FC of T v AID/WATCH INCORPORATED

Judges:
Kenny J
Stone J
Perram J

Court:
Full Federal Court, Sydney

MEDIA NEUTRAL CITATION: [2009] FCAFC 128

Judgment date: 23 September 2009

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Kenny, Stone and Perram JJ

1. This is an appeal from the Administrative Appeals Tribunal. The issue in this appeal is the respondent's status as a charitable institution for the purposes of s 50-5 of the Income Tax Assessment Act 1997 (Cth) (ITA Act), s 123E of the Fringe Benefits Tax Assessment Act 1986 (Cth) (FBTA Act) and s 176-1 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act). It is common ground between the parties that the respondent is an organisation concerned with promoting the effectiveness of Australian and multinational aid including investment programs, projects and policies. In oral submissions in this appeal both parties accepted the findings of fact made by the Tribunal.

Background

2. The respondent is a non-governmental organisation incorporated on 26 May 1993 under the name Aid/Watch Incorporated (Aid/Watch). Effective from 14 July 2000 the respondent was endorsed as an entity exempt from income tax pursuant to s 50-105 of the ITA Act. Effective from 1 July 2005 the respondent was also endorsed as a charitable institution pursuant to s 123E(1) of the FBTA Act and s 176-1(1) of the GST Act.

3. On 5 August 2005 Aid/Watch received written notification from the Commissioner of Taxation that a review of its tax status had been initiated. The respondent was subsequently advised, on 2 October 2006, that its endorsements under s 50-105 of the ITA Act, s 123E of the FBTA Act and s 176-1 of the GST Act had been revoked, effective from 2 October 2006. On 1 December 2006 Aid/Watch lodged a taxation objection pursuant to Div 3 Pt IVC of the Taxation Administration Act 1953 (Cth) which was subsequently disallowed by the Commissioner on 6 March 2007.

4.

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On 8 May 2007, Aid/Watch applied to the Administrative Appeals Tribunal (AAT) for a review of the Commissioner's objection decision. On 28 July 2008 Justice Downes, President of the Tribunal, ruled in favour of Aid/Watch. In doing so, the Tribunal set aside the Commissioner's objection decision and substituted a decision upholding the objection and restoring the respondent's charitable status. It is with this decision that we are presently concerned.

The Tribunal's decision

5. The findings of the Tribunal relevant to this application concern the activities and purposes of Aid/Watch. The Tribunal found at [22] that the primary activities carried out by Aid/Watch are "associated with the delivery of foreign aid" and stated its goals as follows:

"Activities associated with the delivery of foreign aid are at the heart of the objectives in Aid/Watch's constitution. However, there is no provision for Aid/Watch to itself distribute aid. The objectives provide that it 'monitors, researches, campaigns and undertakes activities' relating to aid and investment programs. Two threads run through the description of the detailed objects of those activities. The first is to ensure local community involvement in the planning and implementation of aid projects. The second is to ensure that aid is delivered in an environmentally effective manner."

6. The Tribunal noted at [23] that while Aid/Watch's formal objectives include no reference to the relief of poverty, the activities carried out by Aid/Watch are fundamentally concerned with the relief of poverty and that it is thus a "major objective" of the organisation. Indeed, the Tribunal found, at [37], that "[v]irtually every purpose or activity of Aid/Watch is directed towards promoting the relief of poverty". The Tribunal further found, at [39], that many of the activities undertaken by Aid/Watch constituted the advancement of education.

7. The Tribunal dealt specifically with the activity described as "campaigning" at [26] and accepted that, on the evidence before it, Aid/Watch sought, through its campaigning, to persuade the Australian Agency for International Development (AusAID) to alter the way it administered aid programs. At [30], however, the Tribunal found as a matter of fact that Aid/Watch did not seek to influence government by direct contact, but rather by indirect action such as the publication of reports and assessments. It was accepted that the public response to these publications would constitute indirect action seeking to influence government.

8. The Tribunal also found, at [47], that "none of the objectives of Aid/Watch can be said to be contrary to government policy". This point was conceded in oral submissions by senior counsel for the respondent, Mr Williams SC.

