV has in turn also objected to the Commissioner’s decision in that regard, and the Commissioner has disallowed that objection.

The LIV has appealed in relation to the last mentioned decision in accordance with s 106 of the TA Act.[26]
[26]See Exhibits “MBY-42”, “MBY-43”, “MBY-45”, “MBY-46” and “MBY-47” to the Michael Brett Young Affidavit (Tab 10 of Court Book).

The LIV submits that if successful in relation to its appeal, it would be entitled to a refund under s 115(2) of the TA Act.

Conclusions on Procedural Issues

I am not satisfied that the Commissioner’s “decision” of 25 November 2013 rejecting the LIV’s claim for an exemption from payroll tax pursuant to the former s 48, is in the nature of a decision or an assessment, in respect of the Exemption Claim in respect of the First Period.

In the Commissioner’s letter of 25 November 2013 communicating that decision he clearly states that, in his view, any future objection to that decision will only be a valid objection in relation to the LIV’s payroll tax obligations from 1 July 2012 because the PT Act did not establish a right to object to a “private ruling” prior to 1 July 2012. The Commissioner thereby rejected the notion that his communication of 25 November 2013 is in the nature of a decision for the purposes of the Former Period.

The current s 48(1), in operation after 1 July 2012, provides for wages to be exempt from payroll tax, “…if the Commissioner is satisfied…“ as to certain matters. The former s 48 did not provide that the relevant exemption would be effective upon the Commissioner’s satisfaction or decision.

Part of the Commissioner’s contention appears to be that after 1 July 2012 a decision of the Commissioner pursuant to s 48(1), is able to be the subject of an objection by the taxpayer pursuant to s 96 of the TA Act, however, any question there arising can only be considered pursuant to Part 10 of the TA Act. Part 4 of the TA Act is not relevant. Prior to 1 July 2012, there was no relevant decision or assessment which the Commissioner was empowered to make under s 48, and therefore there could be no effective objection by the LIV which could in turn trigger an entitlement on the part of the LIV to have any question concerning its entitlement to an exemption from payroll tax, reviewed under Part 10 of the TA Act.

I am for the above reasons in agreement with the Commissioner’s submission in relation to the First Period. There is, in my view, no relevant decision or assessment made by the Commissioner which would entitle the LIV to pursue a Part 10 review, and ultimately to have any Commissioner’s determination dealt with by the Court.

It follows that because in relation to the First Period the Commissioner has made no decision or assessment, and because the PT Act makes no provision for such a decision under the former s 48 of that Act, the LIV’s purported “objection” dated 24 January 2014 is not a valid objection under s 96(1) of the TA Act insofar as it relates to the First Period.

For the same reasons I reject the LIV’s submission that the Commissioner’s “decision” of 25 November 2013, is relevant to the LIV’s Exemption Claim concerning the First Period.

I also reject that part of the LIV’s submission which argues that the Commissioner’s conduct in relation to the LIV’s payroll tax Exemption Claim, as it related to the First Period, amounted to a “refusal“ to make a refund which constituted a “decision” under the PT Act for the purposes of s 96 of the TA Act. In my view s 96(1A) of the TA Act defeats this argument in the clearest terms.

I consider that in the First Period to which the former s 48 applied the Commissioner was not empowered to make a decision under s 48, and therefore it cannot be said that his view of the status of the LIV was in any respect a relevant decision.

At all events, as the LIV points out in its submissions, it has issued the Refund Proceeding seeking a declaration, including in respect of the First Period (as well as in relation to the Second Period), that wages paid by it are exempt from payroll tax, and made a claim for the refund of any overpaid taxes in that period.

In relation to the First Period the Commissioner, as already noted, by memorandum dated 2 September 2014 agrees that each of the 31 staff of the LIV Professional Services Department are employees who satisfy the requirements of s 48(1)(b) of the PT Act. The Commissioner also submits that the procedural issues he raises have no impact on the question of whether the LIV is a non-profit organisation having as its dominant purpose, a charitable purpose.[27]
[27]Neither the LIV nor the Commissioner made a submission directed to the detail of either the LIV Objection dated 24 January 2014 or the Commissioner’s Determination.

In this context the Commissioner submits that because of the prescribed process for the consideration and determination of questions concerning the Commissioner’s decisions, provided for in Part 10 of the TA Act, the questions in relation to a claimed s 48(1)(a) and (b) exemption to payroll tax payable by the LIV after 1 July 2012 must be decided in the Objection Proceeding, and furthermore the Commissioner submits that in those proceedings the LIV must identify reviewable error in the Commissioner’s Determination. The Commissioner cites Conte for the proposition that in this context reviewable error is required.

In Tasty Chicks the Chief Commissioner had grouped taxpayers for the purposes of assessing payroll tax. Under Part 10 of the Taxation Administration Act 1996 (NSW) the taxpayers objected to the assessment on the basis that they should not have been grouped. The Commissioner disallowed the objections. Taxpayers dissatisfied with the decision on their objection could apply for a ‘review’ of that decision by the Supreme Court of New South Wales (s 97(1)) or by the Administrative Decisions Tribunal (s 96(1)). In Tasty Chicks the taxpayers had sought ‘review’ by the Supreme Court. The High Court held that the effect of the Taxation Administration Act 1996 (NSW) was that the Supreme Court had the same powers on review as the Administrative Decisions Tribunal, and that the Supreme Court Act 1970 (NSW) also conferred additional powers on the Supreme Court when conducting a review under s 97(1). The effect on a ‘review’ was that the Supreme Court was empowered, just as the Administrative Decisions Tribunal was, to set aside the Commissioner’s decision disallowing the taxpayers’ objection, allow the objection, revoke the initial assessments and require reassessments by the Commissioner. Further, it was not necessary on review by the Supreme Court for the taxpayers to show that the Commissioner had erred on the materials before him/her or that his/her exercise of discretion was vitiated by error of the kind referred to in Avon Downs.[28]
[28]Tasty Chicks (2011) 245 CLR 446, [22].

In Mould v Commissioner of State Revenue[29], Ginnane J considered an appeal reaching the court pursuant to s 106 (and the following provisions of the TA Act), in relation to a determination by the Commissioner under s 67 of the Land Tax Act 2005 (Vic). His Honour said the following on the issues concerning the nature of the appeal brought by the taxpayer under s 106 of the TA Act, in respect of a determination under s 67 of the Land Tax Act 2005 (Vic):
[29][2014] VSC 268 (‘Mould’).

35In my opinion, the nature of the appeal provided will often be determined, and is to be determined in this instance, by consideration of the character of the decision or judgment against which the appeal is brought. The opinion that I express as to the nature of this appeal is directed only to a decision of the character made by the Commissioner in this determination. Section 106 of the Taxation Administration Act 1997 (Vic) may give a taxpayer a different appeal right in respect of a different determination by the Commissioner. In the same way, an appeal to the Court of Appeal will be more limited if made against a discretionary judgment than against a non-discretionary judgment, although both appeals are brought under the same statutory provision.
36A number of authorities to which the Commissioner referred were appeals against a decision maker’s formation of an opinion or a conclusion that the decision maker was satisfied of prescribed matters. Such decisions can only be the subject of judicial review in limited circumstances. Avon Downs was such a case. The statute there provided that no loss incurred by a company in any year prior to the year of income should be an allowable deduction unless the company satisfied the Commissioner of matters relating to its shareholding in the year of income and also in the year in which the loss was incurred. The legislation provided for a right of appeal to the Court as well as a right to an appeal before a Taxation Board of Review. As is the case with the Taxation Administration Act 1997 (Vic), the taxpayer could add further objections and the taxpayer bore the onus of proof.

…
40In my opinion, neither the decision in Tasty Chicks nor that in Avon Downs is determinative of the nature of the right of appeal given by s 106 against the Commissioner’s determination in this case.
41I consider that s 106, in this instance, gives the appellant an appeal to the Supreme Court with a right to a rehearing de novo including a right to lead further evidence, although limited to the grounds of the objection, unless leave is granted to add to them.
42This is not a case like Avon Downs where the Commissioner has to be satisfied of particular matters. Rather, the Commissioner, in the first instance, had to issue an assessment of land tax by applying the statute to the facts relating to the land and the owner. In determining the appellant’s objection he was performing that same function.

