Yachting Australia Incorporated v Chief Commissioner of State Revenue

[2005] NSWADT 208

CITATION:	Yachting Australia Incorporated v Chief Commissioner of State Revenue [2005] NSWADT 208
DIVISION:	Revenue Division
PARTIES:	APPLICANT Yachting Australia Incorporated RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	046029
HEARING DATES:	26/08/2005
SUBMISSIONS CLOSED:	08/26/2005
DATE OF DECISION:	09/08/2005
BEFORE:	Block J - ADCJ (Judicial Member)
APPLICATION:	Pay-roll tax - non profit organisation with a charitable, benevolent, philanthropic or patriotic purpose
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Pay-roll Tax Act 1971 Statute of Charitable Uses 1601
CASES CITED:	Attorney-General (NSW) v The NSW Henry George Foundation Ltd. unreported in the Equity Division of the Supreme Court of New South Wales on 2 October, 2002 Attorney-General v National Provincial and Union Bank of England [1924] AC 262 Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531 F.C. of T v The Myer Emporium Ltd 87 ATC 4363 at 4368 In re Nottage; Jones v Palmer [1895] 2 Ch. 649 Incorporated Council of Law Reporting (Queensland) v Federal Commissioner of Taxation (1971) 125 CLR 659 Inland Revenue Commissioners v McMullen and Ors [1981] AC 1 Kidston Goldmines Ltd v F.C of T (1990) 30 FCR 77 Lloyd v Federal Commissioner of Taxation 93 CLR 645 McGarvie Smith Institute v Campbelltown MC (1965) 83 WN Pt 1(NSW) 191 Penrith Rugby Leagues Club v Commissioner of Land Tax 83 ATC 4709 Pro-Campo Ltd v CLT (NSW) (1981) 81 ATC 4270 Royal Australasian College of Surgeons v C. of T. (1943) 68 CLR 436 Royal North Shore Hospital of Sydney v Attorney General (1938) 60 CLR 396 Strathalbyn Show Jumping Club Inc v Mayes (2001) 79 SASR 54 Taxpayers’ Association of New South Wales v Federal Commissioner of Taxation 2001 ATC 2096; [2001] AATA 278
REPRESENTATION:	APPLICANT I Young, barrister RESPONDENT H Sorenson, barrister
ORDERS:	The decision under review is set aside

Part A. Introduction and Background

1 The objection decision under review is the disallowance (by notice dated 5 April 2004) of an objection by the Applicant dated 21 January 2004 against assessments issued on 21 January 2004 in respect of the period 1 July 1998 to 30 November 2003 (referred to in these reasons as “the relevant period”). More specifically the issue between the parties is whether the Applicant is entitled to the benefit of an exemption from payroll tax for the relevant period.

2 The Tribunal was furnished with the documents lodged in accordance with section 58 of the Administrative Decisions Tribunal Act 1997. Each of the parties furnished the Tribunal with a number of written submissions, which were of considerable assistance to the Tribunal.

3 Oral evidence was given by Mr. Philip Jones who is the principal executive officer of the Applicant. His written statement dated 28 July 2005 was admitted as Exhibit A1; that exhibit consists of his statement proper and in addition a number of attachments contained in two large folders. The Tribunal also, at the request of the Respondent, admitted as Exhibit R1 a document taken from the Tafelink website entitled “Health & Safety” and as Exhibit R2 documents taken from the Club Sail website entitled “Sea Safety and Survival” and “Yachtmaster Instructor Courses”.

4 The Respondent raised a number of objections on various grounds in respect of the statement Exhibit A2. Mr. Young conceded some but not all of those objections; those not conceded were not thereafter mentioned and I do not consider them to be of major import. Because it encapsulates much of the evidence before the Tribunal I include Exhibit A1 (excluding any attachments) but edited firstly so as to excise those parts in respect of which objections were conceded, and so as to mark in bold the remaining parts to which objections were taken but not conceded, as follows:

BACKGROUND

1. Yachting Australia is the national governing body for Yachting, both power and sail throughout the Commonwealth of Australia. Yachting Australia has affiliated Member Associations in each State and Territory. Yachting Australia is recognised by the Australian Sports Commission (ASC), the Australian Olympic Committee (AOC) and the Australian Paralympic Committee (APC). Yachting Australia is a member of the International Sailing Federation (ISAF), the world governing body of the sport.

2. 3.8 million Australians or 19% of the entire population have an active interest in yachting and boating with over 2 million (11% of the population) participate (Source - Sweeney Sports Report 2003-04). Yachting Australia acts in the interests of this very significant group of the Australian community providing representation, training and information. In this respect Yachting Australia provides an important service for the betterment of the community which no other organisation provides, or is in a position to provide.

3. Yachting Australia offers a system of training and certification to nationally defined and agreed standards to those involved or seeking to become involved in recreational boating, both sail and power craft. Training is designed to impart the knowledge and skills necessary to allow people to get afloat in safety. An estimated 80,000 to 100,000 members of the Australian community undertake training at a Yachting Australia Training Centre each year, although not all of these result in a Yachting Australia qualification. The emphasis is on ensuring safe recreational boating for all Australians.

4. Training Australians in safe boating reduces the risk of marine incidents. A lack of training conversely, increases the frequency of incidents and the need for rescue. The National Training Schemes offered by Yachting Australia are an important factor in helping to reduce the risks and costs of marine incidents to the community.