Legal issues

9. The principal legal issue raised by these facts is the legal characterisation of institutions as "charitable" or otherwise. As the Tribunal noted, this area of Australian law is informed by concepts which, due principally to their antiquity, are not easily adapted to the modern context.

10. In order to obtain tax exempt status under the legislation in question, an institution must qualify as a "charitable institution"; ss 50-05, 50-50 and 50-52 ITA Act. The Act does not define "charitable". In
Incorporated Council of Law Reporting (of Queensland) v The Commissioner of Taxation 71 ATC 4206; (1971) 125 CLR 659 Barwick CJ said at 666, that an institution will be considered charitable if it satisfies the requirements of the general law in this regard. In
Central Bayside General Practice Association Ltd v Commissioner of State Revenue 2006 ATC 4610; (2006) 228 CLR 168 at 178, fn 28; 229 ALR 1 at 7, fn 6, Gleeson CJ, Heydon and Crennan JJ held that, there is a general rule that, when used in a statute, the word "charitable" bears its technical legal meaning unless otherwise indicated, and that:

"The general rule just mentioned has been accepted as the law in this country at least since the decision of the Privy Council in
Chesterman v Federal Commissioner of Taxation (1925) 37 CLR 317; [1926] AC 128; (1925) 32 ALR 9. The word is commonly used in statutes. It is reasonable to assume that parliamentary counsel, taxpayers, revenue authorities, settlors, testators and others have acted on the faith

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of an understanding that the general rule applies."

11. Their Honours accepted that the technical legal meaning of "charitable" is as defined in Lord Macnaghten's classic statement of the categories of charity in
Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531 at 583 "by reference to the spirit and intendment of the preamble to the Statute of Charitable Uses Act 1601". Lord Macnaghten's "classic statement" in Pemsel was:

"'Charity' in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community, not falling under any of the preceding heads."

12. A common requirement underlies these categories; for a purpose to be charitable it must be able to be construed by the Court as being for the public benefit. If the institution has multiple purposes, only some of which are charitable, it will none the less be a charitable institution if the non-charitable purposes are ancillary to the charitable purpose:
Stratton v Simpson (1970) 125 CLR 138 at 159-60. Where taxation concessions in respect of a year of income are at stake it is also necessary for the institution to have in fact carried out that purpose:
Commissioner of Taxation v Word Investments Ltd 2008 ATC ¶20-072; (2008) 236 CLR 204 at 224; 251 ALR 206 at 218 per Gummow, Hayne, Heydon and Crennan JJ. As in Word Investments there is no suggestion here that Aid/Watch has operated outside its stated objects.

13. Political purposes are said to be inconsistent with charity in the legal sense. The principle was famously articulated by Lord Parker in
Bowman v Secular Society Limited [1917] AC 406 at 442 where his Lordship said:

"… a trust for the attainment of political objects has always been held invalid … because the Court has no means of judging whether a proposed change in the law will or will not be for the public benefit, and therefore cannot say that a gift to secure the change is a charitable gift."

14. As with other non-charitable purposes, a political purpose will only be fatal to charitable classification if it is a "main purpose" of the institution:
The Royal North Shore Hospital of Sydney v The Attorney-General for New South Wales (1938) 60 CLR 396 at 426 per Dixon J; and
National Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31 at 62-63 per Lord Simonds. A political purpose which is merely ancillary or incidental to an established charitable object will not disqualify the institution from being classified as charitable. This issue is addressed in more detail below at [38].

Relief of poverty

15. An institution whose primary purpose is the relief of poverty is prima facie a charitable institution. The scope of the term "relief of poverty" at law is broad. The provision of foreign aid is undoubtedly encompassed by this term.

16. Before the Tribunal, Dr James Goodman, the chair of Aid/Watch, gave evidence about the work of Aid/Watch which was accepted by the Tribunal, and is set out extensively in its reasons at [25]. In particular, he said:

"We undertake to monitor the Australian aid program in terms of how much is delivered, where it is delivered and its quality. We seek to assess whether it does reach those who need it and whether it meets their needs and whether it is environmentally sustainable, whether that process of aid delivery is actually environmentally sustainable."