…
47In this case, there is no state of mind or discretion involved in the Commissioner’s determination. The question is whether the taxpayer had established the matters entitling him to claim the exemption. Whether land tax is payable depends upon the applicability of statutory criteria, which do not involve any individual satisfaction or exercise of discretion on the part of the Commissioner.
48The other matter that has influenced my conclusion that s 106 provides an appeal that is a rehearing de novo is that the appeal is from an administrative decision maker to the Court sitting in its original jurisdiction. Such appeals are often construed as appeals de novo. This is in part because the appellant has not previously had a hearing. That is the position in this case. The Commissioner made a determination after a consideration of written material rather than any dialogue or exchange of views with the taxpayer about all the matters that might have influenced the Commissioner. The appellant had no right to a hearing or to call witnesses before the Commissioner. In such circumstances, an administrative decision maker may well take into account matters upon which the taxpayer has not made submissions. In the present case, there was little, if any, discussion between the Commissioner and the taxpayer about whether the taxpayer carried on a business of renting properties.
49I will therefore proceed to determine this appeal on the basis that is requires a de novo determination based on the evidence and material that is before me, which includes the documents that were before the Commissioner together with the affidavits and oral evidence of Mr Mould. The appeal is limited to the grounds of objection but they include ground 7 that primary production was the sole business of the Trust.

In Mould, Ginnane J concluded that reviewable error was not required. However, in Mould, his Honour did not consider that he was dealing with a case where the Commissioner’s decision hinged upon his satisfaction as to particular matters. Ginnane J suggested the result could be different where there is a state of mind or discretion involved in the Commissioner’s determination.[30]
[30]Mould [2014] VSC 268, [35]-[42], [47].

In my view the determination to be made by the Commissioner, pursuant to s 48(1) is not in the nature of the exercise of a discretion, but by contrast involves the Commissioner making a decision likely, as in this case, to involve questions of law and questions of fact.

Conclusion on relevance and form of review in the circumstances

As a result, however, of my ultimate decision in this matter that the LIV has not established that it comes within s 48(1) of the PT Act, it is unnecessary for me to decide issues concerning the nature of the LIV’s appeal to this Court under Pt 10 of the TA Act.

However, because these matters were argued, and in case I am wrong in relation to my ultimate decision in this proceeding, I find, on the particular facts and circumstances of this Objection Proceeding, that Pt 10 of the TA Act, in particular ss 106, 109, 100 and 112, do not require identification of reviewable error in the present circumstances for the following reasons:

(a) the word ‘appeal’ is not defined in s 3 of the TA Act and the appeal under the relevant provisions comes to the court in relation to a determination by the Commissioner in respect of which the taxpayer has not had the opportunity of a hearing before now;

(b) section 106 of the TA Act provides that “the taxpayer, in writing, may request the Commissioner… to treat the objection as an appeal” if the taxpayer is dissatisfied with the Commissioner’s determination of the taxpayer’s objection. There appears to be no obvious basis upon which to construe s 106 of the TA Act as being intended to limit an appeal thereunder to other than the whole of the objection that was before the Commissioner. Every aspect of that objection is now the subject of an appeal and not just limited parts of the decision exhibiting reviewable error;

(c) the only express delimitation in relation to the appeal under Pt 10 is by s 109 of the TA Act which confines the review/appeal to the grounds of the objection, and limits the Commissioner’s case to the grounds on which the objection was disallowed, unless the Court/Tribunal otherwise orders;

(d) although in Tasty Chicks the court was concerned with the NSW legislation and a ‘review’ to the Supreme Court, the majority appears to indicate that in these circumstances ‘review’ and ‘appeal’ are interchangeable;[31]
[31]Tasty Chicks (2011) 245 CLR 446, [5].

(e) further, the Court noted that “an ‘appeal’ from an administrative decision to a Court is a creature of statute and it confers original, not appellate jurisdiction”;[32]
[32]Ibid.

(f) the Commissioner also submits that the Objection Proceeding (in relation to the Second Period) is one in which the LIV must show that all of its employees are engaged in work of an exclusively charitable nature, and that otherwise the LIV has failed on the objection it has made. The Commissioner submits that the LIV has called no evidence to establish that all its employees were so engaged;[33]
[33]T183.21-184.12.

(g) the LIV in substance concedes that it has not sought to prove, in relation to the Second Period, that all its employees were exclusively engaged in work of a charitable nature.[34] The LIV’s response is to assert that it is a matter of characterisation not proof, and that it argues that it is for the principal overall purpose that all employees pursue their general activities;
[34]T193.25-31; T194.1-2.

(h) I also observe that at trial both parties approached the hearing in a manner wholly consistent with it being a normal trial of the Refund Proceeding claims by way of a rehearing de novo of the issues raised by the Objection Proceedings. At trial this included the filing of extensive evidence, the LIV adducing additional evidence in chief, and extensive cross-examination;

(i) the above matters suggest that the review/appeal is effectively a rehearing de novo, restricted to the grounds of the objection and the grounds for disallowance, unless otherwise ordered; and

(j) In this regard, as Ginnane J considered of significance in Mould, I also regard the fact that the LIV did not have the opportunity to receive any form of hearing in respect of its objection, before the Commissioner, makes it more likely that the appeal before this Court pursuant to s 109 of the TA Act, as was the position in the particular case before his Honour, is a rehearing de novo on the merits.

At all events the Commissioner concedes that the Refund Proceedings is properly before the Court in relation to the First Period.[35]
[35]Commissioner’s Submissions 7 May 2014, [4].

Further, as already mentioned the Commissioner has acknowledged by its submissions that in respect of the procedural issues it raises, the Commissioner does not argue that the LIV “falls between stools”.[36] I have taken the above submission by the Commissioner to convey that it does not argue that were the LIV to succeed in satisfying the requirements of s 48(1)(a) of the PT Act, and the exemption in either the former s 48 or the current s 48, it would have a process before the court which:
[36]T149.6-11

(a) by reason of the Refund Proceeding would enable it to obtain a declaration as to its charitable status under s 48(1)(a) of the PT Act for the First Period;

(b) the declaration referred to in (i) above in respect of s 48(1)(a) (in the terms sought by the LIV namely that it had a dominant purpose, that is a charitable purpose), would render that declaration effective to ensure that the LIV’s charitable status was established also pursuant to s 48(1)(a) of the current PT Act;

(c) were the LIV to be successful on its primary argument under s 48(1)(a), then, in the First Period, because the Commissioner has made a concession in relation to the wages which came within s 48(1)(b), the LIV would satisfy both limbs of s 48(1) in the First Period;

(d) were the LIV to be successful on its primary argument under s 48(1)(a) in relation to the Second Period, either as a result of declarations as to its charitable status in the First Period pursuant to the Refund Proceeding, or pursuant to the Objection Proceeding, the LIV would still need to establish that in the Second Period, it has satisfied s 48(1)(b), in relation to wages. In that regard the Commissioner argues that the LIV has not adduced any evidence to demonstrate that the Commissioner’s determination in relation to wages paid to the LIV employees in the Second Period is in error.

Further, in my view the procedural argument ultimately falls away because:

(a) of my ultimate findings herein that the LIV has not established that it comes within s 48(1)(a) of the PT Act, for the reasons stated below;

(b) in the Second Period the LIV’s case is that all its employees should be found to be engaged in charitable work because all its employees were either engaged in its charitable work or were working on activities which were ancillary to its charitable work, and directed to ensuring its charitable work could be undertaken;

(c) the LIV does not, however, seek to prove that in the Second Period, any specific wages were paid, or payable, to persons engaged exclusively in work of a charitable nature;

(d) for the reasons stated below, I find that the LIV’s employees were not all engaged directly or indirectly in the LIV’S charitable work; and

(e) for the reasons stated below, I find that not all LIV employees were engaged exclusively in work of a charitable nature.

Although as I have already noted, it is ultimately not necessary for me to decide the procedural question raised by the Commissioner in connection with the Objection Proceeding and the Refund Proceeding, I have however taken the view that I should address the procedural issues, as I have done above, in case I am wrong about the primary substantive issues dealt with below.

