Taxpayers' Assn of NSW and Commissioner of Taxation
[2001] AATA 278
•6 April 2001
DECISION AND REASONS FOR DECISION [2001] AATA 278
ADMINISTRATIVE APPEALS TRIBUNAL )
) No. NT1998/348-352
Taxation Appeals DIVISION )
Re THE TAXPAYERS' ASSOCIATION OF NEW SOUTH WALES
Applicant
And COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Deputy President J Block
Date6 April 2001
PlaceSydney
Decision The objection decisions under review are affirmed.
...............[sgd. J Block]..................
Deputy President
CATCHWORDS
INCOME TAX – exempt income - public educational institution – charitable institution – whether activities of applicant of an educational or charitable nature.
Income Tax Assessment Act 1936 – section 23(e)
Statute 43, Elizabeth 1601 – chapter 4
Training Guarantee (Administration) Act 1990 – section 27
AAT Case 5109 (1989) 20 ATR 3582
Adamson v Melbourne and Metropolitan Board of Works [1929] AC 142
Attorney-General v Marchant (1866) LR 3 Eq 4
Re Australian Institute of Management (Vic) v Commissioner of State Revenue (Vic) (1995) 95 ATC 2179
Barclay v de Lacy (Treasurer of Queensland) (1995) 31 ATR 123
Bowman v Secular Society Ltd [1917] AC 406
Carne v Long (1860) 2 De GF&J 75; 45 ER 550
Case 5109 (1989) 20 ATR 3582
Case 46/94 (1994) 94 ATC 412
Chesterman v Federal Commissioner of Taxation (1923) 32 CLR 362 [High Court]; (1925) 37 CLR 317 [Privy Council]
Cronulla Sutherland Leagues Club Ltd v Federal Commissioner of Taxation (1990) 21 ATR 300; 23 FCR 82
Commissioners for Special Purposes of the Income Tax v Pemsel [1891] AC 531
Congregational Union of New South Wales v Thistlethwayte (1952) 87 CLR 375
Dingle v Turner [1972] AC 60; [1972] 1 All ER 878
In re Hopkins' Will Trusts [1965] 1 Ch 669
Institution of Civil Engineers v Inland Revenue Commissioners [1932] 1 KB 149; (1932) 100 LJKB 705; (1932) 145 LT 553; (1932) 16 TC 158
Re Income Tax Acts (No. 1) (1930) VLR 211
The Incorporated Council of Law Reporting of the State of Queensland v Federal Commissioner of Taxation (1924) 34 CLR 580
The Incorporated Council of Law Reporting of the State of Queensland v Federal Commissioner of Taxation (1971) 125 CLR 659
Keren Kayemeth le Jisroel Ltd v IRC [1932] AC 650; [1932] All ER Rep 971
The Little Company of Mary (South Australia) Inc v Commonwealth (1942) 66 CLR 368
Lloyd v Federal Commissioner of Taxation (1955) 93 CLR 645
Re Mason (deceased) [1971] NZLR 714
McGovern v Attorney-General ("the Amnesty International Case") [1981] 1 Ch 321
National Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31
North of England Zoological Society v Chester Rural District Council [1958] 3 All ER 535
O'Connell v Council of the City of Newcastle (1941) SR (NSW) 190
Oxford Group v Inland Revenue Commissioners [1948] 1 All ER 537
Property Services Industry Training Advisory Board Ltd v Federal Commissioner of Taxation (1999) 99 ATC 2076; 41 ATR 1109
Royal Australasian College of Surgeons v Federal Commissioner of Taxation (1943) 68 CLR 436
Royal College of Surgeons v National Provincial Bank Limited [1952] 1 All ER 984
Re Shaw (deceased); Public Trustee v Day [1957] 1 WLR 729
Stratton v Simpson (1970) 125 CLR 138
Thompson v Commissioner of Taxation (1959) 33 ALJR 384; 102 CLR 315
The Young Men's Christian Association of Melbourne v Federal Commissioner of Taxation (1926) 37 CLR 351
Jacob's Law of Trusts in Australia, 6th ed, 1997 – chapter 10
REASONS FOR DECISION
6 April 2001 Deputy President J Block
Introductory and General
(a) The objection decisions under review in these matters are the disallowance of objections dated 5 July 1990, 10 July 1991, 16 June 1993, 9 August 1994 and 19 November 1996 against assessments for substituted accounting periods in lieu of the tax years ended 30 June 1990, 1991, 1993, 1994 and 1996, (collectively the "relevant years" and each a "relevant year"). It may be noted that the Applicant accounts on the basis that its substituted accounting year ends on 31 December in lieu of the year which ends on the next succeeding 30 June. It follows that the relevant period ("relevant period") with which the Tribunal is concerned commenced on 1 January 1989 and ended on 31 December 1995, but excluding the whole of the 1991 and 1994 calendar years; the Tribunal notes that the parties were agreed as to the exclusion of the 1991 and 1994 calendar years from the relevant period. It was also common cause between the parties that despite any contrary contentions in their written submissions, the 1989 tax year was not before me, even though there is, so I was informed, an agreement between the parties (with which I am not concerned) as to the manner in which that tax year is to be dealt with in the light of this decision. Accordingly, the relevant period, as defined by me, differs from any corresponding definition (eg. as to "period") in written submissions furnished by the parties.
(b) The reference numbers in respect of this matter are NT1998/348 for the tax year ended 30 June 1990, NT1998/349 for the tax year ended 30 June 1991, NT1998/350 for the tax year ended 30 June 1993, NT1998/351 for the tax year ended 30 June 1994 and NT1998/352 for the tax year ended 30 June 1996.
The Applicant was represented by Mr J Andrew Higgins of Counsel, originally instructed by Ms Gabrielle Cass of Barker Gosling, lawyers, (now Dibbs Barker Gosling, lawyers), while the Respondent was represented by Mr Mark Brabazon and Ms Theresa Walker both of Counsel instructed by Mr Martin Dwyer of the Australian Taxation Office. It should be noted that on 17 October 2000, (and after the first four hearing days), Barker Gosling notified the Tribunal that they were no longer acting for the Applicant, and that Mr Higgins would continue, as counsel, to represent the Applicant.
The Tribunal had before it the T Documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 ("the AAT Act"); the T Documents consist of one volume containing documents T1 to T25 and a total of 164 pages. The Tribunal had before it, in addition, the following exhibits:
Exhibit A1 is a statement by Mr Stephen Rogers dated 1 October 1999, who occupied the office of Secretary of the Applicant from 20 June 1991 to 29 August 1998, and is a partner in the firm of chartered accountants practising under the name of Court & Co. Included with Mr Rogers statement are 5 folders of exhibits labelled SR1 to SR35, which are referred to in his statement;
Exhibit A2 is a statement by Mr Peter McDonald dated 17 March 2000, who has occupied the office of National Director of the Australian Taxpayers' Associations ("ATA") since 1994, and is also a chartered practicing accountant. Included with Mr McDonald's statement are two attachments labelled PM1 and PM2;
Exhibit A3 is a further statement by Mr Peter McDonald dated 17 July 2000 and included with his statement is an attachment labelled PM3;
Exhibit A4 is a statement by Mr Kenneth Charles Warby dated 22 December 1999; Mr Warby occupied the position of Secretary of the Applicant from approximately 1974 until 1991; he was a partner of Court & Co from 1978 until his retirement in 1991. Included with Mr Warby's statement is an attachment labelled KW1;
Exhibit A5 is a definition of 'education' from the Macquarie Dictionary;
Exhibit A6 is a definition of 'education' from the Shorter Oxford Dictionary;
Exhibit A7 is a document labelled 'National Tax Liaison Group Charter';
Exhibit A8 is a copy of the 'Tax Summary' 1990;
Exhibit A9 is a copy of the 'Tax Summary' 1995;
Exhibit R1 is a document labelled 'Statement of Resolutions: Annual Conferences 1982 to 1989, Australian Taxpayers' Associations';
Exhibit R2 is a photocopy of the 17 August 1989 edition of the 'Taxpayer', a fortnightly publication sent to members of the Applicant;
Exhibit R3 is a photocopy of the 16 December 1989 edition of the 'Taxpayer';
Exhibit R4 is a document labelled 'Australian Taxpayers' Associations Draft Business Plan', prepared by the Taxpayers' Association of Victoria ("TAV");
Exhibit R5 is a document labelled 'Telephone savings plan', a service offered to ATA members in conjunction with Axicorp Pty Ltd.
It is noted at the outset that the Applicant sought permission to amend its grounds of objection to include a third ground of objection in respect of the 1996 tax year, namely:
3The Association is a charitable institution, in that it promotes the advancement of education of the public in taxation matters and encourages consideration and informed discussion of all questions affecting taxation of any kind or of any other subject of community interest
(emphasis added; T18, page 63)
The Respondent did not object and the amendment was granted.
The Tribunal heard oral evidence and oral submissions over seven days, although there was a considerable gap in time between the fourth hearing day and the fifth, sixth and seventh hearing days. At the conclusion of the hearing on 28 July 2000, I allowed the Applicant until 21 August 2000 to furnish written submissions, the Respondent until 11 September 2000 to furnish written submissions-in-reply and the Applicant until 29 September 2000 to furnish further written submissions-in-reply. It was anticipated at that stage that oral submissions would be heard in or about October 2000. In the event, the Applicant did not submit its written submissions ("the Applicant's Written Submissions") until 7 November 2000, the Respondent did not submit his written submissions ("the Respondent's Written Submissions") until 8 February 2001 and the Applicant's written submissions in reply ("the Applicant's Written Submissions-in-Reply") were not submitted until 15 March 2001. (The Tribunal does not intend to express any criticism of the parties for the delay in furnishing written submissions; however, and while I indicated at the hearing on 28 July 2000 that I would not be rigid as to adherence to the periods allowed, I did not anticipate so long a delay.) I note in any event that the written submissions furnished by the parties were, in respect of each of them, comprehensive and helpful.
After written submissions were submitted (as indicated above), oral submissions were heard on 15, 20 and 26 March 2001. During those oral submissions, the Respondent furnished two written documents:
Transcript Index;
Respondent's Notes on Applicant's Submissions in Reply.
Because the transcript was not numbered consecutively, transcript references relate to the date of the hearing day and the page number of the relevant transcript for that day. The T Documents and exhibits are quite extraordinarily lengthy and much of the material contained in them relates to periods outside the relevant period. It is noted that the Tribunal is concerned only with the relevant period, although, and as will be seen later in these Reasons, some evidence relating to periods outside the relevant period is worthy of consideration.
There is another matter of a preliminary nature. For the first four hearing days I heard this matter as a part-time Senior Member of the Tribunal. On 8 August 2000, and after the fourth hearing day, my appointment as a Senior Member ended. I was subsequently appointed a full-time Deputy President of this Tribunal on 1 October 2000 until 31 January 2001; that appointment was renewed on 31 January 2001. While this may mean that the Tribunal, for the purposes of the section 21A of the AAT Act, has been reconstituted, the parties noted that they desired that the matter be heard by me as Deputy President, and as if there was no break in my appointment of any kind. The parties were agreed that to commence anew would, for obvious reasons, be undesirable (and costly) in the extreme.
(a) The Applicant was registered under the Companies Act 1899 (NSW) on 8 December 1931 as a company limited by guarantee. The Applicant has, both prior to and during the relevant period, been assessed on the basis that it was a non-profit company.
(b) The objects for which the Applicant was formed are set out in the Memorandum and Articles of Association ("the MAA"), which are contained in SR1. They are namely:
3. The objects for which the Company is established are:-
(a) To initiate a State-wide movement against the ever-increasing Federal State Municipal and other Taxes.
(b) To secure reducton [sic] in taxation where practicable and to obtain a more effective representation of the interests of taxpayers in the administration thereof and to promote the consideration and discussion of all questions affecting taxation.
(c) To take such action as may be considered necessary to remedy abuses and anomalies in all forms of taxation and to furnish to members information upon taxation matters generally and to assist them in the adjustment of any differences between them and the taxation authorities.
(d) To watch over and protect the interests of members in regard to legislation or administrative action arising thereunder which may be subject to or liable to be affected by taxation or any interest therein in regard to taxation of any kind and to take such steps in regard thereto as may be considered advisable.