17. Dr Goodman said that Aid/Watch goes about these activities in three ways: by monitoring the delivery of aid, by researching and by campaigning. It monitors where the funds go and who receives them. It 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.

18.

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This concern 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.

19. The fact that Aid/Watch is not directly involved in the distribution of aid does not preclude its purposes from being characterised as charitable. In Word Investments the majority of the High Court rejected the submission that Word Investments Ltd could not be a charitable institution because its activities were confined to making profits which were directed to charitable institutions. The majority judgment stated at [38]:

"[T]he charitable purposes of a company can be found in a purpose of bringing about the natural and probable consequence of its immediate and expressed purposes, and its charitable activities can be found in the natural and probable consequence of its immediate activities."

20. There was little argument during the hearing of this appeal about the ultimately charitable purpose of many of Aid/Watch's objects. Indeed, in oral submissions the Commissioner accepted that at a certain "level of generality" it would be true to say that the activities undertaken by Aid/Watch were directed towards purposes which would fall within at least the category of relief from poverty. In our view Aid/Watch's purposes should be characterised as charitable in the legal sense unless they are disqualified because of their political nature.

Advancement of education

21. In addition to finding that the relief of poverty is a primary purpose with which Aid/Watch is concerned, the Tribunal further found, at [41] - [42], that the activities of Aid/Watch satisfied the first, second and fourth divisions referred to by Lord Macnaghten: see [11] above. Having concluded that Aid/Watch directs itself towards the relief of poverty, it is not strictly necessary for us to consider whether it also displays other indicia of charity. This point was addressed in argument, however, and we will comment briefly on the issue.

22. Aid/Watch's objectives, as set out in its constitution, include seeking to ensure "increased funding of development education activities within Australia and an increased public awareness of the environmental and social impact" of Australian overseas aid. This is a direct educational objective. In addition many of Aid/Watch's other objectives necessarily involve research as a preliminary to its efforts to influence and thereby change the administration of aid.

23. The advancement of education involves more than simply the accumulation of knowledge:
In re Shaw, decd;
Public Trustee v Day [1957] 1 WLR 729 at 738.
In Re Hopkins' Will Trusts [1965] 1 Ch 669 at 680 Wilberforce J said:

"[I]n order to be charitable, research must either be of educational value to the researcher or must be so directed as to lead to something which will pass into the store of educational material, or so as to improve the sum of communicable knowledge in an area which education may cover - education in this last context extending to the formation of literary taste and appreciation."

The Tribunal relied on
Re Hopkins' Will Trusts concluding that research into the delivery of aid would seem to be at least as charitable as "narrowly focussed Shakespearean research".

24. The Commissioner contended that Aid/Watch's activities could not qualify as educational as that involves "training or teaching through a system or syllabus in a structured manner, rather than simply a process of informing the public". As the respondent submitted, however, the category is not so limited.

25. The advancement of research, without any didactical component, has been accepted in many circumstances as being sufficient to

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constitute the advancement of education. This is particularly true in scientific and medical research cases:
Taylor v Taylor (1910) 10 CLR 218. The common thread which links scientific research, medical research, and historical literary research is not merely the addition of new information to the general pool of human knowledge but the diffusion of that knowledge by a variety of means not confined to "oral instruction or personal communication between the teacher and the taught": Taylor v Taylor at 224 per Griffith CJ.

26. The Commissioner submitted that for a purpose to be characterised as being for the advancement of education there had to be a level of generality not found in the output of Aid/Watch. In oral submissions, senior counsel for the Commissioner, Mr Bennett QC, argued that in reporting that certain aid did not reach its source or that it degraded the environment, Aid/Watch was giving information but that it did not rise to the level of education. Mr Bennett added:

"… not all information is education. If it were, I suppose every reporter for a newspaper would describe him or herself as an educator, whereas we have always regarded the profession of teacher and the profession of journalist as being distinct professions."

