PG Dukes Pty Ltd ATF Patricia Dukes Foundation v Chief Commissioner of State Revenue
[2012] NSWADT 238
•15 November 2012
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: PG Dukes Pty Ltd ATF Patricia Dukes Foundation v Chief Commissioner of State Revenue [2012] NSWADT 238 Hearing dates: 5 November 2012 Decision date: 15 November 2012 Jurisdiction: Revenue Division Before: J Block, judicial member Decision: The decision under review is set aside
Catchwords: Meanings of "charitable", "mere trust" and "institution" - interpretation of section 10(1)(d) of the Land Tax Management Act Legislation Cited: Land Tax Management Act 1956 Cases Cited: Income Tax Special Purposes Commissioners v Pemsel [1891] AC 531;
Central Bayside General Practice Association Inc v Commissioner of State Revenue (2006) 228 CLR 168;
Northern NSW Football Ltd v Chief Commissioner of State Revenue (2011) 281 ALR 147;
Lemm v Federal Commissioner of Taxation (1942) 66 CLR 399;
Incorporated Council of Law Reporting for England and Wales v Attorney-General [1972] Ch 73;
Incorporated Council of Law Reporting (Qld) v Commissioner of Taxation (Cth) (1971) 125 CLR 659; Stratton v Simpson (1970) 125 CLR 138;
AXA Trustees Ltd v Attorney-General [2000] VSC 530;
Compton v Commissioner of Taxation (Cth) (1966) 116 CLR 233,
Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204 ;
Roman Catholic Archbishop of Melbourne v Lawlor (1934) 51 CLR 1;
Minister for Immigration and Citizenship v SZJGV (2009) 238 CLR 642;
Mayor of Manchester v McAdam [1896] AC 500;
Commissioner of Land Tax NSW v Joyce and Another (1974) 22;
Sargents Charitable Foundation v Chief Commissioner of State Revenue [2005] NSWSC 459Category: Principal judgment Parties: Chief Commissioner of State Revenue (Respondent) Representation: Counsel
H. El-Hage (Applicant)
E. Bishop (Respondent)
Cooper Grace & Ward (Applicant)
Crown Solicitor's Office (Respondent)
File Number(s): 126065
REasons for decision
Part A. Introduction and Preliminary
The Applicant in these proceedings seeks the review of an assessment dated 29 March 2012 issued by the Respondent (who is usually referred to in these reasons as the "Chief Commissioner") of land tax referable to 16 parcels of real property ("the land "or "the Subject Properties") in respect of the 2012 land tax year ("the relevant year").
The Tribunal had before it the documents lodged pursuant to section 58 of the Administrative Decisions Tribunal Act 1997; in addition it admitted exhibits as follows:
A1; a witness statement by Arnold Vincent Milton dated 5 October 2012;
A2; a witness statement by Arnold Vincent Milton dated 2 November 2012;
A3; a witness statement by Peter John Treseder dated 5 October 2012; (this appears to be the correct spelling of this gentleman's name.)
R1; a letter by Cooper Grace and Ward addressed to Ms Sharon Gordon of the Crown Solicitor's office dated 19 October 2012.
Each of the parties furnished volumes of authorities; in addition the Tribunal received comprehensive and helpful submissions by each of the parties and on which it has drawn for the purposes of these reasons; those submissions comprise the Applicant's Submissions in Chief dated 5 October 2012 ("AS"), the Respondent's Submissions dated 26 October 2012 ("RS") and the Applicant's Submissions in Reply dated 2 November 2012 It is relevant to note that after the hearing had concluded the Applicant furnished Additional Submissions under cover of a message to the effect that the Tribunal had invited further submissions. The Additional Submissions were furnished apparently under a misapprehension; at the conclusion of the hearing the Tribunal asked the parties to furnish it with the submissions already in its possession in electronic word form and in order to facilitate the typing process; at the same time the Tribunal invited the sending in of any other parts of the voluminous material before it, and which a party might think would be useful for this purpose, but on the basis that the Tribunal might or might not use any such material. There was no invitation to make further submissions although the Tribunal can understand why this misapprehension might have occurred; had the Tribunal asked for further submissions it would have set an appropriate time-table in respect thereof. The Tribunal accordingly does not intend to have regard to the Applicant's Additional Submissions.
Oral evidence was given by telephone link by Mr Treseder who confirmed the content of Exhibit A3. He was then cross-examined, but in brief terms only, by Ms Bishop. There is no reason to think that his evidence is not acceptable and this is so of course as regards the evidence of Mr Milton who was not required for cross-examination.