5. Yachting Australia is recognised for its role in delivering training in recreational boating by:

The Australian Maritime Safety Authority (AMSA), an agency of the Federal Government;

The National Marine Safety Committee (NMSC), made up of the State and Territory Marine Authorities - NSW Maritime being the relevant body in NSW;

Australia and New Zealand Safe Boating Education Group (ANZSBEG) again made up of representatives of the State and Territory Marine Authorities;

The International Sailing Schools Association

6. Yachting Australia adopts a principle of “education and not legislation” in relation to small boat safety. Yachting Australia have recently adapted their training courses to meet the minimum core competencies for recreational vessels established by the National Marine Safety Committee (NMSC).

7. Throughout Australia the various State and Territory Marine Authorities, such as the NSW Maritime, recognise the training provided by Yachting Australia for the purposes of issuing boat operator licenses. In Western Australia compulsory training for all those involved in recreational boating is currently being introduced.

8. Yachting Australia courses are used in the education of young Australians. As such, the courses are an important tool in education and personal development, building not only an awareness of physical concepts and the wider marine environment, but also a strong send of independence and teamwork. Yachting Australia has adapted its training schemes and resources particularly to meet the needs of young people.

9. With the financial support of the Australian Sports Commission (ASC), Yachting Australia is involved in programs to increase participation in boating amongst the Australian community. It is well established that increased physical activity helps to reduce illnesses associated with a more sedentary lifestyle, such as lung and heart disease. Yachting Australia is committed to encouraging Australians to be more active through participation in sport.

10. Sailing is increasingly popular with people with disabilities, providing an opportunity to experience the freedom afloat that sailing offers to participants. Yachting Australia has adapted the National Training Schemes, and in particular the Small Boat Sailing Scheme, to ensure it is appropriate for the training of people with disabilities. Australia is a world leader in this area.

11. Through its website, Yachting Australia provides information for the Australian community seeking to become involved in yachting, either power or sail. This information is provided as a community service.

TRAINING WITHIN YACHTING AUSTRALIA

12. Training is a central and core activity of Yachting Australia. Yachting Australia, formally the Australian Yachting Federation (AYF), launched the first National Training Scheme in Australia in the late 1970s. Since then Yachting Australia has become established as the only Australian organisation offering recreational sail and small boat training to a common national standard.

13. Yachting Australia is a federal organisation whose constitutional members are the eight State and Territory Associations (MYAs). A Board elected by the MYAs oversees the activities of Yachting Australia. Yachting Australia has established and maintains a National Training Committee (NTC), made up of representatives from each MYA. The NTC provides input and makes recommendations to the Board of Yachting Australia on issues to do with the management of the National Training Schemes.

14. The Yachting Australia Federal Assembly, made up of the eight MYAs, has agreed the current Strategic Plan for Yachting Australia. This Plan contains seven Key Result Areas, one of which deals specifically with Training. A copy of the Strategic Plan is provided at Attachment 1.

15. Operationally Yachting Australia delivers products and services through four business units. As can be seen from the chart at Attachment 2, training is one of these four business units. Training is one of four standing items on the Yachting Australia Board agenda.

16. Yachting Australia has a small, dedicated staff team. The office of Yachting Australia has 14 full time staff. Two staff are dedicated exclusively to the training function whilst another six are actively involved in supporting training activities. As such, the unit represents at least 20%-30% of Yachting Australia’s overall activity.

17. Promotional materials produced by Yachting Australia highlight the role of the organisation in training. Every four years Yachting Australia produces the “Blue Book”. This contains the International Racing Rules of Sailing (RRS) together with the local prescriptions and the Special Regulations that govern the safety requirements for Yacht Racing. A copy is provided at Attachment 3.

18. Page 170 provides the outline “What does Yachting Australia do”. It is noted that:

“Yachting Australia and our eight MYAs together form a network that provides strategic leadership for the development of sailing in Australia to ensure that:

All Australians are provided with the opportunity to become involved in their chosen activity with the necessary training when required

the sport and recreation are effectively managed at all levels providing a safe environment for all those involved

sailors, coaches, officials and administrators have the opportunity to improve their skills and knowledge

These three objectives are indicative of the very active role that Yachting Australia plays in training.

19. Yachting Australia maintains an extensive website. This contains details of Yachting Australia’s activities including those in training. Under the heading “About Yachting Australia” it is noted that:
“Yachting Australia is the peak body for all forms of yachting both power and sail throughout Australia. It is a diverse organisation with responsibilities including ...

The Management of Training - the development and management of a series of national training and certificate programs for all activities for which Yachting Australia has responsibility, including windsurfing, small boat and yachting sailing, and power boating

NATIONAL TRAINING SCHEMES

20. Yachting Australia operates six principal National Training Schemes, these are:

National Small Boat Sailing Scheme

National Power Boat Scheme

National Yacht Cruising Scheme

National Motor Cruising Scheme

National Yacht Racing Scheme

National Windsurfing Scheme

21. Yachting Australia has developed a logbook for each Scheme that details the syllabus and other information about that Scheme. The syllabi are developed and published by Yachting Australia as a set of national standards to which individual students are trained. Copies of the current logbooks for each of the schemes are provided at Attachment 4.

22. Many of the schemes, and particularly the “National Small Boat Sailing Scheme”, are used for teaching athletes with disabilities. Some adaptation is required depending on the disability. Yachting Australia has developed a manual entitled “Coaching Athletes with Disabilities” with support from the Yachting Australia Sailability Program. A copy of this manual is provided at Attachment 5.

23. The Yachting Australia “National Small Boat Sailing Scheme” is used extensively by schools and is increasingly providing opportunities for young people to go sailing using Yachting Australia courses. This is becoming increasingly significant given the current concerns over the sedentary lifestyle of young people and the initiative to ensure healthy eating and increased physical activity to reduce obesity.