27. This submission does not take account of the evidence that Aid/Watch often produces major publications. The Tribunal clearly accepted this evidence and quoted the following comments by Dr Goodman:

"So, for instance, one of our areas of concern which is export credit agencies we produced I think four or five major, in-depth, on the ground researched reports of 30 to 40 pages each on specific projects that were being funded by Australian Export Credit Agency and a number of those reports were drawn up in conjunction with other organisations in Australia and also people, as it were, on the ground in those contexts. Those reports were then … published in Australia. So the information that we are gathering we gather generally in relation to impacts of aid programs offshore … and bring that into the Australian context by publishing these reports which are then obviously available publicly …"

28. We see no reason why these activities should not be seen to have the necessary educational element.

Political purpose

29. The Tribunal formed its conclusions about the objects of Aid/Watch first by examining the objectives specified in its constitution and subsequently by analysis of evidence presented at the Tribunal hearing. The Tribunal then attempted to distil the dominant objects from the ancillary objects. This approach is consistent with that advocated by the High Court in Word Investments, where Gummow, Hayne, Heydon and Crennan JJ said, at 212:

"[I]t is necessary to examine the objects, and the purported effectuation of those objects in the activities, of the institution in question. In examining the objects, it is necessary to see whether its main or predominant or dominant objects, as distinct from its concomitant or incidental or ancillary objects, are charitable."

30. Having considered Aid/Watch's objects, as stated in its constitution and in the evidence accepted by the Tribunal, there can be no doubt that, ultimately, the organisation directs most, if not all, of its energies towards the relief of poverty, an ostensibly charitable goal. At one level of generality therefore, it could be said that Aid/Watch's goal is the relief of poverty. At another level, however, Aid/Watch's goal may be described as being to influence, and thereby to change, the way in which aid is delivered.

31. Another approach might be to distinguish between purpose and motive. Thus Aid/Watch's purpose might be expressed as being to influence the government, delivery of aid and its motive as being to relieve poverty. It may be that there is no distinction between purpose and motive or that, at least in this case, purpose and motive are co-extensive. Ultimately this is not likely to be a fruitful distinction.

32. Aid/Watch's constitution includes an extensive list of the organisation's objectives beginning as follows:

• "AID/WATCH monitors, researches, campaigns and undertakes activities on the environmental impact of Australian and multinational aid and investment programs, projects and policies.

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  The main objectives of the Association are to seek to ensure that:
  • • aid projects and development programs and projects are designed to protect the environment and associated human rights of local communities in countries that receive Australian aid.
  • • …"

33. In oral submissions, Mr Bennett made repeated reference to the use of the word "ensure" in this context. He submitted that the fact that the listed objects are each preceded by the word "ensure" indicates that:

"The purpose, the function of this body is to ensure something - to achieve something. And it does that… in one way and one way only, and that is by seeking, by influencing public opinion, to influence government in how it delivers aid."

34. This argument indicates the general thrust of the Commissioner's submissions on the point. According to the Commissioner, regardless of how charitable the ultimate end sought by Aid/Watch appears, the more immediate (and prevailing) aim of the organisation is to influence government, thus invalidating any claim to charitable status.

35. The threshold test for "political purpose" is not always easy to articulate. The difficulties were outlined by Santow J in
Public Trustee v Attorney-General of New South Wales (1997) 42 NSWLR 600 at 617:

"Pressure for political change can range from direct lobbying of the government for legislative change, to attempts to educate and persuade the public and change public opinion on a particular issue. Whether such pressure for change is termed agitation with its pejorative overtone, propaganda (
Re Shaw;
Public Trustee v Day [1957] 1 WLR 729; [1957] 1 All ER 745), a campaign (
Webb v O'Doherty (1991) 3 Admin LR 731) or merely and legitimately education (
Re Koeppler's Will Trusts;
Barclays Bank Trust Co Plc v Slack) may be to some extent in the eye of the beholder, influenced by tone and style …"