(e) To make such charges to members for advice or assistance in regard to taxation matters generally or any other matters coming within the scope of the Association as the Council may from time to time decide and the law permit.
(f) To collect and compile such statistical and other information as the Council may think desirable.
(g) To secure to members the advantages of unity of action in regard to all matters within the scope of these objects.
(h) Subject to Clause 4 hereof. To remunerate any person by payment of salary commission or otherwise for services rendered in or about the formation or carrying on of the Association and obtaining subscriptions or donations thereto.
(i) To obtain recognition of and to adopt such means for promoting the aims and objects of the Association through the medium of the press or otherwise as may seem expedient including setting up prizes, sponsorships, endowments, scholarships and bursaries from time to time to be awarded to one or more of the successful candidates at an examination or competition promoted or approved by the Association provided that no member of the Association shall receive any prize, sponsorship, endowment, scholarship or bursary except as a successful competitor at any examination or competition held, promoted or approved by the Association or to the cost of the holding or promotion of which the Association may have subscribed out of its income or property and which under the regulations affecting the said examination or competition may be awarded to him.
(j) To diffuse information on all matters in any way incidental to the objects and purposes of the Association and to print publish issue or circulate such papers periodicals books circulars and other literary matter as may seem conducive to such objects and purposes.
(k) To act in conjunction or combination with any other association or body having aims and objects in any way similar to those of this Association or which may directly or indirectly benefit this Association.
(l) To make such contributions as may be thought desirable towards the funds and/or to become affiliated with and to appoint representatives to any Association League or Federation in Australia with objects of a like or similar nature.
(m) To establish branches and/or appoint representatives in such parts of the State of New South Wales as the Council may think desirable.
(n) Subject to Section 53 of the Companies Act 1899 or to the provisions of any Act amending the same or in substitution therefor to take on lease purchase or otherwise acquire any real and personal property which the Council may think necessary or convenient for the purposes of the Company.
(o) To sell or dispose of any such real and personal property as the Council may from time to time think expedient.
(p) To borrow or raise or secure the payment of money in such manner as the Council of the Company may think fit.
(q) To draw and endorse cheques in such manner as the Council may from time to time determine.
(r) To do all such lawful acts and things as are incidental or conducive to the attainment of the foregoing objects or any of them.
(s) To operate as a Public Educational Institution in the interests of the citizens or Australia by encouraging consideration and informed discussion of all questions affecting taxation of any kind, or of any other subject of community interest.
(Emphasis added; as to why the words underlined were thought worthy of capitalisation was not clear.)
(c) Clause 3(s) was added by resolution at the Annual General Meeting of the Applicant on 25 May 1990 and notified to the National Companies and Securities Commission; (T21, page 143).
In addition to the T documents and exhibits before the Tribunal, oral evidence was given at the hearing by Mr McDonald, Mr Warby and Mr Rogers.
The Applicant is, as its name suggests, a New South Wales organisation. The evidence reveals that there are similar organisations in the other states, (but not in the territories), of Australia. The six state bodies are in turn affiliated through their membership of a national body called the Australian Taxpayers Associations or ATA. There was some degree of confusion throughout the hearings as to how and when this "body" was constituted. Mr McDonald, who has 'held the office of National Director of the Australian Taxpayers' Associations Inc since 1994' (Exhibit A2, page 1), stated that:
The [A]ustralian Taxpayers' Associations was never an incorporated association, it was an unincorporated association. There was another body that was set up which was called the Australian Taxpayers' Association, singular which was an incorporated body being incorporated in Victoria.
(Transcript, 17 July 2000, page 53)
Mr Rogers, however, gave the following explanation:
10. Prior to 1988 and until January 1993 the Applicant was a member of the unincorporated association known as the Australian Taxpayers' Association ("the Old ATA").
11. The other members of the Old ATA (together with the Applicant referred to as "the Member Bodies") were bodies constituted in other States of the Commonwealth and known as The Taxpayers' Association of Victoria, The Taxpayers' Association of Queensland, The Taxpayers' Association of South Australia, The Taxpayers' Association of Western Australia and The Taxpayers' Association of Tasmania respectively.
12. In January 1993 the Old ATA was incorporated under the Associations Incorporation Act as the Australian Taxpayers' Associations Inc. ("the ATA").
(Exhibit A1, page 3).
SR5, attached to Exhibit A1, is a Certificate of Incorporation under the Associations Incorporation Act 1981 (Vic) for a body called the Australian Taxpayers' Association (singular) Inc dated 26 January 1993 and is signed by Mr McDonald as a certified copy.
The Applicant's Written Submissions deal with this point, (at clause 101), as follows:
It was the oral evidence of Mr McDonald that none of the state bodies ever became members of an association incorporated in Victoria in 1993 under the Associations Incorporation Act 1981 (Vic.) and know[n] as Australian Taxpayers' Association (sic.) [Transcript 28.7.00 at p 30.0] and that such body did not carry on any activities during the period [Transcript 19.7.00 at p 30.4]. In that respect Mr McDonald's evidence is in conflict with the statement of Mr Rogers that the ATA was incorporated in 1993 [Exhibit A1 at p 3 para 12]. However in oral evidence Mr Rogers conceded that his recollection was most likely mistaken, his statement incorrect, that Mr McDonald was correct and that the ATA remained an unincorporated association during the period. [Transcript 28.7.00 at p 18-2.] In any case it is the uncontroverted evidence that the Applicant and other state bodies were all members of and participated in the one peak council the rules of which are in evidence at Exhibit SR5 at pp 2-14. It is also the uncontroverted evidence that throughout the period the rules of the ATA were for all practical purposes the same as the rules exhibited at Exhibit SR5. [Transcript 19.7.00 at p 31.3-31.6]
(a) The decision-making body in respect of the Applicant is the Council of the Applicant, (referred to hereafter as the "State Council"). Clause 36 of the MAA of the Applicant states that:
The affairs of the business management and control of the Association shall be vested in and be exercisable by a Council . . .
(b) Clauses 36-58 of the MAA deal with the Council's role in more detail. There was evidence as to the precise role played by the State Council; in this context Mr Rogers said, relevantly:
[Mr Rogers:] . . . there are a number of matters which were discussed at each meeting [of the State Council] and there was an agenda. A lot of those matters carried forward on that agenda were standard matters, like membership. There was information given as to what happened in the membership numbers during the month. There was information as to where the investment [portfolio] stood. Incoming expenditure, that is receipts and payments which were all approved at the meetings. Then there were matters which could be raised by councillors, tax matters and things they needed either answers on or they thought something should be done about it by the association. . . .
[Tribunal:] Do you mean by that that a councillor would say, we really ought to take a stance on an aspect of GST. Would you, Mr Rogers, [as] Secretary, raise it with Mr McDonald?
[Mr Rogers:] That's correct, yes.
[Tribunal:] So that in other words you were the agent, if your like, in order to convey your committees belief that and this is something which Mr McDonald might conveniently raise at Tax Liaison level?
[Mr Rogers:] Yes, or even write an article about it in the fortnightly journal.
[Tribunal:] Or even write an article about it, or mention it in an editorial?
[Mr Rogers:] Yes.
(Transcript, 28 July 2000, pages 8-9)
(c) By way of one example, below are the minutes of a meeting of the State Council (SR13, pages 27-30):
THE TAXPAYERS' ASSOCIATION OF NEW SOUTH WALES
PRESENT: APOLOGIES: BUSINESS ARISING FROM MINUTES: FINANCE: MEMBERSHIP AND PROMOTION: NATIONAL EXECUTIVE REPORT: PENSION FUNDS: GENERAL BUSINESS: CLOSURE: MINUTES OF A MEETING OF THE COUNCIL HELD AT THE OFFICES OF COURT & CO, LEVEL 29, AUSTRALIA SQUARE, 264 GEORGE STREET, SYDNEY, ON THURSDAY, 28 JULY AT 12.45PM Mr S Ware (Chairman) and Messrs C G Bell, F S Buck, S Cooper, H Goodman, G MacKenzie, P Moon, T Ryan, W Smith, K C Warby, Ms L Ablen and Mr S J Rogers (Secretary). Apologies were received from Messrs D F Castle, A A Cooper, G Diment and B R Larking. a. Office Bearers Mr Terry Ryan accepted the nomination as Vice President of the Association and it was resolved that his election to the position be confirmed. The Secretary was asked to contact Mr Greg Diment regarding his nomination for the vacancy of Honorary Treasurer. b. Seminars The Secretary reported on the "Income Tax Planning Seminars" which had been held in late June. The seminars had been successful and at this stage the Secretary believed that the Association's share of net income would be approximately $5,900. There was one further seminar to be held this year in conjunction with Leo Hollestelle. The seminar would be in October on a topic still to be finalised. c. Review of Standards for the Tax Profession The Secretary advised that he had obtained a copy of our submission from Melbourne and it was available for those members of Council who wished to review it. d. Victorian Paper – Draft Business Plan It was noted this item would be discussed during the National Executive Report. e. Promotion It was noted that a memorandum of the costs of the National Membership Campaign conducted in February had been circulated. The Secretary tabled a further report on the number of new members and members who took the option enrolled by New South Wales. After discussion it was resolved to reimburse the cost incurred by the Victorian Association in the amount of $10,340.70. The Secretary reported that Peter MacDonald had been recently interviewed in the Association's offices by a reporter from the Channel 9 "Nightline" programme. e. Representation Tax Liaison Group After discussion it was resolved Mr Henry Goodman would represent the Association at meetings of the New South Wales Tax Liaison Group, as soon as our admission to the Group was finalised. The Secretary was asked to follow this through. f. Council – New Members The composition of the Council was discussed. The President asked councillors to give some thought to possible new members for Council. g. Report to the Taxpayers' Association – Paper by Stephen Ware The President tabled and then addressed the meeting on his paper. Investment Policy As regards the Association's investment policy, Mr MacKenzie reported on his discussions with investment advisers at the AMP regarding our investment portfolio and after further discussion it was resolved to request an expert in the field to address the Council. Membership Package The proposal by Mr Ware for the Association to obtain its own membership package, so that details of New South Wales members could be retained in Sydney was discussed. The Secretary was asked to investigate suitable membership software packages. Tax Forum Mr Ware's suggestion that the Association organise an Annual Tax Forum was also discussed. Mr Ware undertook to expand this proposal for further discussion. Introduction of a Quarterly Newsletter Mr Ware's suggestion that the New South Wales Association could produce its own quarterly newsletter for possible subscription services for non-members was discussed. Councillors were not opposed to the suggestion in principle, and Mr Ware undertook to carry out a feasibility study of the proposal. Introduction of a 1.800 Number The proposal that the Association offer a tax advisory service to non-members via a number was discussed. The Secretary advised that his firm had looked into this idea on its own behalf and that he would prepare a report on the matter for the next meeting of council. a. It was resolved that the Summaries of Receipts and Payments for June 1994 as circulated be approved. b. It was resolved that accounts totalling $19,072.87, as per the attached list, be approved for payment.The Membership Report as per the Agenda was received and adopted. Mr Warby reported on the last telephonic hook-up of the National Executive Committee Meeting held on Friday, 1 July 1994. The results from the National Membership Campaign had been discussed. It was noted that New South Wales had obtained more new members than any other State. The break down of query calls received from members from other States to the Victorian Office was tabled and it was noted that 65 calls had been received from New South Wales members. The Secretary commented that he found this figure surprising in view of the service provided by his office and thought that the calls may be from Southern New South Wales members, who found calls to Melbourne were on the whole cheaper. It was noted that plans for the Annual Conference to be held in Tasmania in March next year were proceeding and in this regard the Secretary advised that consideration should be given to papers to be tabled at the Conference by the New South Wales Association. Councillors were asked to consider this for the next meeting. The Action Plan raised from the last Annual Conference was discussed and the report on the current status was available for those Councillors who wished to review same. Victoria had prepared an advertisement which would be seen in Victorian newspapers for a 6 to 8 week period, in a effort to obtain new members. It was hoped to obtain 400 to 600 new members from the campaign. A draft letter from Mr Sid Cooper regarding allocated pension funds, and specifically, the question regarding exempt current pension income to be answered in 1994 Superannuation Fund Income Tax Returns, was tabled and discussed. It was resolved to forward letter to the Australian Taxation Office requesting their comments. a. Council Meeting In view of the time currently being taken at meetings, it was resolved to put the starting time for future meetings back to 12.30pm. b. Mr Edward Gosling The Secretary tabled a letter of thanks from Mr Gosling for his gift received on his retirement as a Councillor of the Association. c. Weekend Meeting Mr Ware raised the possibility of the New South Wales Council members participating in a weekend meeting to discuss the future of the New South Wales Association and asked Councillors to consider this for the next meeting of Council. d. Caringbah Rotary The Secretary advised that he had received a request for a speaker to address Rotary members in Caringbah. Mr Ware accepted the invitation and the Secretary was asked to obtain further details. There being no further business, the Chairman closed the meeting at 2.10pm. Signed as a true and correct record. ………………………………………………. Mr S Ware (Chairman)
A consideration of other minutes of the State Council (at SR13) reveal that it was concerned in the main with matters not materially dissimilar from those set out in the minutes quoted above. The State Council appears to have been concerned, inter alia, with membership numbers, financial matters and, on occasions, the attitude to be adopted by it as a matter of policy to questions of taxation. The minutes make it clear that a not inconsiderable part of the function of the Applicant was in fact dealt with in Victoria by the TAV and the ATA.