YACHTING AUSTRALIA TRAINING CENTRES

24. Yachting Australia training is offered through a network of Yachting Australia Training Centres (YATCs). There are currently 256 YATCs recognised throughout Australia. This number normally increases as YATCs renew registration prior to the sailing season. A searchable list is provided on the Yachting Australia website for those interested in any aspect of sail and small boat training. A list of Training Centres is provided at Attachment 6.

25. Each YATC operates by direct agreement with Yachting Australia. A copy of the YATC Recognition Agreement is provided at Attachment 7. This specifies standards of instruction equipment, facilities and safety that must be provided by each training centre in order to maintain recognition and to continue offering Yachting Australia courses and certificates.

26. Yachting Australia has provided each YATC with an Operations Manual that details how the National Training Schemes operate. A copy of this manual is provided at Attachment 8.

27. Yachting Australia has developed an on-line management tool for use by YATCs known as MyCentre. MyCentre provides various tools to allow YATCs to manage the training process on a consistent national basis. These tools include ability for the YATC to maintain information on their facilities, staff and courses offered. This data is searchable by students seeking training. It allows the YATC to maintain details of courses, enrol and mark students attending courses and issue certificates. It also provides a tool for the YATC to maintain student records, providing a system of follow up to those people that have undergone training at the YATC.

YACHTING AUSTRALIA INSTRUCTORS

28. There are currently some 1,300 Yachting Australia qualified instructors. These instructors are qualified to standards laid down by Yachting Australia. A full list of Instructors is provided at Attachment 9.

29. Instructor details are maintained on the national database with instructors registering on an annual basis. Registration includes the provision of Professional Indemnity and Public Liability insurance for all instructors operating within the National Training Schemes. Yachting Australia has negotiated this cover. A copy of the policy is provided at Attachment 10.

30. Yachting Australia provide a series of resources for instructors and those involved in training. As an example, the “Small Boat Sailing Coaching Guide”, is provided at Attachment 11.

YACHTING AUSTRALIA TRAINING LIMITED

31. Yachting Australia Training Limited was established as a joint venture between Yachting Australia and Yachting Queensland (Yachting Australia’s member in Queensland) initially under Heads of Agreement between the two organisations. A copy of Agreement dated 13 October 2002 is provided at Attachment 12.

32. The principal objective of the joint venture was to enable Yachting Australia and it’s various affiliated organisations to benefit from the work which had been done at the time by Yachting Queensland in aligning the National Training Schemes under the Australian Quality Training Framework (AQTF). This required the development by YATL of a Series of Training Packages. Unfortunately only one such package was finalised and this was not considered to be of an appropriate standard.

33. The joint venture has not produced the results required and the members of the company have agreed that it should be wound up at the earliest opportunity. This will involve Yachting Australia writing off a loan of some $50,000 that was made when the company was established.

34. Throughout the period, Yachting Australia has maintained its normal functions in the training area.

TRAINING OF HIGH PERFORMANCE ATHLETES

35. Yachting Australia is also centrally involved in the training of youth and senior athletes. Each year Yachting Australia selects and trains an Australian Team that attends the World Youth Sailing Championship.

36. Yachting Australia also trains and selects sailing teams to attend World Championships and the Olympic Games.

SAFETY AND SEA SURVIVAL COURSE

37. Following the deaths of six yachtsmen in the 1998 Sydney to Hobart Yacht Race, the report from the NSW State Coroner, John Abernethy, contained 12 recommendations made to the Cruising Yacht Club of Australia (CYCA) and the Australian Yachting Federation (now Yachting Australia). Many of the recommendations related to the safety equipment and the general conduct of this and similar races. Yachting Australia has addressed these through the Special Regulations that form the Blue Book. The final recommendation related to the training of crew.

That at least 50% of a competing yacht's crew should have completed a Yacht Safety and Survival Course every three (3) years:-

(a) that such Yacht Safety and Survival Course be the course ABF511 of the Australian National Training Authority; and

(b) that such Yacht Safety and Survival Course be taught by instructors who hold a current Australian National Training Authority certificate for assessment and workplace training BSZ40198.

The Coroner recognised Yachting Australia as the appropriate organisation to develop and implement such a course of training.

38. Based on the this recommendation, and following extensive consultation with stakeholders, Yachting Australia developed the syllabus for a comprehensive Safety and Sea Survival Course (SSSC) aimed primarily at the crew of racing yachts. The course includes a practical component with those attending being required to be fully immersed in yachting gear and to inflate and use a life raft. A copy of the SSSC outline, including the syllabus and other details, is at attachment at 13.

39. Yachting Australia qualified instructors deliver the SSSC. The SSSC is supported by a presenters CD Rom that has also been developed by Yachting Australia.

40. Through the Yachting Australia Special Regulations, Sea Safety and Survival training has been compulsory for a percentage of each crew for Category 1 and 2 races since 2001, in line with the Coroner’s recommendation. See page 231 of the Blue Book at attachment 3. The requirement has been increased as more sailors have had the opportunity to undergo SSSC training.

41. Whilst the SSSC was originally developed for the racing yachtsman, many people involved in recreational boating have voluntarily attended the SSSC. A number of incidents have been reported where those that have undertaken the SSSC have commented positively on its value in an emergency situation.

42. The learning from the 1998 Sydney to Hobart Race has been of benefit to the yachting community internationally.

The SSSC developed by Yachting Australia became the basis for the syllabus requirement set down by the International Sailing Federation (ISAF). The Yachting Australia SSSC is now recognised internationally under this framework.