It is convenient having regard in particular to clause 3 of RS to commence by including the content of AS under the head of Background (and contained in clause 2 of AS) in full, but excluding footnotes although the footnotes in question have been checked and found to be correct, as follows:
2.1. the underlying background is set out in the:
A. documentary material (s. 58 documents) filed under s. 58 of the Administrative Decisions Tribunal Act 1997 (NSW) (ADT Act); and
B affidavits of Peter Treseder (Treseder Affidavit) and Arnold Milton (Milton Affidavit).
2.2 The salient facts are as follows.
2.3 Patricia Dukes passed away on 18 October 2010. Approximately 5 months earlier, she executed a Will dated 6 May 2010 (Will). The Will was subsequently altered by a Codicil executed by Ms Dukes on 5 July 2010.
2.4 Under her Will, Ms Dukes established a "Trust Fund" as "a charitable trust to be called" the Patricia Dukes Foundation (Foundation), which comprised the residue of her estate, to be held by the Trustees of her estate, Messrs Milton, Treseder and Quittner (Trustees): cll. 2 and 6; Schedule, cll. 1.3, 2.1, 2.2 and 11.1. The latter four clauses are in the following terms:
1.3 The Trust Fund means the residue of my Estate given by clause 6 of my Will, and:
(a) the investments and property (including money) for the time being representing those assets;
(b) so much of the income of the Trust Fund as is from time to time added to it;
(c ) all monies, investments and other property from time to time accepted by the Foundation Trustees as additions to the capital of the Trust Fund; and
(d) all accretions to the capital of the Trust Fund.
...........
2.1. The Trust Fund is established and, subject to clause 9, must be maintained for public charitable purposes which are within the meaning of that expression in item 1.5B in the ITAA 1997, s50-5 and which are charitable in the legal sense;
2.2 The Trust Fund must pursue its charitable purposes in Australia. The expenditure of the Trust Fund must be incurred principally in Australia.
.............
11.1 The Foundation is established as a trust for public charitable purposes. All the capital and income of the Trust is to be distributed in accordance with the objectives of the Trust within a period of eighty (80) years from my death.
2.5. Clause 6 of the Will is as follows:
I GIVE the residue of my Estate to ......[the Foundation Trustees] to be held by them as a charitable trust to be called THE PATRICIA DUKES FOUNDATION on the trusts and subject to the provisions set out in the schedule below.
2.6 The requirement to apply the Trust Fund's capital and income for charitable purposes is set out in, inter alia, cll. 3.1 and 3.3, which are as follows:
3.1 The Foundation Trustees must hold the Trust Fund and the income of the Trust Fund derived in each accounting period and, subject to subclause 4 of this clause, pay or apply that income and so much of the capital of the Trust Fund as my Foundation Trustees determine to or for the benefit or purpose of any one or more Eligible Charities in such proportions as my Foundation Trustees determine. It is my wish that, in the division of the income my Foundation Trustees will favourably consider Eligible Charities for hospitals and similar institutions, medical research, the assistance of homeless people, the assistance of disadvantaged people and animal welfare but not any charity that caters exclusively for children;
...........
3.3 The Foundation Trustees are obliged to maintain and preserve the capital of the Trust Fund and try to ensure that the capital grows by at least the rate of inflation. Only surplus income derived in each accounting period is to be distributed;
2.7. The terms "Eligible Entity" and "ITA 1997" are defined in the Will as follows:
1.2 ITAA 1997 means the Income Tax Assessment Act 1997 (Cwth) and includes regulations, rulings and other statutory instruments under it and consolidations, amendments, re-enactments or replacement of any of them.
..............
1.4 Eligible Charity means a fund, authority or institution:
(a) which is charitable at law; and
(b) gifts to which are deductible under item 1 of the table in s30-15 of the ITAA 1997.
2.8 Relevantly, cl. 4 of the Will provides as follows in respect of the property at 5 Florence Street, Cremorne (5 Florence Street):
I GIVE my property at 5 Florence Street, Cremorne to my Trustees to form part of the Patricia Dukes Foundation (established by Clause 7 of this Will) ("the Foundation") and subject to the provisions therein set out. However if my friend MARGARET TUMBER ("Margaret") is living in the property at the time of my death then she shall be entitled to reside therein until her death or such time as she vacates the property on a final basis. I DIRECT that Margaret is to live in the flat at the front of the property and the back flat is to be made available for use as an office for the Foundation and as accommodation for Peter Tresider when he visits Sydney on Foundation business. I direct that it is a condition of Margaret's occupation of the front flat that she pay to my Trustees each fortnight an amount equal to ten per cent (10%) of her fortnightly income towards the ongoing maintenance of the property. In addition I GIVE my Trustees the sum of TWENTY-FIVE THOUSAND DOLLARS ($25,000.00) to be held in trust for application to outgoings, insurance, repairs and maintenance on the property in case the income from the front flat is insufficient for this purpose. Upon the death of Ms Tumber or her earlier vacation of the property everything held by my Trustees in connection with this Trust will fall into the residue of my Estate.