Roles of the Taxpayers' Association of Victoria ("TAV") and the Australian Taxpayers' Association(s) ("ATA")
The evidence reveals that the TAV played the principal role in respect of the activities of all the state associations and the ATA. It was the TAV who supplied employees. The Secretary of the TAV was always the National Director of the ATA, (namely Mr Risstrom and in succession to him, Mr McDonald). It was the National Director who represented the state associations as a member of the National Tax Liaison Committee and (almost invariably) when statements were made to the media. The National Director was almost entirely responsible for the two journals – the fortnightly 'Taxpayer' and the 'Annual Summary' (also referred to as the 'Tax Summary' or 'Annual Tax Summary') – sent to members of the Applicant by the TAV directly. The Annual Summary was also sold to non-members under the title, 'The Taxpayers' Guide', by the TAV, although Mr Rogers said that some copies were also sold by the Applicant. (The term "journals" as used in these Reasons refers collectively to the Taxpayer and the Annual Summary.)
The affairs of the TAV and the ATA were, (although the ATA appears to have no assets or liabilities or even a bank account), so interwoven that it was not always clear whether a given function was performed by the National Director in his capacity as Secretary of the TAV or as National Director of the ATA. (That there was a considerable degree of interrelationship between the two does not matter given that the Tribunal is concerned with the status of the Applicant which is the New South Wales state association.) In relation to the journals, the Applicant was entitled to make and did from time to time make suggestions as to content, but it was the National Director who in fact made all decisions as to form and content, and indeed apparently was largely responsible for all aspects of their production.
(a) The ATA is described in the Applicant's Written Submissions as follows, (at clauses 102-103):
102 Among other things the Rules of the ATA provided as follows -
"3.3 The objects of the ATA are to provide advice and/or recommendations to each state association on the measures necessary:
(a)to secure economy in parliament and municipal legislation and administration;
(b)to operate as a public educational institution principally in the interests of the Members but also taxpayers generally by promoting the consideration and informed discussion of all Questions affecting taxation of any kind;
(c)to promote the consideration and discussion of all questions effecting Taxation of any kind;
(d)to take such action as may be considered necessary to remedy abuses and anomalies in all forms of Taxation and to furnish Members with information on Taxation matters generally and to assist them in the adjustment between them and taxation authorities;
(e)to watch over and protect the interests of members and taxpayers generally in regard to Parliament (Federal and State) and Municipal (Local) legislation or administrative action affecting taxable property or any interest therein or in regard to Taxation of any kind and to take such steps in regard thereto as may be considered advisable;
…
(i)to disseminate information on all matters in any way incidental to the objects of the ATA and to print publish issue or circulate such papers periodicals books circulars and other literary matter as ma be conducive to such objects;
…
(l)to assist the activities of each State Association and any association or body which has similar objects or aims to each State Association or the ATA . . ."
(emphasis added)
103 At all material times the ATA had no assets or liabilities and no income or expenditure. It served only as a peak council for the Applicant and the other state bodies which were its members.
(b) The Respondent's Written Submissions described the ATA, (at clauses 18-33), as follows:
Membership of ATA
18. Being a member of the ATA was a principal activity of the Applicant throughout the period under review. (Mr Rogers, t/s 28/7/00, p. 32.)
19. The Applicant was one of a number of State Taxpayers' Associations which had formed an unincorporated national association called the Australian Taxpayers' Associations (ATA). The only members of the ATA were the State Associations, and they controlled the ATA and its policies. The affairs of the ATA were managed by a National Executive on which the Applicant and the other State associations were represented. The key individual and public face of the ATA was its National Director.
20. The ATA National Director was Mr Risstrom until his retirement in 1994, and thereafter Mr McDonald. Each of them was also the secretary of the Victorian Taxpayers' Association and a paid employee of that body, which provided his services under a financial arrangement with the ATA. (Mr Risstrom also received a modest retainer from the ATA, but Mr McDonald received no such remuneration. The ATA had few resources of its own; it did not even have a bank account. Secretariat and financial facilities were provided to the ATA, and to a certain extent to the Applicant, by the Taxpayers' Association of Victoria. See t/s 17/7/00, p. 72; 19/7/00, pp. 5-7.)
21. Mr McDonald described the ATA as 'an advisory body where the respective members' - i.e. the State associations -'can come together and formulate say policies on various tax matters, etc. The national body does not provide anything to anyone other than a process by which the respective members can actually come together ,and act as a collective'. He said that it provided 'a mechanism by which the respective bodies can come together and create or develop common policy or common approaches to various issues. ' When he appeared on television, he did so in the name of the ATA, but 'in fact … for and on behalf of all the State associations'. (t/s 19/7/00, p. 5.)
22. The Applicant participated in monthly telephone hookups of the ATA National Executive, in ATA annual conferences and in the development of ATA policies. From the point of view of the Applicant, it was important to have a national voice by participating in the ATA. This is evident from the totality of the evidence, including minutes of the ATA National Executive and of the State Council of the Applicant, and is confirmed by the testimony of Mr Rogers (t/s 28/7/00, pp. 32-33).
23. A set of ATA rules was in evidence (part of SR5; also Sub-ex. PM1 to Ex. A2, statement of Mr McDonald). There was no written constitution of the ATA before June 1993 (Mr McDonald, t/s 19/7/00, p.59). The rules were finalized in 1997 (id, p. 31 ), having been written at some unspecified time between June 1993 and 1997 (id., p.59). Some of them seem to have been developed from a Business Plan which the ATA adopted in 1994 (see further below). It is obvious that the Applicant then assented to the rules in 1997. Rule 3.2 says:
'The mission statement of the ATA is to ensure through communication, education and representation that taxes are equitable and fair and expenditure by Government at all levels is justified.'
24. Rule 3.3 sets out a set of 'objects' which are in many respects similar to the objects in cl. 3 of the Applicant's Memorandum of Association. Rule 7.4 describes the functions of the National Executive, including (a) to be the watch-dog and, as required, the action arm of the ATA and (d) 'to make representations, submissions and/or announcements at the direction of the Members'. The Applicant regarded itself as bound by a set of practices which preceded the 1997 ATA rules.
ATA Policies
25. It is evident from the totality of the evidence (and particularly from SR6) that the Applicant and other members of the ATA devoted an enormous amount of energy and thought to the development and formation of ATA policies.
26. Policies were determined by resolutions of the State associations at the annual National Conferences of the ATA (copies of minutes of which appear in SR7A). The Applicant was represented and entitled to vote at National Conferences, and appears to have had certain limited rights of veto, but most votes proceeded by consensus (t/s 28/7/00, pp. 55). Policies formation started with a State association bringing a proposal (for example, to support or oppose proposed legislation) to the National Executive. (t/s 19/7/00, p. 34) The Applicant regarded itself as bound to support and advocate ATA policies (t/s 27/7/00, p. 34). The National Director, in speaking for the associations, was similarly bound. (t/s 19/7/00, p. 35)
27. Two Policy Books of the ATA are in evidence:
a)Ex. R1, covering the period 1982-1989 (cf. Mr McDonald, t/s 19/7/00, pp. 37- 42; Mr Warby, 27/7/00, pp. 34-36). This book appears to arise out of a resolution at the 1988 National Conference, that the' Statement of Policies Book 1982 to 1987 be maintained except those to be replaced' (SR7A, p. 14);
b)SR13, pages 147 -167, covering the period 1982-1996 (cf. Mr Rogers, t/s 28/7/00, pp. 55-57).
28. The cover of 'the 1989 Policy Book bears a representation of St George slaying the dragon, with the caption 'The Taxpayers' Champion'.
29. The policies cover a wide and controversial range of topics. Recurring themes reducing rates of personal taxation, constraining government expenditure and opposing burdens on business. Thus, to take but a few examples:
a)A principal objective of the ATA is to monitor and comment on government expenditure. (1992)' – SR13, p.148
b)'It is most appropriate that the Association has strong views on how [government] revenue is spent. The level of government expenditure as a percentage of Gross Domestic Product is too high.' – SR13, p.148
c)The view was taken in 1988 that there was a need for immediate reductions in personal tax rates, and that this issue should be integrated into a membership campaign. See the evidence of Mr McDonald, t/s 19/7/00, pp. 73-75 and SR7A, pp. 14 & 27.
d)All animals used for racing or gaming [should] become listed personal-use assets for capital gains tax purposes (1996)' – SR13, p.151
e)Full deductibility of capital losses was advocated - SR13, p.151
f)The introduction of a VAT or broad based consumption tax was opposed (1983, 1988 and 1990) – SR13, p.154
g)Recovery of fringe benefits tax from employers (as distinct from employees) was opposed –SR13, p.156
h)'In principle the Association opposes the use of industry protection.' -SR13, p.157
i)'The Government [should] provide self-funded retirees of pensionable age with the same tax treatment as Social Security pensioners (1993)' – SR13, p.159
30. Whilst the Applicant's policies were not consistently aligned with those of any particular political party, they inevitably involved political judgments, and would inevitably favour the interests of some members of society -and some taxpayers - over those of others. (Cf. Mr Warby, 27/7/00, pp. 19-20; 1993 National Conference minutes, Ex. 7A, p.40, referring to the 'political' nature of taxation concepts.) And however much the Applicant may have wished to see itself as representing all persons liable to pay tax, it remained the case that its policies were the views of its members through their elected representatives on the State Council (Mr Warby, t/s 26/7/00, p. 36,ll. 1-3; cf. p. 54, 1.5).
31. It is not unfair to conclude that the policies of the Applicant generally reflected the financial interests and concerns of its membership, both having regard to the content of the policies and to the manner of their formation.
1994 ATA Business Plan
32. In 1994 the ATA adopted a Business Plan on the motion of Mr Warby representing the Applicant (National Conference minutes at SR 7 A, p. 75). The plan adopted was the same as a draft prepared by the Taxpayers' Association of Victoria, which is in evidence as Ex. R4 (cf. Mr McDonald, 19/7/00, pp. 51-73).
33. The Business Plan contains the following:
a)'The Objective (or Mission Statement) of the Australian Taxpayers' Associations as developed at the Strategic Workshop in June 1993:
to ensure, through communication, education and representation -that taxes are fair and equitable and that public spending is justifiable' (pp. 4 and 11 )
b)Chapter 3 is headed 'The Association'. It repeats the above Objective & Mission Statement (p. 11) and a set of eleven 'Stated Goals' (pp. 11-12). Viewed as a whole, the 'Stated Goals' are essentially programmatic, to secure stated objectives in the content and administration of tax laws and in the use of tax revenue, and to protect the tax-related interests of 'members and taxpayers generally'. One of the Stated Goals is 'to operate as a public educational institution in the interests of the citizens of Australia by promoting the consideration and informed discussion of all questions affecting taxation of any kind and of any other subject of community interest.'
c)It is recorded that 'the members of the State Associations generally comprise tax agents (approx. 50%) with employers making up the balance of members. ...It is rare to have salary and wage earners as members unless they are also in business or are genuinely interested in tax issues or tax reform. ' (cl. 3.8 on p. 18)
d)Chapter 4 is headed 'Products and Services'. 4.1 to 4.6 outline the products and services which the Applicant and other State associations then currently provided. 4.1 deals with 'Current Products' ('The Taxpayer' and the 'Tax Summary'). 'Services' are stated to include not only seminars and the telephone help line, but also 4.3 'Representation to Governments and the Tax Office', 4.4 'Media', referring to press releases, TV and radio interviews principally by the National Director, 4.6 'National Tax Liaison Group', referring to ATA representation on NTLG groups. Paragraph 4.9 is headed, 'Who are our customers?' Apart from referring to the media, ATO and Government as 'customers', it is said that 'the major customers of the ATA are its members', evidently meaning the members of the State associations. The needs of these classes of 'customers' are then considered in 4.10 and following.
e)Chapter 6 deals with 'Marketing'. After referring to the statistics relating to tax agents, the Business Plan continues (pp. 39-40):
Consequently the reality is that, in 1993/94, the market is relatively small and we must also compete with many other providers:
Taxation Institute of Australia,
Australian Society of Certified Practising Accountants,
Institute of Chartered Accountants,
National Institute of Accountants,
National Tax Agents Association, and
Many other operators who publish magazines and bulletins similar in content to ours.