The Substantive Payroll Tax Issues

Section 6 of the PT Act imposes payroll tax on all "taxable wages". The employer is liable to pay payroll tax under s 7, in an amount ascertained by reference to schedules to the PT Act per s 8. "Taxable wages" are defined in s 10 and s 11 of the PT Act, in part, as "wages, other than exempt wages, that are paid or payable by an employer for services performed" in certain circumstances.

Part 4 of the PT Act contains provisions that define the scope of "exempt wages". Section 48 enacts an exemption for non-profit organisations.

In the periods covered by these proceedings, s 48 of the PT Act took two forms.

In the First Period, the former s 48 provided the basis of an exemption from payroll tax. That section has been set out above.

The former s 48 was amended by s 3 of the State Taxation Acts Further Amendment Act 2011 (Vic), with effect from 1 July 2012. Of that amendment, the explanatory memorandum stated:[37]

The High Court decision in Commissioner v Word Investments Limited[38] has expanded the common law definition of charitable organisation to include organisations that conduct predominantly commercial activities to fund their charitable objects or donate their profits to another charity. This, in turn, expanded the scope of the exemption available for wages paid or payable by charitable organisations.
The new provision restores the long-standing policy position that wages paid or payable to employees engaged in the commercial activities of a charity that are unrelated to its charitable purposes are not exempt from payroll tax. The amendment ensures that only wages paid or payable to employees engaged in exclusively charitable activities are exempt. While the High Court decision relates to a charitable purpose, it is intended that the "exclusive" criterion also applies to religious, benevolent, philanthropic or patriotic purposes referred to in section 48 of the Payroll Tax Act 2007.
This will place non-profit organisations that undertake commercial activities on the same level playing field as commercial enterprises, which is consistent with the principle of competitive neutrality.

[37]Explanatory Memorandum, State Taxation Acts Further Amendment Bill 2011 (Vic), 3.

[38](2008) 236 CLR 204.

Secondly, in the period on and from 1 July 2012, current s 48 provided for an exemption to payroll tax, but did so in terms which altered the former s 48 as highlighted below:

48 Non-profit organisations
(1)Wages are exempt wages if the Commissioner is satisfied that the wages are paid or payable-
(a) by any of the following- …
(iii)a non-profit organisation having as its ~~sole~~ whole or dominant purpose a charitable, benevolent, philanthropic or patriotic purpose (but not including a school, an educational institution, an educational company or an instrumentality of the State); and

(b)to a person engaged exclusively in work of a religious, charitable, benevolent, philanthropic or patriotic nature for the institution or non-profit organisation.

Dominant purpose a charitable purpose
The LIV’s contentions

The LIV submits that during the Relevant Period its dominant purpose was a charitable purpose under s 48 of the PT Act.

The LIV submits that its dominant purpose was to promote the development of the law and the legal profession for the benefit of the public.[39]
[39]Amended Statement of Claim 5 February 2014, [13].

The LIV contends that during the Relevant Period the LIV undertook a range of activities to achieve its objects including:

(a) advocacy-related activities - including the development of legal policy and the provision of legal practice support to members, as well as advocating for access to justice including reforming civil justice, funding legal aid, promoting appropriate dispute resolution, reforming tort law and accessing interpreters in civil matters;

(b) referral services - including operation of a pro bono referral service, the LIV Legal Assistance Service administered by the Public Interest Law Clearing House, and the Legal Referral Service;

(c) education and professional development - including making Continuing Professional Development rules, practical legal training in conjunction with the College of Law, and managing and coordinating a Court Education Program at the Supreme and County Courts;

(d) publications - including publishing the Law Institute Journal;

(e) delegated functions - including functions delegated to the LIV by the Legal Services Board (LSB) and the Legal Services Commissioner (LSC);

(f) information and practice resources - including operating a specialist law bookshop, a costing service, the Mental Health and the Legal Profession project and the LIV library. The LIV ethics department also provides confidential advice, summaries of recent case law, presentations on ethical principles and solutions to practical problems faced by the legal profession; and

(g) marketing - including providing strategic direction to the LIV's business, and developing, presenting and delivering the LIV's websites and electronic communications.

The LIV asserts that during the Relevant Period its dominant purpose was to promote the development of the law and the legal profession for the benefit of the public. It submits that this purpose is a charitable purpose under s 48 of the PT Act, and that any benefits to LIV members were an incidental, though an important and necessary consequence of the LIV’s pursuit of the development of the law and the legal profession.

The LIV argues that during the Relevant Period all its staff members were involved in work of a charitable nature, on the basis that all of the activities of the LIV were related to its charitable purpose of promoting the development of the law and the legal profession.

Further, the LIV argues that to the extent its staff were involved in commercial activities, those employees were involved in activities of a commercial nature which were undertaken in furtherance of the charitable purpose of the LIV.

The LIV also argues that further or alternatively to the above arguments, to the extent that the LIV staff were involved in any activities which were not in the nature of the pursuit of the said charitable purpose, such activities were purely incidental to the LIV’s dominant charitable purpose.

The Commissioner’s contentions

The Commissioner pleads that the LIV’s objects and stated activities included:

(a) improving member services and benefits;

(b) operating as a ‘member services organisation’;

(c) undertaking the duties of a Recognised Professional Association (“RPA”) as defined by the Legal Practice Act 1996/Legal Profession Act 2004;

(d) focusing on member retention, growth and representation;

(e) focusing on revenue generation from key income producing areas, including membership subscriptions and activities and bookshop sales and commissions; and

(f) focusing on expenditure attributable to the provision of membership services.[40]

[40]Defence, [8] and [12].

The Commissioner also pleads as significant that the LIV’s purposes include its role as leader and innovator of the legal profession; to support, inform and educate its members and to raise the profile and standing of the legal profession and to advocate justice for all.

Before assessing the strength of the LIV’s submissions, it is necessary to determine the meaning of the expressions “dominant purpose” and “charitable purpose” as employed by s 48.

Meaning of “dominant purpose”
The LIV’s contentions

The LIV submits that the meaning of “dominant purpose” has been held by the High Court to be the “purpose which was the ruling, prevailing, or most influential purpose”.[41] In the context of legal professional privilege, a “‘dominant purpose’ is one that predominates over other purposes; it is the prevailing or paramount purpose”.[42]
[41]Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404, 416.
[42]AWB Ltd v Cole (No 5) (2006) 155 FCR 30, 45 [44], citing AWB v Cole (2006) 152 FCR 382, [105]-[106] and Commissioner of Taxation (Cth) v Pratt Holdings (2005) 60 ATR 466, [30].

The Commissioner’s contention

The Commissioner argues for an interpretation of “dominant purpose” that conforms with the definition as it is applied to charitable institutions.

For an institution to be a “charitable institution” it must only have charitable objects.[43] An organisation with both charitable and non-charitable purposes is treated in law as non-charitable.[44] However, where the non-charitable purposes are merely incidental or ancillary to the main charitable purpose, the organisation is a “charitable institution”.[45]
[43]Commissioner’s Outline of Submissions, [22].
[44]See Navy Health Ltd v Federal Commissioner of Taxation (2007) 163 FCR 1, [58], citing Attorney-General (NSW) v Adams (1908) 7 CLR 100, and Smith v West Australian Trustee Executor & Agency Company Ltd (1950) 81 CLR 320. See also G E Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) [13.15].
[45]Congregational Union of New South Wales v Thistlethwayte (1952) 87 CLR 375, 442.

Those propositions were stated by Windeyer J in Stratton v Simpson:[46]
[46]Stratton v Simpson (1970) 125 CLR 138, 149-151 (‘Stratton’). See also Inland Revenue Commissioners v City of Glasgow Police Athletic Association [1953] AC 380, 405.

A gift to an institution that has several objects or purposes, some charitable some not, one or more of which it can lawfully pursue independently of others, is not a gift to charity. It does not become charitable simply because one of the objects, being charitable, is called the main object of the institution.
…
when the question is whether any institution is a charitable institution, the test lies in ascertaining what is its main object.
In Keren Kayemath Le Jisroel Ltd v Inland Revenue Commissioners, Lord Tomlin said:
“I well appreciate the argument which says that if you once find that the main object is charitable you cannot destroy the charitable character of the main object, because the ancillary powers, which are incidental to it, are, some of them, in themselves, not charitable.”