43. 4246 people now hold the Yachting Australia SSSC qualification. Yachting Australia maintains a database of those qualified that can be accessed by race organisers to confirm the currency of an individual’s qualification. Details of an individuals qualifications, including the SSSC, are maintained on MySailor, a password protected area of the Yachting Australia website for individual yachtsman.

44. Yachting Australia is now in the process of undertaking the first full review of the SSSC. This will include a review of feedback provided by past students, and a questionnaire to those that hold the qualification.

5 Mr. Jones, as I have said, gave oral evidence and was cross-examined but not at length. He was in my view an impressive and honest witness and his evidence can and should be accepted.

6 The Applicant is a corporate body registered as such under the Associations Act 1984. Its constitution provides in Rule 2 that its objects are as follows:

2.1 To promote and administer the sport of yachting in all its branches;

2.2 To serve as a national body for the advancement of yachting throughout the Commonwealth of Australia;

2.3 To take such steps to affiliate with other International and National Associations as may be required;

2.4 To recognise as national classes such yachts which my from time to time comply with the requirements of the Federation.”

7 The evidence before the Tribunal indicates in clear terms that the Applicant is involved not only in the sport of yachting (both power and sail) but also fulfils a significant education or training function, details of which are contained in Exhibit A1 and including its attachments. As set out in clause 16 of Exhibit A1 the Applicant has 14 full-time staff members two of whom are engaged on a full- time basis in the training function and 6 of whom (and including Mr. Jones) are so engaged on a part-time basis. The training function comprises 20% to 30% of the overall activities of the Applicant.

8 Dr. Sorensen contended in closing submissions that the training function of the Applicant is akin to or to be likened to that of a publisher of a training book or manual who having published and issued the manual does no more. Put in other words, so he contended the Applicant having published the manual does not perform the actual training; the training proper is performed by Yachting Australia Training Centres (“YATCs”). As set out in Exhibit A1 training is offered through a network of affiliated YATCs (currently 256) who operate under direct agreement with the Applicant. Training is provided by qualified instructors (currently about 1300 in number).

9 Dr. Sorensen contended in particular that the actual training is performed not by the Applicant, but rather by the YATCs who are affiliated to the Applicant but not part of it, and by the instructors. The evidence indicates that the training function of the Applicant is by no means confined to the issue of the manual. The Applicant plays an ongoing and important role in training. The Manual is updated on a regular basis; by way of further example, clause 27 of Exhibit A1 refers to the website maintained by the Applicant to enable the YATCs to manage the training process on a consistent basis. The Applicant is the organisation on which the process relies. Exhibit A1 indicates that the Applicant is recognised as the appropriate organisation for the development and implementation of courses of training. That the Applicant is so involved and on a continual basis is demonstrated by the fact that some of its employees are involved in training on a full- time and some on a part- time basis. Dr. Sorensen drew attention to Taxpayers’ Association of New South Wales v Federal Commissioner of Taxation 2001 ATC 2096; [2001] AATA 278as as authority for the proposition that to attract the exemption a taxpayer must be actively involved in the training activity. Taxpayers was concerned with the Income Tax Assessment Act 1936 (“ITAA”) and is distinguishable because in this case the Applicant was actively engaged in the training process and apart from the fact that it was concerned with a different statute. It may be noted in passing that the Applicant is exempt from income tax under section 23 (g) of ITAA.

Part B. The statutory exempting provisions.

10 The first relevant exempting provision is contained in section 10 (1) (j) of the Payroll Tax Act 1971 (“the Act”) reading as follows:

“(1) Subject to subsections (1A) and (2), the wages liable to payroll tax under this Act do not include wages paid or payable:

...

(j) by a non-profit organisation (other than a school or college, statutory body or an instrumentality of the State) having as one of its objects a charitable, benevolent, philanthropic or patriotic purpose,”

11 It will be noted that in order to claim the benefit of the exemption the Applicant must be able to establish that it is a non-profit organisation (which is not disputed) and that one of its objects is charitable, benevolent, philanthropic or patriotic. The Applicant claims that it is entitled to the exemption under the charitable head or alternatively the patriotic head.

12 The term “charitable” must as a matter of law be interpreted more widely than that term would, at least on a prima facie basis, indicate. This is so having regard to the Statute of Charitable Uses of 1601 and the decision of Lord Macnaghten in Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531 at 583 in which four heads or classes of charitable purposes were enumerated and being: advancement of education, advancement of religion, relief of poverty; other purposes beneficial to the community. The Respondent contends that the Applicant falls within none of these heads whereas the Applicant contends that it falls within two of the heads referred to by Lord Macnaghten in Pemsel as being within the term “charitable purpose”; they are the “advancement of education” and “purposes beneficial to the community”.

13 I deal in Part C in greater detail with the question of whether the Applicant’s training activities can be regarded as charitable within section 10 (1) (j) of the Act read with Pemsel and the Statute of Charitable Uses of 1601. (I note in this context that in particular in respect of Part C of these reasons I am indebted to and have drawn substantially on the Applicant’s Outline of Submissions.)

14 There is one other provision of the Act which is significant. The provisions of section 10 (1) (j) are qualified by section 10 (2) of the Act as follows:

“Paragraphs (j), (jl) and (k) of subsection (1) only operate so as to exclude from wages liable to payroll tax under this Act wages which are paid or payable to employees in respect of time when they are engaged in charitable, benevolent, philanthropic or patriotic work of the non-profit organisation or the charitable work of the organisation, society or institution.”