36. The activities described in Aid/Watch's constitution include "monitoring, researching and campaigning". It is clear that neither "monitoring" nor "researching" alone would allow Aid/Watch to fulfil its stated objects of "ensuring" that aid is delivered in the ways outlined in its constitution. It is "campaigning" (as well as "other activities") that materially enables Aid/Watch to exercise influence over public opinion and ultimately over delivery of Australian aid. These activities are informed by, and made more effective because of, the information available to Aid/Watch obtained through its research and monitoring. Researching and monitoring, however, are preliminary to Aid/Watch's primary goal of influencing government. It is common ground between the parties that Aid/Watch is not engaged in "lobbying", nor is it involved in any attempt to influence government directly. The Tribunal accepted the evidence of Dr Goodman that Aid/Watch was "campaign focused" and that it pursued "global justice" by:

"[T]argeting the policies and practices of inter-governmental institutions, transnational corporations, and, most especially , the Australian Government and its allies." [Emphasis added]

37. Aid/Watch's attempt to persuade the government (however indirectly) to its point of view necessarily involves criticism of, and an attempt to bring about change in, government activity and, in some cases, government policy. There can be little doubt that this is political activity and that behind this activity is a political purpose. Moreover the activity is Aid/Watch's main activity and the political purpose is its main purpose. Recognising Aid/Watch's ultimate concern to relieve poverty does diminish its political purpose. As Lord Simonds said in
National Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31 at 61:

"In a sense no doubt, since legislation is not an end in itself, every law may be regarded as ancillary to the object which its provisions are intended to achieve. But that is not the sense in which it is said that a

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society has a political object… This is a finding that the main purpose of the society is the compulsory abolition of vivisection by Act of Parliament. What else can it mean? And now [sic] else can it be supposed that vivisection is to be abolished? Abolition and suppression are words that connote some form of compulsion. It can only be by Act of Parliament that that element can be supplied."

38. As previously mentioned a political purpose will not affect an institution's charitable status if it is ancillary or incidental to a charitable purpose:
Re Inman, deceased [1965] VR 238; and
NDG Neighbourhood Association v Revenue Canada, Taxation Department [1988] 2 CTC 2048; 88 DTC 6279. However where, as here, the main purpose is political, the question arises whether charitable and political purposes are mutually exclusive. This question was addressed by Santow J in
Public Trustee v Attorney-General of New South Wales (1997) 42 NSWLR 600. His Honour observed, at 620:

"An object of changing government policy may be no less 'political' than changing the law … But it does not follow that every intended addition to the law involves such contrariety with identifiable government policy that it becomes automatically 'political'."

39. It was submitted that Aid/Watch's objectives are not contrary to government policy. In the Tribunal's view, put at its highest, Aid/Watch's activities can only be described as seeking "to influence government policy as to the nature and extent and means of delivery of overseas aid". The Tribunal held that because Aid/Watch did not have "changes to the law as a main object" the principles enunciated in
Bowman v Secular Society Ltd and
National Anti-Vivisection Society v Inland Revenue Commissioners (see [13]-[14] above) did not apply. The Tribunal added:

"It may be disqualified if its objects and activities, although not overtly political, still place undue emphasis on attempts to influence government, particularly with respect to priorities and methods. The argument against charitable status may be enhanced because of its activist approaches and confrontational methods. However, I consider that Aid/Watch's objectives and activities, as I have found them to be, fall short of disqualifying it from being a charity."

40. It is not entirely clear what the Tribunal intended by the reference to "undue emphasis" on attempts to influence government or to Aid/Watch's priorities and methods. If it was merely intended to suggest that Aid/Watch might jeopardise its charitable status if it operated outside its stated objects, the comment is unobjectionable. Short of that, however, we do not accept that the charitable status of an institution can depend on the manner in which it implements its charitable purpose.

41. We accept that, at one level Aid/Watch's efforts, are not in conflict with government policy. There was no suggestion that government is not concerned to deliver aid efficiently or with due regard to environmental concerns. Aid/Watch's concern however, is that the delivery of aid should conform to its view of the best way to achieve these objects. It does not take into account that government and its agencies inevitably have to make choices in determining where, how and how much aid is to be delivered. Undoubtedly some of those choices will involve factors with which Aid/Watch is concerned. Others, however, will involve domestic and foreign political considerations that do not concern Aid/Watch. Some of these factors may have very little to do with foreign aid or the manner of its delivery.

