Boating Industries Association of New South Wales v. Federal Commissioner of Taxation.
Judges:Lusher J
Court:
Supreme Court of New South Wales
Lusher J.
This appeal relates to the income tax return for the year ended 30 September 1977 of the Boating Industries Association of New South Wales (called the association) in respect of which further material was furnished by letter of 14 August 1979 upon request from the Commissioner. The assessment of tax on income received is dated 27 February 1979 and is based upon income derived during the relevant year. A Notice of Objection to the assessment, dated 27 April 1979, was lodged by the association claiming in substance that the whole of the income of the association is not assessable income within sec. 25 of the Income Tax Assessment Act 1936, as amended, or any other section but is exempt income within sec. 23(h), further that the association is not carried on for the purpose of profit or gain to the individual members thereof and that the association is established for the purpose of promoting the development of manufacturing resources of Australia. An alternative to include industrial resources was included. By letter dated 5 July 1979 the Commissioner gave notice of the disallowance of the objections. On 19 July 1979 the association by its solicitors requested that the objection be treated as an appeal and that the same be forwarded to this Court. Five years later the matter reached this Court from the Commissioner where it was received into this Division and numbered 794 of 1984. It first came before Lee J. on 16 October 1984 for mention. No explanation for the length of the delay in this appeal reaching this Court has been mentioned or offered to the Court and other than make reference to the fact, I say no more of it.
Section 23 of the Act provides that the following income shall be exempt from income tax:
``(h) the income of a society or association not carried on for the purposes of profit or gain to the individual members thereof, established for the purpose of promoting the development of aviation or of the agricultural, pastoral, horticultural, viticultural, manufacturing or industrial resources of Australia.''
The conduct of the case and the submissions of the parties are such that the substantial question for determination is whether the association has established that the income in question is exempt income within the subsection in that it is income of an association established for the purpose of promoting the development of either manufacturing or industrial resources of Australia. So far as the evidence is concerned, I am satisfied that the association was not carried on for the purpose of profit or gain to the individual members. The evidence clearly supports this finding and was not subject to any real challenge. Likewise, no case was presented with any reliance on industrial resources.
The association is a company limited by guarantee, the Memorandum and Articles provide for objects as set out in para. 2 thereto. The commencing words of the paragraph are that:
``The objects for which the association is established are:''
Then follows a number of paragraphs. Paragraph (a) is stated to be ``The promotion of interest in safe boating''.
Then follows:
- (b) The organisation and staging of exhibitions, demonstrations, field days, lectures, and the like, devoted to the extension of public interest in marine activities.
- (c) To co-operate with any other organisation and/or legislative body for the
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purpose of providing extended boating facilities. - (d) To recognise that association members are in a position of trust to supply accurate, truthful and considered expert advice to the boating public and to pursue an active policy of education for boat owners, stressing safety and their obligation to other boat users.
- (e) To require adoption of a policy of accuracy in advertising by association members.
- (f) To promote the adoption amongst the trade members of the association of orderly marketing methods on proprietary lines and ethical practices in sales and services of marine and associated equipment.
- (g) To actively assist the establishment of similar associations in the other States of the Commonwealth with parallel objectives with the formation of a Commonwealth body as a future aim.
Paragraphs (h) to (j) are incidental to the above objects. Thereafter, the objects which are set out are those which might be expected in the furtherance of the objects of such a body.
The provisions of the Articles as to membership as originally drawn provided for four types of membership in para. 3 of the Articles.
Paragraph 3(a) is as follows:
- Metropolitan membership which shall be confined to bona fide manufacturers, wholesalers and retailers of marine craft, motors, trailers and equipment and firms and individuals who subscribe to and adopt the objects of the association.
Paragraph 3(b) provided for country membership for similar persons whose place of business is outside the metropolitan area.
Paragraph 3(c) provided for affiliation membership to boating, fishing, sailing, life-saving, skin-diving and water-skiing bodies with aims and objectives compatible with the interests of the association and para. 3(d) deals with honorary membership.
The original membership provisions above mentioned were amended on 2 June 1976 by the deletion of the above para. 3 and the insertion of a new para. 3. Subparagraphs (a) and (b) are respectively in the following terms:
- (a) Ordinary membership class A, which shall be confined to bona fide manufactures, wholesalers and distributors of marine craft, motors, trailers and equipment and such other firms and individuals carrying on business associated with the boating industry whom the committee shall admit to membership.
- (b) Ordinary members class B, which shall be confined to metropolitan retailers of marine craft, motors, trailers and equipment and such other firms and individuals carrying on business associated with the boating industry whom the committee shall admit to membership.
Subparagraphs (c), (d) and (e) are in similar terms to the original paragraphs under those letters.
