South Australian Employers' Chamber of Commerce & Industry Incorporated v Commissioner of State Taxation
[2017] SASC 127
•31 August 2017
SUPREME COURT OF SOUTH AUSTRALIA
(Appeals to a Single Judge: Civil)
SOUTH AUSTRALIAN EMPLOYERS' CHAMBER OF COMMERCE & INDUSTRY INCORPORATED v COMMISSIONER OF STATE TAXATION
[2017] SASC 127
Judgment of The Honourable Justice Blue
31 August 2017
TAXES AND DUTIES - PAYROLL TAX - OBJECTIONS, APPEALS AND REVIEWS
TAXES AND DUTIES - PAYROLL TAX - LIABILITY TO TAXATION - EXEMPTIONS - NON-PROFIT ORGANISATIONS - PUBLIC BENEVOLENT INSTITUTIONS
CHARITIES - CHARITABLE PURPOSES - OTHER PURPOSES BENEFICIAL TO PUBLIC
CHARITIES - NON-CHARITABLE PURPOSES - ECONOMIC AND COMMERCIAL PURPOSES
Appeal against disallowance of objection against refusal of recognition that the appellant is exempt from payroll tax under the charitable purpose exemption in s 48 of the Payroll Tax Act 2009.
The appellant is a non-profit incorporated association. Its activities fall into five major areas:
1. Developing and advocating policies to government and opposition.
2. Providing services and products exclusively to members.
3. Selling commercial services to businesses and employers generally.
4. Conducting programs funded or subsidised mainly by government grants.
5. Providing apprenticeship and trainee services funded by government grants.
The appellant contends that all of its activities are undertaken for the purpose of promoting trade and commerce in South Australia, which is a recognised charitable purpose. The Commissioner contends that the appellant’s activities are conducted for the purpose of benefiting members or alternatively benefiting businesses and employers in South Australia generally.
The appellant contends that all wages are paid to persons engaged exclusively in and for performing work of the kind ordinarily performed in connection with its charitable purpose. The Commissioner contends that none of the wages are so paid, or alternatively only those wages paid to persons engaged exclusively in policy advocacy activities are so paid.
Held:
1. To be a charitable purpose within the meaning of s 48 and under the general law, a purpose must be to provide a public benefit as opposed to a private advantage or benefit and it must fall within a recognised category of charitable purpose by reference to principle and authority (at [108]-[142]).
2. For the purpose of s 48, the purpose of an institution governed by a board of directors is to be ascertained by reference to the institution’s objects, the institution’s activities, the institution’s communications to members and what is said and done at board meetings. The subjective internal state of mind of individual directors not communicated to the board is irrelevant (at [170]-[173]).
3. To comprise a dominant purpose within the meaning of s 48, the purpose must be the ruling, prevailing or most influential purpose. A charitable institution can have a non-charitable purpose provided that it is incidental to the charitable purpose. It can have a non-charitable purpose independent of its charitable purpose, but it must be so minor that the charitable purpose remains the ruling, prevailing or most influential purpose (at [179]-[180]).
4. The appellant has failed to prove that, on a stand-alone basis, its policy advocacy, member services or commercial services activities are undertaken for the purpose of advancing trade and commerce in South Australia (at [237], [247] and [256]).
5. The appellant has proved that, on a stand-alone basis, its dominant purpose in undertaking its subsidised programs and apprenticeship activities is to advance trade and commerce in South Australia (at [267] and [272]).
6. On a holistic assessment, the appellant has not proved that its dominant purpose is to advance trade and commerce in South Australia (at [278] and [299]).
7. For the purpose of sub-s 48(2), the reference to “work of a kind ordinarily performed” is a reference to work of a kind ordinarily performed by charitable institutions having the same charitable purpose as the institution characterised at the appropriate level of generality or specificity (at [324]).
8. If the appellant had proved that its dominant purpose is to advance trade and commerce in South Australia, it is likely that it would also have established that all wages were paid to persons engaged exclusively in and for performing work of a kind ordinarily performed in connection with its charitable purpose. However, it is not necessary or appropriate to decide that question on a hypothetical basis (at [342] and [347]).
9. Appeal dismissed (at [349]).
Payroll Tax Act 2009 (SA) s 48; Payroll Tax Act 2007 (NSW) s 48; Payroll Tax Act 2007 (Vic) s 48; Taxation Administration Act 1996 (SA) s 92(b), referred to.
Aid/Watch Inc v Commissioner of Taxation (2010) 241 CLR 539; Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1; Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566; Bowman v Secular Society Ltd [1917] AC 406; Brookton Co-operative Society Ltd v Federal Commissioner of Taxation (1981) 147 CLR 441; Canterbury Development Corporation v Charities Commission [2010] 2 NZLR 707; Chesterman v Federal Commissioner of Taxation (1925) 37 CLR 317; City of Mandurah v Australian Flying Corps & Royal Australian Air Force Association (WA Division) Inc [2016] WASCA 185; Commissioner of Taxation v The Triton Foundation (2005) 147 FCR 362; Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204; Commissioners for Special Purposes of the Income Tax v Pemsel [1891] AC 531; Commissioners of Inland Revenue v Oldham Training and Enterprise Council (1906) 69 TC 231; Commissioners of Inland Revenue v White (1980) 55 TC 651; Commissioners of Inland Revenue v Yorkshire Agricultural Society [1928] 1 KB 611; Cronulla Sutherland Leagues Club Ltd v Commissioner of Taxation (1990) 23 FCR 82; Dingle v Turner [1972] AC 601 ; Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404; Goodman v The Mayor and Free Burgesses of the Borough of Saltash (1882) 7 App Cas 633; Incorporated Council of Law Reporting of Queensland v Federal Commissioner of Taxation (1971) 125 CLR 659; In re Cranston, Webb v Oldfield [1898 IR 431; Jones v Williams (1767) 27 ER 422; Law Institute of Victoria v Commissioner of State Revenue [2015] VSC 604; Morice v Bishop of Durham (1805) 32 ER 947, 10 Ves 522; Morice v Bishop of Durham (1804) 32 ER 656, 9 Ves 399; National Deposit Friendly Society Trustees v Skegness Urban District Council [1959] AC 293; Oppenheimer v Tobacco Securities Trust Co Ltd [1951] AC 297; Re Chamber of Commerce and Industry of Western Australia (Inc) and Commissioner of State Revenue (2012) 89 ATR 797; Re Compton; Powell v Compton [1945] Ch 123; Re Crown Rental Trust; Latimer v Commissioner of Inland Revenue (New Zealand) [2004] 1 WLR 1466; Re Queenstown Lakes Community Housing Trust [2011] 3 NZLR 502; Royal North Shore Hospital of Sydney v Attorney-General for New South Wales (1938) 60 CLR 396; Tasmanian Electronic Commerce Centre Pty Ltd v Commissioner of Taxation (2005) 142 FCR 371; Telecommunications Industry Ombudsman Limited v Commissioner of State Revenue [2017] VSC 286; Thompson v Federal Commissioner of Taxation (1959) 102 CLR 315; Vancouver Society of Immigrant and Visible Minority Women v Minister of National Revenue (1999) 169 DLR (4th) 34; Verge v Somerville [1924] AC 496, discussed.
SOUTH AUSTRALIAN EMPLOYERS' CHAMBER OF COMMERCE & INDUSTRY INCORPORATED v COMMISSIONER OF STATE TAXATION
[2017] SASC 127Civil
BLUE J:
This is an appeal against disallowance of an objection against refusal by the respondent of an application for recognition that the appellant is exempt from payroll tax under the charitable purpose exemption in section 48 of the Payroll Tax Act 2009 (SA) (the Act) and a refund of payroll tax paid.
The appellant South Australian Employers’ Chamber of Commerce and Industry Incorporated (the Chamber) is a non-profit organisation incorporated under the Associations Incorporation Act 1985 (SA) (the Associations Act). During the relevant years it paid annual wages in South Australia of over nine million dollars. Subject to the charitable exemption, it was otherwise obliged to pay payroll tax.
Section 48 exempts from payroll tax wages paid or payable amongst others by a non-profit organisation[1] having as its sole or dominant purpose a charitable purpose (a charitable institution), provided that the wages are paid or payable to persons engaged exclusively in and for performing work of a kind ordinarily performed in connection with the institution’s charitable purposes.
[1] With the exceptions of schools, colleges, educational institutions, educational companies and instrumentalities of the State. As none of these exceptions apply, I ignore them.
In respect of the period from 1 July 2009 to 31 May 2014 the Chamber paid payroll tax totalling $2,575,844. On 13 June 2014 the Chamber applied to the respondent Commissioner of State Taxation (the Commissioner) for recognition of exemption from payroll tax under the charitable purpose exemption and for a refund of payroll tax paid in respect to the period from 1 July 2009 to 31 May 2014.[2]
[2] The Chamber sought a refund of $2,575,844, accepting that $78,964 payroll tax was payable in respect of approximately 12 employees said to have been engaged in business activities undertaken to fund the Chamber's charitable work. On appeal, the Chamber contends that all employees without exception were engaged in charitable work or support roles and the Commissioner takes no objection to this contention. On appeal, the Chamber seeks a refund of all payroll tax paid from 1 July 2009 to date. Payroll tax paid from 1 July 2009 to 31 December 2016 was $3,530,151.
On 2 October 2014 the Commissioner decided that the Chamber was not exempt because it did not have as its sole or dominant purpose a charitable purpose. On 24 November 2014 the Chamber lodged an objection with the Minister of Finance (the Minister) against the Commissioner’s decision.
On 4 September 2015 the Chamber appealed against the Commissioner’s decision pursuant to section 92(b) of the Taxation Administration Act 1996 (SA) (the Administration Act). On 7 September 2015 the Minister disallowed the Chamber’s objection and on 30 October 2015 the Chamber amended its notice of appeal to appeal against the Commissioner’s decision pursuant to section 92(a) of the Administration Act.
It is common ground that the appeal involves a hearing de novo on issues arising and evidence adduced on the hearing of the appeal unconstrained by the issues and evidence before the Commissioner and the Minister. It is common ground that the onus of proof lies on the Chamber.
The Chamber’s activities fall into five major areas:
1. developing and advocating policies to government and opposition;
2. providing services and products exclusively to members;
3. selling commercial services to businesses and employers generally;
4. conducting programs funded or subsidised mainly by government grants;
5. providing apprenticeship and trainee support services funded by government grants.
The Chamber contends that all of its activities are undertaken for the purpose of promoting trade and commerce in South Australia, which is a recognised charitable purpose. The Commissioner contends that the Chamber’s activities are undertaken for the purpose of benefiting members or alternatively benefiting businesses and employers in South Australia generally.
