Nurses Club Limited and Commissioner of Taxation

[2004] AATA 1217

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2004] AATA 1217

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No TT2003/20-21

TAXATION APPEALS  DIVISION		)
Re		NURSES CLUB LIMITED

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal The Hon R J Groom (Deputy President)

Date19 November 2004

PlaceHobart

Decision The Tribunal affirms the decision under review.

..............................................

Deputy President

CATCHWORDS

Income tax – whether entitled to be endorsed as charitable institution and therefore exempt – Nurses Club Ltd – non-profit company limited by guarantee – onus on applicant – test is whether main or predominant purpose or object is charitable – Lord Macnaghten’s four heads of charity considered – main or predominant purpose or object is ownership of building and related activities – held not charitable – decision affirmed.

Charitable Uses Act 1601 (Imp)

Sub-Division 50-B of Division 50 of Income Tax Assessment Act 1997

Section 1422K of the Taxation Administration Act 1953

Salvation Army (Vic) Property Trust v The Shire of Ferntree Gully (1952) 85 CLR 159.)

Incorporated Council of Law Reporting (QLD) v Federal Commissioner of Taxation (1971) 125 CLR 659

Income Tax Special Purposes Commissioner v Pemsel [1891] AC 531

Cronulla Sutherland Leagues Club Ltd v Federal Commissioner of Taxation (1990) 90 ATC 4215

Royal Australasian College of Surgeons v Federal Commissioner of Taxation (1943) 68 CLR per 436

War Nurses Centre v Comptroller of Stamps (Victoria) 17 ATR 669.

REASONS FOR DECISION

19 November 2004 The Hon R J Groom (Deputy President)

1.      This is an application to review a decision disallowing an objection following refusal by the respondent to endorse the applicant as exempt from income tax pursuant to  subdivision 50-B of division 50 of the Income Tax Assessment Act 1997 (“the Act”).

2. The hearing of the application was held at Hobart on 12 October 2004. The applicant was represented by Ms Neroli Ellis and Ms Caroline Saint and the respondent by Mr Michael O’Farrell of counsel. A number of documents were tendered in evidence, including the documents lodged pursuant to s37 of the Administrative Appeals Tribunal Act 1975, certain supplementary documents,  a brief history of the Nurses Club, and witness statements by Ms Marie Heather Murray-Arthur, Ms Dorothy Patricia Newman, Ms Agnes Stanislaus-Large and Ms Lorraine Bailey.   No oral evidence was presented at the hearing.  Helpful submissions were made on behalf of both parties.

3.      The issue for decision in this application is whether the Nurses Club Ltd (“the company”) is entitled to be endorsed as an Income Tax Exempt Charitable Institution in the two years ended 30 June 2001 and 30 June 2002.

Background Facts

4.      On the basis of the material before me I find the following facts as set out in this and subsequent paragraphs.

(a)The company evolved from the Nurses Club which was originally established in Hobart at the end of World War 1 by a group of former Army nurses.    In 1923 a property at 180-182 Macquarie Street Hobart (“the building”) was gifted to the Nurses Club.   Inexpensive accommodation was initially provided for nurses visiting Hobart. To assist in that endeavour the Nurses Club employed a cook and a hostess.    The demand for accommodation diminished over time, however the organisation decided it should continue to use the building for the benefit of nurses.   In 1958 it was agreed that The Royal Australian Nursing Federation,  the principal representative body for nurses, should use the building for its Tasmanian headquarters.

(b)The company was incorporated on 30 June 1982.   It is a non profit company limited by guarantee.    The reason for the incorporation was to create a suitable legal entity to continue ownership of the building.   Following the incorporation the Royal Australian Nursing Federation continued to  occupy part of the building rent free.    At some point that organisation became known as the Australian Nursing Federation (“ANF”).

(c) The company’s “objects and purposes” were detailed in Clause 2 of its Memorandum of Association.    These objects and purposes are in a standard general form except for Clause 2(l) which makes an express reference to the company’s role in supporting the nursing profession.    It provides as follows:

“(l)to take any action necessary to protect and advance the interest of nurses, the nursing profession and members of the Royal Australian Nurses Federation (Tasmanian Branch).”