The case made for the association is set out in the affidavit of Mr Greaves who has held office as the President and a Director from October 1970 to October 1976 and from October 1979 to the present. His evidence is that the present membership comprises 371 members engaged in the following classes of activities:
Manufacturing 123
Retailing 107
Marinas and boatsheds 46
Importing 33
Services 40
Associations 22
In the year ended 30 September 1977 the membership was 295 and the proportions as to classes were relatively the same as at present.
Mr Greaves says that the principal activity is to promote the growth of the boating industry in Australia and more particularly within New South Wales. He further says that the activities are directly and indirectly concerned with the development of the manufacturing, distribution and marketing of recreational boats, equipment and related services. In this respect, the association was represented at an inquiry conducted by the Industries Assistance Reports on ``Ships, boats and other vessels not exceeding 6,000 tonnes gross registered''. He says that so as to promote the growth of the manufacturing and marketing of recreational boats, equipment and related services, the association since it was formed has carried out a number of activities, such as the organisation and running of the annual Sydney International
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Boat Show, similarly with regional boat shows within New South Wales, negotiations with government on legislation affecting the boating industry, negotiations with suppliers of raw material for the establishment of quality control standards and in particular to resin uses in the manufacture of fibreglass boats, the promotion of safe boating, negotiations with State Government departments, instrumentalities and councils on development of marinas and mooring facilities, preparation of submissions and development of standards of performance and construction in the design and manufacture of recreational boats and the collection and dissemination of statistical information relating to such boats.In evidence before me he said that the association promoted the activities of safe boating by the attention to standards of manufacture, the promotion and the sale of the manufactured products at the boat shows and general monitoring of the manufacturing industry to ensure standards are maintained that ensure safe boating. The association led in the formation of an Australian boat certification program through the Australian Standards Association for life-saving equipment and resin materials. The aim of the Show is to exhibit manufacturers' products, to encourage business acceptance of the same and to disseminate the need for safe boating. He said that importer members import generally equipment that fitted to boats or was used in their manufacture such as basic raw materials and include importers of boats manufactured outside Australia and that five per cent of the total boats available would be imported. The service members are engaged in the care and maintenance of boats after sale and marinas and boat sheds are those who have such facilities for the maintenance of boats used on waterways.
In answer to a question:
``Q. Do you say it was the principal activity of the association during the year ended September, 1977 to promote the manufacture of boats in Australia? A. The principal activity was the promotion of safe boating.''
A few questions later he said:
``A. Our activities are to promote the boating industry in Australia, particularly New South Wales.
- Q. But not specifically Australian manufactured boats? A. No.''
Later:
``Q. In what way is it directly concerned in manufacturing of boats? A. By the monitoring of the standards referred to in the certification standards manual...''
In answer to a further question as to the relevance of the certificate he said:
``It applies to boats being manufactured in Australia, boats manufactured outside Australia - as yet again, if they did not subscribe to all those specifications can't be certified and are sold as uncertified.''
He said that at the Industries Assistance Commission hearing the association had dual representation in that the association was representing both manufacturers and importers. He agreed there was no specific object in the Memorandum of Association that one of the objects was to promote Australian made goods, although he did say it was an object of the association wherever possible to promote local products. He said that some manufacturers also had retail divisions selling directly to the public. A major part of the Show was said to promote the sale of particular products irrespective of where they were manufactured.
Mr Greaves impressed me as a witness. I have no hesitation in accepting him completely as a witness. The question remains as to the interpretation to be given to it, together with the documents tendered by way of exhibits, including the Standards and Certification Manual which, as I see it, is a document directed towards the maintenance of good safety standards (see p. 3). The association, as in the case of other State organisations, has as member organisations or individuals covering all aspects of the recreational boating industry, including manufacturers, importers and marketers of boats, motors, accessories and supplies (see p. 4), where the application of the standards are said to refer to safety criteria.
The submission to the Industries Assistance Commission deals considerably with the construction of boats (ch. III) although the introduction (ch. II) states the association serves the interest of firms in all facets of the boating industry, namely, manufacturers, importers, distributors, retailers, etc. It continues:
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``This submission relates to the activities of the... association and specifically to the 38 member firms of it engaged in the manufacture of boats, other than inflatable up to 45 feet in length...''
In ch. VI dealing with competition in the market under the subheading ``Imports'', it states that ``Boat manufacturers hold a common view, however, that the real pressure from imports is only just building up. Imports could quickly gain the dominant share of the domestic market unless adequate safeguards are provided''. In justification for assistance sought (ch. IX) it is stated that the industry is a ``natural'' industry for this country and Australians have developed particular skills in boat building and other matters which are developments of their local industry manufacture.
The submission of the association as to sec. 23(h) is that it is not the form but the substance of what are the activities of the association that are critical. It is argued and accepted that although the basic fundamental objective or purpose is safe boating, safe boating in turn leads to sales which in turn require standards, particularly in manufacture so that there is a nexus between safe boating and sales through to manufacture so that in substance, the requirement of the section for promoting the development and manufacturing resources of Australia is obtained.