2.9 Probate was granted on 28 March 2011. Subsequently, by Transfer dated 31 October 2011, the Subject Properties, together with 5 Florence Street, were transferred to PG Dukes Pty Ltd (which had been incorporated by then to act as Trustee of the Foundation).
2.10 On 23 November 2011, PG Dukes ATF Patricia Dukes Foundation lodged an application seeking an exemption from land tax in accordance with s. 10(1) (d) of the LT Management Act.
2.11, By letter dated 25 January 2012, the Chief Commissioner declined the application for the exemption and issued an assessment for land tax. In his letter, the Chief Commissioner said:
For exemption to apply there must be an identifiable body, being either a society or association operating not for profit and using the land to promote its objects or a charitable institute which has been variously defined at law as being a body called into existence to translate the charitable purpose conceived by its founders into reality.
It comprises of a system, scheme or arrangement by which the charitable purpose is promoted. In implementing the trust purposes that body must possess a permanency of existence and a continuing policy and function which cannot be changed, be performing a public service to at least a recognised section of the community and be active in promoting the achievement of the specific trust purpose.
2.12. On 27 February 2012, PG Dukes Pty Ltd ATF Patricia Dukes Foundation lodged an objection to the Chief Commissioner's decision. Again, the Foundation's solicitors argued that the Foundation is entitled to the charitable institution exemption under s. 10(1) (d) of the LT Management Act.
2.13, in his decision of 28 March 2012, the Chief Commissioner:
A. Rejected the Applicant's claim to the charitable institution exemption;
B. Accepted that the exemptions in cl. 10 of Sch. 1A (principal place of residence exemption following the death of the owner) and in s. 10(1) (g) (iii) (exemptions for clubs and associations) applied to 5 Florence Street.
2.14. The Chief Commissioner said:
In keeping with the decision of Joyce and Sergeants the trustees of the Patricia Dukes Foundation have the discretion to apply funds to any Eligible Charity/Charities as they see fit, as such for land tax purposes the Patricia Dukes Foundation is not considered to be an "institution". As your clients do not meet the legislative requirements of s. (1) (d) of the Act. We therefore consider that the decision to not exempt the client under s. 10(1) (d) of the Act is correct.
In reviewing this objection, it has come to the attention of the Chief Commissioner that the property known as 5 Florence St, Cremorne should be exempt from land tax.
We note that in the Will of Patricia Dukes provides Margaret Tumbler a right to reside in the dwelling located on the front of 5 Florence St, Cremorne, while the back flat at this address is being used as the office for the Patricia Dukes Foundation.
Schedule 1A clause 10 (Concession for tenancy following death of owner) of the Act provides an exemption from land tax in the circumstances where a dependant is allowed under a Will to use and occupy the land as their principal place of residence. We are satisfied that this is case in the front portion of the land.
S. 10(1) (g) (iii) of the Act provides an exemption from land tax for land that is solely used as a site for a society, club or association not carried on for pecuniary profit. We are satisfied that this is the case for the back portion of the property.
S. 10A of the Act provides that if land is used for more than one exempt purpose than, the land is exempt from land tax. Accordingly, we have exempted 5 Florence St, Cremorne under s. 10A of the Act.
2.15. In line with the partial allowance of the objection, the Chief Commissioner issued the Assessment.
2.16 For the purposes of these proceedings, no issue arises with respect to 5 Florence Street.
2.17. By letter to the Chief Commissioner dated 10 April 2012, the Applicant's solicitors noted the following:
4. In our objection, we did not submit that the trustee owning the land, PG Dukes Pty Ltd, is a charitable institution. We have only submitted that PG Dukes Pty Ltd owns land in trust for beneficiaries that are a charitable institution. Consequently, you have not addressed our submissions in the objection decision.
.......
10. In this case:
(a) The trustee is PG Dukes Pty Ltd, which owns the trust property;
(b) The trust property includes the land;
(c) The class of eligible beneficiaries is defined under the Will as "Eligible Charities".
11. The second limb of section 10(1) (d) requires an analysis of whether the beneficiaries (not the trustee) are charitable institutions.
12. The name of the trust, "Patricia Dukes Foundations", describes how the land is held. It is not a legal entity. The land is held in trust for the beneficiaries identified under the trust instrument.
