COMMISSIONER FOR ACT REVENUE COLLECTIONS v COUNCIL OF THE DOMINICAN SISTERS OF AUSTRALIA

Judges:
Morling J
Neaves J
Foster J

Court:
Full Federal Court

Judgment date: Judgment handed down 25 July 1991

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Morling, Neaves and Foster JJ

The Council of the Dominican Sisters of Australia is a company limited by guarantee. It conducts a teachers' training college known as Signadou College in the Australian Capital Territory. It received assessments of pay-roll tax for the financial years commencing 1 July 1982 to 1 July 1987 inclusive. It objected to the assessments upon the basis that it was a religious institution and, as such, was entitled to the exemption from pay-roll tax contained in s. 13(b) of the Pay-roll Tax (Territories) Assessment Act 1971 (``the Act''). Its objections were disallowed by a delegate of the applicant. The respondent thereupon applied to the Administrative Appeals Tribunal for a review of the delegate's decision and upon the hearing of the review Deputy President Todd held that the respondent was entitled to the exemption contained in s. 13(b) of the Act and set aside the delegate's decision [reported at 91 ATC 2010]. This application is brought by way of appeal from the Deputy President's decision. Such an appeal lies upon a question of law only: vide s. 44(1) of the Administrative Appeals Tribunal Act 1975.

In 1958 the Congregation of the Dominican Sisters of Australia (``the Order'') was formed by Vatican Decrees. Pursuant to its Fundamental Constitution, the official work of the Order is:

``to conduct and teach in educational establishments of all types according to the law and mind of the Catholic Church and the needs of the people of God both in Australia and in the Solomon Islands.''

Other provisions in its Constitution authorise it to engage in, inter alia, primary, secondary and tertiary education.

On 12 February 1963 the respondent was incorporated in the Australian Capital Territory as a public company under the Companies Act 1962. The objects for which the company was established included the following:

``3(a) To promote religion and education in the Australian Capital Territory and elsewhere in the Commonwealth of Australia and Territories under the control of the Commonwealth.

(b) To conduct in the Australian Capital Territory a teachers' training college at which members or Teaching Orders of Nuns of the Roman Catholic Church will be instructed in the art of teaching.

(c) To establish maintain and conduct a school or schools for the education of children.''

The memorandum of association was altered on 14 October 1980 by substituting the following in lieu of clause 3(b):

``3(b) To conduct in the Australian Capital Territory a teachers' college for the education of men and women to staff primary and secondary schools especially, but not exclusively, within the Catholic system of education in Australia.''

The ultimate governing body of the Order is a body known as the Council of the Generalate. Its membership comprises the Prioress-General and two other Domincan Sisters. The Council

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ATC 4604

of the Generalate is responsible for the overall work of the Order. Article 36 of the Order's Fundamental Constitution states in relation to Signadou College that the College is to have its own Council (``the College Council''), comprising the Mother Prioress-General, or her representative, the Principal, two members of staff and at least two other members experienced in the field of education and finance. Pursuant to the Constitution, the Principal is to be responsible for supervising the day-to-day organization of the College, including the recruitment of Dominican Sisters and other persons to staff the College.

The membership of the Council of the Generalate and of the respondent is identical.

According to Sister Belcher, who was the Secretary of the respondent for a number of years, the Council of the Generalate is responsible for the administration of Signadou College and, on educational matters, is assisted by the College Council (a body which is separate from the respondent). She said that the respondent:

``was drawn up simply for the purpose of having a legal entity to hold property and it has no other function than that. Whoever were members, the elected members of the Generalate Council were by reason of their office also members of [the respondent].''

The respondent holds the Crown lease of the land upon which Signadou College is situated. By the rules of the Order individual sisters are not entitled to hold property themselves. It was for this reason that the respondent was brought into existence.