And in this Court, Dixon CJ, McTiernan, Williams and Fullagar JJ said in Thistlethwayte’s Case:
“An institution is a charitable institution if its main purpose is charitable although it may have other purposes which are merely concomitant and incidental to that purpose.”

In the same case, Windeyer J expanded on what is meant by the “main object” test:[47]

The phrase “main object” has long been part of the vocabulary of lawyers concerned with charitable trusts; and it has been taken to express a criterion of their validity. …
In itself the phrase “main object”, as used in legal writing, is ambiguous: but in any particular case the context or the topic ordinarily shows in which of two senses it is used. Sometimes it means the principal object of an institution having also secondary objects or activities which, although of less importance, are capable of being lawfully pursued independently of and without their having any essential bearing upon the pursuit of the main object. On the other hand the words can postulate a dominant object, other objects being all incidental, subservient and ancillary, only lawfully to be pursued as conducive to promoting the main object.

[47]Stratton (1970) 125 CLR 138, 148. See also Royal Australasian College of Surgeons v Federal Commissioner of Taxation (1943) 68 CLR 436, 448, 452; Federal Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204, [17]-[18] (‘Word Investments’); and G E Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) [13.15].

The Commissioner submits that these general law propositions inform the proper construction of s 48 of the PT Act. It is because the non-charitable objects cannot be independent, and must be incidental, subservient and ancillary to the charitable objects, in order for an organisation to be charitable, that “dominant” in the PT Act must be construed according to the second sense identified by Windeyer J.

The Commissioner makes the further additional points:

(a) in Word Investments[48] the High Court referred to Stratton, saying:
[48](2008) 236 CLR 204, [17].

“in examining the object, it is necessary to see whether its main or predominant or dominant objects, as distinct from its concomitant or incidental or ancillary objects, are charitable”;

(b) if it was the case that the PT Act permitted the classification of an organisation as charitable despite it having independent, non-charitable objects, such an approach would represent a significant change in the law of charity by reference to Stratton;

(c) the above “change”, as asserted by the LIV, would be inconsistent with s 7M of the Charities Act 1978 which proceeds upon the assumption that a charity cannot have independent, non-charitable purposes;

(d) the proper construction of the word “dominant” is in conflict with the LIV’s assertions about its meaning which is drawn, in a large measure from the meaning of the word “dominant” in cases concerning schemes under Part IVA of the Income Tax Assessment Act 1936 (Cth);[49]

(e) if the LIV has non-charitable objects the LIV must not only establish that its charitable objects are paramount, the LIV must also establish that its non-charitable purposes are not independent purposes, but are merely incidental, subservient and ancillary to its charitable purposes, and only pursued to promote its charitable purposes.

[49]LIV submissions, [2.1.2].

LIV’s further contentions

The LIV contends that the Commissioner has applied the wrong test. It submits that the relevant test is whether the LIV has as its dominant purpose a “charitable purpose”, not whether the LIV is a “charitable institution”. The LIV submits that the cases cited by the Commissioner, including Navy Health Ltd v FCT, Congregational Union (NSW) v Thistlethwayte and Stratton were cases concerned with the meaning of “charitable institution”, rather than the question whether the “dominant purpose” is a “charitable purpose” for the purposes of s 48 of the PT Act.

The LIV further submits that the Commissioner’s position on the interpretation of “dominant purpose” in s 48 is wrong for the following reasons:

(a) the term “charitable purpose” is different to “charitable institution”. In Commissioner of Land Tax (NSW) v Joyce,[50] the High Court considered the exemption from land tax in respect of “land owned by or in trust for a charitable or educational institution if the institution… is carried on solely for charitable or educational purposes”. Menzies J held:
[50](1974) 132 CLR 22.

[The trustees] are individuals holding as trustees for charitable purposes. The land is not owned by a charitable institution… The trust, however, is plainly one for charitable purposes…[51]
[51] Ibid, 28.

(b) accordingly, the LIV submits that an organisation can have a charitable purpose, but not be a charitable institution;

(c) under the Pay-roll Tax Act 1971 (Vic), the predecessor to the PT Act, a public benevolent institution was entitled to exemption from payroll tax.[52] In 1992, the exemption was broadened to include a “charitable body”.[53] In 2007, the term “charitable body” was replaced with “non-profit organisation” as part of the modernisation and harmonisation of the payroll tax legislation;[54]

(d) the term “public benevolent institution” is a narrower term than “charitable”.[55] By extending the exemption to “charitable body” (and later “non-profit organisation”), the Court should infer that the Parliamentary intention was to broaden the scope of the exemption; and

(e) in addition, the LIV refers to the above evaluation of the PT Act and submits that if Parliament wanted the exemption to apply to a “charitable institution” rather than a “non-profit organisation having as its sole [or whole] or dominant purpose a charitable…purpose”, it would have drafted the relevant provisions accordingly.[56]

[52] Section 10(1)(ba).

[53] The new s 10(1)(bb), as inserted by the State Taxation (Amendment) Act 1992.

[54] See the Explanatory Memorandum, Payroll Tax Bill 2007 (Vic), 1, 16, 17.

[55]See Perpetual Trustee Co Ltd v Commissioner of Taxation (Cth) (1931) 45 CLR 224, 232 (Starke J) and 233-234 (Dixon J); Aid/Watch Inc v Commissioner of Taxation (2010) 241 CLR 539 (Aid/Watch), [16]; Central Bayside v Commissioner of State Revenue (2005) 60 ATR 151, [39] (Byrne AJA in dissent).

[56] See for example item 1.1 of s 50-5 of the Income Tax Assessment Act 1997 (Cth).

The LIV contends:

(a) that the Commissioner’s case and arguments in relation to dominant purpose are inconsistent with s 48 of the PT Act;

(b) under both the former s 48 and the current s 48 the question is whether the LIV is “a non-profit organisation having as its … dominant purpose a charitable … purpose”. The LIV submits that it is clear from the words of s 48 that a non-profit organisation can satisfy the requirements so long as its dominant purpose is a charitable purpose, even if it has other purposes;

(c) that here it would not be permissible for the Court to read down the provision such that the relevant organisation must only have charitable objects or that any non-charitable purposes must be merely incidental or ancillary to the main charitable purpose as submitted by the Commissioner;[57] and

(d) points out that the High Court held in Project Blue Sky Inc v Australian Broadcasting Authority[58] that “a court construing a statutory provision must strive to give meaning to every word of the provision”.[59] Accordingly, the construction put forward by the Commissioner does not give meaning to the words of the provision “a non-profit organisation having as its … dominant purpose a charitable … purpose”.

[57]See Defendant’s Outline of Submissions, [22].

[58](1998) 194 CLR 355.

[59]Ibid, [71] (McHugh, Gummow, Kirby and Hayne JJ).

Conclusion on the question of statutory construction of s 48

In my view the starting point should be a focus on the language used by s 48(1) of the PT Act. In the respect presently under consideration the PT Act provides that to be entitled to an exemption from payroll tax, relevant wages must be paid or payable by an organisation having as its dominant purpose a charitable purpose. The word dominant in its ordinary and natural meaning conveys a prevailing or ruling characteristic. However, I reject the LIV’s argument that in s 48(1)(a) the words “dominant purpose” are so broad, in their context, to mean a purpose which is no more than most influential or prevailing. In contradiction to a case like Stratton which in my view informs the concept of purposes or objects in this area, the acceptance of such a proposition would mean that an organisation would enjoy the special status of an exempt organisation on a charitable basis even though it pursued objects independent of its most influential or prevailing object, and even though those independent less dominant objects did not have an essential bearing, nor were incidental or ancillary to the main charitable object, but rather were being pursued as conducive to promoting the main object.

I consider that there is no assistance to be derived in the cases from possible distinctions which may in certain instances exist between an entity described as a charitable institution and as here an organisation required to have as its dominant purpose a charitable purpose.[60] In Victorian Women Lawyers’ Association Inc v Commissioner of Taxation, French J, as he then was, accepted that the law informing the meaning of the words “charitable purpose”, was appropriately drawn from jurisprudence concerned with “charitable institutions”.[61]
[60]Northern NSW Football Ltd v Chief Commissioner of State Revenue (2011) 281 ALR 147 concerned s 48 of the Payroll Tax Act 2007 (NSW), there the Court declined to distinguish Word Investments on the basis that it concerned a charitable institution, as opposed to a non-profit organisation whose dominant purpose is a charitable purpose. Refer also ([7]-[9]) and G E Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) [13.15].
[61](2008) 170 FCR 318, [24]–[26] (‘Victorian Women Lawyers’ Association’).