13. In this case under the Will, the land is held in trust for "Eligible Charities" (clause 3.1) which are defined as "a fund, authority or institution... which is charitable at law" and a deductible gift recipient under Item 1 of the table in section 30-15 of the Income Tax Assessment Act 1997 (Clause 1.4).
(a) Item 1 of the table in section 30-15 refers to charitable institutions under Subdivision 30-B. The effect if section 30-15 is that these charitable institutions are also deductible gift recipients.
(b)The land is therefore owned in trust for beneficiaries that are charitable institutions.
14. Consequently, the requirements for exemption under the second limb of section 10(1) (d) are satisfied.
2.18. The Chief Commissioner's response was set out in a letter dated 20 April 2012, relevantly as follows:
Section 10(1) (d) of the Land Tax Management Act 1956 provides an exemption from land tax for land that is 'owned by or in trust for a charitable or educational institution'.
After examining the particulars Patricia Dukes foundation it is considered that the Patricia Dukes foundation is not an example of an 'institution'.
In your letter of 10 April 2012 you state that we only addressed the first circumstances of section 10(1) (d) of the Act. Our letter intended to address whether or not your client is an 'institution', which is common to both circumstances. As indicated in our letter of 28 March 2012 we are not satisfied that your client is an 'institution'. As such the legislative requirements of section 10(1) (d) of the Act have not been met.
2.19. On 4 May 2012, the Applicant's solicitors sent a further letter to the Chief Commissioner and pointed out that the Chief Commissioner still had not addressed the second limb of s. 10(1) (d).
2.20. The Chief Commissioner responded by letter dated 18 May 2012, in which he (relevantly) stated:
The Chief Commissioner agrees with your assertion that your client is not a charitable or education institution. Therefore for the exemption to apply, the land must be in trust for a charitable or education institution.
In your client's instance the land is owned by P G Dukes Pty Ltd and is in trust for the Patricia Dukes Foundation. Through the Patricia Dukes Foundation has beneficiaries it cannot be maintained that the land itself is in trust for such entities (even assuming that such entities are charitable or education institutions. Particularly given its discretionary nature pursuant to Schedule 3). Accordingly the second limb of s. 10(1) (d) of the Act unfortunately cannot be satisfied.
With respect to the beneficiaries of the Foundation, it should also be noted that such beneficiaries are not proven to be charitable or educational institutions. Schedule 2 (Purposes of the Patricia Dukes Foundation) of the Will or Patricia Great Dukes states:
2.1 The Trust fund is established and, subject to clause 9, must be maintained for public purposes which are within the meaning of that expression in item 1.5B in the ITAA 1997 (Income Tax Assessment Act 1997), s50-5 and which are charitable in the legal sense.
While the beneficiaries of the Patricia Dukes foundation must meet the requirements of the Commonwealth Income Tax Assessment Act 1997 (ITAA 1997), the requirements of Eligible Charities as set out in the ITAA 97 may not necessarily satisfy the same requirements of a charitable or educational institution as defined in the Act. No particular beneficiary is mentioned in by the Foundation. The beneficiaries are general in nature. Accordingly the Chief Commissioner cannot be satisfied that any or all of the beneficiaries are acceptable institutions.
2. 21. Subsequently, the Applicant lodged its application for review with the Tribunal
In the interests of balance I also include the content of RS under the head of Background and contained in clauses 3 to 17 both inclusive, and once again omitting footnotes, although they too have been checked and found to be correct, as follows:
3. The Respondent agrees with the background facts in the Applicant's submissions but notes the following.
4. The lands assessed for land tax ("the lands") in this dispute are:
(a) Military Road Neutral Bay
(b) 21 Bydown Street, Neutral Bay;
(c ) 37 Lewis Street, Dee Why;
(d) 73 Lawrence Street, Freshwater
(e) 160 Condamine Street, Balgowlah
(f) Unit 1, 70 Fairlight Street, Fairlight
(g) Unit 2, 70 Fairlight Street, Fairlight
(h) 5 Florence Street, Cremorne (an exemption applies in respect of this property)
(i) Unit 45, 4-8 Kareela Road, Cremorne
(j) 9 Cornwell Road, Allambie Heights
(k) Unit 10, 28 Belgrave Street, Manly
(l) 42 Hope Street, Seaforth;
(m) Unit 6, 164 Spit Road, Mosman
(n) Unit 27, 164 Spit Road, Mosman
(o) Unit 6, 164 Spit Road, Mosman
(p) Unit 27, 164 Spit Road, Mosman
5. Under the terms of the Will, Patricia Dukes appointed Arnold Milton, Peter Tresder and Joseph Quittner to be the trustees of a trust fund to be established in her name for charitable purposes.