Each of these groups claims to represent their members or provides tax based information.
We know that, while we claim and aim to represent all taxpayers, the reality is that salary and wage earners are the least likely to become members of the Association as there is little or no tangible value to be gained from membership.
The extent of our market then is confined to tax agents, small business operations and employers. (emphasis added)f)Paragraph 6.7 (p.44) observes that Mr Risstrom's weekly article in the Sydney Sun-Herald newspaper 'has provided the vehicle to raise tax issues in the press and has also enabled the ATA to influence the Tax Office and Government.'
g)The Business Plan effectively analyses the affairs and success of the Applicant and the other State associations in terms of 'value for money' in delivering products and services to their members. Those products and services include the provision of representation/advocacy on the broader stage of tax policy, tax information via publications, assistance via the telephone help line, and tax seminars.
Evidence was given at some length as to the relationship between the Applicant, the ATA and the TAV. Persons wishing to become a member of the Applicant would apply on a form which refers to the ATA, (page 8 of SR3), although there were a few application forms which referred to the Applicant, (page 3 of SR3). There was also evidence that on occasions the Applicant would conduct a membership recruitment campaign and produce brochures which referred to the Applicant in the membership application form; (example at pages 1-4 of SR8). However, Mr Rogers said in evidence that even if membership subscription cheques were made out in favour of the Applicant, they would be sent on to the TAV, and that the TAV had an arrangement with its bankers pursuant to which cheques made payable to any of the state associations would be deposited to the same TAV bank account; (Transcript, 26 July 2000, pages 63-64).
Evidence was given as to who owned the copyright over the publications produced by the TAV for it and the other state associations, and including the Applicant. In respect of all publications, copyright vested in the TAV and permission had to be sought from the National Director (ie. Mr Risstrom or, from 1993, Mr McDonald) to reproduce any parts of the publications. As an example of statements as to copyright, the Tribunal refers to the even-numbered pages of SR22.
The Applicant did not, throughout the relevant period, produce any journal of any nature. On the contrary, all journals were produced by the TAV, who sent them to its own members and also, and directly, to members of the other state associations, and including members of the Applicant; there were financial arrangements in place pursuant to which a part of the membership fee (in relation to a member of the Applicant) was retained in Victoria and in respect of the journals which were prepared and published in Victoria. It is important to note that the Applicant, while it may on occasions have made suggestions as to matters which might appear in the journals, it performed no other function whatever in relation to the writing, editing, printing, production or even the delivery of the journals. Suggestions as to content might or might not be adopted. (It is likely that ex facie the journals, the public at large in addition to recipient members of the Applicant would have been under the impression that they were produced by the ATA.) The Tribunal does not accept that the relationship between the TAV and the Applicant was one of principal and agent in the sense that the TAV produced the journals as agent for the Applicant; the evidence as to copyright must have the effect that this is so, reinforced by the fact that the Applicant, (excepting only for topic suggestions made periodically), had no say in the content of the journals. If there was an agency relationship, then the reverse is more likely to be the case in that the TAV produced the journals, deciding on content, and then sent them to its own members, and also members of the Applicant, and so, and on this basis, the TAV was the principal and the Applicant was the agent. The financial arrangements were such that the TAV recovered payment for the journal because it received the whole membership charge through the cheque depositing system referred to previously. At a late stage of the hearings, and during closing submissions, Mr Higgins said that the Applicant considered, despite any allegations to the contrary made at any earlier stage, that the contractual relationship as regards the journals, was simply one of sale of goods. The Tribunal considers that characterisation of the relationship is apt, finding as it does, as a matter of fact, that while the Applicant may have made suggestions as to content those suggestions may or may not have been accepted and that the Applicant played no meaningful part in writing, editing or distributing the journals.
There does not seem to have been any written contract, setting out the rights and responsibilities inter se of each of the state associations. A budget was prepared on an annual basis, based on the decision of a meeting of representatives (referred to as the "peak council") of all the associations at an annual conference. This process was described by Mr McDonald during his examination-in-chief by Mr Higgins, as follows:
[MR HIGGINS:] Given your role as a technical adviser with the Taxpayers' Association of Victoria prior to 1994, you've just given evidence that you assisted Mr Ristrom in that role, to what extent was that assistance you provided him directed to the activities of the Australian Taxpayers' Association as distinct from the Taxpayers' Association of Victoria?
[MR McDONALD:] We never saw the activities being separated, to be quite frank, everything we did was always done under the banner or the umbrella of the ATA, everything we published was published under the ATA umbrella. Any time we did talks or run seminars they were always done under the umbrella of the ATA. When we wrote articles I think, for the Sydney Morning Herald or one of those, I can't remember the name, it was always done under the umbrella of the ATA as well.
[TRIBUNAL:] And this is, what period are we talking about?
[MR McDONALD:] This is in the period up to 1994 and subsequently to, I might add.
[TRIBUNAL:] So both before and after 1994 you're doing everything under the banner of the ATA?
[MR McDONALD:] Yes. Any time that we were represented at the NTLG or any of the other various bodies that were constituted we were there under the umbrella of the ATA, not there as Victoria. In fact, I can't remember us ever doing anything under the name of the Victorian Association.
[MR HIGGINS:] All the while you were, however, the employee of the Victorian Association?
[MR McDONALD:] Yes.
[MR HIGGINS:] So the cost of those services were recouped via the Victorian Association from the Australian Taxation Association, is that correct?
[MR McDONALD:] From the very state members of the ATA, yes.
[MR HIGGINS:] From that membership?
[MR McDONALD:] Yes.
[TRIBUNAL:] Sorry, what collected?
[MR McDONALD:] We did all the work, if you like, in the Victorian Association because we had all the infrastructure and the resources. We had a process of setting out an annual budget which was done at the annual conference and that would determine what activities would be undertaken on behalf of the ATA and it would spell out what would be the charging which was done on a cost recovery basis only back to the states.
[TRIBUNAL:] Did you recoup from the states, directly from the states? In other words, did you people at Victoria write to each of your sister companies and say, Right, your share is X, pay us or did you do this through the umbrella of the ATA? In other words, the ATA wrote to the sister or at least the state organisation saying, Your share is?
[MR McDONALD:] No, it was always done Victoria to the other states.
[TRIBUNAL:] How did you apportion between them?
[MR McDONALD:] What we did was, the annual conference was usually held in March each year before the start of the next financial year. We would sit down and work out what the projected cost would - - -
[TRIBUNAL:] How can that be if the annual conference is in March, your financial year is a calendar year?
[MR McDONALD:] No, it's a financial year.
[TRIBUNAL:] Victoria has a financial year?
[MR McDONALD:] Yes, all the state associations, I think bar New South Wales had a financial year.
[TRIBUNAL:] I see, only New South Wales had a calendar year?
[MR McDONALD:] Yes.
[TRIBUNAL:] So you meet in March and what happens?
[MR McDONALD:] Well, in March we would present an annual budget.
[TRIBUNAL:] This is Victoria presents the budget?
[MR McDONALD:] Victoria would present an annual budget for all of those activities which were shared by the respective state associations. It would take into account all costs as well as our expected membership over the forthcoming year. We would work out what the average cost per member would be and then that would be built into a process whereby we would effectively recoup that from each member's subscription. We actually also acted as the national, sorry, Victoria also acted as a national secretariat for the various state associations. So we were actually issuing the accounts for those states and we also had a process of recouping the cost of providing the shared membership services from those members in respect of the subscription renewals that we issued.
[TRIBUNAL:] And assume one state had not paid, what would you have done?
[MR McDONALD:] Sorry?
[TRIBUNAL:] Assume that you, as Tasmania, as an example, assuming Tasmania had written back to you and said, Look, I'm terribly sorry, you did all of this on an estimated membership basis where we had loss members and we just can't pay, what would you have done?
[MR McDONALD:] Nothing.
[TRIBUNAL:] So who would have taken the blow?
[MR McDONALD:] We would have, Victoria.
[TRIBUNAL:] Would you?
[MR McDONALD:] Yes. It didn't happen very often, I might add, we were very, very - - -
[TRIBUNAL:] You mean, it did happen though?
[MR McDONALD:] On one or two occasions we, Victoria, actually lost money. On one or two occasions - - -
[TRIBUNAL:] Is this because one of the other states didn't come to light with its share?
[MR McDONALD:] No, it would be more likely that we had a change in the membership base which was unpredicted or alternatively, we would have underestimated the cost of, you know, certain materials like paper, for argument sake.
[TRIBUNAL:] Victoria always wore the tab?
[MR McDONALD:] Well, there was a balancing act here. I mean, sometimes we were wrong - - -
[TRIBUNAL:] Something had been charged too much?
[MR McDONALD:] Sometimes we charged too much. It actually balanced out overtime. In fact, we were very, very, not clever, but we were very, very accurate in terms of our - - -
[TRIBUNAL:] It never that a state actually was forced to own up and say, Terribly sorry, we just don't have the money?
[MR McDONALD:] No, in fact, it went the other way. There were a number of states who were experiencing financial difficulties which, and we actually gave them funds.
[TRIBUNAL:] Did you give them funds by actually handing over, sending them a cheque or did you just let them off part of their liability for the annual costs?
[Mr McDONALD:] No, there was no letting off for the costs. On several occasions, and I'm thinking of Tasmania specifically, we actually gave them a cheque.
[TRIBUNAL:] Victoria seems to have been playing the lead role in this whole organisation. Did this come about as a matter of historical development? I mean, Victoria would have been no bigger than New South Wales yet Victoria seems to have played the lead role, it furnished the national secretariat, it furnished the membership of the peak body?
[MR McDONALD:] Yes.
[TRIBUNAL:] It actually acted as financier too?
[MR McDONALD:] Yes I think that's true. Victoria was in fact always the largest of the States in terms of membership.
[TRIBUNAL:] How many? If New South Wales was 3000, how many would Victoria have?
[MR McDONALD:] Ours would have been closer to 5 [thousand].
[TRIBUNAL:] I see?
[MR McDONALD:] For some reason we always had a much, much stronger presence in Victoria than we did - - -
[TRIBUNAL:] Any ideas about why?
[MR McDONALD:] Look I'd be guessing but I suspect that the fact Eric Ristrom actually lived in Victoria, we may have had a little bit more exposure in Victoria. It may have accounted for that but to be honest I would be guessing. I mean a similar thing, I think, happens with the TIA, they have got a much stronger representation in New South Wales than they have in Victorian and seems to be historical as well.
[TRIBUNAL:] So basically what happens is Victoria is in effect running the show and Victoria is funding sister bodies who might be in difficulties and it doesn't really amount to all that much because there is a swings and roundabouts process. Sometimes you might have perhaps over estimated costs and you wouldn't refund to the member State who had paid their share?
[MR McDONALD:] That's right. I wouldn't say Victoria ran the show, there was a system in place where all of the States had to agree depending on whatever changes we were referring to. In terms of providing the logistical support to produce the publications etcetera I mean we had the infrastructure so yes we led if you like from that perspective but it was always done in concert with the other States.
[TRIBUNAL:] And the accounting process in terms of which you might actually have to bail out one of the other States, this wouldn't have happened with New South Wales but it might have happened with one of the smaller States?
