Decision impact statement

Aid/Watch Incorporated v Commissioner of Taxation

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Court Citation(s):
[2010] HCA 42
2010 ATC 20-227
77 ATR 195

Venue: High Court
Venue Reference No: S82 of 2010
Judge Name: French CJ, Gummow, Hayne, Heydon, Crennan, Kiefel and Bell JJ
Judgment date: 1 December 2010
Appeals on foot: No
Decision Outcome: Adverse

Impacted Advice

Relevant Rulings/Determinations:

• TR 2005/21

Précis

The case concerned whether the so-called "political activities" principle, having its origins in UK law from 1917, had the result that Aid/Watch should not be endorsed as a charitable institution under s 50-5, Item 1.1 of the ITAA 1997.

Brief summary of facts

Effective from July 2001, Aid/Watch was endorsed as a charitable institution under Item 1.1 of the Table in s 50-5 of the Income Tax Assessment Act 1997 (ITAA 1997). However, after a review by the ATO, Aid/Watch's endorsement was revoked in October 2006. After its objection to this revocation was disallowed, Aid/Watch sought a review in the AAT.

The key facts ultimately relied on by the High Court are set out at paragraphs 5 and 6 of the majority judgment of the court where reference was made to the Full Federal Court's findings. It was accepted that Aid/Watch was an organisation concerned with promoting the effectiveness of Australian and multinational aid provided in foreign countries by means which include investment programs, projects and policies. The High Court included the following extracts from the Full Federal Court judgment:

"[Aid/Watch] researches 'generally in partnership with people that are recipients of the aid and non-government organisations'; it brings the issues it identifies to light by publicly releasing the reports that are the result of its research; and it campaigns for changes to the ways in which aid is delivered through media releases and public events designed to influence relevant agencies to alter the way aid programs are administered."

"This concern [of Aid/Watch] with the effectiveness of aid delivery is clearly aimed at the relief of poverty. Its premise is that if too little aid is delivered, if aid is delivered to the wrong areas, or if aid is of a particularly low quality it will be ineffective, or at least less efficient, at achieving its goal: namely, the relief of poverty. By promoting the effectiveness of foreign aid, Aid/Watch clearly seeks to promote more efficient use of resources directed to the relief of poverty. Indeed, it may be said that the focus on ensuring that aid is environmentally sustainable is also directed towards the relief of poverty. Where aid is delivered in an unsustainable way it may destroy ecosystems upon which communities rely in order to prosper."

The AAT (Downes J, President) decided [2008] AATA 652 that Aid/Watch fell within the concept of charitable purposes described in Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531, in that it was a body established for the relief of poverty and also for the advancement of education.

He held that as Aid/Watch's activities were not political, it was not disqualified from charitable status.

The ATO appealed to the Full Federal Court. The Court (Kenny, Stone and Perram JJ) held [2009] FCAFC 128 that the concern of and attempts by Aid/Watch to promote the effectiveness of aid delivery was clearly aimed at the relief of poverty. Further, the Court was of the view that the publication of the results of Aid/Watch's research concerning aid delivery also fell within the charitable notion of the advancement of education.

However, all three judges of the Court held that Aid/Watch's purpose was to engage in political activities, and so, it should be disqualified from having charitable status.

Following the decision of the Full Federal Court, Aid/Watch was successful in seeking special leave to appeal to the High Court of Australia.

Issues decided by the court

The majority of the High Court, French CJ, Gummow, Hayne, Crennan and Bell JJ, in a joint judgment, found in favour of Aid/Watch. Heydon and Kiefel JJ published separate dissenting reasons for judgment.

The majority set out in paragraphs 5 and 6 of its judgment the facts upon which it would seem its decision was based. Specific reference was made to factual considerations taken into account by the Full Federal Court. They were that Aid/Watch was concerned with promoting the effectiveness of Australian and multinational aid provided in foreign countries by means of improved investment programs, projects and policies.