6. Clause 6 of the Will specifically provides that the residue of the Estate (which includes the lands) is to be held by the Foundation trustees "as a charitable trust to be called the Patricia Dukes Foundation".
7. The objects of the trust are "any one or more Eligible Charities in such proportions as my Foundation Trustees determine." Eligible Charity is defined in the Will as "a fund, authority or institution:
(a)Which is charitable at law; and
(b)Gifts to which are deductible under item 1 of the table in s30-15 of the ITAA1997."
8. Clause 2 of the Will provides as follows:
"2.1 The Trust Fund is established and, subject to clause, 9 must be maintained for public charitable purposes which are within the meaning of that expression in item 1.5B of the ITAA 1997, s50-5 and which are charitable in the legal sense ..."
9. There is no dispute in these proceedings about the charitable purposes or charitable character of the Foundation or the Applicant.
10. The trustees decided to form a corporate trustee with each of them a director of same. The Applicant is the corporate trustee of the Foundation.
11 .On 31 October 2011 the lands were transferred to the Applicant.
12. On 23 November 2011, the Applicant applied for an exemption for land tax in respect of the lands and lodged a variation form.
13. On 25 January 2012, the Respondent rejected the application for exemption and issued a Notice of Assessment.
14. On 7 February 2012, the Applicant lodged an objection.
15...On 28 March 2012, the Respondent disallowed the objection.
16 On 28 May 2012 the Applicant filed an application for review of the Respondent's decision in this Tribunal.
17. In accordance with s100 (3) of the TAA, the onus is on the applicant to prove its case in these proceedings.
It will be noted then that having regard to the content of AS and RS quoted previously in these reasons there is in fact no real issue of fact as between the parties. As set out previously in these reasons there was in fact no real challenge to the evidence of Mr Treseder and so that the evidence tendered on behalf of the Applicant can be accepted.
Unless the context expressly otherwise requires words and phrases defined in AS and quoted in these reasons have the same meanings when employed in these reasons. In clause 2.7. of AS the Applicant set out a definition of "Eligible Entity " and then included a definition of "Eligible Charity"; these two terms may be regarded as synonymous and nothing turns on this difference. Section 10(1) (d) of the Act ("the relevant section") provides for an exemption in respect of "land owned by or in trust for a charitable or educational institution if the institution however formed or constituted, is carried on solely for charitable or educational purposes and not for pecuniary profit."Section 10 (1) of the Act provides that the exemptions set out in it are subject to certain other sections of the Act; those other sections are not relevant for the purposes of these reasons.
Part B. The Foundation generally
Clause 2 of AS quoted in full previously in these reasons sets out some of the provisions of the Will which are relevant in respect of the establishment of the Foundation; I refer in particular to clauses 2.4 to 2.8 of AS. I do not consider it necessary for me to set out the whole of the Will; it is however relevant to note that the Will contains a number of provisions governing the administration and management of the Foundation; I include clause 4.22 of AS in this particular regard as follows:
4.22 In addition, aside from the clauses dealing with the distribution of funds to Eligible Charities, the Will contains a number of provisions governing the administration and management of the Foundation and the Foundation's capital and income, as follows:
A By cl. 5.3 of the Schedule, there must be regular meetings of the trustees. Clauses 5.4 and 5.5 address quorum related matters and the circumstance where there is disagreement;
B The terms of cl. 7 of the Schedule provide fairly detailed guidelines for the investment of the Foundation's assets;
C Similarly, the terms of cl. 8 of the Schedule confer a range of powers on the Foundation's trustee for the purposes of administering the Foundation, including powers to engage employees/agents and powers to delegate the management of investments;
D Clause 3.4 of the Schedule provides for the payment of expenses/remuneration in connection with the management and administration of the Foundation;
E By cl. 14.1 of the Schedule, the Foundation's financial statements must be audited.