The Chamber contends that all wages are paid to persons engaged exclusively in and for performing work of the kind ordinarily performed in connection with its charitable purpose. The Commissioner contends that none of the wages are so paid, or alternatively only those wages paid to persons engaged exclusively in policy advocacy activities are so paid.
The issues arising on appeal are:
1.Did the Chamber at the material times have as its sole or dominant purpose a charitable purpose or purposes?
2.If so, were the wages paid by the Chamber paid in whole or in part to persons engaged exclusively in and for performing work of a kind ordinarily performed in connection with its charitable purposes?
A. BACKGROUND
History
The original ancestor of the Chamber was established in 1839 as a not-for-profit unincorporated association. In 1993 the Chamber was incorporated pursuant to the Associations Incorporation Act 1985 (SA). It adopted Rules of Association which were amended from time to time, the last amendment being made in 2005 (the Former Constitution). On 27 November 2012 it adopted a substituted Constitution (the Current Constitution).
The Chamber carries on its activities under the business name “Business SA”. The Chamber operates from premises on Greenhill Road known as Enterprise House.
The Chamber is a member of the Australian Chamber of Commerce and Industry (the Australian Chamber). The Chamber has a counterpart chamber of commerce in each other State performing similar functions. The six State chambers are the members of the Australian Chamber.
Relevant period
The relevant period is from 1 July 2009 onwards (the relevant period). Evidence was adduced generally in respect of the period up to mid-2015 or early 2016. Leaving aside the change in objects of the Constitution in November 2012, it is not suggested by either party that changes over the relevant period are so material that the Chamber’s sole or dominant purposes were charitable at one time during the period but were not charitable at another time.
Evidence in greater depth was adduced in relation to the position at certain times during the relevant period. This applies particularly to evidence about Chamber revenue and personnel. I rely on the more detailed evidence adduced as at particular times as being broadly representative of the position throughout the period in accordance with the approach adopted by the parties at trial.
Membership
The principal category of membership and the only one carrying a right to attend and vote at general meetings is ordinary membership.[3] At 30 June 2013 the Chamber had 4,472 ordinary members and at 30 June 2015 it had 3,970 ordinary members.
[3] Described as “members” in the Former Constitution (clause 5(b)) and “Ordinary Members” in the Current Constitution (clause 4.2).
Persons or entities were eligible for ordinary membership under the Former Constitution if they:
(a)conducted a business (clause 5(b)(i)); or
(b)were an incorporated society (other than a trade union or employee association) approved for membership at the discretion of the Board (clause 5(b)(ii)).
Persons or entities are eligible for ordinary membership under the Current Constitution if they:
(a)conduct a business; or
(b)are a not-for-profit incorporated society (other than a trade union or employee association) that is an employer (clause 4.2).
I infer that the Board exercised its discretion under clause 5(b)(ii) of the Former Constitution up to November 2012 to admit not-for-profit societies only if they were employers. I draw this inference from the requirement that a not-for-profit society be an employer in the Current Constitution, the evidence that changes in the Current Constitution were made in part to modernise the Former Constitution and the requirement in the Former Constitution that an applicant’s interests not conflict with the interests of the Chamber or its members.[4] I infer for similar reasons that not-for-profit societies only were admitted in the discretion of the Board. In any event, the onus of proving otherwise lies on the Chamber and it has not discharged that onus.
[4] Mr McBride gave evidence that no applicant for membership was refused admission but he did not say that any person or entity who or which was neither a business nor an employer applied for or was admitted as a member.
Affiliate members are regional chambers of commerce affiliated with the Chamber.[5] The Loxton, Mount Gambier, Port Augusta and Port Pirie Chambers are affiliate members. Associate members are members of affiliated regional chambers of commerce.[6] As at 30 June 2013 the Chamber had 253 associate members and as at 30 June 2015 it had 310 associate members.
[5] Current Constitution clause 4.5. Termed “Affiliate Members”.
[6] Current Constitution clause 4.6. Termed “Associate Members”.
There are also life and honorary members but no evidence was adduced as to their numbers, which I assume are small. The Chamber continues to send communications to former ordinary members who have become non-financial and calls them “supporter members”. As at 30 June 2013 the Chamber had 240 supporter members and as at 30 June 2015 it had 615 supporter members.
During the relevant period, the Chamber had between seven and ten per cent of South Australian employers as members. It had approximately three per cent of South Australian businesses as members.
Control
The general management and control of the affairs of the Chamber is, subject to decisions made by members in general meeting, vested in a Board.[7] The Board comprised ten persons under the Former Constitution; it comprises up to ten persons under the Current Constitution.[8] All members of the Board were elected by the members in general meeting under the Former Constitution; six are elected in general meeting and the balance are appointed by the Board under the Current Constitution.[9] Board members were required to be ordinary members under the Former Constitution but this requirement was removed in the Current Constitution.[10] There have not in fact been any non-members appointed to the Board since November 2012.
[7] Former Constitution clause 21 and Current Constitution clause 12.1.
[8] Former Constitution clause 20(a) and Current Constitution clause 12.2.
[9] Former Constitution clause 19 and Current Constitution clause 12.2.
[10] Former Constitution clause 20(a) and Current Constitution clause 12.2(b).
The Board was required under the Former Constitution to meet at least eight times a year and is required under the Current Constitution to meet as often as necessary.[11]
[11] Former Constitution clause 20(e) and Current Constitution clause 12.9(a).
The officeholders under the Former Constitution were the President and Deputy President elected by the members in general meeting.[12] The officeholders under the Current Constitution are the Chairman and Deputy Chairman elected by the Board.[13] The Chief Executive Officer is responsible for the day to day operations of the Chamber.[14]
[12] Former Constitution clause 18.
[13] Current Constitution clause 12.6.
[14] Former Constitution clause 24(a)(ii) and Current Constitution clause 18.1.
Objects
The primary objects under the Former Constitution were expressed as follows:
The objects of SAEC are to promote the interests of members generally and in particular to promote the development of the commercial manufacturing or industrial resources of Australia ... [15]
[15] Former Constitution clause 3.
The primary objects under the Current Constitution are as follows:
(a) The primary objects of SAEC are:
(i)to promote economic development in Australia through the promotion of industry, trade and commerce in Australia and in particular in South Australia; and
(ii)for that purpose to promote the development of the manufacturing, industrial, intellectual, natural and agricultural resources of Australia generally and of South Australia in particular.[16]
[16] Current Constitution clause 3.1(a).
The secondary objects under the Former Constitution included the following:[17]
[17] Paragraphs omitted represent powers (for the purpose of accomplishing the objects) rather than objects or are obsolete.
…and in furtherance thereof:
(a)To hold meetings for the discussion of matters affecting the interest of members, and for the delivery of lectures, and the reading and discussion of papers.
(b)to print, publish, and distribute lectures, papers, notices and any matter of interest to members or affecting the objects.
(c)To promote, support or oppose any proposals or measures (including any legislation of the Commonwealth or State Parliaments and any by-laws, regulations, acts or awards of any public authority, board, Commission or Court) which may affect the interests of SAEC or the members thereof.
(d)To take action for the protection of members in connection with Customs and Excise Tariffs.
(e)To watch developments in industrial matters, and take action on behalf of members to protect their interests.
…
(j)To offer prizes, rewards, or premiums for the encouragement of invention, skill, and greater technical knowledge in connection with work appertaining to the objects.
(l)To establish support or aid or join with others in the establishment and support of associations or institutions however designated which in the opinion of the Board have objects consistent with the objects of SACEC.
(la)To generally represent and advise and to provide training services to members and employers generally provided that such services are consistent with the interests of employers generally.
(p)To hold meetings, classes, seminars or other similar sessions for the purpose of informing and/or educating members in any field of activity which SAEC participates.…
The secondary objects under the Current Constitution are:
(b) In pursuit of its primary objects, SAEC may:
a.undertake or fund research;
b.lobby and negotiate (both publicly and privately) with governments and other decision-makers and opinion leaders;
c.undertake or fund training or other education for the business sector;
d.take an interest industrial matters, and participate in and take action generally or on behalf of an employer;
e.offer prizes, rewards, or premiums with the encouragement of invention, skill, and greater technical knowledge in connection with work appertaining to be objects; and
f.form, affiliated with or otherwise collaborate with or support associations or institutions which, in the opinion of the Board, have objects consistent with the objects of SAEC.[18]
[18] Current Constitution clause 3.1(b).
A draft of the new Constitution was provided to members before the November 2012 annual general meeting at which the Current Constitution was adopted. The Explanatory Note at the beginning of the draft Constitution said:
For the most part, this draft Constitution modernises the language and format and updates some of the concepts of the existing Constitution and, to that extent, the changes are essentially cosmetic.
However there are some important substantive changes. The key changes are
· the objects are changed to broaden them generally and also to prioritise them. This has been done for two reasons. The first is to minimise the risk that someone might complain that an activity of Business SA is ultra vires. The second is to enhance the prospects of a payroll tax exemption...
I accept that modernising the format was the reason for the explicit separation between the primary and secondary objects and between objects and powers. However, I find that enhancing the prospects of the Chamber obtaining taxation advantages available to charitable institutions was the principal reason for the change of wording of the objects themselves to increase the focus on the promotion of trade and commerce and economic development and remove reference to the interests of or services provided to members (other than a reference to taking action in an industrial matter on behalf of an employer).
I make this finding for several reasons. First the wording of the objects in the Current Constitution so strongly emphasises the promotion of trade and commerce and so comprehensively removes the promotion of the interests of members from the Former Constitution that it appears imbalanced. Secondly, if a major purpose had been concerns about acting ultra vires, it may be expected that the previous references to providing services to members and businesses would have been retained to avoid ultra vires concerns about the validity of providing services to members and businesses. Thirdly there was a recognised advantage to the Chamber in terms of charitable status in adopting wording that emphasises trade and commerce and de-emphasises the interests of members and businesses. Fourthly the Explanatory Note refers to enhancing the prospects of a payroll tax exemption as one of only two reasons for the change. Finally, despite the change the Chamber still described its principal activities in its board reports accompanying its annual financial statements for 2012/2013, 2013/2014 and 2014/2015 in terms of the principal objects set out in the Former Constitution. Although I accept the Chamber’s submission that this was the result of using prior year financial statements as precedents, the fact that the error was not noticed indicates that the statement reflected the Chamber’s perception as to its principal objects.
Activities
The Chamber’s externally focussed substantive activities (activities) during the relevant period can be divided into five major areas (the major areas):
1.Policy development and advocacy (policy advocacy): developing policies and advocating them through lobbying to government and opposition directly and via the media.