15 Thus it is that if the Applicant qualifies for an exemption under section 10 (1) (j) of the Act it will be entitled to it in relation to the relevant period only in respect of those wages actually expended in the training activity. On the evidence before me it will be necessary to calculate an apportionment for this purpose and so as to attribute the exemption only to the wages of the 2 staff members fully engaged and to an appropriate part of the wages of the staff members partly so engaged. However that aspect is not one to be resolved by the Tribunal. The only point at issue before the Tribunal is as to whether the Applicant qualified for an exemption under section 10 (1) (j) of the Act.

16 This is a convenient point at which to note that the decision in question relates to the relevant period. The issues in this case were debated without reference to any particular period; however there does not appear to be any issue as to the fact that the evidence before me covers the whole of the relevant period. The Applicant’s submissions refer to its having carried on its activities for a considerable number of years.

17 It may be noted also, and in conclusion in respect of this Part B, that section 10 (1) (j) in its terms applies to any “organisation”; its provisions are not confined in their terms to a limited company or to a body incorporated under a statute. Moreover section 10 (2) focuses on activities rather than upon the nature of the entity itself.

18 Mr. Young in closing submissions contended that the term “organisation” is wide enough to encompass, as one example a trust constituted orally and which would not have objects which are written. . And although I am not called on to effect an apportionment under section 10 (2) of the Act its terms are relevant for the purposes of interpreting section 10 (1) (j). It applies to time spent on the charitable work. It lends support to the proposition that if “organisation” is a term wide enough to encompass an entity which does not have written objects it is proper to look to its activities so as to ascertain its objects. In my view the word “organisation” is wide enough to encompass an entity which, for whatever reason, does not have written objects.

Part C Advancement of Education; Purposes Beneficial to the Community

19 In Inland Revenue Commissioners v McMullen and Ors [1981] AC 1, the House of Lords held that a trust to enable and encourage pupils of schools and universities in any part of the United Kingdom to play association football or other games or sports was a valid charitable trust for the advancement of education. Lord Hailsham, with whom Lord Keith, Lord Russell Lord Diplock and Lord Salmon agreed, held (at 10) that such a trust was included in the head of “charitable purpose” set down by Lord Macnaghten in Pemsel, being the advancement of education. Lord Hailsham said (at 15):

“What has to be remembered, however, is that, as Lord Wilberforce pointed out in In re Hopkins’ Will Trust [1965] Ch. 669, 678 and in Scottish Burial Reform and Cremation Society Ltd. v Glasgow Corporation [1968] A.C. 138, especially at p.154, both the legal conception of charity and within it the educated man’s ideas about education, are not static, but moving and changing. Both change with changes in ideas about social values. Both have evolved with the years. In particular in applying the law to contemporary circumstances it is extremely dangerous to forget that thoughts concerning the scope and width of education differed in the past greatly from those which are now generally accepted.”

20 In Lloyd v Federal Commissioner of Taxation 93 CLR 645 the matter before the High Court was the application of section 8 of the Estate Duty Assessment Act 1914-1947, which exempted from estate duty bequests for “public educational purposes in Australia”, to the Victorian Branch of the Navy League which was a voluntary association having among its purposes the teaching of the history, spirit and traditions of the sea services in schools and elsewhere and the maintenance and developing of the Sea Cadet Corps in Victoria. At issue was a bequest to the Geelong branch of the Navy League Sea cadet Corp. One stated aim of the Navy League was “to keep alive the sea spirit of our race”. The activities of the Navy League included:

The Geelong Branch held mid-week evening parades and Saturday afternoon parades in uniform. The cadets were inspected. Some time was given to lectures and instruction. There were sports and indoor games and sailing and rowing. The lectures and instruction covered hygiene, conduct, citizenship, something under the head "subjects of general education", knots, splices, bends and hitches, navigation lights and rule of the road and hearing and visual signalling. Instruction had also been given in sea history, general seamanship, compass and steering, rigging, squad drill, service and leadership, first aid and life saving and physical and recreational training. There were regular sporting competitions.”
As to the expression ‘public educational purposes’ Dixon CJ (dissenting) stated at 660 :
“It is a compound phrase and like most compound phrases its application cannot safely be ascertained by taking each separate word of which it is composed and then exploring the uses of which by itself the word is capable”.
The majority (McTiernan, Webb and Kitto JJ.) held that the bequest was for ‘ public educational purposes’ within the meaning of s.8 (5) and (8) of the Estate Duty AssessmentAct. The majority further held that that expression was not confined to educational institutions or activities conducted or controlled by the State.”

McTiernan J said (at 662) that:

“I think it can be inferred from this provision that the scope of the term “public educational purpose” in s.8 (5) is not limited to education provided or recognised by the State, as the respondent contended. It is clear from s.8 (8) that an admissible test under the former provision is whether the purposes are to the benefit of the public or a section of the public. I think that the Navy Cadet Corps and its Geelong Branch satisfy that test. Their objects are entirely public. Neither of them is carried on purely for private gain.”

21 In McMullen the charitable purpose was confined in its sporting objects to school and university students in the United Kingdom. The Applicant contends that it also comes within the charitable purpose in Pemsel of being ‘beneficial to the community’. The benefit is given to the community at large is, so it is contended, that the Applicant actively promotes knowledge and education of the public generally in the safe use of waterways in the whole of Australia.