The evidence before the Tribunal indicates that in practical terms the administration of the Foundation is an ongoing process and which requires a considerable degree of time and attention; clause 4.23 of AS, the content of which is not inconsistent with the evidence before the Tribunal, reads as follows:
4.23 Further, in practical terms, the administration of the Foundation is an ongoing process of day-to-day management, carried out by 3 individual directors. As is apparent from the Milton Affidavit and the Treseder affidavit, the administration of the Foundation involves a great deal of time, effort and commitment. It includes the following:
A Managing the Foundation's assets;
B Liaising with real estate agents. Mr Tresder explains that he is often in contact with the Foundation's real estate agents several times a day to deal with, inter alia, repairs to the Foundation's properties, renovation/refurbishment work and changes of tenancies and other issues with tenants (such as complaints or requests). He also travels to Sydney to meet with the real estate agents and inspect the Foundation's properties;
C Renovating/refurbishing the Foundation's properties, including the hire of tradesmen;
D Keeping records of the Foundation's income and expenses. Mr Treseder maintains the day-to-day bookkeeping of the properties on spreadsheets. The spreadsheets set out the monthly rental income of each property. There is one spreadsheet per residence. It records both income and expenses for the Foundation's properties. Mr Treseder receives rental statements from the real estate agents, which generally arrive twice or three times a month. He examines these statements, checks the fees paid to the agent are correct, check that any repairs or other expenses are appropriate and then inserts the details of the income and expenses into the spreadsheets;
E Carrying out research and selecting the charities which should receive income from the Foundation, in accordance with cl. 3.1 of the Will;
F. Preparing financial statements. Mr Milton's evidence is that this process involves, inter alia, reconciling the summary of rentals received and outgoings paid by agents with the Foundation's bank account statements, writing up a cash book to record payments by cheque, preparing a Statement of Financial Affairs and cash receipts and payments statements as at 30 June 2012;
G Organising and maintaining insurance for the Foundation's properties and insurance for the directors;
H Liaising with solicitors on income tax and land tax issues;
I Maintaining a bank account for the Foundation's money;
J. Meetings between the directors.
Part C. The meaning of "charitable"
In accordance with the preamble to the Statute of Elizabeth of 1601 and having regard to Pemsel's case (Income Tax Special Purposes Commissioners v Pemsel [1891] AC 531) the term 'charitable" is used in a technical sense; the categories are: "Charity in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community, not falling under any of the preceding heads." See also Central Bayside General Practice Association Inc v Commissioner of State Revenue (2006) 228 CLR 168; Northern NSW Football Ltd v Chief Commissioner of State Revenue (2011) 281 ALR 147,
A trust will be a charitable trust within the fourth category of Pemsel even if it provides a benefit for a class or section of the community: Lemm v Federal Commissioner of Taxation (1942) 66 CLR 399, at 411, per Williams J (with whom Rich and McTiernan JJ agreed): Halsbury's Laws of Australia, Charities, at [75-200]. The following additional principles are relevant in this regard:
a) The element of unselfishness (and lack of private individual gain) is an important aspect of charity: Incorporated Council of Law Reporting for England and Wales v Attorney-General [1972] Ch 73, at 86;
b) A charitable body may make a profit: Incorporated Council of Law Reporting (Qld) v Commissioner of Taxation (Cth) (1971) 125 CLR 659, at 670;
c) A charitable body may comprise a trust established under a will: see, for example, Stratton v Simpson (1970) 125 CLR 138 at 157; d) AXA Trustees Ltd v Attorney-General [2000] VSC 530;
e) In the case of a charitable trust fund, the purposes of the fund are the direct and immediate purposes contained in the instrument of trust itself Compton v Commissioner of Taxation (Cth) (1966) 116 CLR 233, at 238-239;
f) In determining whether an organisation is a charitable institution "it is necessary to examine the objects, and the purported effectuation of those objects in the activities, of the institution in question": Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204 at [17];
g) A charitable purpose may be implemented by the provision of financial support of other charitable institutions: Word Investments;
h) A charitable body does not lose its charitable object or purpose simply by making a profit: Word Investments;
i) A charitable purpose can be for a public benefit in circumstances where the relevant entity does not deal directly with members of the public or provide services directly to the public at large: Roman Catholic Archbishop of Melbourne v Lawlor (1934) 51 CLR 1.
There can be no doubt as to the fact that the Foundation is a charitable trust (and indeed this aspect is not in dispute). As appears from the Will the Foundation is empowered to distribute income and capital only to Eligible Charities which, as defined, are entities which are charitable as a matter of law and being entities in respect of whom gifts to those entities are deductible under Item 1 of the table in Section 30-15 of ITAA 1997. It may be noted that the Foundation sought and obtained a tax exemption in respect of its own income under another Item in the same table, it did not seek an exemption under item 1 because it had no intention of seeking donations from the public.