2.Services and products provided exclusively to members (member services). These can be subdivided into four principal sub-categories:
(a)A business advisory service (known over time as the “Telephone Advisory Service”, “Business Advisory Service” and “Business Advice Hotline”): a free and unlimited telephone advisory service to members;
(b)One consultation: a free one-off consultation with an employer consultant (see sub-category 3(c) below);
(c)Newsletters and updates (collectively newsletters): free weekly and monthly general newsletters and topic-specific newsletters (including “The Business Buzz”, “Xpress”, “The Actual”, “The Exchange” and “WorkplaceWatch, SafetySpeaks and TalkingTax”);
(d)Member networking events: lunches and other events for members to network with other members and invitees.
3.Services (commercial services) sold to businesses and employers (for ease of expression I refer to businesses and employers collectively as businesses). Services were sold to members and non-members alike, with members entitled to a “member discount”. These comprise:
(a)International business services: providing certificates of origin and other export/import documentation; facilitating visas and migration; providing translation and interpretation services; and conducting international trade workshops and training;
(b)Training: conducting general and client-based training courses in workplace relations; work health and safety; injury management; marketing; social media; and business;
(c)Consulting: consulting to employers in relation to workplace relations, work health and safety, and injury management; and consulting to businesses;
(d)Publications: publications on workplace relations; awards; human resource management; taxation; health and safety; and employment law;
(e) Room hire and facilities: hiring rooms and providing facilities for businesses to use Enterprise House for private meetings, functions, etc.
4.Externally funded or subsidised programs (subsidised programs): conducting programs funded or subsidised by government grants or to a lesser extent private organisation sponsorship (subsidised program grants). The subsidised programs are:
(a)Enterprise Connect/Entrepreneurs Program: a free business advisory program conducted by the Chamber since 2007 (except between September 2013 and June 2015) funded by the Commonwealth Department of Innovation, Industry, Science and Research and the Australian Chambers Alliance in which participants receive advice on appropriate tools and skills training;
(b)South Australian Young Entrepreneur Scheme (SAYES): a 12 month program conducted by the Chamber since 1998 for groups of around 25 young entrepreneurs between the ages of 18 and 35 comprising one on one mentoring by volunteers and group workshops conducted by volunteers generally subsidised by the South Australian Department of State Development (but not subsidised for all years) for which participants paid a registration fee of $880;
(c)THREESIXTY: Business Coaching Program: an eight to ten month program conducted by the Chamber from October 2011 to January 2017 comprising several group workshops of eight to ten participants conducted by business coaches contracted by the Chamber subsidised by the South Australian Department of State Development for which participants paid a registration fee of $2,500 with a 20 per cent discount for members;
(d)Business Venture Start up Workshops and Buying/Selling Business Workshops: workshops conducted by the Chamber from December 2013 to June 2015 subsidised by the Office of the Small Business Commissioner for which participants paid a registration fee of $275 and $350 respectively;
(e)The Small Business Contact Service: a free telephone advisory service conducted by the Chamber from October 2014 to September 2015 funded by the Office of the Small Business Commissioner.
5.Apprenticeship and traineeship support services (apprenticeship support): conducted by the Chamber division known as Apprenticeship Support Australia formerly known as the Australian Apprenticeship Centre (the Australian Apprenticeship Centre or the AAC), which provides Commonwealth government-funded advice and assistance in relation to apprenticeships and traineeships. The services mainly comprise:
(a)Promotion & recruitment: promoting apprenticeships and traineeships (collectively apprenticeships) in South Australia including assisting the recruitment of apprentices and trainees (collectively apprentices);
(b) Contract advice and execution: giving advice jointly to employer and apprentice about the apprenticeship contract and arranging and witnessing execution;
(c)Submission for approval: submitting the contract to the South Australian government for approval;
(d)Facilitation: facilitating the performance of the contract and of the apprenticeship including acting as a liaison between apprentice, employer, training centre and the South Australian government;
(e)Monitoring: monitoring the performance of the contract and of the apprenticeship including visits to employer premises.
The Chamber undertook research projects on specified topics (projects) commissioned by government and to a lesser extent by private organisations, the outcome of which was a research paper. For example, the Chamber undertook research and produced a report for WorkCover relating to early medical assessment enabling earlier return to work in the retail and wholesale industry. The Chamber received a grant (project grant) from the commissioning government or private organisation to undertake the project. Ms Briggs gave evidence in detail about subsidised programs and grants but no equivalent evidence was adduced by the Chamber about projects or project grants.
The Chamber’s Executive Director Operations and Finance Steven Moore extracted figures from the general ledger for the years ending 30 June 2010 to 30 June 2014 that showed the amount of revenue and identity of the grantor for each type of subsidised program grant and project grant.
The Chamber also undertook internal support functions (support functions) such as finance, information technology, personnel, management and administration. These support functions were purely ancillary to the Chamber’s activities. If the Chamber’s dominant purpose in undertaking the activities was charitable, so derivatively were its support functions. If the Chamber’s dominant purpose in undertaking the activities was non-charitable, so derivatively were its support functions. Attention is therefore focussed on the activities as opposed to the support functions.
Personnel
The Chamber tendered organisation charts issued with effect on 31 March 2009, 1 January 2011, 19 November 2012, 27 January 2014, 2 July 2014, 21 July 2015 and 12 January 2016. The charts show that periodically the Chamber restructured its organisation. The charts are snapshots at their issue dates and some changes shown on a given chart reflect changes between chart issue dates. Operating units stayed largely the same (albeit often with name changes and personnel number reductions) but were moved between managers and/or executive management.
The Chamber produced for its application to the Commissioner a table setting out a categorisation of employees as at mid-2014 (the employee table). The employee table provided a short description of the role of each employee. The Chamber’s Human Resources Officer Karen Just gave evidence providing further detail of the roles of the employees shown in the organisation chart dated 27 January 2014 that was largely still in force[19] when the employee table was produced. I describe the personnel structure and employee functions as at mid-2014 on the basis that they are broadly representative of the structure and functions over the relevant period.[20]
[19] Some of the changes later recorded in the 2 July 2014 chart had already taken place even though the 2 July 2014 chart had not yet been issued.
[20] Personnel numbers reduced substantially from approximately 154 full-time equivalent employees as at March 2009 to approximately 109 full-time equivalent employees as at mid-2014.
As at mid-2014, the Chamber employed approximately 109 full time equivalent employees (108.5 according to the January 2014 organisation chart and 109.5 according to the July 2014 organisation chart). The Chief Executive Officer had executive responsibility for all operations and personnel. A Chief Operating Officer and a Chief Financial Officer reported to the Chief Executive Officer. In general terms General Managers reported to the Chief Operating Officer or Chief Financial Officer, except the General Manager Membership, General Manager Human Resources and Director of Policy who reported directly to the Chief Executive Officer.
Personnel were divided into five divisions:
1.Commercial and Advisory Services division under the General Manager Commercial and Advisory Services reporting to the Chief Operating Officer. Personnel in this division reported to one of three Managers. This division performed the work comprising commercial services sold to businesses (major activity 3) and part of the work comprising member services (major activity 2).
2.Marketing and Programs division under the General Manager Marketing and Programs reporting to the Chief Operating Officer. This division undertook sales and marketing of memberships and services (support functions) and performed the work comprising subsidised programs (major activity 4).
3.The Australian Apprenticeship Centre under the General Manager Australian Apprenticeship Centre reporting to the Chief Operating Officer. Personnel in this division reported to the Manager in Adelaide or one of five Regional Managers or directly to the General Manager. This division performed work comprising apprenticeship support (major activity 5).
4.Office of the Chief Executive Officer. The Director of Policy, General Manager Membership and General Manager Human Resources reported directly to the Chief Executive Officer (as did the Manager Office of the CEO and Media Communications):
(a)the Director of Policy supervised personnel in the policy area who performed work comprising policy advocacy (major activity 1);
(b)the General Manager Membership supervised personnel who performed part of the work comprising member services (major activity 2) and undertook sales of memberships (support functions);
(c)the General Manager Human Resources supervised personnel in the human resources area (support functions).
5.Corporate Services division under the General Manager Finance and Facilities and General Manager Technology and Business Transformation reporting to the Chief Financial Officer. This division provided support functions.
On the basis of the employee table and the January and July 2014 organisation charts and the oral evidence given by Ms Just, the Chamber’s personnel performing or responsible for activities in mid-2014 were as follows:
1.Policy advocacy: 7.5 full-time equivalent[21] personnel comprising the Director of Policy, three Senior Policy Advisers, a part-time Policy Adviser, a Policy and Research Officer, a Research and Administration Officer and the Manager Office of the CEO and Media Communications. The Director of Policy reported directly to the Chief Executive Officer.
[21] All references herein to personnel numbers are to full time equivalents. The organisation charts show some personnel as being part time without quantification and in these cases on the basis of the evidence given by Ms Briggs I find that the part time personnel were 0.5 full time equivalents.
2.Member services: four personnel comprising:
(a) Business Advisory Services: the Principal Business Advisor, the Senior Business Adviser and the Awards and Business Advisor;
(b) One Consultation and Newsletters: a minority of the time of the Consultants referred to in 5 below;
(c) Member Networking Events: the Coordinator Events and Membership.
3.Commercial services: 22 personnel comprising:
(a) International business services: the Manager Migration and Trade and the Trade Officer;
(b) Training, consulting and publications: the General Manager Commercial and Advisory Services; the Manager Product Development; the Manager Commercial; the Manager Office of the CEO and Commercial Support; the Publications and Project Executive; six Senior Consultants, two Senior Training Facilitators; the RTO Compliance and Quality Officer; the Senior Coordinator and six Coordinators.
4.Subsidised programs:
(a) two personnel comprising the SME Program Executive and the Coordinator-Marketing and Programs;
(b) because the Entrepreneurs program was temporarily not conducted in 2014, these personnel numbers were not representative of the larger period: there were as at January 2016 nine personnel dedicated to subsidised programs, being five Business Advisors dedicated to the Entrepreneurs program, the Manager Business Advisory, the Manager Learning Solutions, the Three Sixty Executive and the Senior Learning Coordinator as well as some personnel who worked on both subsidised programs and other matters.
5.Apprenticeship support: 38 personnel comprising the General Manager Australian Apprenticeship Centre; Manager Australian Apprenticeship Centre; seven Training Executives, the Key Accounts Manager, three Senior Administration Officers, 10.5 Administration Officers, two Team Leaders, two Visit Consultants, the Employer Liaison Officer and the Quality Assurance Officer all based in Adelaide; and five Regional Managers, three Administration Officers and a Training Executive based in the country.