What is significant in ascertaining the meaning of the relevant part of the subject provision is that the meaning of the key words used is informed by the applicable common law, absent such clear language that renders no such reference as helpful.

I accept the Commissioner’s submission that the interpretation of the words “dominant purpose” in s 48(1) of the PT Act should be informed by and conform with the approach which has been applied to charitable institutions in many authoritative cases. As established in Stratton, for a purpose to be dominant, it must be established as the main objective of the organisation under consideration, and in that way the prevailing or ruling objective. That will no longer be the case if it is shown that the subject organisation has other independent objects or activities which are lawfully pursued without having any essential bearing upon the pursuit of the main object.

Meaning of “charitable”

The LIV and the Commissioner are not in dispute about the definition of the word “charitable” in s 48 of the PT Act.

The meaning of “charitable” is to be understood by reference to its source in the general law as it has developed.[62] In the absence of a contrary intention in the statute, the word “charitable” should be given its technical legal meaning, which is set out by Lord Macnaghten in Commissioner for Special Purposes of Income Tax v Pemsel[63] by reference to the four heads of charity and the spirit and intendment of the preamble of the Statute of Charitable Uses Act 1601 (UK). The LIV submits that for present purposes the relevant head is the fourth head of charity; “purposes beneficial to the community”.[64]
[62]Aid/Watch (2010) 241 CLR 539, [23]-[24] (French CJ, Gummow, Hayne, Crennan and Bell JJ).
[63][1891] AC 531 (‘Pemsel’).
[64]Ibid, 583.

In Incorporated Council of Law Reporting (QLD) v Federal Commissioner of Taxation Barwick CJ stated that “the sustenance of the law is a benefit of a material kind which enures for the benefit of the whole community”.[65] Windeyer J, in a concurring judgment, also relevantly stated that “the promotion of the learning of the law and adding to the number of men learned in the law and augmenting their learning are in themselves charitable objects and beneficial to the community”.[66]
[65](1971) 125 CLR 659, 669 (‘Incorporated Council of Law Reporting’).
[66]Ibid 671-672, see also Victorian Women Lawyers’ Association (2008) 170 FCR 318, 347 [125]–[126].

The LIV’s alternative contention is that that the dominant purpose is charitable because its principal object and activities are directed towards the promotion of the legal profession and to the extent that any of its objects or activities are not so directed, they are ancillary and undertaken to enable the main principal object to be pursued.[67]
[67]See Incorporated Council of Law Reporting (1971) 125 CLR 659; and Pemsel [1891] AC 531 and the Preamble to the Statute of Charitable Uses.

The Commissioner accepts that the maintenance and sustenance of the law is a charitable purpose.[68]
[68]Commissioner’s Outline of Submissions, [20]; T155.1-3.

Identifying the LIV’s dominant purpose

Although both parties are generally in agreement as to the process the Court should undertake to identify the dominant purpose of the LIV, the processes they advance differ slightly as a result of their competing interpretations of the meaning of “dominant” within s 48 of the PT Act.

The LIV submits that in order to determine its dominant purpose, the assessment should be made holistically, having regard to its objects, the history of its formation and the activities it has undertaken since its formation.[69]
[69]Victorian Women Lawyers’ Association (2008) 170 FCR 318, 352 [146]; Word Investments (2008) 236 CLR 204, [17].

The Commissioner relies in part on the test identified in Word Investments:

It is necessary to examine the objects, and the purported effectuation of those objects in the activities of the institution in question. In examining the objects, it is necessary to see whether its main or predominant or dominant objects, as distinct from its concomitant or incidental or ancillary objects, are charitable.[70]

[70](2008) 236 CLR 204, [17].

The Commissioner submits that Word Investments was a case where the company had only charitable objects.[71] Where an organisation has both charitable and non-charitable objects, it is necessary to evaluate the relationship between them to determine the main or dominant purpose of the organisation.
[71]Ibid, [19].

There is no single and universally applicable test for determining the main or dominant purpose of an organisation. It is a question of characterisation and of degree whether a body with mixed objects is or is not charitable.

The Commissioner submits that the most appropriate approach was identified by the Privy Council in Latimer v Commissioner of Inland Revenue:[72]

The distinction is between ends, means and consequences. The ends must be exclusively charitable. But if the non-charitable benefits are merely the means or the incidental consequences of carrying out the charitable purposes and are not ends in themselves, charitable status is not lost.

[72]Re Crown Forestry Rental Trust; Latimer v Commissioner of Inland Revenue [2004] 1 WLR 1466, [36]. See also Hubert Picarda, The Law and Practice Relating to Charities (Bloomsbury Professional, 4^th ed, 2010) 333.

In Victorian Women Lawyers’ Association[73] French J (as he then was), provided the following guidance in relation to the characterisation of an organisation in question:

The characterisation of VWL is to be assessed holistically. In making that assessment the primary focus must fall on its formal objects as stated in its constitution. But they are to be read in light of the history of its formation, together with the activities it has undertaken since its formation.

[73](2008) 170 FCR 318, 352 [146].

Before dealing with the objects and activities of the LIV it is of assistance to first consider the question of how the determination of dominant purpose and charitable purpose has been applied to professional associations in the past.

Professional association cases

The test, as it is applied to professional associations, was put in this way by Atkin LJ in Inland Revenue Commissioners v Yorkshire Agricultural Society:

There can be no doubt that a society formed for the purpose merely of benefiting its own members, though it may be to the public advantage that its members should be benefited by being educated or having their aesthetic tastes improved or whatever the object may be, would not be for a charitable purpose, and if it were a substantial part of the object that it should benefit its members I should think that it would not be established for a charitable purpose only. But, on the other hand, if the benefit given to its members is only given to them with a view of giving encouragement and carrying out the main purpose which is a charitable purpose, then I think the mere fact that the members are benefited in the course of promoting the charitable purpose would not prevent the Society being established for charitable purposes only.[74]

[74]Inland Revenue Commissioners v Yorkshire Agricultural Society [1928] 1 KB 611, 631.

The principal cases relied on by the LIV, where a professional association was found to exist for a purpose other than the benefit of its members, include the following.

(a) In The Commissioners of Inland Revenue v Forrest[75] the House of Lords recognised that advantages conferred by a professional association (in this case an association of civil engineers) upon its members may be “an incidental, though an important and perhaps a necessary consequence” of the way in which the association pursues its charitable purposes. It was held that ‘the action of [a] society may incidentally benefit the profession to which its members belong… [but] “that which [the] society does is something higher and larger than the mere education of students and others for the profession”’.[76] In Forrest the relevant exemption sought was “for the promotion of science”.
[75](1890) 15 App Cas 334 (‘Forrest’).
[76] Ibid 354, 356.

(b) In 1943, the High Court considered whether the Royal Australasian College of Surgeons was a scientific institution in Royal Australasian College of Surgeons v Federal Commissioner of Taxation.[77] Starke J noted that the substantive question was whether the College was a body for the advancement of professional objects and interests or for “something higher and larger”, namely, the promotion of science in the advancement of surgical knowledge and practice. The Court held that the College was a scientific institution and Starke J concluded that:
[77](1943) 68 CLR 436.

The activities of the College may benefit its fellows, but the facts related speak for themselves and establish that the College is doing “something higher and larger” than the mere promotion of professional interests. It is actively engaged in the promotion and advancement of science in the advancement of surgical knowledge and practice. And that, I think, is the main and prevailing and the characteristic nature of the activities of the College. As Lord Watson observed in Inland Revenue Commissioners v. Forrest “I do not doubt that membership” of the College “is accompanied with a certain amount of prestige which may prove to be of service to the member in his professional career; but I believe that the same result would attend membership of any society which effectively promoted a branch of science intimately connected with the profession or business in which the member was engaged.”[78]
[78] Ibid 449.

