26 Jun 2014

"Direct provision of relief" not a criterion for public benevolent institutions in tax law

by Mark Friezer, Louisa Wu

A "public benevolent institution" is not required to provide direct relief from poverty or distress – raising funds for the use of associated entities in their relief programs may be enough.

Three justices of the Full Federal Court of Australia have held that the ordinary contemporary meaning of a public benevolent institution is broad enough to encompass an institution that does not itself directly give or provide relief, but does so via related or associated entities (Commissioner of Taxation v The Hunger Project Australia [2014] FCAFC 69; Clayton Utz acted for The Hunger Project at first instance and on appeal).

This is an important question for not-for-profit organisations, as public benevolent institutions may be entitled to be endorsed as a Deductible Gift recipient, and can gain an exemption from fringe benefits tax (Fringe Benefits Tax Assessment Act 1986 (Cth), section 57A(1))

To date, the position of the Australian Taxation Office has been that an entity cannot be a public benevolent institution unless it is involved in the direct provision of relief for those in need. At first instance, the Federal Court held that there was no such requirement. The Commissioner then appealed to the Full Federal Court.

The importance of this issue can be seen from the fact that the ATO agreed to fund both the appeal and the initial litigation under the ATO's test case funding program.

The Hunger Project Australia

The Hunger Project Australia is a charity and not-for-profit company which is part of a global network of entities operating under "The Hunger Project" banner.

The Hunger Project is dedicated to the sustainable end to world hunger. As a Hunger Project entity in the developed world, The Hunger Project Australia's main activity is the raising of money for use by The Hunger Project associates operating on the ground in the developing world. These entities run programs designed to relieve systemic hunger and poverty, and foster the beginnings of self-reliance, gender equality and participatory local governance.

Another win for The Hunger Project Australia

The Commissioner argued essentially the same case as he did at first instance.

Once again, the Full Federal Court rejected all attempts by the Commissioner to confine the expression into a non-existent "single or irrefutable test or definition". Instead, the Full Federal Court held that public benevolent institution takes its ordinary meaning, and there is no authority to support the proposition that a public benevolent institution must directly dispense aid.

Moreover, since the question as to whether a particular institution is a public benevolent institution depends on the common or ordinary understanding of the expression at a relevant time, that common understanding or usage may expand or change over time, to encompass organisations that may be structured in ways that separate fund raising entities from entities that dispense relief or aid using those funds. The meaning of that term does not remain frozen in time.

Implications of the Full Federal Court decision

The undivided opinion of the Full Federal Court has reaffirmed the law as stated by the primary judge at first instance. The Full Federal Court has clearly acknowledged the complex practical realities faced by modern-day charitable organisations in seeking to achieve global outcomes. The decision recognises the legitimacy of contemporary methods of delivering aid in a globalised world.

With this decision, more charitable entities that primarily fundraise for the relief of poverty, sickness, destitution and helplessness may be entitled to obtain endorsement as a Deductible Gift Recipient, or gain access to an exemption from fringe benefits tax.

The Commissioner has until 11 July 2014 to apply for special leave to appeal to the High Court.

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