6.Other: the Chief Executive Officer and Chief Operating Officer.
The Chamber’s personnel performing support functions were as follows:
1.Human resources: 2.5 personnel comprising the General Manager Human Resources, the Senior Payroll HR Officer and the Human Resources Officer part-time.
2.Information technology: six personnel comprising the General Manager Technology and Business Transformation, the Senior Web Officer, the Senior IT Support Officer, the IT Support Officer, two part-time CRM Officers and the Senior Business Process Reengineering Advisor.
3.Finance: five personnel comprising the General Manager Finance and Facilities, the Senior Finance Officer, the Credit Controller, two part-time Accounting Officers and the Accounts Payable Officer.
4.Sales: five personnel comprising the Business Development Coordinator and two Business Development Executives and two Membership Executives.
5.Marketing: four personnel comprising the General Manager Marketing and Programs, the Senior Marketing Executive, the Marketing Executive-Digital and two part-time Marketing Executives.
6.Other: the Chief Financial Officer and the Coordinator-Logistics.
Mr McBride gave evidence that the Chamber regarded all personnel as contributing to policy. He said that those in the policy advocacy area consulted those in the services areas for the purpose of developing policy. He said that personnel on the road dealing with members also contributed to policy. Notwithstanding this evidence, I find that the principal role of personnel other than those working in the policy advocacy area was to provide services to members and non-members in the case of externally-focused personnel and to provide support functions in the case of internally-focused personnel.
Revenue
Revenue was reported in the Chamber’s annual financial statements at a relatively broad level. Mr Moore extracted figures from the general ledger for the years ending 30 June 2010 to 30 June 2014 that enabled the separation of grants between subsidised programs and project grants. Revenue by category was as follows:[22]
[22] Years shown are the years ending on 30 June. All dollar figures shown are rounded to the nearest thousand dollars. In 2010 Function Centre revenue was combined with Other in the financial statements.
Revenue 2010 2011 2012 2013 2014 2015 Member subscriptions 3,764,000 3,752,000 3,561,000 3,377,000 3,205,000 3,042,000 Training & Consulting 3,936,000 3,667,000 4,040,000 3,909,000
2,824,000 2,037,000 Publications 1,311,000 1,210,000 1,097,000 1,062,000 934,000 720,000
International 522,000 566,000 614,000 692,000 738,000 821,000
Function Centre --- 345,000 271,000 178,000 787,000 24,000 Grants – subsidised programs 495,000 688,000 782,000 851,000 325,000 191,000
Grants - projects 1,443,000 626,000 556,000 732,000 462,000 751,000
Apprentice -ship 5,402,000 5,930,000 6,439,000 5,803,000 4,189,000 2,913,000 Rent & interest 602,000 324,000 214,000 152,000 68,000 83,000 Other 1,475,000 891,000 1,105,000 774,000 471,000 676,000
Total
18,950,000
17,999,000
18,679,000
17,530,000
14,003,000
11,178,000
Taking the 2013 year as typical (or a mid-point) of the relevant period, allocating project grants to commercial services fees, revenue earnt by the Chamber comprised:
·Commercial services $6.5 million 37%
·Apprenticeship services $5.8 million 33%
·Membership fees $3.4 million 20%
·Subsidised programs $0.9 million 5%
·Other $0.9 million 5%
Commercial services
The Chamber derived fee revenue from commercial services provided to businesses. The fees incorporated a member discount ranging from ten per cent for most migration and translation services to 20 per cent for most consultancy and training services and publications to 33 or 40 per cent for most international services to 50 per cent for a handful of services or products.
The Chamber’s general ledger does not distinguish between revenue from members and non-members. The Chamber maintains a Client Relationship Management System (CRMS) independently of the general ledger system. It is operated on a cash basis whereas the general ledger is operated on an accruals basis. The CRMS includes internal cross-charges without differentiation from external charges whereas the general ledger records internal cross-charges so that they can be eliminated easily on preparation of financial statements. The CRMS does not included apprenticeship revenue. The Chamber does not reconcile the two systems but uses them for different purposes.
Mr Moore reconciled for the 2012/13 year the total revenue recorded in the CRMS to the total revenue recorded in the general ledger trial balance to within $51,000. I am satisfied that the division of revenue between members and non-members in the CRMS system gives an adequate picture of relative revenue between members and non-members.
The CRMS shows the split between member and non-member revenue for the following services:
Revenue Year Member Non-member Total Member
%Training &
Consulting2010
2,581,000 1,792,000 4,373,000 59 2011 3,032,000 1,254,000 4,286,000 70 2012 2,873,000 1,104,000 3,977,000 72 2013 2,529,000 1,255,000 3,784,000 66 2014 1,822,000 1,122,000 2,944,000 62 Average 2,567,400 1,305,400 3,872,800 66% International 2010 345,000 255,000 600,000 58 2011 346,000 222,000 568,000 61 2012 465,000 224,000 689,000 68 2013 613,000 209,000 822,000 75 2014 610,000 270,000 880,000 69 Average 475,800 236,000 711,800 66% Publications 2010 630,000 281,000 911,000 69 2011 589,000 159,000 748,000 79 2012 515,000 153,000 668,000 77 2013 526,000 162,000 688,000 76 2014 425,000 146,000 571,000 74 Average 537,000 1,802,000 717,200 75% Functions 2010 160,000 58,000 218,000 73 2011 142,000 26,000 168,000 85 2012 367,000 56,000 423,000 86 2013 189,000 27,000 216,000 88 2014 97,000 21,000 118,000 82 Average
191,000
37,600
228,600
83%
On average, member revenue as a percentage of total revenue for commercial services was approximately 75 per cent.
Revenue was also derived from project grants. Because the Chamber provided a service to the commissioning entity in return for payment of the grant, I have treated projects as commercial services and project grants as commercial services revenue.
Subsidised programs
The Chamber derived revenue for undertaking subsidised programs primarily from the Commonwealth or State governments. Mr Moore extracted the revenue from government grants and registration fees charged to participants from the Chamber’s general ledger for each program type, which shows the following:
Program 2010 2011 2012 2013 2014 2015 ENTERPRISE CONNECT 373,000
566,000
641,000
642,000
---
---
THREESIXTY—
--grants---
---
65,000
184,000
141,000
82,000
--fees --- --- 57,000 -25,000[23] 42,000 28,000 --total --- --- 122,000 160,000 183,000 110,000 SAYES
--grants100,000
100,000
4,000
NA
60,000
40,000
--fees 22,000 22,000 17,000 NA 16,000 16,000 --total 122,000 122,000 21,000 NA 76,000 56,000 SMALL BUSINESS
--grants---
---
---
---
59,000
68,000
--fees --- --- --- --- 4,000 14,000 --total --- --- --- --- 63,000 82,000 Total grants 473,000 666,000 710,000 826,000 260,000 190,000 Total fees 22,000 22,000 74,000 -25,000 62,000 58,000 TOTAL REVENUE
495,000
688,000
784,000
801,000
322,000
248,000
Grant revenue %
95.5%
96.8%
90.6%
100%
80.7%
76.6%
[23] Reported fees for 2012 were $57,000 and in 2013 were -$25,000 reflecting an overstatement in the 2012 financial statements.
Apprenticeship support
The Chamber derived revenue from providing apprenticeship support exclusively from the Commonwealth government. The government entered into contracts with the Chamber for three year terms under which the government paid a fixed fee per apprentice over the term of the apprenticeship. The Chamber provided this support exclusively in South Australia. No charge was made to businesses or apprentices.
Costs and surplus/deficit
The Chamber’s annual financial statements give only a high level breakdown of its expenses as shown in the following table:
Expense 2010 2011 2012 2013 2014 2015
Employee benefit expense 12,067,000
12,307,000
12,727,000
12,126,000
9,263,000
7,965,000
Administration
2,431,000
1,983,000
2,262,000
2,298,000
1,759,000
1,631,000
Occupancy
1,101,000
732,000
687,000
682,000
663,000
647,000
Depreciation
615,000
879,000
853,000
799,000
841,000
795,000
Other
1,789,000
1,419,000
1,415,000
1,194,000
957,000
1,083,000
TOTAL
18,002,000
17,320,000
17,944,000
17,099,000
13,483,000
12,121,000
Apart from subsidised programs and projects, no other documents were tendered and no evidence was adduced which provide any greater breakdown. The Chamber’s principal expense is wages and salaries and hence personnel numbers in each major area give an approximate indication of relative expenses incurred in those areas.
Larger commercial organisations often create profit centres and record revenue, costs and profit/loss generated by a particular area which generates a particular revenue stream. They usually also create cost centres and record the costs incurred by a particular area which does not generate revenue. Usually overheads incurred by the organisation as a whole are allocated on a fair and reasonable basis as between profit/cost centres.
Between 2010 and 2014, the Chamber created profit/cost centres at a relatively micro level. However, apart from subsidised programs, the Chamber’s general ledger records showing revenue and expenses in these profit/cost centres were not tendered. It appears from Mr Moore’s evidence in relation to subsidised programs that many overheads were not allocated for the purpose of profit/cost centres in 2014 (before Mr Moore joined the Chamber) and it is not clear to what extent they were allocated in prior years. From 2015 onwards, no overheads (including salaries) have been allocated to cost centres.
Mr Moore gave evidence that the Chamber maintained a different general ledger code for revenue and costs in respect of each different subsidised program and each project funded or subsidised by grants. However, generally the costs recorded for each such program or project were confined to direct costs and did not include wages for employees unless they worked exclusively on one program. I infer that the Chamber recorded direct costs against detailed ledger codes across the board but this did not include wages unless an employee worked exclusively in relation to that code. Leaving aside subsidised programs, the Chamber has failed to prove what profit or costs centres would show in respect of each major area of activity.
In respect of subsidised programs, Mr Moore extracted from the general ledger those costs that were allocated to specific programs for the years ended 30 June 2010 and 30 June 2014. Extracts from the general ledgers for the subsidised programs conducted in those two years were tendered. I have disregarded the figures for the 2010 year because in most cases the costs were exactly equal to the revenue and because Mr Moore could not explain or clarify the system that was used in 2010.
For the 2014 year, the revenue and expenses recorded for subsidised programs and the difference is shown in the following table:
Program SAYES
ThreeSixty
Small Business TOTAL
Revenue 184,000 115,000 63,000 362,000 Expenses -direct costs 42,000 40,000 21,000 103,000 -internal staff charge 79,000 52,000 6,000 137,000 -management charge 37,000 37,000 -finance & admin charge 3,000 3,000 3,000 9,000
Total Expenses 124,000 95,000 67,000 286,000 Surplus/deficit 60,000 20,000 -4,000 76,000
The expenses shown in the above table do not include an allocation of overheads including support staff wages or management staff wages other than an allocation to the Small Business programs of part of the salary of the Chief Operating Officer. If there were a full allocation of overheads, it is likely that there would only be a small surplus.