(c) In 1952 the House of Lords decided Royal College of Surgeons of England v National Provincial Bank Ltd.[79] In the leading judgment, Lord Morton held that:
[79][1952] AC 631.

… I think that the promotion of the interests of practising surgeons is “an incidental, though an important and perhaps a necessary consequence” of the work of the college in carrying out its main object, the promotion and encouragement of the study and practice of the art and science of surgery.[80] (Emphasis added)
[80] Ibid 659.

Lord Reid held that:
I think that promoting the practice of surgery is a different thing from promoting the interests of those who practise surgery.[81]
[81] Ibid 662.

(d) More recent decisions of the Federal Court indicate that it is often inevitable that individual members of a charitable organisation obtain private benefits.[82]
[82]Tasmanian Electronic Commerce Centre Pty Ltd v Commissioner of Taxation (2005) 142 FCR 371; Commissioner of Taxation v Triton Foundation (2005) 147 FCR 362; Commissioner of Taxation v Co-operative Bulk Handling Limited (2010) 189 FCR 322.

(e) In 2008, French J stated in Victorian Women Lawyers’ Association:[83]

The activities of the association, including the social and networking functions, may have benefited its members. They were, however, plainly directed to the larger object and in many cases to a larger audience, the legal profession in Victoria. They were in aid of the principal objective. There was certainly a relentless push by the association for changes to attitudes and practices affecting women within the profession. There were representations and public positions taken from time to time on matters affecting the position of women generally.[84] (Emphasis added)

[83](2008) 170 FCR 318.

[84] Ibid [149].

In my view the above cases all turn on their own facts and on this aspect assist only to the extent that they highlight the way the courts have, in appropriate cases, accepted that the activities of an organisation which are not directly pursuing that organisation’s charitable object or objects may, when they are sufficiently consonant with the higher and larger charitable objectives, be viewed as having a dominant purpose which is charitable. In my view the above cases do not materially depart from the principles referred to above in Stratton.

Characterisation of the dominant purpose of the LIV
Objects of the LIV

The Objects of the LIV are contained in Clause 2 of Part A of the LIV’s Constitution. The LIV has had four Constitutions over the Relevant Period, however Clause 2 has remained relatively unchanged. In these proceedings it has been agreed by the parties that the 2012 Constitution can be treated as representative for the whole of the Relevant Period. Earlier Constitutions are however also in evidence.[85]
[85]LIV Submission, 1 September 2015 at [2.4.2].

The Objects of the LIV, set out in the 2012 Constitution are:[86]
[86]Exhibit MBY-4 to the Michael Brett Young Affidavit.

2. Objects
The objects for which the Company is established are:
(1)to take over the funds and other assets and liabilities of the former statutory body known as the Law Institute of Victoria;
(2)to foster the rule of law and to promote improvements and developments in the law;

(3) to safeguard the independent of the legal profession;
(4)to strengthen the community’s understanding and confidence both in the legal profession and in the processes by which the law is made and administered;
(5)to act as a public voice for the expression of members’ opinions;
(6)to represent the professional interests of members both generally and individually in their relations with the community including governments, courts and other institutions;
(7)to promote and ensure compliance with high standards of professional and ethical conduct, professional practice and client service among Australian legal practitioners and to provide advice in relation to such matters;
(8)to accept delegated functions from the Legal Services Board and the Legal Services Commissioner and to enter into the necessary arrangements with those bodies for the completion of that work in accordance with the Legal Profession Act 2004;
(9)to accept referrals from the Legal Services Commissioner to investigate and provide recommendations in respect of disciplinary complaints in accordance with the Legal Profession Act 2004;
(10)to provide and co-ordinate programs relating to continuing legal education and specialist accreditation for Australian legal practitioners;
(11)to provide a useful and cost effective range of services, facilities and benefits to members;
(12)to apply for and hold a Club Licence and any applicable permits under the Liquor Control Act;
(13)to exercise any powers that the company has by having the legal capacity of a natural person, including performing any act or function which it is authorised or required to do by any law.

The LIV’s position

The LIV contends that historically, the objects of the society from which the LIV was incorporated were focused on legal education, maintenance of the integrity of the legal profession and law reform. A focus on these objects also continued throughout the Relevant Period and can be seen in the professional activities outlined in Mr Brett Young’s affidavit of 11 April 2014, summarised below. Mr Brett Young’s evidence was that the LIV’s professional activities directly relate to objects 2-7, 10 and 11 of Clause 2 of the LIV Constitution.

The LIV submits that it has in the Relevant Period focused on legal education, maintenance of the integrity of the legal profession and law reform throughout the Relevant Period. The LIV’s submission of 1 September 2014 summarises its activities under the headings:

(a) advocacy related activities;

(b) publications;

(c) delegated functions;

(d) referral services;

(e) disaster legal help;

(f) Victorian legal aid funding campaign;

(g) professional benefits; and

(h) inducement benefits.

The LIV submits that during the Relevant Period, the LIV has, in addition to these professional activities, offered various professional benefits to its members (as well as non-member legal practitioners and, at times, the public) such as: education and professional development, including a CPD program; and information and practice resources, including the LIV library.

The LIV submits that these professional benefits are a means by which it promotes and develops the law and the legal profession. The LIV asserts that the professional benefits the LIV provided to its members during the Relevant Period were “an incidental, though an important and perhaps a necessary consequence” of the way in which the LIV pursued the promotion of the development of the law and the legal profession for the benefit of the public.

The LIV submits that its actions were directed towards “something higher and larger” than the mere promotion of the professional interests of its members; the LIV was actively engaged in promoting access to justice, the promotion of the learning of the law and the advancement of legal knowledge and practice.

The Commissioner submits that, from a macroscopic perspective the LIV in 2012-2013 received revenue of about $20 million and that the LIV expended well over half of that revenue on membership services and regulatory costs.[182] The Commissioner pointed out that the LIV has not in this proceeding explained with any specificity on what it has expended those revenues.
[182]T174.4-17.

The 2013 Annual Report establishes that the LIV received $8 million in relation to the regulatory activities it carried out for the LSB. The LIV also received in the same period over $4 million from members’ subscriptions.

The Commissioner argues that in relation to the LIV website (in respect of which the parties have agreed as to the login requirements specified above) although some parts of the LIV website are available for public view, a number are not available to the general public.[183]
[183]T175.6-19.

The Commissioner points out that the LIV’s evidence is that its “Legal Referral Service” is only available to LIV members.

The Commissioner also points out that LIV members receive a discount at the LIV Book Shop.

There is a delineation of treatment in the accredited specialisation program run by the LIV, in that non-members cannot apply to be accredited unless they are barristers or members of other legal societies.[184]
[184]T62.

The Commissioner points out that the evidence establishes that the LIV negotiates a number of discounts and other benefits with third party suppliers, and does so for the benefit of its members. These include life and health insurance discounts, home and investment loan discounts, and office supply discounts. The LIV also negotiates certain benefits on purchases of motor vehicles, on car rental agreements, at the retailer Harvey Norman and vouchers at petrol outlets. The LIV negotiates discounts at hotels, the theatre, the opera, the ballet and at concerts. The Commissioner notes that the LIV describes the above as “inducement benefits” meaning that such benefits are believed to induce lawyers to join the LIV.

The Commissioner however, submits that there is no evidence, or other basis, upon which to conclude that the provision of the above mentioned “member benefits” in the nature of discounts with third party suppliers, does in fact induce lawyers to become members of the LIV.[185]
[185]T178.1-13; T181.20-25.

Further, the Commissioner submits that it is not clear what the LIV relies upon in asserting that members of the LIV consider that it is the LIV’s promotion of the law generally that is more valuable to them than the “member benefits” that the LIV offers.[186]
[186]T178; T179.1-3.

The Commissioner submits that although Mr Brett Young in good faith expressed his opinion or belief that the core business of the LIV was its professional activities, his evidence was misguided because it addressed the wrong question.

As to the key question the Commissioner submitted:

In fact, we propose for Your Honour that the critical question instead is how on the evidence adduced in truth it's proposed in the facts, both that object 2(2) is primary and that everything else is incidental? We submit to Your Honour on the evidence that Your Honour won't be satisfied as to dominant purpose.[187]

[187]T182 T1-7.