42. In
Attorney General for NSW v The NSW Henry George Foundation Ltd [2002] NSWSC 1128, Young CJ in Eq discussed Santow J's views as expressed in
Public Trustee v Attorney-General of NSW and in a subsequent paper that was published as "Charity in its Political Voice - a Tinkling Cymbal or a Sounding Brass?" (1999) 18 Aust Bar Review 225. At [47] Young CJ summarised Santow J's views as follows:

"His Honour … suggests that the way the law is tending is to say that (a) [
McGovern v Attorney-General [1982] Ch 321] is in error when it says that if a main purpose of a trust is political then the trust cannot be charitable; (b) that working for a change in the law in the way in which the law tends to

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be changing does not affect a trust being a charitable trust; and (c) one should look to see whether the object to promote political change is so persuasive and predominant as to disqualify the trust from being a charitable trust…"

43. While Young CJ, in principle, expressed his support for Santow J's approach, his Honour concluded, at [54], that:

"Whatever its weaknesses, it would seem that the or a main or dominant purpose test is where the law has reached at the present time."

44. Young CJ was sceptical about claims that courts are not able to judge the public benefit of proposals to amend the law and added, that diverse argument on issues of public importance might, in itself be of community importance. His Honour referred to the tests proposed by Professor LA Sheridan in an article entitled "The Political Muddle - A Charitable View?" published in (1977) 19 Malaya Law Review 42, which his Honour summarised at [65] as follows:

• "1. A trust which objectively cannot promote the public benefit cannot be charitable.
• 2. A trust to promote legislation in the interests of members of a group such as a professional association is not charitable.
• 3. A trust for the promotion or defeat of unselfish legislation which is controversial is not charitable.
• 4. A trust to study and prepare comments on legislative bills is charitable.
• 5. A trust to promote legislation improving the law is charitable. Judges can tell what would improve the law and what would not."

45. Young CJ commented that, "as a single judge" he could not go this far. We would add that as an intermediate appellate court we also cannot go so far. In any event we do not accept that judges can tell what would improve the law in all circumstances. In particular courts are not equipped to consider all the factors that have resulted in decisions as to what foreign aid is to be provided and how it is to be delivered and they are not entitled to enter into such debates.

46. In the Henry George Foundation case Young CJ considered a trust "for the purpose of promulgating and spreading knowledge of the teachings and economic principles elaborated by Henry George". His Honour found, at [85], that the dominant purpose of that trust was education and therefore was a valid charitable trust even though "the ultimate purpose of this education may only be fully realised by legislation". This is not the case here. Although we have found that the activities of Aid/Watch may be described as educational, this activity is a long way from being the dominant activity. The Henry George Foundation case should be distinguished from the present.

47. The "natural and probable consequence" of Aid/Watch's activities is an effect on public opinion and then on government opinion. Relief from poverty, however, is not either a natural or probable consequence precisely because governments have to take into account factors that institutions such as Aid/Watch do not need to consider; see [41] above. It is for this reason that, irrespective of whether in other circumstances courts may be able to judge public benefit, in this case no such determination can be made. A similar position was taken in
Southwood v Attorney-General [2000] TLR 541 by Chadwick LJ who said:

"The court was in no position to determine that promotion of the one view rather than the other was for the public benefit. Not only did the court have no material on which to make that choice; to attempt to do so would be to usurp the role of government.

So the court could not recognise as charitable a trust to educate the public to an acceptance that peace was best secured by demilitarisation in the sense in which that concept was used by the appellants.

Nor, conversely, could the court recognise as charitable a trust to educate the public to an acceptance that war was best avoided by collective security through membership of a military alliance - say, NATO."

48.

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In our view the Tribunal erred in concluding that Aid/Watch's main purpose was not political and in holding that Aid/Watch is a charitable institution within the meaning of s 50 of the ITA Act. The Tribunal's decision should be set aside and in lieu thereof the applicant's reviewable objection decision of 6 March 2007 is affirmed.