Interstate chambers
The Chamber tendered the Constitutions and 2015/2016 financial statements of each of the five interstate chambers. Mr McBride also gave evidence concerning the activities of the interstate chambers and of the relationship between the Chamber and them.
Each of the six State chambers undertakes fundamentally the same activities. They include policy research and development, advocacy on business, economic and employers’ issues and the use of traditional and electronic media to prosecute their policy agenda; advice, consulting and representation in relation to employee relations and workplace health and safety; training of managers and employees; apprenticeship support; business coaching; training in relation to export; export support, migration and visas, translation support and export certificates of origin; and networking and industry related events.
The Australian Chamber acts as the voice of the State chambers in relation to federal issues. The State chambers in their capacity as members of the Australian Chamber meet at least three times a year at formal meetings of the Australian Chamber. The chief executive officers of each State chamber also meet at least three times a year less formally to discuss policies, products and services and national campaigns.
B. EVIDENCE
On the hearing of the appeal, evidence was given by Nigel McBride, who has been the Chief Executive Officer of the Chamber since July 2012. Three affidavits by Mr McBride were tendered as his evidence in chief and he was cross-examined by counsel for the Commissioner.
Evidence was given by Vincent Tremaine, who has been a director of the Chamber since late 2003 and the President/Chairman since early 2010. Two affidavits by Mr Tremaine were tendered as his evidence in chief and he was cross-examined by counsel for the Commissioner.
No challenge was made to the honesty of either witness and only a limited challenge was made to the reliability of Mr McBride’s evidence. Subject to one qualification, I accept the factual evidence given by Mr McBride and Mr Tremaine. The qualification is that Mr McBride gave evidence about quantitative matters such as the split between member and non-member revenue and personnel matters such as personnel duties and numbers. Some of this evidence was inaccurate and I prefer the Chamber’s business records and subsequent evidence given by Mr Moore and Ms Just relating to these matters over the evidence given by Mr McBride.
Mr McBride and Mr Tremaine gave evidence in which they expressed opinions as to what are the Chamber’s purposes. For example each gave evidence in cross-examination that in his view the purpose of the Chamber is to support and promote businesses in South Australia and this generates economic activity beneficial for the community. Their opinions are inadmissible because their evidence amounts to conclusions on a question that is for me to determine. In any event, for the reasons given below, the internal beliefs and even individual purposes of Mr McBride and Mr Tremaine are not those of the Chamber. Even if admissible, Mr McBride and Mr Tremaine have an obvious interest in the issues the subject of the appeal and I would give no weight to their opinions. The opinions they expressed were given in cross-examination and the Chamber itself did not seek to lead this evidence. To the extent that they expressed opinions or beliefs as to the purposes of the Chamber (as opposed to purely factual evidence of acts and communications), I do not accept their evidence.
Evidence was given by Karen Just, who has been the Chamber’s Human Resources Officer since early 2011 and was employed by the Chamber in a different capacity before then since 2006. Two affidavits by Ms Just were tendered and she was cross-examined by counsel for the Commissioner.
Evidence was given by Stephen Moore, who has been the Chamber’s Executive Director Operations and Finance since November 2015. Five affidavits by Mr Moore were tendered, he gave limited oral evidence in chief and he was cross-examined by counsel for the Commissioner.
Evidence was given by Jenny Briggs, who has been employed by the Chamber since August 2015 and has been the Executive Director Employer Solutions and Programs since December 2015. Ms Briggs gave evidence concerning the subsidised programs undertaken by the Chamber and their funding. One affidavit by Ms Briggs was tendered and she was cross-examined by counsel for the Commissioner.
Evidence was given by Sharyn Davies, who has been employed by the Chamber within the Australian Apprenticeship Centre since 2000 (apart from 15 months in 2007/2008), was Manager of Administration Australian Apprenticeship Centre from October 2008 and has been General Manager, Apprenticeship Support Australia since July 2015. Ms Davies gave evidence concerning the functions performed by the Australian Apprenticeship Centre and their funding. One affidavit by Ms Davies was tendered and she was cross-examined by counsel for the Commissioner.
There was no challenge to the evidence of Ms Just, Mr Moore, Ms Briggs or Ms Davies and I accept their evidence.
C. THE LEGAL CONCEPT OF CHARITABLE PURPOSE
Section 48 of the Act relevantly provides:
48—Non-profit organisations
(1)Subject to subsection (2), wages are exempt wages if they are paid or payable by any of the following:
(a) a religious institution;
(b) a public benevolent institution (but not including an instrumentality of the State);
(c) a non‑profit organisation having as its sole or dominant purpose a charitable purpose (but not including a school, a college, 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, public benevolent or charitable purposes of the institution or body; and
(b) to a person engaged exclusively in that kind of work.
Section 48 refers to an “institution”, “organisation” and “body”. It uses these terms interchangeably and nothing turns on the difference in terminology.[24] For ease of reference, I refer to an organisation or body referred to in section 48 as an institution.
[24] In ordinary usage, and in the context of the law of charities, “institution”, “organisation” and “body” are used interchangeably: see Stratton v Simpson (1970) 125 CLR 138 at 158 per Gibbs J (with whom Barwick CJ, Menzies and Walsh JJ agreed); Commissioner of Taxation v Word Investments Ltd [2008] HCA 55, (2008) 236 CLR 204 at [33] per Gummow, Hayne, Heydon and Crennan JJ.
There are three elements contained in section 48(1)(c):
1.an institution has a charitable purpose(s);[25]
2.the charitable purpose(s) is (are) the sole or dominant purpose(s) of the institution;
3.the institution is not a school, college, educational institution, educational company or instrumentality of the State.
[25] It is common ground that the singular encompasses the plural: Acts Interpretation Act 1915 (SA), section 26(b).
It is common ground that the third exclusionary element has no application in the present case but the first two elements are in dispute.
Legal meaning v ordinary meaning
It is common ground that the reference to “charitable purpose” in the first element is to the general law concept of charitable purpose (the legal meaning) rather than its popular meaning in common parlance (the ordinary meaning) if there is a difference.[26] The statute operates in this respect in an ambulatory manner: as its meaning in the general law changes over time, so does the meaning of “charitable purpose” in the statute.[27]
[26] Central Bayside General Practice Association Limited v Commissioner of State Revenue [2006] HCA 43, (2006) 228 CLR 168 at [18], footnote 28 per Gleeson CJ, Heydon and Crennan JJ; Aid/Watch Inc v Commissioner of Taxation [2010] HCA 42, (2010) 241 CLR 539 at [23]-[24] per French CJ, Gummow, Hayne, Crennan and Bell JJ and [65]-[66] per Kiefel J.
[27] This reflects a presumption generally adopted by the courts that, when a statute refers to a charity or charitable purpose without defining the term and without evincing a contrary intention, the statutory intention is to refer to the general law concept. See Commissioners for Special Purposes of the Income Tax v Pemsel [1891] AC 531 at 580 per Lord Macnaughten; Swinburne v Federal Commissioner of Taxation (1920) 27 CLR 377 at 384 per Isaacs, Gavan Duffy, Rich and Starke JJ; Salvation Army (Victoria) Property Trust v President, Counsellors and Rate-Payers of the Shire of Fern Tree Gully (1952) 85 CLR 159 at 174-175 per Dixon, Williams and Webb JJ; Aid/Watch Inc v Commissioner of Taxation (2010) 241 CLR 539 at [23]-[24] per French CJ, Gummow, Hayne, Crennan and Bell JJ and [66] per Kiefel J.
It has often been said that there is a difference between the ordinary meaning and the legal meaning. This has usually been said in a context in which reference is made to those dictionary definitions that confine the ordinary meaning to words to the effect “beneficent assistance to the needy or helpless”.[28]
[28] See for example Swinburne v Federal Commissioner of Taxation (1920) 27 CLR 377 at 384 per Isaacs, Gavan Duffy, Rich and Starke JJ; Salvation Army (Victoria) Property Trust v President, Counsellors and Rate-Payers of the Shire of Fern Tree Gully (1952) 85 CLR 159 at 174-175 per Dixon, Williams and Webb JJ.
However, the ordinary meaning of “charity” is protean and at least in recent times, while one ordinary meaning is still limited to helping the needy or helpless, another ordinary meaning is much broader and another accords with its legal meaning. Over time the ordinary and legal meanings have interacted with and informed each other.
The Oxford English Dictionary includes the following definitions of “charity”:
1. Christian love…With various applications: as
a. God’s love to man… Obs.
b. Man’s love of God and his neighbour … Obs.
c. esp. The Christian love of our fellow-men; Christian benignity of disposition expressing itself in Christ-like conduct; one of the ‘three Christian graces’, fully described by St. Paul, I Cor xiii.[29]
[29] “Love is patient, love is kind. It does not envy, it does not boast, it is not proud. It does not dishonor others, it is not self-seeking, it is not easily angered, it keeps no record of wrongs. Love does not delight in evil but rejoices with the truth. It always protects, always trusts, always hopes, always perseveres.”: Holy Bible revised international edition.
d. in this sense often personified in poetic language, painting, sculpture, etc.
e. in, out of, charity: in or out of the Christian state of charity, or love and right feeling towards one’s fellow Christians.
f. in various phrases: see the quotations.
2.a. Without any specially Christian associations: Love, kindness, affection, natural affection: now esp. with some notion of generous or spontaneous goodness.
b. pl Affections; feelings or acts of affection.
3.a. A disposition to judge leniently and hopefully of the character, aims, and destinies of others, to make allowance for their apparent faults and shortcomings; large-heartedness. (But often it amounts barely to fair-mindedness towards people disapproved of or disliked, this being appraised as a magnanimous virtue.)
b. fairness; equity. Obs.
4.Benevolence to one’s neighbours, especially to the poor; the practical beneficiaries in which this manifests itself.
a. as a feeling or disposition; charitableness.
b. as manifested in action: spec. alms-giving. Applied also to the public provision for the relief of the poor, which has largely taken the place of the almsgiving of individuals.
c. plural. acts or works of charity to the poor.
5.That which is given in charity; alms.
6.A bequest, foundation, institution, etc., for the benefit of others, esp. of the poor and helpless.[30]
[30] Oxford Dictionary, 2nd ed (1989) vol 3 pages 42-43.
The Oxford English Dictionary defines “charitable” to include the following definitions:
3.Full of active charity to others; esp. liberal in almsgiving to the poor.