[MR McDONALD:] Yes. Again, this is before my time but I think Western Australia was technically bankrupt at one stage and I've got a feeling we bailed them out but it was before my time so I'm - it's hearsay. Certainly, Tasmania were experiencing some financial difficulties and we definitely bailed them out, I'm aware of that one.
…..
[MR HIGGINS:] Mr McDonald what would have happened if, at the national conference, the member bodies - national conference of the Australian Taxpayer's Association, the member bodies being the State bodies couldn't agree to the budget?
[MR McDONALD:] It happened occasionally. Invariably what would happen, it would be held over until we could provide more information to the States and bear in mind that we were presenting this budget in early March, well, say middle of March. We had an absolute deadline of around about 1 June by which time we had to have had the budget settled. There wasn't - I'm not aware of any instance where we did not settle the budget by that time frame.
[MR HIGGINS:] What record was kept of the agreement by which all of the members arrived at their respective undertakings for the year ahead?
[MR McDONALD:] Well, the budgets formed part - the budget papers actually formed part of the annual conference papers which there's Julie - Julie signed copies of those held at the national secretariat and they're ratified at the next annual conference. Each State would have copies of all of those papers for their own records. There would certainly be records of either correspondence from the Victorian Office through to those States or alternatively if there was a vote taken, we had monthly telephone - telephonic hook ups under a body called the national executive where votes would have been taken on various issues of which that would be one.
[MR HIGGINS:] So, this process simply wouldn't have continued without unanimous agreement of the members?
[MR McDONALD:] Yes, there was only one instance that I can recall where there wasn't unanimous agreement. Maybe I should add here. The budget process was not just about setting the costs of – the cost per member, it was actually also about setting whatever the membership fee would be for the association for the forthcoming year. So, we always tried to have an absolutely uniform membership fee right across Australia. There was only one instance that I can recall where that didn't occur and that was where and I don't - I can't remember the exact year but New South Wales decided to have a lower membership fee for that particular year, that its now come back into line and it's been that way ever since.
[MR HIGGINS:] So one way or another one it was efficient for Victoria to do this?
[MR McDONALD:] Yes, we had all the - I mean we basically had all of the infrastructure in place, we were the ones in control of all the logistical exercises so you know the simplest process was for us to not only work out what all the costs would be but in fact to put it into place. On several occasions various States actually took our figures apart, if you like, and they always came back with the same conclusion that ours was the most efficient in terms of production as well as cost.
[MR HIGGINS:] And so in every sense then Victoria was providing a service to the other member bodies under the agreement that was made annually?
[MR McDONALD:] Yes.
(Transcript, 17 July 2000, pages 59-64)
This arrangement between the state associations is confirmed by Exhibit A3, which attaches the relevant sections of the Business Plan (referred to later in these Reasons) and the minutes of the National Executive Committee meeting held on 26 July 1987.
Accounting Procedure
In order to understand the accounting procedure it is necessary to refer to SR8 of Exhibit A1. This is produced in full below, with the underlined numbers representing handwritten figures in the original document:
-Page 1-
[Letterhead of Australian Taxpayers' Associations]Telephone: (03) 9819 7944 1405 Burke Street, East Kew
Facsimile: (03) 9819 7720 PO Box 292, East Kew Victoria 3102State: Taxpayers' Association of New South Wales
Date: 9.1.96 Month: December '96 Invoice: N/256
Computer service charge No. of records . . . . . 3089. . . . . . . @ $1.88 = $5807:32
Subscription Accounts & letters . . . . . . . . . . . Month: Jan 259 @ 45c = $112:05
Reminder Accounts . . . . . . . . . . . . . . . . . . . . . Month: Nov 92 @ 45c = $ 41:40
Reminder letters . . . . . . . . . . . . . . . . . . . . . . . . Month: Oct 37 @ 45c = $ 16:65
Hold-letters (to trace wrong addresses) . . . . . . . . . . . . . 2 @ 45c = $ :90
Receipts (posted separately) . . . . . . . . . . . . . . . . . . . . . . 1 @ 45c = $ :45
Binders: . . . . . . . . . . . . . Members paid you direct @ $11.75 = $ :
Binders Despatched from Melbourne (freight below) 13 @ $9.75 = $126 :45
1996 Tax Summaries (1996 stock: left now)
from stock here: . . . 25. . . . .sent to members (despatch) @ Nil = $ :
bulk sent to your office on:
If no stock left: . . . . . . . . . . . . . . .sent to your members @ $26.00 = $ :
. . . . . . . . . . . . . bulk sent to you (freight below) @ $22.00 = $ :
. . . . . . . . . . . . . . campaign price (if applicable) = $ :
Parcels contract postage (details attached) . . . . . . . . . . . . . = $74:45
Taxpayer' insert (printing, insertion, stamp duty & paper) . . . = $ :
Sundries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . = $ :
Credit card bank charges: . . . . . . . . . . . . . . . . . . . . . . $5134 @ 2.25% = $115 :51
Taxpayer fortnightly
Issue dated Number posted Printing & despatch @ $1.94 Postage 36.5c*
9.12.96 3222 6,250:68 1176:03 $7,426:71
$ :
$ :
$ :
Extra copies from our office to new members etc.
Various 48 93:1217:52 $ 110:64 $ 7,537:35
*still at 1/8/92 'Print Post': Average 36.5c Total charge $ 13,832:83
Less offset: all or part of subscription remittance $ : .
AMOUNT PAYABLE (if any) $ : .
- Page 2 -
AUSTRALIAN TAXPAYERS' ASSOCIATIONSState: Taxpayers' Association of NSW
Remittance of amounts received
From your members during the month of December
Receipts: N86666 to N86832 Account N/256
Amounts from your members actually banked . . . . . . . . . . . . . . . . . . . . ..$30155:-Less amounts for binder sales . . . . . . . . . . . . . . . 22 - $330 -
Members bought direct from Victoria – included in bank sheet.
The cost of binders for which members paid you direct
has been deducted on the front page.
Less amounts for Overseas airmail . . . . . . . . . . . . . - $
An extra charge for that postage is added to
their account, then withheld by Victoria.
Details are at the end of the 'Payingslip' listing
Gross amount due to your association $29825:00
Less amounts for seminar costs . . . . . . . . . . . . . . . . . . . . . . . . - $
Plus amounts for seminar costs . . . . . . . . . . . . . . . . . . . . . . . . + $
Reconciliation attached
Plus/Less Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$
LESS amounts due to Victoria from front page - $13,832:83
Cheque attached for the balance $15,992:17
In his examination-in-chief, Mr McDonald explained the accounting procedure as follows:
. . . the Victorian association. We act as not only the Victorian association but also as the National Secretariat so we issue all of the subscription renewals as well as subscription renewal reminders when people are a little bit tardy paying their subscriptions. What this form [SR8], form marked [page 1] is actually a reconciliation back to the respective state . . . basically the total charges or reimbursements if you like that we'd be looking for in that particular month based on the number of members that they had, based on the number of original subscription renewals that we sent out and reminders we sent out, the number of fortnightly publications of The Taxpayer that we sent out, etcetera, etcetera.
. . . This document [SR8] was prepared by the Taxpayers Association of Victoria . . .
Victoria, if you like, is the central point where all things converge so the accounting system is located in the Victorian office and is owned and operated by the Victorian office . . .
[MR HIGGINS:] . . . If I could take you down to the bottom, it's got the heading, "taxpayer fortnightly". Would you describe how that figure is made up there? . . .
[MR McDONALD:] In very simple terms, it's just the product of the number of fortnightly taxpayer journals that we sent out during that particular month, December 1999, based – and it's a simple calculation of the unit price that we would have agreed with the states for each of those editions, plus the . . . postage . . .This all goes back to our annual budget which is . . . approved through the annual conference process. What comes out of that is an average figure per member. For argument sake, it might be [that] $120 a year is the total cost for us to provide all of the services that Victoria provides to the other States. We then break that down into its various components because it's made up of various components so for arguments sake in that particular year we would have worked out that 24 issues of the fortnightly at $1.94 plus there would have been another charge for the annual summary . . . plus a few other things for administration, computer maintenance, you know, for the membership fees, etcetera, all of those combined would have added up to that standard average member figure.
[MR HIGGINS:] If I could take you back up to the top of the page, it's got computer service charge, number of records and then there's the figure 3089. What would that number represent?
[MR McDONALD:] The 3089 would represent the number of actual records that [the Victorian association] looked after for the New South Wales Association during that particular month. . . .
What actually happens is [the Victorian association] issued all the renewals we were also the main point where people paid their renewals as well. Some people paid direct to the various states so they might have come in physically or they may have sent a cheque into their mail box but the great bulk of members actually made their payment direct to the Victorian Association or our post office box in Victoria. We then accounted for all the money we received, because it wasn't our money we were just there an an agent if you like . . .
(Transcript, 19 July 2000, pages 3-10)
(Although the reconciliation statement referred to at SR8 in Exhibit A1 is helpful, the Tribunal notes that it actually fell outside the relevant period. However, the Tribunal is prepared to accept that the same accounting procedure was used during the relevant period.)
Mr Warby gave a somewhat different description of the accounting system. Under cross-examination by Mr Brabazon, Mr Warby stated:
The members' subscription was paid – if the member joined through Victoria, say the member subscription was say $200, Victoria would reimburse us the $200 each month.
. . .
[COUNSEL:] They would bank the money and send you a lump sum cheque?
[MR WARBY:] That is correct, yes.
[COUNSEL:] And before they sent you the lump sum cheque would they make a deduction for their monthly claims?
[MR WARBY:] No.
[COUNSEL:] So, each month you are saying there were two cheques, one going from Victoria to New South Wales and one going from New South Wales to Victoria?
[MR WARBY:] That is correct.
[COUNSEL:] And is that the practice that was adopted when you were the secretary of the New South Wales body?
[MR WARBY:] Yes.
[COUNSEL:] Do you know whether that practice continued after Mr Rogers took over?
[MR WARBY:] No I don't.
(Transcript, 26 July 2000, pages 15-16)
The ATA, the National Executive and the National Director
(a) The ATA was an unincorporated body whose only members were the state associations. It was governed by certain rules. The Rules of the ATA, which are annexed to Peter McDonald's statement dated 17 March 2000 (Exhibit A2), were relevant only in that some of the relevant activities, and particularly the representational activities, were conducted under the banner of the ATA. The objects of the ATA are contained in clause 3.3 of the Rules of the ATA and read as follows:
The objects of the ATA are to provide advice and/or recommendations to each State Association on the measures necessary:
(a)to secure economy in Parliament and Municipal legislation and administration;
(b)to operate as a public educational institution principally in the interest of the Members but also taxpayers generally by promoting the consideration and informed discussion of all questions effecting Taxation of any kind;
(c)to promote the consideration and discussion of all questions effecting Taxation of any kind;
(d)to take such action as may be considered necessary to remedy abuses and anomalies in all forms of Taxation and to furnish Members information on Taxation matters generally and to assist them in the adjustment between them and taxation authorities;
(e)to watch over and protect the interests of Members and taxpayers generally in regard to Parliament (Federal and State) and Municipal (Local) legislation or administrative action affecting taxable property or any interest therein or in regard to Taxation of any kind and to take such steps in regard thereto as may be considered advisable;
(f)to collect and compile such statistical and other information desirable;
(g)to secure to Members all the advantages of unity of action in regard to all matters within the scope of the objects of the ATA;
(h)to obtain the recognition of, and to adopt such means for promoting, the aims and purposes of the ATA through the medium of the press and of broadcasting and television as may be expedient;
(i)to disseminate information on all matters in any way incidental to the objects of the ATA and to print, publish, issue or circulate such papers, periodicals, books circulars and other literary matter as may be conducive to such objects;
(j)to act in conjunction or combination with any other association or body having aims and purposes in any way similar to those of each State Association or the ATA or which may directly or indirectly benefit each State Association or the ATA;
(k)to make such contributions as may be thought desirable towards the funds of any other association or body and to become affiliated with and to appoint representatives to any such association or body;
(l)to assist the activities of each State Association and any association or body which has similar objects or aims to each State Association or the ATA;
(m)to do all such lawful acts and things as are incidental or conducive to the attainment of the foregoing objects or any of them.