22 In Attorney-General (NSW) v The NSW Henry George Foundation Ltd. an unreported decision of Young CJ in the Equity Division of the Supreme Court of New South Wales on 2 October, 2002, the key question was whether the purpose of furthering public knowledge of the teachings and economic principles elaborated by Henry George was a charitable trust ([21]). Young CJ held that it was a valid charitable purpose. He said (at [22]): “The law of charities has gradually been formulated, though the prime sources are still the Statute of Charitable Uses, 1601 and Commissioners for Special Purposes of the Income Tax v Pemsel [1891] AC 531. The result is that charitable trusts must fall into one of four classes, viz” (i) for the relief of poverty; (ii) educational purposes; (iii) religious purposes; (iv) purposes beneficial to the community on analogy with the purposes noted in the Statute of Charitable Uses”.

23 In Henry George, the court held that a charitable object must fall into one of the four classes. In Royal North Shore Hospital of Sydney v Attorney General (1938) 60 CLR 396, Dixon J said (at 426):

“Under all four heads of the well-known classification to which such trusts are referred, an essential element is the real or imputed intention of contributing to the public welfare. In Henry George Young CJ (at [24]) said: “It is sufficient for present purposes to say that, provided that there is a sufficient public purpose, trusts for the promotion of education are charitable trusts. The education may be in respect of matters not taught in schools or universities; see eg Re Shaw; Shaw’s Will Trusts [1952] Ch 163, where a gift to promote and encourage self control, elocution, oratory and deportment in Ireland was upheld as an educational charity.”

24 In Lloyd v Federal Commissioner of Taxation, The Navy League Sea Cadet Corps of Victoria gave lectures on hygiene, conduct, citizenship and subjects of general education, instruction in knots and splices, bends and hitches, rule of the road as applying to navigation, navigation lights and hearing and visual signalling. In addition there was study in British naval traditions, recreation by indoor games and sports, sailing and rowing. McTiernan J. said (at 661):

“The objects of the Navy League Sea Cadet Corps are essentially patriotic but are fit to be attained by educational means.”
Kitto J. said (at 671):
“Whether the application of the property to the purposes of the gift is entrusted to an individual, a group of individuals otherwise unassociated, an association of persons, or a corporation, it seems to me that the one question determined the right to the exemption: are the purposes for which the devise or bequest is made educational purposes for the benefit of the public or a section of the public.”
In concluding that the bequest was a trust for charitable purposes, Kitto J concluded (at 675):
“The gift made by cl25 of the testator’s will is accordingly a gift for those purposes. Are those purposes wholly or predominantly purposes of public education in the sense which has already been discussed? They undoubtedly are purposes for the benefit of a section of the public for they have to do with the development, along the lines which the constitution of the corps describes, of boys drawn from the public generally and not selected by reference to any restrictive qualification. No element of private profit-making is involved, for every position in the organization is honorary and none of the money or other property of the corps could legitimately be appropriated to the private use of any individual. As to whether the purposes are educational in character, it is in point to recall that in the Supreme Court of Victoria Fullagar J said of the trust created by cl.25 that it is “primarily and essentially” a trust for the advancement of education (2). It seems to me to be aptly so described. The account which has been given of the subjects in which training is contemplated by the constitution of the corps, and of the activities in which the cadets engage, is sufficient to show that instruction in certain practical and theoretical subjects and the development of the mind in particular directions are the pre-occupation and chief concern of the corps in general and of the Geelong branch in particular. In Chesterman v. Federal Commissioner of Taxation , Isaacs J. spoke of the general understanding of the words "public education" in the context of s. 8 (5) as having the sense of "imparting knowledge or assisting and guiding the development of body or mind" ; and Starke J. said that "the essential idea of education is training or teaching" . The conception is unquestionably much wider than mere book-learning, and wider than any category of subjects which might be thought to comprise general education as distinguished from education in specialized subjects concerned primarily with particular occupations.”

25 The Respondent in its written submissions contended that having regard to its written objects the Applicant is merely a sports body and that encouragement or promotion of a sport is not a charitable purpose. The Respondent cited in this context in re Nottage and Strathalbyn (for full references see below).

26 In its Outline of Submissions the Applicant contended in clauses 47 to 54 that in re Nottage is distinguishable; those clauses are included in these reasons as follows:

47. The Commissioner’s primary contention, so it seems, is that, based on the stated objects in clause 2 of the constitution, the Applicant “ is plainly a sports body. Encouragement or promotion of the sport of yachting is not a charitable purpose: In re Nottage; Jones v Palmer [1895] 2 Ch. 649. See too Strathalbyn Show Jumping Club Inc v Mayes (2001) 79 SASR 54 ”

48. A careful analysis of In re Nottage, and the subsequent authorities, discloses that it is not necessarily authority for the all encompassing propositions that the Commissioner asserts.

Bleby J. in Strathalbyn, after discussing In re Nottage and McMullen concluded that their Lordships reinforced:

“ earlier decisions that the mere playing of games or enjoyment of amusement or competition was not per se charitable, nor necessarily educational ” ( Emphasis added)
49. To adopt the words of the High Court in another context “the emphasis is on the adjective ‘mere’”. (F.C. of T v The Myer Emporium Ltd 87 ATC 4363 at 4368).

50. The emphasis on the adjective "mere" is repeated by Dal Pont Charity Law in Australia and New Zealand at page 194 where the learned author says "at general law mere sport is not a charitable purpose" (emphasis in original).