4.Connected with or devoted to a recognized object of charity, esp. as defined in the various statutes on the subject; of the nature of a charity.[31]
[31] Oxford English Dictionary, 2nd ed (1989) vol 3 page 42.
The Macquarie Dictionary gives the following definitions of “charity”:
noun
1.almsgiving; the private or public relief of unfortunate or needy persons; benevolence.
2.something given to a person or persons in need; alms.
3.a charitable act or work.
4a charitable fund, foundation, or institution.
5.benevolent feeling, especially towards those in need.
6.Christian love.
adjective
7.of or relating to organisations, fund raising activities, etc., of a charitable nature.[32]
[32] Macquarie Dictionary, 7th ed (2017) page 261.
The Macquarie Dictionary defines a “charitable trust” as:
1.noun a trust for the relief of poverty, the advancement of education, religion, or for other purposes beneficial to the community.[33]
[33] Macquarie Dictionary, 7th ed (2017) page 261.
While some definitions (such as Oxford English Dictionary definition 5 and Macquarie Dictionary definition 1 of “charity”) focus on the needy, others (such as Oxford English Dictionary definitions 2a and 6 and Macquarie Dictionary definition 4 of “charity”) refer more broadly to benefiting others. Oxford English Dictionary definition 4 of “charitable” and Macquarie Dictionary definition 1 of “charitable trust” pick up in common parlance the legal meaning.
Purpose
Under the general law, what is relevant is the purpose(s) of an institution (or trust or bequest as the case may be).
The concept of the purpose of an institution undertaking an activity is to be contrasted with the motive of the controlling mind of the institution to undertake the activity.[34] Motive is the reason why a person performs an act; purpose is the object of performing it.
[34] Commissioner of Inland Revenue v Falkirk Temperance Cafe Trust (1926) 11 TC 353 at 366 per Lord Sands; Roman Catholic Archbishop of Melbourne v Lawlor (1934) 51 CLR 1 at 32 per Dixon J; Re Crown Rental Trust;Latimer v Commissioner of Inland Revenue [2004] UKPC 13, [2004] 1 WLR 1466 at [29] per Lord Millett speaking for the Privy Council (Lords Nicholls of Birkenhead, Lord Millett, Lord Walker of Gestingthorpe, Sir Martin Nourse and Sir Kenneth Keith).
The concept of the purpose of undertaking an activity is to be contrasted with the effect of the activity. If the purpose is charitable, it is not fatal if the effect turns out not to be charitable.[35] Conversely, the fact that the effect may be charitable will not suffice if the purpose is not charitable. The position was explained by Lord Millett in Re Crown Rental Trust; Latimer v Commissioner of Inland Revenue (New Zealand)[36] speaking for the Privy Council (Lords Nicholls of Birkenhead, Lord Walker of Gestingthorpe, Sir Martin Nourse and Sir Kenneth Keith):
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.[37]
[35] Re Crown Rental Trust; Latimer v Commissioner of Inland Revenue (New Zealand) [2004] 1 WLR 1466 at [36] per Lord Millett speaking for the Privy Council (Lords Nicholls of Birkenhead, Lord Millett, Lord Walker of Gestingthorpe, Sir Martin Nourse and Sir Kenneth Keith); Lankry v Clairvision School Ltd [2005] NSWSC 1094 at [9] per Burchett AJ.
[36] [2004] 1 WLR 1466.
[37] At [36].
Nevertheless, usually the most probative evidence of the purpose of an activity will be evidence of its effect. In Commissioner of Taxation v Word Investments Ltd,[38] Gummow, Hayne, Heydon and Crennan JJ said:
In Baptist Union of Ireland (Northern) Corporation Ltd v Commissioners of Inland Revenue MacDermott J said:
"the charitable purpose of a trust is often, and perhaps more often than not, to be found in the natural and probable consequences of the trust rather than in its immediate and expressed objects."
Similarly, the charitable purposes of a company can be found in a purpose of bringing about the natural and probable consequence of its immediate and expressed purposes, and its charitable activities can be found in the natural and probable consequence of its immediate activities.[39]
[38] (2008) 236 CLR 204.
[39] At [38]. (Citation omitted)
The mere fact that a person’s motive is altruistic does not necessarily entail that a person’s purpose is charitable.[40] Conversely the mere fact that a person’s motive is not altruistic does not necessarily entail that the person’s purpose is not charitable.[41] However, it does not follow that, in determining whether a purpose is charitable, no distinction is drawn between a purpose which is altruistic in nature and a purpose of advancing one’s own interests: I consider this further below.[42]
[40] Commissioner of Inland Revenue v Falkirk Temperance Cafe Trust (1926) 11 TC 353 at 366 per Lord Sands; Roman Catholic Archbishop of Melbourne v Lawlor (1934) 51 CLR 1 at 32 per Dixon J; Re Crown Rental Trust;Latimer v Commissioner of Inland Revenue [2004] 4 All ER 558 at [29] per Lord Millett.
[41] Hoare v Osborne (1866) LR 1 Eq 585 at 588 per Kindersley VC; Re King [1923] 1 Ch 243 at 245 per Romer J.
[42] See [128] ff.
Charitable purpose
The legal concept of charity or charitable purpose cannot be understood without an understanding of its history and context.
Context
The law has for centuries distinguished between charitable and non-charitable purposes in three broad contexts. First the general law affords exemptions from certain doctrines in respect of charitable purposes. Secondly statutes grant taxation exemptions in respect of charitable purposes. Thirdly statutes regulate institutions with charitable purposes in a different manner to other institutions.
The common law and equity afford several exemptions to charitable institutions from doctrines that apply to non-charitable institutions. Equity recognises the validity of a purpose trust (a trust without a defined or certain class of beneficiaries) if it is for a charitable purpose while refusing recognition of a purpose trust for a non-charitable purpose.[43] The common law and equity recognise the validity of a bequest for a charitable object or to a charitable institution selected by the executor/trustee while refusing recognition of such a bequest for or to a non-charitable object or institution.[44] The common law and equity adopt a more benign test for certainty of a trust or bequest in respect of one for charitable purposes so as to ensure validity than for non-charitable purposes.[45] The common law and equity exempted charities from the rules against perpetuities and excessive accumulations (now abolished[46] in South Australia).[47]
[43] Armenian General Benevolent Union v Union Trustee Co of Australia Ltd (1952) 87 CLR 597 at 604 per Dixon CJ and McTiernan J and 614 per Williams, Webb and Kitto JJ; Leahy v Attorney-General [1959] AC 457 at 478-479 per Viscount Simonds speaking for the Privy Council (Lords Morton of Henryton, Cohen, Somervell of Harrow and Denning).
[44] Houston v Burns [1918] AC 337 at 342-343 per Viscount Haldane; Lines v Lines [2003] SASC 173, (2003) 227 LSJS 456 at [37]-[39] per Besanko J.
[45] Re Monk [1927] 2 Ch 107 at 207 per Lord Hanworth MR; Re Koeppler Will Trusts [1986] 1 Ch 423 at 438 per Slade LJ.
[46] The rule was abolished in 1996 by the Law of Property Act 1936 (SA) section 61.
[47] Armenian General Benevolent Union v Union Trustee Co of Australia Ltd (1952) 87 CLR 597 at 604 per Dixon CJ and McTiernan J and 614 per Williams, Webb and Kitto JJ; Leahy v Attorney-General [1959] AC 457 at 478-479 per Viscount Simonds speaking for the Privy Council speaking for the Privy Council (Lords Morton of Henryton, Cohen, Somervell of Harrow and Denning).
Statutory taxation exemptions and privileges under Commonwealth and South Australian law include exemption from income tax;[48] land tax;[49] stamp duty[50] and payroll tax.[51]
[48] Exemption from income tax was first explicitly granted in the United Kingdom by the Income Tax Act 1799 (39 Geo c 13) section 5. Similar provision was made by the Income Tax Assessment Act 1911 (Cth) section 11(d), the Income Tax Assessment Act 1922 (Cth) section 14(1)(f), the Income Tax Assessment Act 1936 (Cth) section 23(e) and (after its amendment in 1998) the Income Tax Assessment Act 1997 (Cth) sections 50-50 and 50-60. After further amendment in 1999, sections 50-57, 50-105 and 50-110 introduced a procedural requirement that a charitable institution be endorsed by the Commissioner as such. After further amendment in 2012, section 50-47 introduced an additional requirement that institutions eligible for registration under section 25-5(1)(b) and (5) of the Australian Charities and Not-for-profits Commission Act 2012 (Cth) be so registered. Such institutions are those having one or more of the twelve charitable purposes listed in subsection 12(1) of the Charities Act 2013 (Cth), those whose principal activity is to promote the prevention or control of human diseases and public benevolent institutions.
[49] Land Tax Act 1936 (SA) section 4(1)(j). The exemption applies to land owned by an association established for a charitable, educational, benevolent, religious or philanthropic purpose (whether or not the purpose is charitable within the meaning of any rule of law) and is declared by the Commissioner to be exempt from land tax on the ground that the land is or is intended to be used wholly or mainly for that purpose or that the whole of the net income (if any) from the land is or will be used in furtherance of that purpose.
[50] Stamp DutiesAct 1923 (SA) Schedule 2 clause 16 item 33. The exemption applies to transfers of property to a body established wholly for charitable or religious purposes where the Commissioner is satisfied that the property will not be used (wholly or predominantly) for commercial or business purposes (even if any revenue, income or other benefit arising from the use of the property for commercial or business purposes will be applied towards the charitable or religious purposes of the body).
[51] Payroll Tax Act 2009 (SA) section 48.
Charities are regulated in South Australia by and under two Acts. The Collections for Charitable Purposes Act 1939 (SA) defines a charitable purpose as affording relief to the diseased, sick, infirm, incurable, poor, destitute, helpless or unemployed persons or their dependents and members and former members of the armed forces. It imposes licensing and disclosure requirements on collectors for charities. Part 4 of the Trustee Act 1936 (SA) applies to trusts for charitable purposes. It does not define “charitable purposes”, which therefore has its general law meaning. It empowers the Supreme Court to make orders in relation to such trusts, either when a breach of trust is alleged or when considered necessary for the administration or management or to the advantage or benefit of the trust. It also empowers the Supreme Court to alter the purposes of such a trust.
History
Chancery recognised charitable purpose trusts from the fifteenth century.[52] Ecclesiastical Courts until the fifteenth century had afforded favourable treatment to charitable purposes, including in relation to the rule requiring certainty of the objects of a bequest, the rule against perpetuities and the doctrine of cy-pres.[53]
[52] Sir William Holdsworth, A History of English Law (Methuen & Co Ltd 1924) vol V, page 305.