It should be noted that Clause 2 of the Memorandum of Association commences with the words “In addition to the basic objects of the company the objects and purposes of the company shall be deemed to include …..”. However there is no evidence before the Tribunal of any “basis objects” as such.    At the hearing it was submitted on behalf of the applicant that a search had been made for any document setting out  the basic objects, but this had been unsuccessful.   

(d)Clause 5 of the Memorandum of Association sets out a non-profit clause as follows:

“5.  Income and property of the company whensoever derived shall be applied solely towards the promotion of the objects of the company as set forth in this Memorandum of Association and no portion thereof shall be paid or transferred directly by way of dividend, bonus or otherwise howsoever by way of profit to the members of the company.”

(e)Clause 8 of the Memorandum of Association is a dissolution clause in the following terms:

“8. If upon the winding up or dissolution of the company there remains, after the satisfaction of all its debts and liabilities, property whatsoever the same shall not be paid to or distributed among the members of the Company, but shall be given or transferred to some other institution or institutions having objects similar to the objects of the company …”.

(f)The Company’s Directors Report for the years ended 30 June 2001 and 2002 each state as follows:

“PRINCIPAL ACTIVITIES

The principal activity of the company is the holding of land and buildings for the benefit of members of the Tasmanian Branch of the Australian Nursing Federation.”

(g)There are 5 Directors of the company, including the Chairman.    Each acts in an honorary capacity.   Neither director fees nor any other form of remuneration or reward is paid for the services rendered by each director.

(h)At all relevant times the directors of the company were also office holders of the ANF.   The relationship between the ANF and the company is clearly very close.    As an example before July 23, 2001 the company did not have its own bank account.   Its income was received by the ANF and deposited in the ANF bank account.

(i)The Statement of Finance Performance for the years ended June 30, 2001 and 2002 disclose that the income of the company is derived almost entirely from rents received.   The ANF occupies part of the building rent free, but there are a number of commercial tenants who pay a commercial rent.    The commercial tenants include a pharmacy and medical practitioners.    The rental income for the year ended 30 June 2001 was $32,726, and for the 30 June 2002 $36, 637.   Details of the income and expenditure for the 2 relevant years are as follows:

Income2002  2001  

Rates & Land Tax received   5,126  -

Rents Received  36,637  32,726

Interest Received        60        -  

Total Income        $41,823  $32,726

Expenditure

Accountancy        -   1,896

Audit Fees773  -

Bank Fees5  -

Depreciation  5,972  6,047

Filing Fees  -  72 Insurance       2,557   4,244

Legal Fees3,420  -

Rates & Land Taxes  12,879  12,816 Sundry Expenses  -  10

Travel       230               -

Total Expenses  $25,836   $25,085

Net Profit$15,987   $  7,641

Total Changes in Equity Other than Resulting

From Transactions with Owners as Owners

$15,987$  7,641

(j)The expenses from ordinary activities of the company in the 2001 and 2002 financial years were directly related to the building (depreciation, rates and land tax, insurance and repairs) or for audit, accountancy, legal and administrative costs.

(k)A number of references were made to the activities of the company in the four witness statements tendered in evidence, including the following:

The former Director of the company Marie Murray-Arthur said:

“The Nurses Club, to my understanding, was set up as a separate entity and the members of the Board were drawn from amongst the members of the Royal Australian Nursing Federation (Tasmanian Branch).   The Directors of the Board were, and remain, unpaid voluntary directors.   I was very happy to involve myself in this voluntary work for, and on behalf of, Tasmanian nurses particularly given that the work of the Nurses Club was to provide education and inexpensive accommodation for less fortunate nurses...”.