Part D Meaning of "Institution"
The term "Institution" does not (unlike the term "charitable") have a technical meaning and must therefore have (subject to its statutory context) its dictionary meaning. Minister for Immigration and Citizenship v SZJGV (2009) 238 CLR 642, at [5], per French CJ and Bell J. This was the approach adopted by Gibbs J to the construction of the term "institution" in Stratton, where his Honour said, at 158 (Barwick CJ, Menzies and Walsh JJ concurring):
The inclusion in cl. 15 of the words "except any public hospital within the meaning of the Hospital Act 1927" therefore strongly suggests that the words "institutions and bodies" are intended to refer to any establishment mentioned in s. 134 which is an institution or body in the ordinary sense of those words, even though it is not there expressly so described. In its ordinary sense "institution" means "an establishment, organization, or association, instituted for the promotion of some object, especially one of public utility, religious, charitable, educational etc." (The Shorter Oxford English Dictionary). It means, as was said in Mayor etc. of Manchester v. McAdam [1896] AC 500 "an undertaking formed to promote some defined purpose ..." or "the body (so to speak) called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle". Although its meaning must depend on its context, it would not ordinarily connote a mere trust (cf. Minister of National Revenue v. Trusts and Guarantee Co. Ltd. (2)). A school could appropriately be called an institution within the ordinary meaning of the word. Similarly the words "medical service or fund", if construed to mean the body set up to organize and control the service or administer the fund, could also be regarded as describing an institution.
The full passage from Mayor of Manchester v McAdam [1896] AC 500, at 511-12, reads:
It is a little difficult to define the meaning of the term "institution" in the modern acceptation of the word. It means, I suppose, an undertaking formed to promote some defined purpose having in view generally the instruction or education of the public. It is the body (so to speak) called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle. Sometimes the word is used to denote merely the local habitation or the head-quarters of the institution. Sometimes it comprehends everything that goes to make up the institution - everything belonging to the undertaking in connection with the purpose which informs and animates the whole.
Gibbs J's formulation was approved by the High Court in Word Investments, at [33].
The analysis in Windeyer J's dissenting judgment in Stratton, at 144-145, is of assistance:
A body or organization which holds property upon a charitable trust and carries out the trust purposes is commonly called a charitable institution or a charity. It is really but the instrument for carrying a purpose into effect. Confusion can occur from want of remembering this, as Else-Mitchell J. observed in McGarvie Smith Institute v. Campbelltown Municipal Council. The word "institution" is a word of wide denotation. It is not uncommonly used in collocation with other words as here "institutions and bodies": see, for example, Smith v. West Australian Trustee Executor & Agency Co. Ltd. (2). In that case Fullagar J. declined to recognize any distinction between a charitable purpose and a charitable institution. It has been said that every charitable trust is not necessarily to be regarded as a charitable institution. My brother Walsh said so in the Supreme Court of New South Wales in Christian Enterprises Ltd. v. Commissioner of Land Tax, founding his statement upon a passage in the judgment of the Privy Council in Minister of National Revenue v. Trusts and Guarantee Co. Ltd. (4) as follows:
"It is by no means easy to give a definition of the word 'institution' that will cover every use of it. Its meaning must always depend upon the context in which it is found. It seems plain, for instance, from the context in which it is found in the subsection in question that the word is intended to connote something more than a mere trust."
But I can see no reason why, unrestrained by context, a fund raised by public contributions and administered by trustees could not be properly called an institution. Whether or not it would be a charitable institution would, of course, depend upon the trusts on which it was held. Funds raised for the relief of distress caused by bushfires or other disasters are well known. If the object to which the fund must be devoted is the continuing advancement of charity in the legal sense, it is a charitable institution. The Gowrie Scholarship Trust Fund and the Winston Churchill Memorial Trust come to my mind as examples.
Walsh J said (by way of additional observations), at 154-155:
The word "institutions" is flexible in its meaning and has to be considered in its context. (See Minister of National Revenue v. Trusts and Guarantee Co. Ltd. (1).) I think it is a possible view that if a fund had been established for the maintenance of a free ward in a hospital a gift to or in trust for that fund might be described as a gift to an "institution". The question whether or not that would be a proper description might depend upon the manner in which and the terms upon which the fund had been established.
It is my view then having regard in particular to the judgment in McAdam and the other authorities cited that the Foundation can aptly be described as an institution and having regard to the immediately preceding Part as a charitable institution.
Part E. The Foundation; is it a "mere" trust?