[53] R N Helmholtz, ‘The Law of Charity and the English Ecclesiastical Courts’ in P M Hoskin, C N L Brooke and R B Dobson (eds) The Foundations of Mediaeval English Ecclesiastical History: Studies Presented to David Smith (Boydell Press 2005) pages 117-120; G E Dal Pont, Law of Charity (LexisNexis, 2nd ed, 2017) pages 80 [4.1] and 153-154 [8.1].
Up to the reformation in the early sixteenth century, charitable work in England was mainly conducted by the Catholic Church. It mainly comprised the provision of care, accommodation, hospitals and education for the poor, aged, sick and disabled. It was primarily funded by tithes and endowments.[54] The motive for giving to such charities was often the preservation of the giver’s eternal soul, a motive reinforced by a practice of the Church in denying the Eucharist to those who did not give and interring their remains in unconsecrated ground.[55] This history explains those dictionary definitions (sometimes designated as obsolete) quoted above referring to charity as being Christian in nature and/or limited to assisting the helpless.
[54] E Clarke, ‘Social Welfare and Mutual Aid in the Medieval Countryside’ (1994) 33 Journal of British Studies 381; G Jones, History of the Law of Charity, 1532-1927 (Cambridge University Press 1969) pages 1-15; M Chesterman, Charities, Trusts and Social Welfare (Weidenfeld and Nicolson 1979) pages 11-15; G E Dal Pont, Law of Charity (LexisNexis, 2nd ed, 2017) page 80 [4.1].
[55] E Clarke, ‘Social Welfare and Mutual Aid in the Medieval Countryside’ (1994) 33 Journal of British Studies 381; G Jones, History of the Law of Charity, 1532-1927 (Cambridge University Press 1969) pages 1-15; M Chesterman, Charities, Trusts and Social Welfare (Weidenfeld and Nicolson 1979) 11-15; G E Dal Pont, Law of Charity (LexisNexis, 2nd ed, 2017) page 80 [4.1].
In the sixteenth century during the reign of Henry VIII, English Statutes rendered unlawful gifts for obits (chantries) or continual service of a priest in 1532[56] and forfeited to the Crown the endowments of existing chantry foundations in 1545.[57] Such gifts were characterised as “superstitious”.[58]
[56] Statute 23 Hen VIII, c 10.
[57] Statute 37 Hen VIII, c 4. See G Jones, History of the Law of Charity, 1532-1927 (Cambridge University Press 1969) page 10.
[58] See Jones History of the Law of Charity pages 10-11.
At the beginning of the seventeenth century, the Statute of Charitable Uses 1601 (Eng)[59] empowered the appointment of commissioners to investigate fraud, abuse, breach of trust and negligence in the administration of charities. While not defining the term “charity”, the preamble referred to nine purposes of gifts where property had not been employed according to the charitable intent of the givers and founders. Those purposes were expressed to be:
[59] An Act to redress the Mis-employment of Lands, Goods and Stocks of Money heretofore given to certain charitable Uses 43 Eliz, c 4.
·relief of aged, impotent and poor people;
·maintenance of sick and maimed soldiers and mariners, schools of learning, free schools, and scholars in universities;
·repair of bridges, ports, havens, causeways, churches, sea banks and highways;
·education and preferment of orphans;
·relief, stock, or maintenance of houses of correction;
·marriage of poor maids;
·supplication, aid, and help of young tradesmen, handicraftsmen, and persons decayed;
·relief or redemption of prisoners or captives; and
·aid or ease of any poor inhabitants concerning payment of fifteens, setting out soldiers, and other taxes.
The preamble was not an exhaustive list of charitable purposes recognised as at 1601.[60] Nor was it the evident purpose of the Statute to define what constituted charitable purposes. It was “merely a collection of instances of a somewhat miscellaneous character”[61] directed to “the correction of abuses which had grown up in the administration of certain trusts of a charitable nature”.[62]
[60] G Jones, History of the Law of Charity, 1532-1927 (Cambridge University Press 1969) page 12.
[61] Chichester Diocesan Fund and Board of Finance (Incorporated) v Simpson [1944] AC 341 at 354 per Lord Wright.
[62] Gilmour v Coats [1949] AC 426 at 442 per Lord Simonds.
A charity was required to be for public benefit. For example, in 1607 Sir Francis Moore said that all charitable uses were “public” uses.[63] In 1767 in Jones v Williams,[64] Lord Hardwicke LC said:
Definition of charity: a gift to a general public use, which extends to the poor as well as to the rich.
[63] Sir Francis Moore Reading (1607) as quoted in G Jones, History of the Law of Charity, 1532-1927 (Cambridge University Press 1969) page 121.
[64] (1767) 27 ER 422.
In 1804 in Morice v Bishop of Durham,[65] the issue was whether a bequest for objects of benevolence and liberality selected by the testatrix’s executor/trustee was valid as a trust for charitable purposes. Sir William Grant MR held that charitable purposes were those stated in the preamble to the 1601 Statute and other purposes by analogy “deemed within its spirit and intendment”.[66] During argument on appeal to the Lord Chancellor, counsel for the next of kin, Samuel Romilly, contended that there were four categories of charitable purposes: relief of the indigent, advancement of learning, advancement of religion and advancement of objects of general public utility.[67] The reference to “public utility” in the residual category was clearly intended to pick up the earlier articulated requirement of public use or public benefit which applied to all categories of charitable purposes.
[65] (1804) 9 Ves 399, 32 ER 656.
[66] (1804) 9 Ves 399 at 405, 32 ER 656.
[67] (1805) 10 Ves 522 at 532, 32 ER 947.
In Telecommunications Industry Ombudsman Limited v Commissioner of State Revenue,[238] section 48(1)(b) of the Payroll Tax Act 2007 (Vic) (the Victorian Act) had been amended to restrict the exemption to wages paid to employees “engaged exclusively in work of a … charitable … nature for the institution or non-profit organisation”. Croft J held that the exemption nevertheless applied to administrative support staff performing work incidental to the dominant charitable purpose.[239]
[238] [2017] VSC 286.
[239] At [156]-[158].
Work performed to derive revenue to fund an organisation’s charitable purpose is work performed in connection with the charitable purpose. For example, if a charitable institution pays employees (as opposed to engaging volunteers) to collect donations from the public, those employees are performing work in connection with the institution’s charitable purpose.
Work of a kind ordinarily performed
The fourth step is to determine whether the work performed is work of a kind ordinarily performed in connection with the institution’s charitable purpose or purposes as identified.
There is an issue of construction whether the test as to work being “ordinarily” performed confines attention to the institution itself (a subjective test) or directs attention to institutions generically having the same charitable purpose (an objective test). The Chamber contends that the reference to “ordinarily performed” directs attention to the institution in question and requires the work to be ordinarily performed within the institution in connection with its charitable purposes: there is no need or ability to look beyond the institution itself. The Commissioner contends that the reference to “ordinarily performed” directs attention to the charitable purposes of the institution by reason of which it is prima facie exempt and requires the work to be ordinarily performed at a more generic level than within the institution itself in connection with those charitable purposes.
The text and grammatical structure of section 48(2)(a) support the construction advanced by the Commissioner. Section 48(2)(a) does not refer to work ordinarily performed within the institution. It requires first the identification of the institution’s charitable purpose and then that the work performed be of a kind ordinarily performed in connection with that charitable purpose.
The word “ordinarily” according to the Oxford English Dictionary relevantly means “usually, commonly”.[240] The use of the word “ordinarily” indicates that the legislature intended to impose an objective test such that it is not sufficient merely that the work is incidental to the charitable purpose but it must also not be extraordinary, unusual or abnormal by reference to considerations external to the institution itself.
[240] Oxford English Dictionary, 2nd ed (1989) vol 10 page 910.
The words “of a kind” indicate that there need not be a precise identity between the work performed within the institution and work ordinarily performed in connection with the relevant charitable purpose. This is appropriate, if not necessary, on the Commissioner’s construction under which an objective test is imposed because otherwise any slight variation between the work performed within the institution and work ordinarily performed would be fatal. This is otiose on the Chamber’s construction.
Considered together, the incorporation of both the work being “of a kind” and “ordinarily” performed supports the construction advanced by the Commissioner.
The context of section 48(2)(a) supports the construction advanced by the Commissioner. Similar qualifications to exemptions granted by other provisions of the Act direct attention to the charitable purpose generically rather than to the particular institution. For example, clause 10 of the Second Schedule exempts wages paid or payable by not for profit schools and colleges providing primary and secondary school education. The exemption is subject to the qualification that the wages are paid or payable to a person:
engaged exclusively in work of the school or college of a kind ordinarily performed in connection with the conduct of schools or colleges providing education of that kind are exempt wages.
In the case of the school and college exemption, attention is directed to schools or colleges generically providing education of that kind rather than to the specific institution. As the underlying rationale for the qualification is the same in each case, there is no good reason to construe the qualifications in opposite ways. There are similar qualifications to the exemptions in respect of kindergartens,[241] childcare centres[242] and hospitals.[243] Qualifications in essentially the same terms were contained in section 12 of the predecessor of the Act, being the Pay-roll Tax Act 1971 (SA) (the Former Act).[244]
[241] Schedule 2 clause 14.
[242] Schedule 2 clause 15.
[243] Schedule 2 clause 12.
[244] Pay-roll Tax Act 1971 (SA) section 12(b)(iii), (c), (d), (da) and (dad) in respect of public hospitals, hospitals, schools or colleges, childcare centres and kindergartens respectively. These qualifications were not contained in the previous Act when enacted in 1971 but were introduced by the Pay-roll Tax Act Amendment Act 1980 (SA).
The evident purpose of section 48(2)(a) supports the construction advanced by the Commissioner. The evident purpose is to exclude from the exemption wages paid for work not typically undertaken in connection with the charitable purposes by reason of which the exemption is granted and to impose an objective test as to whether such work is performed in connection with such charitable purposes. This evident purpose would not be achieved if the test were purely subjective by reference to work ordinarily performed within the institution itself.
Having regard to the text, context and evident purpose of section 48(2)(a), the test as to whether work is “ordinarily performed” directs attention to work ordinarily performed by institutions having the same charitable purpose as the institution in question. This begs the question at what level of generality the charitable purpose of the institution in question is identified and hence the scope of consideration of work ordinarily performed by institutions having that charitable purpose addressed at [304] to [307] above. It also begs the question what occurs if there are no other institutions having the same charitable purpose: this is addressed at [328] below.