Former Director, Dorothy Patricia Newman said in her witness statement:

“…. It is my understanding that the building in Macquarie Street had been donated to provide a venue to give support and education to nurses and I do recall that film meetings were sometimes run at the building.    The Nurses Club did not generate much income.   What income there was came from rental space within the building by other businesses and much of that money was used for the maintenance of the building which is very old and is listed by the National Trust.

I do recall discussions about setting up a scholarship for nurses, but this has not yet occurred due to the small amount of income available to the Nurses Club.   Some other educational sessions were also organised and I remember these going back over many years.”

Another former Director, Agnes Stanislaus-Large said in her witness statement:

“… The Nurses Club managed monies obtained from rental income from the two or three businesses located within the building; those monies were used for the maintenance and upkeep of the building.   Any surplus money was used for the provision of education to nurses.    In the past accommodation was provided for visiting nurses this was either free of charge or provided at a nominal cost as nurses generally received relatively low incomes and could often not afford to make trips to Hobart or to remain for any length of time.    In some cases nurses from rural and remote areas of Tasmania were able to stay at the building between shifts and at other times where necessary.”

Former Director, Lorraine Bailey said in her statement:

“…. The Nurses Club holds the building at 180-182 Macquarie Street as trustee for use of the Australian Nursing Federation (Tasmanian Branch) and in so doing allows for the Australian Nursing Federation (Tasmanian Branch) to conduct an office there. Rent received defrays the cost of maintaining the building, which is expensive because of the age and heritage listing of the building, and the small surplus has been used to provide educational services to nurses.

This building has been used over many years as a venue for meetings and educational sessions.   In the distant past I am aware that the Nurses Club also provided accommodation for visiting nurses attending educational sessions and meetings in the Hobart area.

From time to time very small amounts of additional monies have been received by the Nurses Club and these have been used to provide financial support to Australian Nursing Federation (Tasmanian Branch) members to attend study days and conferences…”.

The Relevant Law

5.      Sections 50-5 to 50-45 of the Act details entities which may be exempt from income tax.   Section 50-105 provides that the Commissioner must endorse an entity as exempt if it is to be so entitled.   The applicant applied for endorsement which was refused.    The applicant then objected and was unsuccessful in that objection.  The exemption is conditional on endorsement and also satisfying the requirements of s50-50 of the Act.    There is no dispute, and I so find, that the applicant satisfies those requirements as it clearly has a physical presence in Australia and incurs expenditure and pursues its objectives in Australia.   Nor is there any dispute that the Nurses Club Limited is an “institution” within the meaning of the Act.          

6. There is an onus on the applicant to prove that the taxation decision should not have been made, or should have been made differently. (See s1422K of the Taxation Administration Act 1953.)

7.      It has long been held by the courts that “charitable” in taxation statutes is not to be accorded its popular meaning but rather its technical legal meaning (See Salvation Army (Vic) Property Trust v The Shire of Ferntree Gully (1952) 85 CLR 159.)    This requires a consideration of the preamble to the Charitable Uses Act 1601 (Imp).

8.      As was said by Barwick CJ in Incorporated Council of Law Report (QLD) v Federal Commissioner of Taxation (1971) 125 CLR 659:

“… it is a matter of judgment whether the trust or purpose fairly falls within the equity or as it is sometimes said, within the spirit and intendment, of the preamble to the Charitable Uses Act 1601 (Imp).

9.      In Income Tax Special Purposes Commissioner v Pemsel (1891) AC 531, Lord Macnaghten extracted from the preamble the four categories of charity in its legal sense as:

1.relief of poverty

2.advancement of education

3.advancement of religion

4.purposes beneficial to the community not falling under any of the preceding heads.

10.     In this application the applicant appears to rely on categories  2 and 4 of Lord Macnaghten’s four heads of charity.   It contends that the company “provided educational services to Tasmanian nurses” and “… since its inception, also provided inexpensive accommodation for nurses…”.  

11.     The critical test here is whether the main or predominant purpose or object of the company was charitable in nature.   See Cronulla Sutherland Leagues Club Ltd v Federal Commissioner of Taxation (1990) 90 ATC 4215 per Beaumont J at 4243-4244 and Royal Australasian College of Surgeons v Federal Commissioner of Taxation (1943) 68 CLR per 436 per Latham CJ at 444.