51. Ford and Lee, Principles of the Law of Trusts, second edition, at paragraph [1947] are trenchant in their criticism of re Nottage. The learned authors said as follows:

"Nevertheless it is respectfully submitted that it is to be regretted that the High Court of Australia in Chester's (1974) 3 ALR 486 saw fit to follow so doggedly in the footsteps of re Nottage . The opinion in that case was uttered, nearly 100 years ago, in the context of a sport then reserved almost exclusively for the very rich; and it hardly reflects credibly on the law that such a decision should have been gradually broadened beyond its original context so as to govern the law of a country so ardently convinced of the public value of sport as Australia is. If the spiritual and moral well-being of the community at large is accepted as charitable, as it is in a wide variety of forms, its physical well-being should likewise, although no doubt one should stop short of extending the benefits of charity to sporting clubs which are substantially places of social resort. 'Perhaps the law is in need of reform' is, at present the only comment which the High Court of Australia has made".
52. The learned authors do accept, on the basis of re Nottage , that gifts for the encouragement of mere sport by itself, are not charitable.

53. As the decision in Lloyd (supra) shows, Navy League Scouts playing games and sailing simpliciter, is not charitable. But where that sailing occurs in the context of a wider matrix of circumstances and activities, that are beneficial and educational, the purpose of the institution may be charitable at law.

54. In re Nottage was, in fact, a case of a fund to pay for a mere sporting trophy. The testator bequeathed a fund to the Yacht Racing Association of Great Britain and directed that out of the income the trustee should purchase a cup (the “Nottage Cup”) to be given to the most successful yacht of a certain class for the season. The testator’s stated object in giving the cup was “to encourage the sport of yacht-racing”. The gift was held to be non-charitable. Lord Lindley said:

" It is a prize for a mere game .... Now, I should say that every healthy sport is good for the nation - cricket, football, fencing, yachting, or any other healthy exercise and recreation; but if it had been the idea of lawyers that a gift for the encouragement of such exercises is therefore charitable, we should have heard of it before now. … I deal with the present case on the broad ground that I am not aware of any authority pointing to the conclusion that a gift for the encouragement of a mere sport can be supported as charitable.” (Emphasis added)

27 I have cited the Applicant’s contentions in this regard in full for the sake of completeness; it is clear enough that to describe the Applicant’s activities as confined “merely” to the sport of yachting would be inapposite. The Applicant carried on, as I have said, a significant educational activity. The manner in which it was carried on was, having regard to the case law, sufficient. If having regard to Royal North Shore the Applicant must show that the relevant activity was educational and in addition that it contributed to the welfare of the public, both tests were satisfied.

Part D Patriotic purpose

28 It is in my view clear that the activities of the Applicant fall within the charitable head and so that it is unnecessary for me to consider its contention in the alternative that it falls with the patriotic head. I note however the concept is one which is vague and uncertain and probably by no means fixed in time. In Attorney-General v National Provincial and Union Bank of England [1924] AC 262, Viscount Cave said at page 265:

The expression 'patriotic purposes' is vague and uncertain. Whether a purpose is patriotic or not is a matter of opinion; it depends to a great extent upon the state of mind of the person who uses the expression. An object which appears to some persons to be patriotic may legitimately appear to others not to fall within that description; and there is no fixed rule by which a Court may determine whether a particular purpose is or is not patriotic. Further, it is not difficult to conceive purposes which to most persons would appear patriotic, but which are clearly not charitable within the legal meaning of that term.

29 The Respondent contends that the Applicant cannot qualify under section 10 (1) (j) of the Act because its objects as set out in its constitution are not wide enough to encompass its training or educational activities. The Respondent contends in particular that it is important to distinguish between the objects and the activities of an entity and in particular on the basis that the activities are the means by which the objects are implemented. The Respondent further contends that this distinction arises from the wording of the Act and cited in support in particular the judgments in McGarvie Smith and Pro-Campo (for full references see below). I refer in this context to clauses 3 to 6 of the Respondent’s Further Outline of Submissions dated 16 March 2005 reading as follows:

3. The activity (or activities) carried on by an entity such as the Applicant are means by which its objects are pursued, implemented or achieved. This distinction between objects and activities is recognized by s.10 of the Pay-roll Tax Act 1971 (the “Act”). Para 10(1) (j) refers to objects comprising, inter alia, a charitable purpose , whilst subs 10(2), in relation thereto, refers to employees being engaged in charitable work – which may comprise an activity or activities. If one of the objects of the entity is a charitable purpose then, subject to subs 10(2), wages paid or payable are not liable to tax - s.10(2) limits the exemption relief to wages paid or payable to employees in respect of time when they are engaged in charitable work . The exemption does not apply if employees qua employees are engaged in some charitable work unless one of the objects of the employer is a charitable purpose: see Pro-Campo Ltd v CLT (NSW) (1981) 81 ATC 4270 at 4273 (para 4 infra ).

4. There is no evidence or contention which denies that the matters stated by Rule 2 of the Constitution as the objects of the Applicant, are its objects. It must be the case that the objects of a constituted non-profit organisation are to be found in the provision which defines them: McGarvie Smith Institute v Campbelltown MC (1965) 83 WN Pt 1(NSW) 191 at 196. Lee J in Pro-Campo 81 ATC at 4272 reviewed the activities of the company; but to determine whether it was a charitable institution, turned to the objects as set out in the memorandum. His Honour said (81 ATC at 4273)-

“Nor does [the company] qualify as a charitable institution from the fact that it happens that in the relevant years it has conducted youth camps with an emphasis on religious purposes. Its objects define its purposes and, as I have pointed out, those objects are not exclusively charitable”.
5. Regard may be had to the actual activity or activities in order to determine the nature or character of a given entity where its nature or character is not clear from the objects as stated ( Royal Australasian College of Surgeons v C of T (1943) 68 CLR 436 at 448 per Starke J). Contrary to what, so it seems, is being put in para 10 of AppSubs2, the publication activity in Incorporated Council of Law Reporting (Queensland) v Federal Commissioner of Taxation (1971) 125 CLR 659 in fact fell within its stated objects. Windeyer J said (125 CLR at 671-672)-
“the educational aspects of [the Council’s] objects tell in favour of its being a charitable institution… The main object which the Council exists to carry into effect is the publication of law reports… Their publication has always been for the public benefit; but in times past it was not a charitable undertaking because it was done for private profit. The purpose that the Council serves is a purpose of public utility, the advancement of legal learning by publishing reports. Profits it thereby gains are devoted to the further advancement of legal learning. This combination of objects and purposes suffices to make it a charitable institution.”
See too Scottish Burial Reform & Cremation Society v Glasgow City Corp [1968] AC 138 at 153E and 154C-D per Lord Wilberforce to the same effect.