(b) The ATA conducted its business through the National Executive, which consisted of a nominated representative from each state association, as well as a National President, National Vice-President and National Director. The National Executive met by way of a monthly telephone hook-up, and in addition at the annual conference. The functions of the National Executive are contained in clause 7.4 of the Rules of the ATA, which reads as follows:
The functions of the National Executive shall be as follows:
(a)to be the watch-dog and, as required, the action arm of the ATA;
(b)to continuously monitor, research and, as required, make recommendations to the ATA on a wide range of matters including:
identification of matters, on a day-to-day basis, on which ATA policy decision, announcement, comment and/or action is required;
(ii) current taxation policies;
(iii) projected taxation reform;
(iv) services to Members and services to the members of each State Association; and
(v) State Association membership movement and recruitment;
(c)to undertake assignments at the direction of the ATA;
(d)to make representations, submissions and/or announcements at the direction of the Members. This will in no way impinge upon or restrict the functions of the National Director, provided the National Director is acting in accordance with Rule 10.5(a);
(e)to liaise with each State Association and to seek input by each State Association for research and deliberations of the National Executive;
(f)to monitor, follow up, expedite and take appropriate action to assist and move each State Association to decisions by the ATA within reasonable time;
(g)to give progress reports on its deliberations to each State Association through its delegated representatives;
(h)to accept notification by each State Association of their consent or otherwise to proposed resolutions of the ATA PROVIDED THAT this procedure shall be subject to the following conditions:
the proposed ATA resolution shall be expressed in the minutes of the National Executive and transmitted by facsimile to the President of each State Association;
(ii) the consent or otherwise of each State Association shall be endorsed on the facsimile, signed by or on behalf of the State Association President (or authorised nominee) and returned to the National Executive;
(iii) the decision of each State Association shall be recorded in the minutes of the National Executive; and
(iv) in cases of urgency, decisions may be advised verbally but must be confirmed promptly by the procedure outlined in (i) to (iii) above.
(c) The state associations hosted the annual conferences on a rotation basis. The main purpose of the conferences was to present papers on taxation matters, vote on resolutions (examples of which are extracted in paragraph 25 of these Reasons) and to set the annual budget of the ATA, which included, inter alia, the setting of the annual membership fee to be charged to members of each state association.
(d) The role of the National Director (ie. Mr Risstrom, followed by Mr McDonald) is set out in clause 10.5 of the Rules of the ATA, as follows:
The role or function of the National Director shall be as follows:
(a)to be a contact point for the media and to act as spokesperson for the ATA PROVIDED THAT where there is no formulated policy of the ATA, the National Director shall be entitled to discuss issues and present points of view that abide with the spirit or the objects of the ATA and the State Associations;
(b)to attend National Conferences and meetings (whether telephonic or otherwise) of the National Executive and to advise the National Executive of all matters to be considered by the National Executive from time to time;
(c)to attend meetings of the National Tax Liaison Group (if invited by the Commissioner of Taxation) and other meetings and to represent the ATA;
(d)to attend meeting with politicians and other persons to explain and to expound the policy and objects of the ATA and the State Associations;
(e)to invite other members or representatives of the State Associations (and non-members) to act as representatives of the ATA or the State Associations; and
(f)to coordinate written submissions to Government or other relevant bodies or persons on behalf of the ATA and the State Associations.
It can be seen, then, that through its membership of the ATA, the National Executive and the National Director, the Applicant was able to carry out its representational function. It would seem that the chief role of the ATA was to afford each state association a voice at national level, and through the passing of appropriate resolutions, to bring about consistency in opinions and views on matters of taxation policy.
Role of Court & CoEvidence was also given in relation to the role of the accounting firm Court & Co, of which both Mr Warby and Mr Rogers had been partners, as a service provider to the Applicant. The services provided by Court & Co to the Applicant are set out in SR2, and were summarised in the Applicant's Submissions, (at clauses 97-99), as follows:
97 Secretarial services performed by Court & Co included –
(1)compiling meeting notices and agenda and recording the proceedings of formal meetings;
(2)maintaining statutory records;
(3)ensuring compliance with obligations binding upon the Applicant.
98 The financial services performed by Court & Co included –
(1)providing complete accounting function including banking income payment of creditors and preparation of financial accounts;
(2)preparing and lodging income tax and other statutory returns;
(3)maintaining the associations investment portfolio.
99 Other services performed by Court & Co included –
(1)housing and maintaining the Applicant's library including [filing] all update materials;
(2)providing staff to organise seminars including venues speakers and supervision;
(3)providing staff to answer members' calls to the telephone assistance service;
(4)providing staff to answer members' enquiries in person;
(5)providing speakers to address community groups;
(6)providing representatives to attend and represent the Applicant at meetings convened by the Respondent including Hurstville Tax Liaison Group, Tax practitioners forum and other committees convened by the Respondent. [Exhibit A1 at p 2 para 4; Exhibit SR2A; Exhibit A4 at p 2 para 3]
The major role of Court & Co, according to Mr Rogers, was that of operating the Applicant's telephone help-line. The majority of callers to this help-line were tax agent members of the Applicant. Mr Rogers described the process by which Court & Co was reimbursed for the services it provided on behalf of the Applicant:
. . . every time a staff [member of Court & Co] performed something in relation to the Taxpayers Association, that time was recorded in the work-in-progress ledger and that time is actually costed into the ledger at whatever the employees charge out rate is and the accumulated costs per month would be in the order of $15,000 - $16,000 of which we received $5000 . . . The $5000 a month basically covered . . . what the real cost would have been for the firm but there was certainly no profit margin . . .
(Transcript, 28 July 2000, page 9)
Mr Rogers said also that Court & Co received $10,000 to $12,000 a year to fund its library's needs. Mr Rogers said that the provision of services by Court & Co to the Applicant arose from a "long standing relationship with the association over many years", (Transcript, 28 July 2000, page 10). There was some possibility that some tax agent members of the Applicant would seek to use the professional services of Court & Co; however Mr Rogers stated that this was not a "regular occurrence", (Transcript, 28 July 2000, page 11). Mr Rogers used the term "outsourcing" to describe the role of Court & Co in relation to the Applicant.
The Applicant also used the offices of Court & Co as its "shopfront" and identified themselves in smaller letters below the firm's name. Under cross-examination by Mr Brabazon, Mr Warby stated:
The Tribunal notes that it entirely agrees with the decision in Case 46/94.
Characterisation of the Applicant's objects and activities
(a) There was considerable argument during oral submissions as to the significance or otherwise of the objects of the Applicant contained in its constituent document, namely the MAA. In this context, the Applicant's Written Submissions read, (at clauses 36-43) as follows:
Ancillary objects and mere powers
36. In FCT v Launceston Legacy (1987) 19 ATR: 41 the court considered which of various objects gave the body its character and whether the tax payer was a public benevolent institution. The court set out the objects in the following terms (at p 46.4):
"For present purposes, it is sufficient to set out three only of the thirteen
stated objects:
4 Objects(a)To honour to memory of departed ex servicemen and to care for their widows and children
(b)To assist the dependents of deceased ex servicemen.
(c)To foster the spirit of comradeship, self sacrifice and national and community service…"
37. The club was non-sectarian and non-political. His Honour said (at p 46.8):
"Membership of Launceston Legacy is not open to the general public but is confined to ex servicemen (called Legatees) who have served overseas in a theatre of war, In addition, only the number of Legatees which are necessary to service the needs of the widows and children in the particular area serviced by Launceston Legacy are admitted as members."
38. His Honour followed the decision in Chesterman v FCT (1925) 37 CLR 317 in construing the word "charitable" in its technical legal sense. In connection with the distinction between main objects, and ancillary objects and powers, he said (at p 54.4):
"In my opinion, the essential object of the Launceston Legacy is benevolent. The objects and powers listed in the objects section of its constitution are incidental and ancillary to that essential object. If it be a fact that some of those powers and objects, considered alone, might riot be regarded as benevolent, that fact would not prevent Launceston Legacy being benevolent. By analogy, I applied what was said by Dixon C;J, McTiernan, Williams and Fullagar JJ in Congregational Union of New South Wales v Thistlethwayte (1952) 87 CLR 374 at 442."
39. In North of England Zoological Society v Chester Rural District Council (1958) 3 All ER 535, the court distinguished between the main objects properly so called, which gave the society its character as a charitable institution, and certain other incidenti3-1 powers expressed as objects. The Society owned and managed zoological gardens. Consistent with powers expressed as objects, the Society admitted many thousands of fee paying visitors per annum. There were shops and cafes within the grounds and in excess of 130,000 meals per annum were served in addition to other refreshments. These activities returned a surplus to the Society. The principle source of income was admission fees. No individual benefited from any surplus. The question for the court was whether the main objects of the Society were charitable or otherwise concerned with the advancement of education. There being no independent objects clause, the court found that the main objects included (a) to take over the existing zoological parks and gardens; (b) to promote facilitate and encourage the study of biology, zoology and animal physiology...and to foster and develop among the people an interest in and knowledge of animal life; and (c) to establish equipment carry on and develop zoological parks or gardens and living zoological collections at such places as the Society shall determine.
40. The court said (at 538-C):
" In my judgement those three paragraphs give the proper objects of the plaintiffs and I think that the other sub-clauses in the memorandum though they are objects in a sense are not really objects as much as powers. ...I think they are ancillary powers to enable effect to be given to the main objects which if I may put it quite briefly are to establish, run and carry on a zoological gardens or park.
"There one can stand on firm ground. Why were the plaintiffs incorporated? To take over and run a zoological garden and a park."
41. As to whether the Society was, on account of its takings, a profit making organisation and not a charity, the court noted the articles prevented any profit to any individual, and said (at p 539-B):
"I think that there was no question of profit here and that the making of profit does not really enter into this matter at all."
42. In NZ Council of Law Reporting v C of T (NZ) {1979) 79 ATC 6001, the court considered whether the council was "an institution established exclusively for charitable purposes not carried on for the private pecuniary profit of any individual" under Section 81 (1)(n), Land and Income Tax Act 1954 (NZ). The council was established by an act of parliament which, so far as relevant, provided as follows (see p 6002.9):
"12(1) the principle function of the council shall be to prepare, publish and
sell or arrange for the preparation, publication and sale of reports of such judicial decisions given in New Zealand or elsewhere as may in its opinion be necessary ...
…
14(1) the council may from time to time as it thinks fit make grants in accordance with the provisions of this section to the New Zealand Law Society or to any district law society established under the Law Practitioners Act 1955."
43. The question for the court was whether the existence of the authorisation in Section 14 (1) to make grants to law societies derogated from the charitable purpose in Section 12 (1). Jeffries J said (at p 6003.9):
"Evidence nevertheless placed before the court revealed that grants made prior to 1970 were "towards the upkeep of libraries" but since that year no further grants have been made, ...
"...the existence of even a widely drawn power [to make grants] does not detract from the central charitable purpose. This case distinguishes itself readily and palpably from the National Anti-Vivisection Society case [(1948) AC 31] and Knowles [(1945) NZLR 522]"
The Respondent's Written Submissions deal with this point, at clauses 98-101, as follows:
Mixed charitable and non-charitable objects
98. The Applicant also seeks to argue that a mixture of charitable and non-charitable objects would not exclude it from characterization as a charity. The leading Australian case on that issue is Stratton v Simpson (1970) 125 CLR 138, which concerned the validity of a residuary bequest on trust to distribute income in the discretion of the trustees among institutions and bodies which met criteria specified in s. 134(1) of the Administration Act 1903 (WA). Paragraphs (d) and (e) of that sub-section referred to
'(d) any incorporated public body in the State the main object of which is to dispense or provide voluntary aid to indigent, aged, sick, blind, halt, deaf, dumb, or maimed persons;' and
'(e) any publicly subscribed medical service or fund in the State, the main object of which is the relief of the sick; or any public medical service or fund in the State which is assisted by any Government grant or subsidy'.
99. The leading judgment in the High Court was given by Gibbs J (with whom Barwick Cl, Menzies and Walsh II agreed), and the governing principle was stated by his Honour at 159-160:
'Paragraphs (d) and (e) [of s. 134(1)] would include institutions whose purposes were charitable as being for the relief of "impotent" persons within the intendment of the preamble to 43 Eliz. c. 4, but a difficulty is created by the fact that the charitable object mentioned need only be "the main object"; the institution might have other non-charitable objects. It is established that "an institution is a charitable institution if its main purpose is charitable although it may have other purposes which are merely concomitant and incidental to that purpose" or in other words if each of its objects is either charitable in itself or should be construed as to other objects which themselves are charitable: Congregational Union of New South Wales v Thistlethwayte (1952) 87 C.L.R., at pp. 442 and 450. If however the non-charitable purpose is not merely incidental or ancillary to the main charitable purpose, the institution will not be charitable: Oxford Group v Inland Revenue Commissioners [1949] 2 All E.R. 537; and In re Harpur's Will Trusts [1962] I Ch. 78, at p. 87.' (cf. similarly per Walsh J atI54.)