The case law establishes that there is a distinction to be drawn between an entity which is aptly characterised as a 'mere trust" and one which is not a mere trust. In Commissioner of Land Tax NSW v Joyce and Another (1974) 22, the relevant land was held by the respondents as "simple trustees." As Stephen J explained (at 31-32):
......[The trustees] possess no quality or function which could justify their being described as an institution. These four trustees are in no sense the governing body of the religious sect known as the Brethren or of any congregation of that sect. Among the Brethren there is no clergy but there are elders, members of a congregation with great experience and thought to possess particular moral worth. There are also Levites, those who preach the Gospel, journeying to meet with and speak to other congregations of the Brethren. There are also members who are authorized to celebrate marriages conducted in accordance with the beliefs of the Brethren, it being a recognized denomination for the purposes of the Marriage Act 1961 (Cth). There is no evidence that any of the four trustees holds any of these offices, if they may be so described, in any congregation of the Brethren; even if they did, it is clear that no group of elders or Levites controls the affairs either of the Brethren at large or of any single congregation of Brethren. On the contrary, all decisions are taken by the particular congregation as a whole, "the group itself is the governing body", and all decisions are unanimous, unanimity being attained by discussion and moral persuasion, the Scriptures and their interpretation by four venerated teachers over the past 150 years providing the answers to such questions as arise for decision
Sargents Charitable Foundation v Chief Commissioner of State Revenue [2005] NSWSC 459 was concerned with an exemption under the Duties Act 1997 (NSW) for property held on trust for:
a) any society or institution for the time being approved by the Chief Commissioner for the purposes of this paragraph whose resources are, in accordance with its rules or objects, used wholly or predominately for:
(i) the relief of poverty in Australia, or
(ii) the promotion of education in Australia, or
any society or institution that, in the opinion of the Chief Commissioner, is of a charitable or benevolent nature, or has as its primary object the promotion of the interests of Aborigines and if the dutiable transaction or instrument is for such purposes as the Chief Commissioner may approve in accordance with guidelines approved by the Treasurer.
The terms of the provision set out in the preceding clause are of course different from the terms of relevant section. However the Court held that it was dealing with a "mere trust". As Gzell J pointed out at [17] and [25]:
[17] While the trust deed of the Foundation in this case provided that Sargents could, for the purpose of enabling it to carry out the Charitable Purposes, have the power to raise funds from the public, no such funds have been raised.
.........
[25] Nevertheless, the feature that is lacking in the instant circumstances is the establishment, organisation or association created to bring to fruition the purpose conceived by the founders of the Foundation. Here there is but a corporate trustee of a charitable trust. There is no establishment, no organisation and no association. Sargents acts alone exercising the powers conferred upon it by the trust deed.
As set out previously in these reasons and having regard in particular to the provisions of the Will I have come to the conclusion on the evidence before me that the Foundation is not a 'mere trust".
Part F. The relevant section
It is of course necessary to have regard to the actual words of the relevant section. As I have indicated the opening words of section 10(1) which indicates that the section is subject to certain specified provisions are not relevant.
The relevant section in its terms confers an exemption for land owned by a charitable or educational institution ( "the first limb") or land owned in trust for a charitable or educational institution ( "the second limb") and in either case where that institution is carried on solely for charitable or educational purposes and not for pecuniary profit.
The first limb does not apply because the legal owner (i.e. the trustee) is not itself an institution and the Foundation, although a charitable institution, is not a "person" for the purposes of the definition of "owned" and "owner" in section 3(1) of the Act. However, the second limb applies because the Applicant (as trustee) owns the land on trust for the Foundation which is a charitable institution.
The Chief Commissioner contends in effect that the relevant section cannot apply unless at the relevant taxing point (and being 31 December 2011 in relation to the relevant year), there were in relation to the Foundation ascertained beneficiaries entitled to the land. It is my view that to so contend disregards the fact that the Foundation is itself a charitable institution. The Chief Commissioner contends furthermore that a trust is no more than an obligation in equity and whereby the owner of the land is obliged in equity to account to the persons who are beneficiaries in respect of the assets held on trust. It is my view that it must be remembered that the Foundation is not a mere trust.
As set out previously in these reasons it is my opinion that, having regard to the case authority cited, the Foundation (which is not a mere trust) can and should be characterised as an institution and moreover as a charitable institution. The Applicant as the trustee of the Foundation is the owner of the land; it is the Applicant who in that capacity must exercise any rights and perform any duties in respect of the land. On the evidence before me the activities of the Foundation relate (apart from necessary administration activities) to the derivation of income (exempt under ITAA 1997) and to the distribution of income and capital in accordance with its discretionary powers to Eligible Charities. The definition of Eligible Charities makes it clear that recipients of awards must be entities which are charitable and in respect of whom donations are deductible. As noted previously in these reasons the fact that the Foundation did not obtain or seek an exemption for the makers of gifts to it is not to the point. The evidence establishes that the Foundation is carried on solely for charitable purposes and not for pecuniary profit.
It follows that in my view the Applicant is entitled to the exemption sought under the second limb. It is my view that this approach constitutes the correct and preferable decision in that a decision whereby the exemption is denied would be so unreasonably harsh that it is inconceivable that it represents the intention of the legislature.
Part G General and conclusion
As noted previously I do not intend for the reasons given, to have regard to the Additional Submissions by the Applicant. The decision under review is set aside and the Applicant is entitled in respect of the land and in relation to the relevant year to the exemption sought by it under the relevant section.
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Decision last updated: 15 November 2012
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