During the relevant tax years Signadou College had a student population of about 300 pupils. It received Commonwealth Government funding as an establishment which trained teachers, the funding being conditional upon there being no requirement that students be of a particular religious belief, undertake religious units of study, or have an intention to teach solely in the Catholic school system. A greater proportion of time was spent teaching secular subjects as opposed religious subjects. The College differed from most other teachers' colleges in that it also taught religion and trained teachers of religion. Qualified teachers also attended the College to up-date their qualifications specifically for the purpose of teaching in Catholic schools.

At the hearing in the Tribunal Mr L.J. Daniels, a lay member of the College Council, gave evidence that in the relevant tax years:

``there was a company comprising the Dominican Sisters which, during that period, gave legal form, as it were, to the Sisters' need to conduct leases and to hold property and to make contracts... But, as far as the college was concerned, that company which was a company comprised of Sisters of the Dominican Sisters the distinction, it there was one, between the company and the college was nil...

The College had no separate existence, in the legal sense... There was no such legal being, no such legal creature as the College, as distinct from the creature which was the company which owned the College and which was the Dominican Sisters.''

During the period in question the relevant provisions of the Act were as follows:

``10(1) Subject to, and in accordance with the provisions of, this Act, tax is payable in respect of all wages that are paid or payable by an employer on or after the commencing date and before 1 July 1978 (being wages in respect of services performed or rendered at any time) and -

• (a) are wages that are paid or payable in a Territory, not being wages so paid or payable in respect of services performed or rendered wholly in one of the States; or
• (b) are wages that are paid or payable elsewhere than in a Territory in respect of services performed or rendered wholly in a Territory or wholly in the Territories.

...

13. Section 10 does not apply to wages paid or payable -

• (a)...
• (b) by a religious or public benevolent institution, or by a public hospital;
• (c)...
• (d) by a school or college (other than a technical school or a technical college) that -
  • (i) is carried on by a body corporate, society or association otherwise than

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    ATC 4605

    for the purpose of profit or gain to the individual members of the body corporate, society or association; and
  • (ii) provides education at or below, but not above, the secondary level of education;
• ...''

It was common ground in the Tribunal that the respondent was the relevant employer for the purposes of s. 10 of the Act and that since Signadou College provided education at the tertiary level, the exemption from pay-roll tax provided by s. 13(d) of the Act was not applicable. The respondent's case was that it was entitled to the exemption specified in s. 13(b). It was not contended that the respondent was a public benevolent institution and, accordingly, the issue before the Tribunal was whether the respondent was entitled to claim an exemption from payment of pay-roll tax because it was a religious institution.

The Deputy President appears to have treated this issue as being ``whether the Corporate Council (i.e. the respondent) is entitled to claim and bear the shield of religion carried by the Generalate Council''. Having thus identified the question for decision, he said that the evidence which had emerged during the course of the hearing before him ``was that the Corporate Council is the legal face of the Generalate Council. It is the legal entity which acts on behalf of the Generalate Council and was created to hold legal title to property on its behalf''.

The reasoning by which the Deputy President reached his conclusion that the respondent was a religious institution appears in the following passages in his reasons [91 ATC at 2015]:

``15. There was sufficient evidence before the Tribunal that the official work of the Order is the advancement of religion through education. This appears clearly from the Fundamental Constitution of the Order and was reiterated by oral evidence at the hearing. In practical terms this means the establishment of schools in which religion can be taught. Such schools need appropriately qualified staff. The establishment of a Catholic Teachers Training College like Signadou College is an integral component of this scheme. In turn, that College needs to employ individuals to train its students. If the Generalate Council were the relevant employer in this case there could be no doubt as to its entitlement to the exemption provided by s. 13(b) of the Act. Although the administration and educational programme of Signadou College is of necessity similar to that of many other tertiary institutions it should not be said that this prevents the entity which administers it from being regarded as a religious institution. Funding arrangements with the Commonwealth Government are such that the imposition on students of particular religious requirements or restraints by the College is precluded. Similarly, secular subjects must of necessity predominate over religious units of study if those who graduate from Signadou College are to receive recognised teaching qualifications. These features merely represent the practical aspects of the Order's goal of the advancement of religion through education. Of themselves they do not detract from what is the official work of the Order.