This approach rather ignores the basic requirement of the section that its application is to associations established for the purpose set out in the section. The section itself gives a criterion, namely, the establishment for the purpose stated. The requirement is ``established'' not ``involved''. The submission tends to concentrate on the result or effect of the activities (or some of them) of the association as having the promotional development results rather than to look at the purpose of the establishment of the body. It does not follow that a body whose activities or involvement have the effect or result of promoting the development of manufacturing resources of Australia, who otherwise are within the section as to the disposition of income, is necessarily established for that purpose. They could be established for another purpose altogether but still have the result mentioned.
Early decisions on the English legislation indicate that the income shall be, if not exclusively, in the main and as its chief object, devoted to the promotion of the interests mentioned in the particular statute and that societies whose funds are expended mainly on other objects and only promote indirectly the purposes enumerated are not within the protection of the legislation. (
Society of Writers to the Signet v. I.R. Commrs 14 Courts Sess. Cas. 4th series 34;
I.R. Commrs v. Forrest (1890) 15 A.C. 334 at p. 349; and see also
Australian Dental Association (N.S.W. Branch) v. F.C. of T. (1934) 3 A.T.D. 114 at p. 116.)
In
Australian Insurance Association v. F.C. of T. 79 ATC 4569 the association failed to bring itself within the terms of sec. 23(h) on the substantial ground that the promotion of the protection and furtherance of the business of Australian Insurance Companies, although being a resource, was not an ``industrial'' resource. In the course of his judgment, Sheppard J. said that the above was one of the purposes and there was another more substantial purpose and accepted the submission that the purpose must be the principal or dominant purpose for which the association was established.
In
I.R. Commrs v. Aberdeen Medico-Chirurgical Society (1931) 16 Tax Cas. 237 at p. 249 it was said by the Lord President that the question must always be what is the true nature and objects and activities and if they are of a mixed character the question must be decided according to the prevalent or main character. This was accepted by Latham C.J. in
Royal Australasian College of Surgeons v. F.C. of T. ((1943) 68 C.L.R. 436) at p. 444. Starke J. at p. 448 referred to main and dominant. See also Williams J. at p. 451. This was in relation to a similar subparagraph, 23(e).
Section 117 of the Act refers to companies established for the purpose of carrying on any business having for its primary object or objects certain matters. In the High Court in
A. & S. Ruffy Pty. Ltd. v. F.C. of T. 98 C.L.R. 637 the majority was disposed to reject the idea that one should look at all events exclusively or even initially at objects in the memorandum (p. 649) and Fullagar J. at p. 652 said one must look at the memorandum but this cannot be conclusive either way but in addition there is also to be looked at the activities and the history and control.
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Reference was also made to
The Queen v. Federal Court of Australia; Ex parte W.A. National Football League (1978-1979) 143 C.L.R. 190 at p. 208 where the Chief Justice Sir Garfield Barwick in relation to a ``trading company'' said that the nature of a company may not be discernible from its memorandum and the only sure guide to its nature is a purview of its current activites a judgment being formed then of all those activities.
Nadir Pty. Ltd. v. F.C. of T. 73 ATC 4074, was also cited, particularly the latter where there was reference to the objective nature of the inquiry.
Accepting the aforesaid principles, the question is largely one of fact and degree.
I turn now to the material. The objects, although not necessarily determinant or conclusive, say nothing concerning manufacturing or the promotion of the development of manufacturing resources of Australia, rather to the extent that promotion is mentioned, it is in the first object (a), namely, the promotion of interest in safe boating. Mr Greaves' evidence was that the association's principal activity was safe boating and not the promotion of Australian manufactured boats. In my opinion, this is the crux of the matter and I so find on the whole of the material that the association was not established for the purpose of promoting the development of manufacturing resources of Australia. Membership was not limited to manufacturers or even to Australian manufacturers, but extended to those with other interests in the boating industry, including importers, not only of boats, but of manufactured gear and accessories for use with boats. If the purpose was as the subsection requires, it might well be expected that importers of foreign manufactured boats and supplies would not have been eligible. I find that the activities directed towards standards were not concerned so much with manufacturing as with the safety of boats. The exhibitions and shows which were staged were directed, as I find, substantially towards promotion of sales of boats rather than the manufacture other than in a remote and indirect result of such sales. Mr Greaves accepted that the major activity of the association Boat Show was for the purpose of providing a major sales venue of members' products wherever manufactured. Similarly, there were activities and aspects of sales education and promotion.
The order of the Court will be that the appeal is dismissed. The association appellant is ordered to pay the Commissioner respondent's costs of the appeal. The exhibits may be returned.
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