The Commissioner refers to Mr Brett Young’s evidence at paragraph 23 of his affidavit sworn 11 April 2014, which says that the LIV’s professional activities directly relate to the constitutional objects and do not primarily service members’ needs. The Commissioner argues that even if Mr Brett Young’s evidence at paragraph 23 was ruled admissible, it should be disregarded because Mr Brett Young confirmed during his cross-examination that he did not give his evidence in paragraph 23 by reference to the LIV’s Constitutional Objects.[188]
[188]T180.1-13; T50-52.

Wages issue

The Commissioner submits that in the financial year 2012/13 the claim pursued by the LIV is via the Objection Proceeding. This is because the PT Act speaks of the Commissioner’s satisfaction and there is a “decision” for the purposes of the TA Act that can be appealed to this Court.[189]
[189]T183.

Under that process there is an onus on the LIV under s 110 of the TA Act to persuade the Court that its objection should be upheld in whole or in part.

On its objection case the LIV contends that all wages were paid in respect of the pursuit of the relevant charitable purpose; that is because the LIV contends that all wages are paid for work which is at least incidental to the main charitable purposes.

If the LIV succeeds under former s 48 of the PT Act, on the issue of only purpose, sole purpose, or whole purpose, it is likely the Court would conclude that all wages are within s 48(2).

If the LIV succeeds in its case under the current s 48, in relation to the dominant purpose, it is not clear how the LIV says all wages fall exclusively within the language of the current s 48(2).

The LIV has not sought to prove what any particular wage has been paid for and is seeking to have the court accept that it need not prove that all relevant wages were paid to an employee who was engaged exclusively in work of a charitable nature. Indeed the LIV made it clear in its submissions that it is running an all or nothing case when it comes to wages. That is, it is relying upon establishing that all staff are working exclusively in order to further the LIV’s charitable purpose.[190]
[190]Plaintiff’s Amended Outline of Submissions 1 September 2014, 3.2-3.5.

If the LIV succeeds in establishing its case on a dominant purpose argument – the Commissioner submits it will fail to prove all wages are caught because there will be no proof of the non-dominant purpose work undertaken.

Further, if the LIV were to establish the relevant dominant purpose, the LIV would not establish error in the decision which is under objection. That is because the alternative case of all wages being exempt was not pursued by the LIV through the objection process.

The Commissioner submits therefore that for all relevant years the Refund Proceeding should be dismissed as follows:

(a) the first four years on the merits; and

(b) the fifth year because it is not open to the LIV to pursue a claim by writ when there has been a decision by the Commissioner.[191]

[191]T185.

In relation to the Objection Proceeding, for the first four relevant years the Commissioner submits that there has been no “decision” by the Commissioner. In relation to the fifth relevant year the Court should uphold the Commissioner’s decision.

Conclusion — LIV’s activities

The LIV’s evidence was that most of its activities have a “public component” and the majority of its activities are accessible to non-members of the LIV, and that the majority of its operations are aimed at educating either solicitors or the public.

I consider, however, the LIV’s general evidence of the type summarised to be of little persuasive weight because it is so general in its nature.

Committees

Similarly, the LIV’s general evidence about the existence of a multitude of committees, the number of persons involved, the value of professional hours of devoted to committee work and its extrapolated value, and that committee work is often directed to the production of a large number of submissions emanating from the LIV’s Legal Policy and Practice section, reflects significant efforts by the LIV in that regard. However in the overall balance I find it to be far less significant than the LIV’s overall focus on membership services, and secondly the LIV’s regulatory work.

Webpage

Although the LIV’s evidence was that 70% of some 16,000 pages on its Webpage were open to the public, no evidence was called to establish the extent to which the public in fact accessed the LIV’s Webpage or in respect of what content such access occurred.

Regulatory activities

Of the approximately $8 million recorded as revenue in the LIV’s 2013 Annual Report, $5.8 million was received by the LIV for the activities it undertook for the LSB.

Although an unquantified component of the LIV’s regulatory activities relates to its inspectors assisting legal practitioners, for example by providing better accounting methods addressing minor mistakes and providing trust accounting education and related professional development instruction, the overwhelming majority of the LIV’s regulatory activities are purely regulatory and accord for a very significant part of the LIV’s overall revenue.

The LIV also undertakes work in relation to Fidelity Fund Claims. The activities in relation to such tasks are also in the nature of regulatory work. The LIV also receives payment from the LSB in relation to litigation it conducts on behalf of the LSB and the LSC and this activity is part of the LIV’s regulatory activities. Because of disputation between LSC or LSB and the LIV about what was properly payable to the LIV for the provision of legal services in undertaking this work, the LIV have on occasion borne unspecified costs in relation to these activities.

It is to be noted that the various regulatory activities referred to above, for which the LIV was paid by the LSB, are the many such activities for which in 2012/13 the LIV was paid the total sum of approximately $5.8 million.

LIV Book Shop

The LIV’s Book Shop activities are recorded as producing $1,205,371 of revenue in the financial year 2013.

Although the LIV Bookshop is an activity which may assist in attracting members of the LIV by reason of the discount the bookshop allows to LIV members, there was no evidence which sought to establish or quantify the importance of the bookshop to members.

The LIV received “catering revenue” of $91,602 in the financial year 2013. This revenue was produced by the LIV hiring out rooms in its building. Both members of the LIV and non-members contributed to this income.

No evidence was adduced as to what impact members of the LIV ascribed to the LIV having such facilities available to members, and the evidence did not seek to establish the degree to which the rooms hired by the LIV were hired by members or non-members of the LIV.[192]
[192]T63.25-64.2; T178.21-179.3.

Legal Assistance Service

This service is a pro bono referral service administered by PILCH (now known as Justice Connect) that is asserted by the LIV to connect marginalised and disadvantaged Victorians with the legal profession. However, Justice Connect is a third party and accordingly the referral service cannot properly be said to be administered by the LIV.

Legal Referral Service

This service operated by the LIV is only available to LIV members. The service receives a very large number of calls per annum from members of the public, and not all of those calls are referred to lawyers, but to other organisations by which the caller may be assisted, for example, the Telecommunications Ombudsman. When the LIV assesses that referral to a lawyer is appropriate, that referral is usually to an LIV member.

In my view the LIV’s Legal Referral Service is predominantly for the benefit of its members and provides very little service or benefit to the public other than putting a member of the public in touch with a lawyer recommended by the LIV.

Specialist Accreditation Program

The LIV conducts specialist accreditation services for its members and for non-members. There was no evidence adduced about the ratio of member and non-member utilisation of the LIV Specialist Accreditation Program.

Member services

The LIV undertakes the process of negotiating with many organisations, such as Qantas, American Express, the RACV, golf clubs, theatres, petrol providers and many more service providers, so as to arrange a discount to LIV members for utilising their services and products.

Conclusions regarding revenue — (on the evidence)

Broadly, the LIV in the financial year ending 2013 received:

Regulatory Reimbursement	$5.786M
Legal Education Funding	$2.257M
Membership fees	$4.227 M
Membership Activities (income from activities referred to above including Continuing Professional Development activities and the LIV Bookshop)	$6.274M
Interest and Other Income	$1.232M

In the same period the LIV’s principal expenses were:

Regulatory	$3.787M
Governance and Representation	$3.051M
Membership Services	$8.949M
Financial and internal support costs	$1.801M
Other items (capitalisation fees)	$1.167M
Net Surplus	$234,168

Mr Brett Young’s evidence sought to emphasise that the regulation activities undertaken by the LIV did not reap a profit for the LIV, because in general terms the LIV spends more on undertaking those activities than it is reimbursed by the LSB and the LSC.

On the evidence referred to above and in particular the explanations given by Mr Brett Young I am not satisfied that the LIV profits from undertaking regulatory activities.

The regulatory component of the activities undertaken by the LIV, with the exception of activities in the area related to practising certificates ($490,000 in financial year 2013) and complaints ($782,000 in financial year 2013) has remained at a constant level over the six years to 30 June 2013. No evidence was directed to the degree to which there was a variation in the level of the LIV activations concerning practising certificates and complaints, in the six year period referred to above.