Windeyer J dissented in the result, but agreed on the point of principle concerning institutions with mixed objects, saying at 149:
'A gift to an institution that has several objects or purposes, some charitable some not, one or more of which it can lawfully pursue independently of others, is not a gift to charity .It does not become charitable simply because one of the objects, being charitable, is called the main object of the institution.'
It is not clear from the Applicant's submissions whether it seeks to advance any contrary proposition that would validate a trust or institution as 'charitable' on the basis of a 'major' charitable purpose despite the presence of a secondary but not ancillary or incidental non-charitable purpose. Such a submission would be contrary to clear and binding authority. Cronulla Sutherland Leagues Club Ltd v FCT ( 1990) 21 A TR 300 does not support any such approach ( cf Lockhart J at 310 and 311, and Beaumont J at 332).
(b) In Royal Australasian College of Surgeons v Federal Commissioner of Taxation (1943) 68 CLR 436, a case cited by the Applicant and the Respondent in their written submissions, the High Court considered whether the College was a scientific institution and furnished guidance as to the distinction between professional objects and activities and scientific (and, by extension, educational) objects and activities. Latham CJ said, (at 444-445):
It is plain that the objects and activities of the College include the promotion of surgical science, but the question to be determined is whether it can properly be found upon the evidence that it is a scientific institution. The question for consideration was very clearly expressed in the case of Inland Revenue Commissioners v Aberdeen Medico-Chirurgical Society (1931) 16 Tax Cas. 237, at p. 249, by the Lord President:- "Now the members and associates of the Society are composed exclusively of members of the medical profession; and while it is easy to grasp the general distinction between a society for the advancement of professional objects and interests, and a society for the advancement of letters and science, the distinction is not always easy to draw in the case of societies composed of professional men just because all professional work belongs to the sphere of either letters or science. Nothing could show this more clearly than the difference of opinion displayed in Inland Revenue Commissioners v Forrest (1887) 19 Q.B.D. 610; (1888) 20 Q.B.D. 621; (1890) 15 App. Cas. 334. But the question – difficult or easy to answer – must always be – what is the true nature and the objects and activities of the particular society? If these objects and activities are of a mixed character, being partly professional and partly literary or scientific, then the question must be decided according to the prevalent or main character." In that case it was held that the Society was a professional society and no a scientific institution. See also Institution of Civil Engineers v Inland Revenue Commissioners (1932) 1 K.B. 149, where the same test was applied in determining whether the Institution of Civil Engineers was a body of persons established for charitable purposes only or a body of persons established for scientific purposes only.
Unless the promotion of surgical science is the main substantial or primary object of the College, it cannot be described as a scientific institution. It is argued for the Commissioner that the College has another object than the promotion of surgical science, namely, the promotion of the professional interests of its members, and that this object cannot be described as subsidiary or secondary or auxiliary only to the promotion of surgical science. Attention is called in particular to object (a) in the memorandum, namely, "To cultivate and maintain the highest principles of surgical practice and ethics," and also to objects (b) and (c) (which have already been quoted), which also have a relation to the professional practice of surgery. The pursuit of these object would improve the professional qualifications, and thereby would, in the normal course of events, promote the professional interest, of the members of the College.
Hence, for the Applicant to be a public educational institution its main objects and activities must be educational and even if some of its objects and activities are non-educational, they must be secondary. In other words, any non-educational objects and activities must be residual only.
(b) Each of the Applicant and the Respondent, cited Cronulla Sutherland Leagues Club Ltd v Federal Commissioner of Taxation (1990) 23 FCR 82; 21 ATR 300, where the Full Federal Court held that the taxpayer was not entitled to an exemption under section 23(g)(iii) of the ITAA36 (a society, association or club established for the encouragement or main object was to provide for its members the facilities of a licensed club, not the encouragement or promotion of football. In that case, Lockhart J, (at 312 and quoted at clause 121 of the Respondent's Written Submissions), stated that for a taxpayer to qualify for exemption under section 23(g)(iii) of the ITAA36, its main object or purpose must be "the encouragement or promotion of an athletic game or athletic sport in which human beings are the sole participants". An important feature of that case is that the Full Federal Court found that a taxpayer could have other, secondary, objects or purposes without disqualifying it from the exemption and those secondary objects need not be merely incidental. The Respondent contends that the same construction should not be applied to section 23(e) of the ITAA36. Reference was made to the case of In re Royal College of Surgeons of England [1899] 1 QB 871, where the English Court of Appeal held that if an institution has two main objects, it is difficult to determine whether the income of the institution is being directed towards the exemption object, (ie in that case, the promotion of science, or in this case, education) or the other main object. In other words, if the Applicant has two main objects and one of those objects, not being "incidental, concomitant and ancillary", does not come within the exemption, the Applicant is not entitled to the exemption.
(c) The Applicant also cited the case of Congregational Union of New South Wales v Thistlethwayte (1952) 87 CLR 375, where the High Court held that a body may be charitable even though some of its incidental and ancillary objects, considered independently, are non-charitable. In their joint judgment, Dixon CJ, McTiernan, Williams and Fullagar JJ said, relevantly, (at 442-444):
. . .We are here concerned with the question whether a particular corporate body is a charitable institution. Such a body is a charity even if some of its incidental and ancillary objects, considered independently, are non-charitable. The main object of the Union is predominantly the advancement of religion. It is a religious institution composed of ministers and members of Congregational churches combining for certain religious purposes of common interest and a bequest to a religious institution is prima facie a bequest fora charitable purpose (In re White; White v. White (1893) 2 Ch 41 ). In a recent case in this Court, Salvation Army (Vict.) Property Trust v. Fern Tree Gully Corporation (1952) 85 CLR 159, cases were cited in which it was held that an institution is a charitable institution if its main purpose is charitable although it may have other purposes which are merely concomitant and incidental to that purpose. The fundamental purpose of the Union is the advancement of religion. It can create, maintain and improve educational, religious and philanthropic agencies only to the extent to which such agencies are conducive to the achievement of this purpose. . . .
. . . In order that a gift may be a valid charitable gift the Court must be satisfied that it is public in the sense that it may be of benefit to the community or a considerable section of the community (Verge v. Somerville (1924) AC 496, at p 499; National Anti-Vivisection Society v. Inland Revenue Commissioners (1948) AC 31, at p 70). It is contended that the Society does not carry on activities for the benefit of the community or a considerable section of it but is a Society carrying on activities for the benefit of its members only. The Society was incorporated as a company limited by guarantee in 1886 under the provisions of the Companies Act 1874 (N.S.W.). The memorandum and articles of association of the Society are in evidence. The memorandum states that the Society is established for four objects, all of which are religious objects. They are as follows: . . . The articles of association under the heading "Nature of Society" state that the Society is established for the diffusion and advancement of religion and repeats these objects. There is evidence, scanty though it be, that the Society maintains a church in Clarence Street and that the leader of the Society is duly licensed to perform all the rites of the New Church including marriage, baptism, holy communion, funeral services, and to conduct all the services of the church. The articles of association declare that certain named persons are members and provide that all other candidates for membership must be elected and that they may be expelled as therein provided. But the activities of the Society are not confined to benefiting its members. They receive no profits for the memorandum of association expressly provides that the whole of the profits or other income of the Society shall be applied in promoting its objects and the payment of any dividend to its members is prohibited. There is no positive evidence that worship in the church and the performance of these rites is open to the public generally and is not confined to persons who are members of the Society, but, in the case of a church fronting a public road, that seems to be the only fair inference. It is difficult to see how the religion of the New Church could otherwise be diffused and advanced.
(Emphasis added)
Further, in Keren Kayemeth le Jisroel Limited v Inland Revenue Commissioners [1932] AC 650, a judgment of the House of Lords, Lord Tomlin said, (at 658):
. . . I well appreciate the argument which says that if you once find that the main object is charitable you cannot destroy the charitable character of the main object, because the ancillary powers, which are incidental to it, are, some of them, in themselves, not charitable . .
(e) Having considered the authorities on this point, it is clear that having objects or activities which are not charitable or not in themselves features of a public educational institution, will not be fatal so long as the main objects or activities are charitable or that of a public educational institution and provided that the other objects or activities are merely incidental or ancillary.
Is the Applicant a Charitable Institution?
(a) The Applicant claims that it is entitled to be treated as a charitable institution because it falls within one or other or both of two of the "technical" heads.
(b) It is in my view important to remember that the members of the Applicant, by becoming members, acquire for consideration, certain rights and benefits. Those rights comprise, in the main, the right to receive the journals, the right to attend seminars for a discounted amount (ie. less than non-members would pay). They also received certain other benefits. They could, for example, access the library at Court & Co, but there was no evidence as to the extent to which use was made of this facility. They also received the benefit of the Applicant's representation activities, but however seriously the State Council took those activities, it does not appear that those advantages were emphasised in advertising material directed at procuring membership activities.
Each of the two technical heads is available only where there is a benefit to the public or a section of the public, and the 3000 (or so) members of the Applicant do not fall within this category.
For this reason alone the Applicant cannot succeed under this head. The Applicant's activities are not for the general benefit of the public or a section of it. Nor are they charitable; this is so because they are provided for full consideration to members qua members.
(c) One of the more telling aspects of the evidence against the Applicant is found within its own objects. In Royal College of Surgeons of England v National Provincial Bank Ltd (supra) and Institution of Civil Engineers v Inland Revenue Commissioners [1932] 1 KB 149; (1932) 100 LJKB 705; (1932) 145 LT 553; (1932) 16 TC 158, particular emphasis was place on the charter which established the relevant organisations. It is appropriate, then, that I pay particular regard to the objects of the Applicant as disclosed by the document which governs its existence. There can be little doubt that many of the objects of the Applicant are not charitable. As has been stated previously, the objects of the Applicant emphasise its representational activities and services to members. Objects which call for a reduction in taxation, action to "remedy abuses and anomalies in all forms of taxation", protection of the interests of members, charging members for advice and assistance and securing "to members the advantages of unity of action" are hardly objects which could be described as charitable. In McGovern v Attorney-General [1981] 1 Ch 321 (the "Amnesty International Case"), it was held that although a trust set up for the relief of human suffering and distress would be capable of being charitable in nature, it would not be charitable if any of its main objects were of a political nature. (I use the word "political" in its broadest sense.) Slade J (of the Chancery Division) relied on the following passage from Bowman v Secular Society Ltd [1917] AC 406 (at 334):The abolition of religious tests, the disestablishment of the Church, the secularisation of education, the alteration of the law touching religion or marriage, or the observation of the Sabbath, are purely political objects. Equity has always refused to recognise such objects as charitable. It is true that a gift to an association formed for their attainment may, if the association be unincorporated, be upheld as an absolute gift to its members, or, if the association be incorporated, as an absolute gift to the corporate body; but a trust for the attainment of political objects has always been held invalid, not because it is illegal, for everyone is at liberty to advocate or promote by any lawful means a change in the law, but because the court has no means of judging whether a proposed change in the law will or will not be for the public benefit, and therefore cannot say that a gift to secure the change is a charitable gift . . .
Similar statements are contained in National Anti-Vivisection Society v Inland Revenue Commissioners (supra); (note in particular Lord Wright's comment at 51-52, where he said that the meaning of the word "political" "was not limited to party political measures but would cover activities directed to influence the legislature to change the law in order to promote or effect the views advocated by the society.") In Stratton v Simpson (1970) 125 CLR 138, reference to which was made in clauses 98-99 of the Respondent's Written Submissions, and quoted in paragraph 44(a) of these Reasons, the High Court made it quite clear that if the non-charitable purpose is not merely incidental or ancillary to the main charitable purpose, the institution will not be charitable. The High Court relied on the English authorities of Oxford Group v Inland Revenue Commissioners [1949] 2 All ER 537 and In re Harpur's will trusts [1962] 1 Ch 78; this is a clear indication that the English law on charitable institutions applies to Australia.