16. Similar reasoning can be applied to the Corporate Council. The Order may, by its Constitution, only hold property on a `collective' basis. The pursuit of its goal of advancement of religion through education involves the establishment of schools. In turn, this necessitates the acquisition of legal title to land on which such schools can be constructed. It was for this purpose that the Corporate Council was created, namely to act as the legal arm of the governing body of the Order, being the Generalate Council. The Corporate Council in this case can be distinguished from the administration board in the
Glebe Administration Board case [87 ATC 4825; (1987) 10 NSWLR 352]. In that case the board was involved in commercial work. In this case, the Corporate Council owns no other property other than the leasehold of the land on which Signadou College is situated, and it has no involvement in any other commercial activity. Its membership corresponds directly with that of the Generalate Council, so much so in fact that, as evidenced by the confusion in Sister Grace's evidence, it is difficult to differentiate between the acts of either when they are not categorised as strictly legal acts. Clearly then the

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ATC 4606

Corporate Council was during the period in question the legal arm of the Generalate Council and for the purposes of the exemption, inseparable from it. The Corporate Council merely represented the legal means by which the Generalate Council gave effect to the underlying principles of the Order. It became clothed with the fundamental character of the Generalate Council which was that of a religious institution.''

Senior Counsel for the applicant submitted that it was apparent from the Deputy President's reasons that he did not correctly identify the criteria for determining whether the respondent was a religious institution. He submitted that the factors relevant to determining the true character of the respondent were the purpose for which it was formed and maintained and its activities and that, in a case where an institution has both religious and non-religious objects, the proper approach to its characterisation is to determine whether its main object or predominant purpose is religious or non-religious.
Royal Australasian College of Surgeons v FC of T (1943) 7 ATC 289; (1943) 68 CLR 436 (``the Surgeons' Case'');
Cronulla Sutherland Leagues Club Ltd v FC of T 90 ATC 4215; (1990) 23 FCR 82. It was further submitted that the Deputy President erred in law in not directing himself to the question whether the respondent's main object or predominant purpose, as distinct from that of the Order or of the Generalate Council, was religious or educational. It was conceded that religion may extend to the teaching and propagation of religion and that a person who engages in teaching may engage in conduct that is religious. But it was submitted in the present case, where the purpose of a body corporate is in issue, the religious motives of its incorporators or members are generally irrelevant in determining the purpose for which it was incorporated. The Deputy President erred, so it was submitted, in treating the religious motives of the respondent's incorporators and members as determinative of its true character.

In our opinion, there is substance in these submissions. The criteria relevant to determining whether an institution is of a particular kind were authoritatively identified by the High Court in the Surgeons' Case. In that case the question at issue was whether the Royal Australasian College of Surgeons was a scientific institution within the meaning of s. 23(e) of the Income Tax Assessment Act 1936. The College was registered as a limited company. Some of its objects were for the promotion of the professional interests of its members and some were for the promotion of the science of surgery. Its principal activities included the holding of conferences of surgeons for the discussion and study of surgical matters and the dissemination of knowledge of surgery; the provision of a technical surgical library for the use of its members; the publication of surgical journals; the conduct of examinations for admission to Fellowship of the College; and the administration of funds for surgical research and for the award of scholarships to medical students.

Latham CJ (at ATD 295; CLR 444) observed that unless the promotion of surgical science was the main, substantial or primary object of the College, it could not be described as a scientific institution. Rich J said (at ATD 296; CLR 447) that ``the test is whether it can be predicated that the College is in the main scientific''. Starke J, after stating that the objects of the College were partly for the promotion of professional interests and partly for the promotion of surgical knowledge and practice, said (at ATD 297; CLR 448):

``... The objects of the College are therefore of a mixed character and the memorandum does not make it clear which are its main or dominating characteristics. The activities of the College must therefore be examined.

If it be found that those activities are mainly or predominantly directed towards the promotion or advancement of surgical knowledge or, in other words, the advancement of surgical knowledge and practice, then the authorities make it clear that a finding that the College is a scientific institution is in point of law correct...''

