The danger of making a rule from an exception
We look at a submission in response to the currently proposed Public Benefit Test for Charities.
Tax Laws Amendment (Public Benefit Test) Bill 2010 (the “Bill”)
This submission is in response to the Bill proposed by Senator Nick Xenophon.
As lawyers making this submission, we give operational advise to not for profit and charitable bodies on a daily basis. This includes whether they are considered charities, in the Australian legal system.
Stated Purpose of the Bill
The Explanatory Memorandum of the Bill states its purpose as follows:
“The purpose of this Bill is to insert a public benefit test into the Income Tax Assessment Act 1997 which will require religious and charitable institutions seeking tax exemption to demonstrate public benefit through its aims and activities.
This Bill follows allegations from former members of the Church of Scientology about some of the following issues:
- coerced abortions,
- false imprisonment,
- breaches of Occupational Health and Safety laws,
- harassment and extortion, to name but a few
In considering this, the tax exempt status of the Church of Scientology should be subject to a Public Benefit Test as to whether or not it is appropriate that it is afforded taxpayer support.
Similarly, any and all organizations which receive tax exempt status should be subject to this test.”
An exception not a rule
We submit that – a rule for all should never be made out of an exception of one. The exception should be dealt with, yes, but as an exception.
The meaning of charity in Australia
The meaning of Charity in Australia has consistently been affirmed by our courts as deriving from the Statute of Elizabeth[i] and the decision of the Privy Council in Commissioners for Special Purposes of the Income Tax v Pemsel [ii]. The majority of the High Court affirmed this in 2008 in Commissioner of Taxation of the Commonwealth of Australia v Word Investments Ltd.[iii]
Pemsel’s case and Word Investments are authority for the summary proposition that –
A public not for profit body will be charitable in Australia if its main purpose and activities are for:
- the relief of poverty;
- the advancement of education;
- the advancement of religion; or
- other purposes beneficial to the community.
The current meaning of charity in Australia has been consistently applied and clarified through the courts. It has been robustly tested often in response to unique and exceptional circumstances and remains in place.
In situations where settled judicial authority is to be disturbed, legislative intervention of general application should only be after a broad range of consideration and debate. It will be considered inappropriate to have a response time of just over one month for submissions, with proposed application less than two months later.
“Public benefit” is already required
We submit that the requirement for a body to be for the public benefit is already a well settled implied part of the meaning of charity.
The Bill suggests that the relief of poverty, the advancement of religion or the advancement of education can no longer be assumed to be for the public benefit. This is a major philosophical change from pillars of public understanding that have long existed in Australia. Again, if this is to be disturbed a broad ranging considered public debate must be had.
The meaning of relief of poverty, the advancement of religion or the advancement of education have also been considered and determined by the courts over the years and those decisions mean that not every organisation that says it exists for those purposes will ultimately be considered to be so.
Existing facility to remove charitable endorsement
Endorsement as a Tax Concession Charity under the Income Tax Assessment Act 1997 is at the discretion of the ATO and it has the power to review or audit endorsements at any time. It is already engaged in an active program of such reviews.
Endorsement as a charity requires that both the main purposes and activities of the organisation are charitable.
If there are significant detrimental activities that take place, the endorsement may be revoked based on the activities test. If disputed in court, it would be up to the court to robustly examine the purposes and activities of the organisation to determine whether they are charitable.
In making this decision, The ATO, Tribunals and Courts would take into account considerations of public policy.
Broader implications need to be considered
It seems that the broader implications for the charitable sector have not been considered. In the short term, it would be costly for many governed charities who have limited resources to pay for professional advice on the implications of such a change on their organization. However, this should not be underestimated.
In this situation, urgent broad-brush changes often prove to be very expensive in the fixes required later.
Key legislative meaning should not be delegated to regulation
Finally, we submit that if a legislative test for public benefit is to be adopted then the test should be set out in the legislation and not delegated to the regulation maker – the Treasury Department. The reason for this is that it would not be subjected the same robust debate as that which occurs in our houses of parliament.
Graham Corney, Andrew Lind and Alistair Macpherson
https://www.corneyandlind.com.au | 27 May 2010
[iii]  HCA 55 at para. 78