Resources

Although it is clearly a matter of degree, the resources which the LIV applies to its activities also suggests the conclusion that its main focus is on activities apart from and independent of its charitable purposes.

In his affidavit, Mr Brett Young identifies and prioritises the LIV's activities by reference to (a) professional activities; (b) professional benefit activities; and (c) inducement benefit activities. However, Mr Brett Young’s evidence does not reflect either (a) the Director's Statement to which I refer which sets out the principal activities of the LIV in its 2013 Financial Report; or (b) the description of activities in the 2013 Annual Report; or (c) the allocation of employees to "departments" in the LIV.

Mr Brett Young states that "professional activities" form the "core business" of the LIV and that these activities relate to the LIV's constitutional objects and do not primarily service members' needs.

However, in my view, he did not satisfactorily explain just how professional activities were the LIV’s “core business”. Further, Mr Brett Young's category of "professional activities" is self-evidently very broad and includes, it appears, most of the activities of the LIV. For this reason I have found this evidence which sought to establish that the LIV’s “professional activities” are its “core business”, of little assistance.

I also consider that the term "professional activities" here includes activities in relation to a range of the LIV's objects, both charitable and non-charitable, and the evidence does not segregate the LIV's employees' involvement in those activities and the LIV's members' involvement.

On the evidence I am unable to be at all sure whether when a member is involved in the activities of the LIV, such as accepting a referral or participating in advocacy, the member is, at least in part, doing so for his or her own professional interests. The distinction appears to be of some importance because insofar as this case is about liability to payroll tax based on the activities of employees, the claim that these activities form the "core business" of the LIV is at odds with the revenue derived from, and the expenditure on, those activities and also at odds with the small number of employees who carry out those activities.

Mr Brett Young states that "professional benefit activities" are activities which deliver information, support and practice resources to legal practitioners in the ongoing development and education of the legal profession. In relation to his evidence I accept the Commissioner's submission that these activities support the qualities, status and professional interests of members of the LIV.

In relation to "inducement benefit activities" Mr Brett Young stated that these activities "add value to membership of the LIV" by providing monetary benefits and discounts to members. He also states that those activities "supported the LIV's professional activities and professional benefit activities by helping to cover the cost of those services and activities". On this aspect I also accept the Commissioner’s submissions that this assertion has not been established by any evidence directly demonstrating that this was the position. The evidence given in this regard was, in my view, too general to be probative.

Finally, I accept the Commissioner’s submission that the nature and relative weightings of the LIV's activities is materially informed by reference to the LIV's Annual Reports and by the tasks performed by its employees. In my view both of these elements of the evidence are persuasive as to the LIV’s objective and focus.

Employees – Areas of activity

The 2013 Annual Report includes an extensive section concerning “LIV member Communications” which notes “As the peak legal body in Victoria, the LIV’s reach and influence is broad, and as a member you connect with more than 18,000 of your peers”. The LIV also describes its activities in that Report with terms including “LIV Member Communications”, “Your Voice”, “Your Career”, “Your Solution” and “Your Reputation”.

The Commissioner attached a chart to his submissions dated 7 May 2014. That chart identifies the number of LIV employees allocated to each area of the LIV’s activities and provides a description of that area of activity which is described in the LIV Annual Report. Those descriptions focus primarily on benefits to members’ practices which are said to be provided by the activities. The Commissioner’s chart also shows that significant resources are devoted by the LIV to regulatory and member-focused activities.

I consider that this matching of LIV staff to the LIV activities which are in my view primarily directed to benefiting members, demonstrates that the LIV’s non-charitable objectives and activities, being its professional and Regulatory Objects, are a significant and a key area of focus and endeavour by the LIV.

Conclusions – activities and resources

Referring to the summary of Income and Expenditure 2012/13 attached to Mr Brett Young’s typed response to the Commissioner’s letter of 22 August 2014, LIV’s Revenue was approximately $20 million in the 2012/13 financial year. Of this sum the LIV expended well over half, namely approximately $9 million on membership services and approximately a further $4 million on activities which are in my view independent of its purely charitable activities.

The sum of approximately $9 million spent on membership services and the revenue in relation to membership activities of approximately $6.2 million, against the comparator of the LIV's overall income of about $20 million and overall expenditure of about the same amount, establish in my view that the LIV’s membership activities, and operations in that regard are a very major and in my view independent component of the LIV's overall activity.

I consider that the nature and scale of the LIV’s membership activities and the above highlighted degree of focus on membership activities, services and incentives strongly militates against the conclusion that those aspects are incidental or subservient or ancillary to the LIV's main charitable purposes.

I consider that both the LIV’s very numerous activities to service, promote and attract members, and its very substantial area of operation in relation to regulatory delegations, constitute independent activities, lawfully pursued pursuant to the LIV’s objects, but do not constitute activities pursued for the purpose of promoting the LIV’s charitable objects, or only to enable those charitable objects to be pursued.

For the above reasons I am not satisfied that the LIV has established that the LIV pursues its membership activities, to the major extent that it does, in order to enable it directly or indirectly to promote its charitable purposes.

I consider that the LIV's membership activities constitute a substantial independent objective of the LIV and one of the main drivers and focuses of the LIV. Further, I consider that those membership activities are lawfully pursued by the LIV under its Constitution, however, substantially these membership activities do not have any essential bearing upon the LIV's pursuit of its purely charitable objects, in clause 2(2), (3) and (4) of the Constitution.

Additionally, the substantial amount of activity undertaken by the LIV in relation to regulatory work for the LSC and LSB, also constitutes a major and independent activity, lawfully undertaken by the LIV pursuant to Objects 8 and 9.

Similarly, I consider that the LIV’s regulatory activities do not have an essential bearing on the pursuit of the LIV’s charitable objectives, and constitute a substantial area of activity which is not incidental or ancillary to, or pursued by the LIV only to promote its charitable objects.

I consider that assessing the LIV's overall position holistically, it would be artificial to find that the pursuit of the LIV's membership activities naturally goes with, and is undertaken to assist, the achievement of the LIV's purely charitable objectives, namely to foster the rule of law and promote improvements and developments in the law, and to safeguard the independence of the legal profession and to strengthen the community's understanding and confidence in the processes by which the law is made and administered.

In coming to the view I have on this issue, I have not undertaken a simply quantitative comparison of what the LIV does, and what it receives by way of revenue and what it expends, but rather I have considered those facts which speak to the raison d’etre of the LIV and its main objectives and focus, assessing the position of the LIV holistically taking into account primarily its formal Constitutional Objectives, and considering those stated objectives, taking into account relevant background matters and its activities.

Furthermore, in my view the very substantial regulatory activity of the LIV which accounts for approximately $5.786 million of its revenue, is not in the nature of LIV activity which is either directly or indirectly undertaken in the pursuit of the LIV's purely charitable objectives. This is because the regulatory work undertaken by the LIV is work delegated from the LSB, which the LIV undertakes for the LSB as its paid agent and, as earlier addressed, the view the law has long considered as non-charitable in nature such regulatory functions, including those authorised under a statutory regime like the Legal Profession Act 2004.

Combined, the LIV's membership and regulatory activities can be seen as even more strongly demonstrating that the LIV is pursuing very major independent objectives which generate most of its revenue and account for most of its operating costs, and which are not minor or ancillary or incidental, supplemental or subservient to the LIV's charitable purposes, indeed in my view the converse is the case.

For the above reasons I am not satisfied that the LIV was at any material time an organisation having as its dominant purpose a charitable purpose.

Interest

Given my findings and decision in this matter the question of interest, which might otherwise have been payable to the LIV, does not arise.

Summary of Conclusion

For the reasons I have referred to above:

(1)In relation to both the Objection Proceeding and the Refund Proceeding:

(xvi) I am not satisfied that the LIV, in addition to being a non-profit organisation, has as its dominant purpose a charitable purpose;

(2)In relation to the Objection Proceeding:

(xvii) I am not satisfied that all the wages paid, or payable, by the LIV in the Second Period were paid to persons engaged exclusively in work of a charitable nature.

Orders

The LIV’s Objection Proceeding and the LIV’s Refund Proceeding are dismissed.

I reserve the question of costs and any other necessary consequential order.

[2015] VSC 604

21 October 2015