12.     In order to determine the main or predominant purpose or object, one must examine the company’s constitution, its history and also its activities.  However as was made clear by Lockhart J in the Cronulla Sutherland Leagues Club case (supra) at p4225:

“The statute gives a periodic operation to the words and directs  the inquiry to a particular time, namely, the year of income so that consideration must be given not only to the purpose for which the society was established, but also the purpose for which it is currently conducted.

The question is therefore whether in all the circumstances of this case the main purpose for which the appellant was established during the income tax years in question was the  encouragement or promotion of rugby league football.”

Conclusion

13.     The Tribunal must therefore consider whether on all the evidence it is satisfied that in the two relevant years the main or predominant purpose or object of the company was charitable.

14.     Although the company was originally established as a club to provide inexpensive accommodation and other forms of support to members of the nursing profession the evidence shows that the demand for accommodation dropped away to the point where no accommodation has been provided to nurses for many years.   There is no persuasive evidence that such accommodation was provided in the two relevant years.    Indeed I could not be satisfied on the evidence that such accommodation, significant educational programs, or any other forms of support were provided to nurses in the relevant years.   Even if there had been some such accommodation, education programs or support they were not the main or predominant purpose or object of the company at that time.

15.     I find that the main or predominant purpose or object of the company in the financial years ended 30 June 2001 and 30 June 2002 is well described in the company’s own Director’s report for each of those two years.   As mentioned above, it is stated at page 2 of each of those reports:

“The principal activity of the company is the holding of land and buildings for the benefit of members of the Tasmanian Branch of the Australian Nursing Federation.”

16.     In the relevant years, the main or predominant purpose was not providing various programs of support for nurses, but rather owning and maintaining a heritage listed building, collecting rents and otherwise dealing with tenants.   In addition it provided rent free office accommodation for the ANF.

17.     The ANF is both a union and professional body representing the interests of its members.   It is not itself a charitable institution.    No doubt the ANF provides many valuable and laudable services to its members, but in my view the provision of office accommodation to the ANF,  does not bring this company within any of the heads of charity enunciated by Lord Macnaghten.

18.     There are some similarities between this application and the War Nurses Memorial Centre case (See War Nurses Centre v Comptroller of Stamps (Victoria) 17 ATR 669.) However the facts in that case disclosed a range of ongoing activities including educational programs and scholarships provided for the benefit of the nursing profession. In 4 years or so $87,000 was spent by the company on purposes and activities beneficial to nurses. Grants were not conditional on membership of the organisation. I distinguish that case from this application. Here there is no persuasive evidence of activity in the relevant years supporting nurses to the extent provided by the War Nurses Memorial Centre.

19.     In August 2003, subsequent to the relevant income years the Tribunal is now considering, the company established a new constitution, detailed new objects and decided to provide nursing scholarships, give prizes to nursing undergraduates and create nurse management and other educational courses.    As a result of those subsequent changes the respondent determined that the company was entitled to be endorsed as an income tax exempt charity but only on and from 1 July 2002.

20.     However for the two years which are the subject of this application, namely the years ended 30 June 2001 and 30 June 2002, I find on the evidence before me that the main or predominant purpose or object of the company  was not “charitable” and therefore the company was not entitled to be endorsed as exempt from income tax.

21.     For the above reasons I affirm the decision made by the respondent.

I certify that the 21 preceding paragraphs are a true copy of the reasons for the decision herein of The Hon R J Groom (Deputy President)

Signed:  K L Miller (Administrative Assistant)

Date/s of Hearing  12 October 2004
Date of Decision  19 November 2004
Representatives for the Applicant  Ms Neroli Ellis and Ms Caroline Saint
Counsel for the Respondent     Mr Michael O'Farrell
Solicitor for the Respondent      Mr I Bolonja (ATO Legal Practice Hobart)