6. The relevant statutory provision in Incorporated Council of Law Reporting (Queensland) was one which exempted from income tax income of “a … charitable or public educational institution”. (The same provision was in issue in Taxpayers’ Association of New South Wales v Federal Commissioner of Taxation 2001 ATC 2096; [2001] AATA 278.) Whereas in the present case the test imposed by the Act is whether the Applicant is a non-profit entity “having as one of its objects a charitable …or patriotic purpose” (emphasis added).

30 Put succinctly the Respondent contends that resort can be had to the actual activities of the Applicant only where the nature or character of an entity is not clear from its objects. But where there is no such lack of clarity, regard can be had, for the purposes of section 10 (1) (j) only to the objects stated in the constitution and in the absence of an appropriate object the Applicant must, so the Respondent contends, must fail. The Respondent contends that the relevant object must be found in the written constitution and nowhere else. Or put in other words if the object in question is not in writing in the constitution it is not an object for the purposes of section 10 (1) (j) of the Act.

31 The Applicant contends that neither of the cases goes as far as the Respondent contends. The Applicant submits that according to the Respondent “it must be the case that the objects of a constituted non-profit organisation are to be found in the provision which defines them” (emphasis added). Neither of the references cited by the Commissioner actually say that. In McGarvie-Smith Else-Mitchell J said:

“This contention misconceives the objects of the “charity” if the Institute is to be so called, because the objects are to be found in s. 5(a) and (b) of the Act which defines what the Institute is authorised to do.”
The Applicant contends further that “Nowhere in the cited references does the imperative “ must ” appear or that the objects are only in the written constitution” and that the Respondent in effect is seeking to rewrite section 10(1) (j) of the Act as if it read:
“(1) Subject to subsections (1A) and (2), the wages liable to payroll tax under this Act do not include wages paid or payable:

...

by a non-profit organisation (other than a school or college, statutory body or an instrumentality of the State) having as one of its objects [written down specifically in its constitution] a charitable, benevolent, philanthropic or patriotic purpose,”

32 And in relation to Pro-Campo the Applicant contends: “According to the Commissioner, if it is not written in the Constitution, then it is not an “object” within section 10(1) (j). The Commissioner asserts this approach is supported by the decision in Pro-Campo Ltd v Commissioner of Land Tax 81 ATC 4270 at 4274. A careful study of the reasons of Lee J. in Pro-Campo does not reveal any such limitation or restriction. All that his Honour says is:

“Let me now turn to the objects of the company as set out in the memorandum in order to determine whether those objects can be regarded as charitable.”

33 Pro-Campo was concerned with a different statute (the Land Tax Management Act) and where the court held that that the taxpayer was not a charitable institution because its objects were not exclusively charitable. The Act is cast in different terms in that it clearly contemplates the application of the exemption where some only of the activities may be charitable. And McGarvie Smith (which was also concerned with different legislation) was decided on the basis that the relevant objects were not exclusively charitable.

34 The Tribunal agrees with the Applicant’s contention that the clear intent of sections 10 (1) (j) and 10 (2) is not to raise revenue but rather to grant relief from payroll tax for wages paid in respect of charitable activities. An exemption provision such as this should not be construed narrowly (Penrith Rugby Leagues Club v Commissioner of Land Tax 83 ATC 4709 at 4714) but rather it should be construed benevolently (Kidston Goldmines Ltd v F.C of T (1990) 30 FCR 77 at 79). The legislative purpose was to provide an exemption to an organisation carrying on a charitable activity. To construe the legislation in the manner contended for by the Respondent would as the Applicant contends, be “the narrowest and most pedantic.” (Penrith supra at 4714).

35 The construction for which the Applicant contends clearly accords with the legislative purpose, and which was to exempt wages insofar as they were incurred by a non-profit organisation in carrying on charitable activities. There is in my view no reason why the objects of the relevant entity should be confined to those actually written; they could indeed extend to unwritten objects clearly established... While the word “objects” in relation to an entity can relate to its objects as stated in its memorandum or constitution, it can also mean the its unwritten goal or purpose. In that sense it means “the end towards which effort is directed” (Macquarie Dictionary 3rd Edition page 1485.)

36 The Tribunal considers that regard can and should be had to the actual activities of the Applicant during the relevant period; the Tribunal finds that during the relevant period the Applicant did carry on an activity which was educational and beneficial within Pemsel and that that activity was significant.

37 Put in summary form the Applicant did not during the relevant period carry on a mere sporting activity. It engaged in training which was both educational (and charitable within Pemsel) and beneficial to the community. A narrow interpretation of the term “objects” in section 10 (1) (j) of the Act should be rejected and the wider interpretation for which the Applicant contends should in these circumstances be accepted. Accordingly the decision under review is set aside. The Applicant is entitled to an exemption for the relevant period to the extent allowed by section 10 (2) of the Act, to be established by an appropriate apportionment.