This construction of section 48(2)(a) as imposing an objective test is in accordance with the decision of the New South Wales Court of Appeal in Grain Growers Ltd v Chief Commissioner of State Revenue (NSW).[245] Grain Growers contended that the same phrase[246] in section 48(2)(a) of the Payroll Tax Act 2007 (NSW) meant how the taxpayer ordinarily carried out its charitable purpose.[247] Beazley P (with whom by Bathurst CJ and Leeming JA agreed) rejected this contention and said:
[245] [2016] NSWCA 359.
[246] The New South Wales Act referred to “benevolent, philanthropic or patriotic purposes” as well as “charitable” purposes but this difference is not relevant to the construction of the qualification to the exemption.
[247] [2016] NSWCA 359 at [59] per Beazley P (with whom Bathurst CJ and Leeming JA agreed).
Subject to one matter and further consideration of the appellant’s submissions, the language of subs (2) directs attention not to work of the particular institution, but as the section states, to “work of a kind”. The expression “work of a kind” would indicate that work which is like or similar to work which, relevantly, is “ordinarily performed in connection with the … charitable ... purposes of the institution”, would fall within that phrase. In other words, precise identity or correspondence is not required.
…
The primary judge, in his reasons, gave particular focus to the meaning of “ordinarily performed”. In my opinion, on its plain meaning and as the primary judge pointed out, “ordinarily” bears the meaning of “regularly, commonly or customarily”…
…
… for a non-profit organisation to be entitled to an exemption from liability for payroll tax, it has to establish that the wages must be paid or payable for work of a kind that is like or similar to that which is ordinarily, that is, regularly or commonly or customarily, performed in connection with the charitable purposes of the organisation. This requires, as his Honour found:
“… an assessment of whether the particular activities of the relevant body are such that bodies with the same charitable purpose ordinarily, or in other words regularly, commonly or customarily, perform them.”
…
An argument raised against the construction of s 48(2) that I consider it bears is the proposition that where a non-profit organisation engages in some new or innovative charitable purpose, it is not possible to find “work of a kind ordinarily performed in connection with the … charitable … purposes of the organisation”. …
…
It is quite a different thing to say, however, that an activity or operation is conducted in a new or innovative way. Whether in such a case it was able to be established that wages were paid or payable for “work of a kind ordinarily performed in connection with the … charitable … purposes of the institution” is a fact-dependent question and cannot be resolved in the abstract. However, because, as I have found, there does not have to be precise identity or correspondence between work of a kind ordinarily performed in relation to a charitable purpose and the work performed by the organisation in connection with its charitable purpose, s 48(2), in my view, contains within it the necessary flexibility to deal with new or innovative ways of carrying out a charitable purpose.[248]
[248] At [115], [120], [126], [129], [131]. (Citations omitted)
In applying the objective test, evidence may be adduced about the work ordinarily performed by institutions having the same charitable purpose as the institution in question. Depending on the breadth or narrowness of the charitable purpose identified, often the court will be able to take judicial notice of such work or it will be apparent on the application of logic and common sense. It may well be that the court can have regard to decisions by courts in other matters as indicating the kind of work undertaken by charities with the same relevant charitable purpose.
In Bathurst City Council v PWC Properties Pty Ltd,[249] Gaudron, McHugh, Gummow, Hayne and Callinan JJ said that:
… the understanding of judges in the community in which they live of what a particular activity (in that case the conduct of shows for agricultural and other purposes) involves may be accepted as a proper understanding of the nature of that activity.[250]
[249] (1998)195 CLR 566.
[250] At [34]. (Citations omitted)
If the institution in question is the only charity with the charitable purpose identified for the purpose of this test, the court may be able to apply an objective test by the application of logic and common sense and by analogy with charities with similar charitable purposes. As Beazley P observed in Grain Growers Ltd, subsection 48(2) is sufficiently flexible to enable innovative charitable purposes or innovative ways of undertaking charitable purposes to be addressed by the objective test.[251]
[251] At [131].
Exclusively engaged
The fifth step is to determine whether each employee who performs such work is exclusively engaged in performing such work.
In Grain Growers Limited v Chief Commissioner of State Revenue,[252] Black J held that, if executive and management staff supported both promotion activities (being a charitable purpose) and BRI and Agricon activities (not being a charitable purpose in its own right), their wages were not exempt because they were not exclusively engaged in performing work of a kind ordinarily performed in connection with Grain Growers’ charitable purposes (see [312] above).[253]
[252] [2015] NSWSC 925.
[253] At [92].
In general the law does not have regard to trifles. If an employee were engaged 99 per cent of his or her time in performing work of a kind ordinarily performed in connection with the institution’s charitable purpose, it is likely that he or she would nevertheless be regarded as exclusively engaged in such work. However, if the employee spent significant time on other work, he or she would not be exclusively engaged in work of a kind ordinarily performed in connection with the institution’s charitable purpose.
The Chamber’s employees
The Chamber contends that all of its employees are engaged exclusively in undertaking work of a kind ordinarily performed in connection with its charitable purpose.
The Commissioner’s submissions proceed on the implicit premise that, if the Chamber’s dominant purpose is charitable under subsection 48(1), the generic charitable purpose to be identified for the purpose of subsection 48(2) is to be identified at the level of chambers of commerce generically. The Commissioner explicitly accepts on the basis of the evidence adduced that the work of the Chamber is of a kind that is similar to that undertaken by chambers of commerce generally.
The Commissioner makes three alternative contentions. First, no employees undertook work in connection with the advancement of trade and commerce. Secondly, the Chamber has failed to prove that the work performed by interstate chambers has a charitable purpose and hence has failed to prove that the work performed by the Chamber’s employees is work of a kind ordinarily performed in connection with the Chamber’s charitable purpose. Thirdly, the Chamber has failed to prove that employees engaged in undertaking work of a kind ordinarily performed in connection with its charitable purpose are exclusively so engaged.
These contentions illustrate how the question whether the test in subsection 48(2) is satisfied depends on what is the charitable purpose(s) of the Chamber under the subsection 48(1) test and how narrowly or broadly it is identified for the purpose of applying the subsection 48(2) test. It is therefore necessary to deal with the subsection 48(2) test on alternative assumptions as to how the subsection 48(1) test might have been satisfied contrary to my conclusion above.
All major activities directly advance trade and commerce
I first assume that the Chamber had succeeded on its highest submission that all five of its major activities were themselves in advancement of trade and commerce.
First the Commissioner contends that no employees undertook work in connection with the advancement of trade and commerce. The Commissioner contends that the policy advocacy work undertaken by the Chamber is too remote to satisfy the “in connection with” test in subsection 48(2)(a). The Commissioner contends that promoting policies that may support increased trade and commerce is different to engaging in activities aimed at achieving increased levels of trade and commerce. I reject this contention. If the Chamber had established that its policy advocacy activities were engaged in for the purpose of advancing trade and commerce which is a charitable purpose, it necessarily follows that employees engaged in that area undertook work in connection with the advancement of trade and commerce.
The Commissioner contends that work performed by employees who provide commercial services and member services involves services provided in the competitive commercial environment, which services lack a sufficient connection to the fulfilment of the Chamber’s putative purpose of promoting trade and commerce. I reject this contention for the same reason.
If all employees who performed externally-focused activities undertook work in connection with the Chamber’s charitable purposes, the work undertaken by employees providing internal support functions would be incidental to and sufficiently connected with that work such that it would be performed in connection with the Chamber’s charitable purposes.
Secondly the Commissioner contends that the Chamber has failed to prove that the work performed by interstate chambers has a charitable purpose and hence has failed to prove that the work performed by the Chamber’s employees is work of a kind ordinarily performed in connection with the Chamber’s charitable purpose. It is artificial to decide this question given that I am not satisfied that the Chamber’s policy advocacy, commercial services and member services activities were performed for a charitable purpose. However, if I had been so satisfied, given the evidence adduced about the purposes and activities of the interstate chambers and the Commissioner’s concessions referred to at [333] above, it is likely that I would have rejected this contention.
Thirdly the Commissioner contends that the Chamber has failed to prove that employees engaged in undertaking work of a kind ordinarily performed in connection with its charitable purpose are exclusively so engaged. Again, if I had been so satisfied, given the evidence adduced about the purposes and activities of the interstate chambers and the Commissioner’s concessions referred to above, it is likely that I would have rejected this contention.
In conclusion, if the Chamber had proved that all five of its major activities were themselves performed for a charitable purpose, while it is not possible to decide the question due to its hypothetical nature, it is likely that I would have found that the subsection 48(2) test was satisfied in respect of all employees.
Three major activities directly advance trade and commerce
I next assume that the Chamber had succeeded on its submission that its policy advocacy activities, apprenticeship support and subsidised programs were performed for the charitable purpose of advancement of trade and commerce and its commercial services and member services were undertaken for the purpose of funding and facilitating policy advocacy activities and were thereby incidental to its charitable purposes.
First the Commissioner makes the same or a similar contention that no employees undertook work in connection with the advancement of trade and commerce. Insofar as this submission is made in respect of policy advocacy work, I reject it for the reasons given above. I reject a similar contention made in respect of apprenticeship support and subsidised programs for the same reasons. Insofar as this submission is made in respect of commercial services and member services and internal support functions, I reject it for the reasons given above.
Secondly the Commissioner contends that the Chamber has failed to prove that the work performed by interstate chambers has a charitable purpose and hence has failed to prove that the work performed by the Chamber’s employees is work of a kind ordinarily performed in connection with the Chamber’s charitable purpose. Again, it is artificial to decide this question given that I am not satisfied that the Chamber’s policy advocacy activities were performed for a charitable purpose or that its commercial services and member services were performed for purposes incidental to its charitable purposes. However, if I had been so satisfied, given the evidence adduced about the purposes and activities of the interstate chambers and the Commissioner’s concessions referred to at [333] above, it is likely that I would have rejected this contention.
Thirdly the Commissioner contends that the Chamber has failed to prove that employees engaged in undertaking work of a kind ordinarily performed in connection with its charitable purpose are exclusively so engaged. Again, if I had been so satisfied, given the evidence adduced about the purposes and activities of the interstate chambers and the Commissioner’s concessions, it is likely that I would have rejected this contention.
In conclusion, if the Chamber had proved that its policy advocacy, apprenticeship support and subsidised programs were performed for a charitable purpose and its commercial services and member services were performed for the purpose of funding and facilitating its other major activities and were thereby incidental to its charitable purpose, while it is not possible to decide the question due to its hypothetical nature, it is likely that I would have found that the subsection 48(2) test was satisfied in respect of all employees.
F. CONCLUSION
The Chamber has failed to prove that its dominant purpose or purposes are charitable purposes within the meaning of subsection 48(1).
I dismiss the appeal.
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