McTiernan J said (at ATD 298-299; CLR 450):

``It is not necessary to satisfy the section that the object of the Association should be exclusively scientific. But it is necessary that the promotion of the science of surgery should be its main object.''

Williams J expressed the opinion (at ATD 299; CLR 451) that the answer to the question whether the College was a scientific institution

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ATC 4607

depended upon whether the main and dominant object for which it was incorporated was to promote the science of surgery.

In the light of what was said in the Surgeons' Case what had to be ascertained by the Tribunal in the present case was the primary and dominant object of the respondent. That object was to be ascertained by reference to the respondent's objects as stated in its memorandum of association and by a consideration of the activities in which it engaged.

We do not think that the Deputy President sought to determine what was the respondent's primary and dominant object. Rather he concentrated upon what he described as ``the Order's goal of the advancement of religion through education''. To say, as the Deputy President said, that the respondent merely represented the legal means by which the Order gave effect to its underlying principles and that the respondent became clothed with the fundamental character of the Order was not to answer the critical question, which was whether the promotion or advancement of religion was the primary and dominant object of the respondent. That question could only have been answered after an examination of the objects and activities of the respondent to determine whether its primary and dominant object was the promotion of religion or, as the applicant submitted, the advancement of education. We do not think the Deputy President undertook such an examination.

It was also submitted on behalf of the applicant that it was not reasonably open to the Deputy President on the material before him to find that the respondent was a religious institution and that accordingly, we should not remit the matter for determination by the Tribunal but determine that the respondent was not entitled to the exemption claimed. It was submitted that the respondent's objects, especially as amended, were mainly or predominantly educational rather than religious in character and that its principal activities were the retention of the legal title to the land upon which the College was located and the employment of teachers. It was conceded that if an institution has a non-religious object or purpose which is merely a means of fulfilment of its religious object or purpose and is only incidental thereto, the institution would not lose its religious quality on that account alone:
Congregational Union of New South Wales v Thistlethwayte & Ors (1952) 87 CLR 375 at 442-444, per Dixon CJ, McTiernan, Williams and Fullagar JJ. But it was submitted that in the present case the means by which religion was pursued had become the principal object of the institution:
Christian Enterprises Ltd v Commissioner of Land Tax (1968) 72 SR (NSW) 90 at 103 per Walsh JA. Reliance was particularly placed upon the absence of any requirement that students of the College be of a particular religious persuasion or that they undertake religious units of study or have an intention only to teach in the Catholic school system and that the greater proportion of time was spent teaching secular subjects.

In our opinion these submissions have considerable force. We think the deep commitment to religion of the members of the Order and of the respondent may have led to an inadequate assessment of all the matters which should have been taken into account in determining the respondent's primary object. As was said by Mason ACJ and Brennan J in
The Church of the New Faith v Commissioner of Pay-roll Tax (Vic) 83 ATC 4652 at 4653-4654; (1982-1983) 154 CLR 120 at 128-129:

``It does not follow that the common religion of a group stamps a religious character on an institution founded, maintained or staffed by members of that group or that the purpose or activity of such an institution is religious.''

However, we think that the appropriate course is to return the matter to the Tribunal for redetermination in accordance with these reasons. The presentation of evidence to the Tribunal may have been influenced by the erroneous belief that the claim for exemption would be made out if it was established that the primary object of the Order was the advancement of religion through education and that the Order's primary object was determinative of the character of the respondent. On a rehearing of the matter the respondent may wish to lead further evidence or adduce further argument in support of a claim that its activities are such as to

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ATC 4608

demonstrate that its primary and predominant object is the promotion of religion.

The appeal is allowed, and the decision of the Tribunal is set aside. The respondent must pay the applicant's costs of the appeal.

THE COURT ORDERS AS FOLLOWS:

1. Appeal allowed.

2. Decision of the Administrative Appeals Tribunal set aside and matter remitted for redetermination in accordance with these reasons.

3. Respondent to pay the appellant's costs of the appeal.