The court was of the view that the origin of the apparent "political activities" disqualification notion (i.e., Bowman v Secular Society Ltd [1917] AC 406) was decided in a context which did not take account of the Australian Constitution, and the inherent right of constituents for agitation and communication about matters affecting government, politics and policies.

The court decided that in Australia, there is no general doctrine which excludes from charitable purposes "political objects".

The court held that the concern of and attempts by Aid/Watch to promote the effectiveness of aid delivery was clearly aimed at the relief of poverty and that the promotion and generation by lawful means of public debate about matters affecting the better use of and delivery of Australian aid was a matter falling within the fourth Pemsel head, i.e., purposes beneficial to the community.

Tax Office view of Decision

The High Court decided, based on the facts set out in paragraphs 5 and 6 of the majority judgment, that the generation by lawful means of public debate (emphasis added) concerning the efficiency of foreign aid directed to the relief of poverty falls within the fourth head of the Pemsel charitable purposes, that is, the body's activities fall within that category in that it contributes to purposes beneficial to the community.

The Court refrained from going further, in that it specifically left aside the question of the generation of debate about the activities of government falling outside the four Pemsel charitable heads. At present, it is therefore the ATO's view that the generation of public debate about subject matters not falling within the four charitable heads does not fall within the ratio of the majority's decision and reasoning. The ATO recognises however the range of subject matters coming within the fourth Pemsel head can be wide and varied.

The majority's conclusion must be read together with the facts identified in paragraphs 5 to 6 of the reasons for judgment. Those findings were premised on the fact that Aid/Watch's concerns were with the more effective delivery of aid and therefore the relief of poverty. The ATO takes the view that an entity does not necessarily need to present a merely neutral view for the purposes of generating public debate; it may present a particular point of view, for example as was the case in Aid/Watch, where Aid/Watch promulgated a position which it considered to be the most effective manner about the delivery of aid in the relief of poverty.

The majority did not go so far as to say or decide that generating public debate about any or every government activity or policy, or the absence of a policy on a particular subject matter, would fall within the fourth Pemsel head: see paragraph 48 of the reasons for judgment of the majority. Therefore, whether the generation of public debate about a particular government activity or policy that lies beyond existing heads of charity can be a charitable purpose will be a matter to be considered on a case by case basis.

The Full Federal Court held that Aid/Watch was a charitable body within Item 1.1 of s 50-5, ITAA 1997 in that it was a body whose purpose was for the relief of poverty, or in the alternative, for the advancement of education.

The majority in the High Court, in finding in favour of Aid/Watch on the basis that it fell within the fourth Pemsel head, a body having purposes beneficial to the community, did not deal with the correctness or otherwise of the Full Federal Court's findings described above.

The reasoning of Heydon and Kiefel JJ in separate dissenting judgements went into some detail in analysing whether Aid/Watch fell within any of the charitable heads of relief of poverty, the advancement of education, or purposes beneficial to the community. For slightly differing reasons, both their Honours held that Aid/Watch met none of the relevant tests to qualify under any of these three heads. Kiefel J went further, and agreed with the Full Federal Court that in any event, Aid/Watch would have been disqualified by the political purposes principle.

Administrative Treatment

Implications on current Public Rulings & Determinations

Following the decision of the High Court, TR 2005/21 was withdrawn, and replaced by TR 2011/4 on 12 October 2011. This ruling considers the meaning of 'charitable' in light of more recent cases, including Aid/Watch, where the Courts have refined the factors previously thought to impose restrictions on entities claiming charitable status under the tax laws.

Amendment history

Legislative References:
Income Tax Assessment Act 1997
50-5, Item 1.1

Case References:
Bowman v Secular Society
[1917] AC 406

McGovern v Attorney General
[1982] Ch 321
[1981] 3 All ER 493

Royal North Shore Hospital of Sydney v Attorney General
60 CLR 396
[1938] HCA 39
[1938] ALR 434