Such a proposition clearly applies in this case. How is the Tribunal to decide whether such "political" objects are of benefit to the public? Take, by way of example, the Applicant's object to reduce taxation where practicable; (object 3(b)). This is not an object which can be said to be universally of benefit to the community as a whole. On the contrary, (and as I have indicated previously), there might be strong arguments against reducing taxation. Welfare groups, for example, might argue that reducing taxation would lead to a reduction in social services, thereby having a detrimental effect to those reliant on social services. As to whether or not a reduction in taxation is of benefit to the community is clearly a political question and the authorities make it clear that such an object is non-charitable.
(d) The Applicant contends, however, that any objects which could be described as political or non-charitable are merely incidental to its primary objects. Clause 46 of the Applicant's Written Submissions-in-Reply states:
"the Applicant puts its case on the footing that there is one main purpose or object viz education in taxation law policy and administration. There are no secondary or non incidental purposes, and incidental benefits are not relevant (Royal Australasian College of Surgeons v FCT (1943) 68 CLR 436).
The evidence, however, indicates the contrary. The evidence clearly shows that the Applicant took its representational role seriously. I refer in this context to the objects of the Applicant, the editorials in the fortnightly journal, the depiction of St George and the Dragon on the Applicant letterhead and publications, the representation on Tax Liaison Groups, the comments to the media, the resolutions of the State Council and the ATA; all of these make it plain that if promoting legislative reform was, if not the main object of the Applicant, it was certainly one of the main objects of the Applicant. It could not be described as an incidental or ancillary object. Indeed, the objects of the Applicant would tend to suggest that any educational or informational object was incidental to the representational object. Object 3(j) states "to diffuse information on all matters in any way incidental to the objects or purposes of the Association and to print publish issue or circulate such papers periodicals books circulars and other literary matter as may seem conducive to such objects and purposes" (emphasis added). As I have stated previously in these Reasons, I do not attribute much weight to object 3(s) because it was inserted as something of an afterthought and after the commencement of the relevant period. In any case, even if some of the objects of the Applicant could be regarded as charitable, the presence of non-charitable objects, which are not incidental, is fatal to any finding that the Applicant is a charitable institution. The seminars too, were apparently used in part for representational purposes; see, by way of example SR7A, page 33 (Minutes of the National Executive Telephonic Conference), which describes the proposal for a seminar in order to obtain members' feedback in order to make submissions to a tax agents' inquiry.
(e) The Applicant contends further that the subjective intent of the founders must be ignored and the relevant consideration is the activities of the Applicant; (see clause 47 of the Applicant's Written Submissions-in-Reply). If the Applicant seeks to suggest that the Tribunal should simply ignore the Applicant's written objects and simply focus on the activities of the Applicant, that suggestion would not be tenable. In Young Men's Christian Association of Melbourne v Federal Commissioner of Taxation (1925) 37 CLR 351, the High Court paid particular attention to the by-laws of the Association. Issacs J said, at 357:
Its by-laws . . . at all events indicate its character in fact. . . these I regard as giving the dominant impress to the Association and determining its real character.
The Applicant submitted that certain objects could be read down as being ancillary or incidental. Reliance was placed on the case of North of England Zoological Society v Chester Rural District Council [1958] 3 All ER 535 ("the Zoo case"), where the court distinguished some clauses of the Society's MAA as being main objects and other clauses as being powers and not objects properly so called. The particular powers in question were, inter alia, those as to publication of books, of investment of money and raising funds (most notably by charging visitors a fee to enter the zoo). Such a construction can not be placed on the Applicants stated objects in its MAA. Securing a reduction in taxation can hardly be described as a power and not an object.
In all of the authorities on charitable trusts and charitable institutions cited before me, the starting point for the inquiry into whether a particular body is charitable is the deed or instrument by which the body was established. The Applicant cannot rely solely on its actual activities to indicate its objects or purposes, although objects and purposes may change over time. While the written objects at the time of the incorporation of the Applicant may have changed over time (and so that the actual activities of the Applicant may be relevant in order to ascertain the extent to which the objects have changed over time), they nonetheless are relevant, as also of course are the actual activities. SR6, page 21, is a 1988-1989 Presidents Report which states that objects 3(a)-(d) are the principal aims and objectives of the Applicant. While 1988-1989 is outside the relevant period, it indicates that the objects and aims of the Applicant have not changed to any material extent since it was founded in the 1930s. Moreover, the activities themselves confirm that the political objectives of the Applicant are still (as indicated by State Council minutes) considered important, and by no means incidental or ancillary.
(f) I intend to deal with the educational aspect in paragraph 46, and in relation to the concept of a public educational institution. I intend also to consider the actual nature of the Applicant's activities in the same context. Suffice it at this stage to say that I do not consider that the Applicant itself carries out any activities which are educational within the charitable head, or which are of benefit to the public as a whole or a section of it.
(g) In the Applicant's Written Submissions-in-Reply, the Applicant stated, (at clause 38), that all that is required is that its membership be open to the public or a section of the public. In reliance on this statement, the Applicant cited the cases of Royal College of Surgeons v National Provincial Bank Limited [1952] 1 All ER 984, Institution of Civil Engineers v Inland Revenue Commissioners (1931) 16 TC 158 and Thompson v Federal Commissioner of Taxation (supra). In Royal College of Surgeons v National Provincial Bank Limited (supra), the House of Lords held that benefits to members of the College were merely an incidental and necessary part of the College pursuing its charitable object, namely the advancement of medical science. In Institution of Civil Engineers v Inland Revenue Commissioners (supra), the English Court of Appeal held that benefits to members were incidental to the main purpose of the Institution, which was a charitable purpose. In Thompson v Federal Commissioner of Taxation (supra), the High Court held that a gift to schools restricted to the children of freemasons lacked the required public benefit to be a gift for public educational purposes. In other words, these authorities indicate that while it may not be fatal that members receive some benefit from the activities of the Applicant, the main purpose of the Applicant must be one which is of benefit to the public or a section of the public. This is not even remotely so in this case.
(h) Reference has already been made to Cronulla Sutherland Leagues Club Ltd v Federal Commissioner of Taxation (supra), a Full Federal Court decision where it was held a secondary or independent purpose is not fatal, so long as the main purpose comes within the exempting section. I agree with the Respondent's submission that section 23(g)(iii) of the ITAA36 is an altogether different section with a different legislative history and cannot apply here. I set out those submissions, at clauses 121-123, as follows:
121. The Applicant has referred to Cronulla Sutherland Leagues Club Ltd v FCT (1990) 23 FCR 82; 21 ATR 300, a case under s. 23(g)(iii) which exempts 'the income of a society, association or club which is not carried on for the purposes of profit or gain to its individual members and is. ..a society association or club established for the encouragement or promotion of an athletic game or athletic sport in which human beings are the sole participants'. Lockhart J said at ATR 312:
'In my opinion the question in a case such as the present must be what is the true character and nature of the appellant. It is a question of characterising the appellant having regard to its objects, purposes and activities.
For a society, association or club to qualify for the exemption granted by sub-para. 23 (g)(iii) It must be one that has as its main object or purpose the encouragement or promotion of an athletic game or athletic sport in which human beings are the sole participants. It may have other objects or purposes which are merely incidental or ancillary thereto or which are secondary and even unrelated to the main object or purpose without disqualifying the body from the exemption. But if it has two co-ordinate objects, one of which is outside the exemption, the exemption cannot apply because it would be impossible to say that one object is the main or predominant object.'
122. The Court considered that s. 23(g)(iii) would be satisfied if the club was relevantly established for a dominant purpose of encouragement or promotion of a sport within the terms of the section, and that such characterization would not be inconsistent with the existence of a secondary but collateral purpose outside the exemption. The Court rejected a submission that the club could only fall within s. 23(g)(iii) if any such secondary purpose was not collateral, but only incidental or ancillary , to the purposes which attracted the exemption; it is this aspect of the decision which the respondent submits should not be applied to s. 23(e).
123. The different structure and subject matter of the exemption in s. 23 (g)(iii), the express distinction drawn between charities and the 'charitable institution' exemption in s. 23(e) on the one hand and the exemption in s. 23 (g)(iii) on the other, and the particular significance of' the explanatory memorandum for the amendment which introduced s. 23(g)(iii) and the particular legislative history of the amendment (cf Lockhart J at 310 and 311, and Beaumont J at 332) suggest that the Cronulla Sutherland approach in relation to collateral objects should not be extended from s. 23(g)(iii) to s. 23(e).
In order to qualify for the charitable exemption, the Applicant cannot have independent purposes which are non-charitable. So much is clear from a long line of authorities and there is no evidence that parliament intended that section 23(e) of the ITAA36, at least as regards the charitable institution head, is to be applied differently.
(j) For the above reasons I find that the Applicant is not a charitable institution.
Is the Applicant a Public Educational Institution?
(a) There is no doubt a line at which any journal crosses an imaginary Rubicon which takes it out of something which is informational, and which transforms it into something which is educational. A newspaper is informational; a law journal which contains articles and comment analysing the law may be educational. As to where the line is drawn will depend on the circumstances of each case. The journals in this case are clearly well on the side of the purely informational.
(b) So too the telephone help-line is informational and not educational. Its paucity of real advice is demonstrated by the evidence to which I have referred.
(c) What then of the seminars? At a very low level, some of them might perhaps be classified as educational, despite my view that their subject matter and duration would tend to indicate that for the most part attending members could not have received much more than a very broad overview. But the cases indicate that although "education" is a concept which is very broad and although it does not require, of necessity, a classroom or an examination, the authorities also indicate that what is required is something structured and organised and not something which occurred on an ad hoc or sporadic or "now and then" basis. The seminars in question fall all too clearly into the latter category.
(d) The Applicant faces, in my view, another and insurmountable difficulty. When one analyses what it actually does, one finds that except for its representational role, (which it takes seriously and which is by no means an ancillary or incidental objective), it does nothing at all itself. It does virtually nothing in relation to the journals; on the contrary it purchases them from the TAV. It does not even deliver them itself; this function is carried out by the TAV. Excepting only in the first of the relevant years, when it appears to have conducted 2 seminars itself, it has found it appropriate ever since then to contract for the seminars to be conducted and managed either by the TAV or, more usually, by Mr Hollestelle, and to receive a share of the net profits so derived. The telephone help-line (which is informational in any event) is managed by Court & Co employees, not all of whom appear to be suitably qualified to give information on tax law. Not to put too fine a point on it, the Applicant has outsourced virtually all of its activities, reserving to itself only a representational or advocacy role.
(e) During the hearings I asked the parties to imagine as a hypothetical case, the "Bondi School" which provides education at HSC level to persons seeking a good HSC mark. The Bondi School closes its doors, sublets or otherwise disposes of its premises, and dismisses all of its teachers and other staff. By arrangement with "Randwick School", which carries out a similar function, it sends all of its pupils to Randwick School, and shares the net income so derived. Is the Bondi School still an educational institution? In line with the decision in Case 46/94, I believe that the answer must be no.
(f) In any event, the Applicant is not "public". This is so because in effect the right of admission is reserved, even if in practical terms, the Applicant is not inclined or likely to use it.
(g) At the risk of being repetitious, I again refer to the Applicant's objectives as set out in its MAA, and repeat that its advocacy or representational role is not ancillary or incidental, and is, if anything, on the evidence the only objective which it carries out itself, having outsourced everything else.In summary:
(a) The Applicant is not a charitable institution under either technical head because it is not charitable and it does not benefit the public or a section of it. In addition, it does not itself carry out any charitable or educational or other function, excluding of course its representational role.
(b) The Applicant is also not a public educational institution because, in particular, it does not itself do anything which is educational or if it is entitled to claim credit under this head for the seminars, they are not educational in the sense required by the authorities, and are in any event minor in the overall scheme of things.Accordingly, the objection decisions under review must be affirmed.
I certify that the 48 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President J Block
Signed: ...........[M Ryan]............................................
AssociateDates of Hearing 17, 19, 26 & 28 July 2000;
15, 20 & 26 March 2001
Date of Decision 6 April 2001
Counsel for the Applicant Mr Andrew Higgins
Counsel for the Respondent Mr Mark Brabazon and Ms Theresa Walker
Respondent's Representative Mr Martin Dwyer
(of ATO Legal Practice)
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