Public Ruling GEN003.3 Charitable institutions

A public ruling, when issued, is the published view of the Commissioner of State Revenue (the Commissioner) on the particular topic to which it relates. It therefore replaces and overrides any existing private rulings, memoranda, manuals and advice provided by the Commissioner in respect of the issue(s) it addresses.

Where a change in legislation or case law (the law) affects the content of a public ruling, the change in the law overrides the public ruling—that is, the Commissioner will determine the tax liability or eligibility for a concession, grant or exemption, as the case may be, in accordance with the law.

What this ruling is about

  1. The various state taxation statutes1 administered by the Office of State Revenue each provide exemptions, in certain specified circumstances, from the relevant state taxes for organisations which qualify as charitable institutions.
  2. The relevant statutes define a charitable institution as being an institution registered under Part 11A of the Taxation Administration Act 2001 (the Administration Act). Charitable institutions can encompass a number of specific categories of organisations covering educational, religious and public benevolent activities. Also an institution may be registered if its principal object or pursuit is fulfilling a charitable object or promoting the public good (not being an object or pursuit that is leisure, recreational, social or sporting).
  3. This Public Ruling explains the Commissioner’s approach to determining whether an organisation qualifies as a charitable institution.

Ruling and explanation

Steps involved

  1. The steps involved in determining whether an institution qualifies as a charitable institution are as follows:
    Step 1 Where relevant, establish that the organisation is an institution.
    Step 2 Where relevant, establish that the constituent documents prohibit distributions of income or property to members and the income and property is used solely for promoting its objects.
    Step 3 Determine the institution’s principal object and pursuit.
    Step 4 Establish that the principal object is a qualifying object.
    Step 5 Determine whether the principal object is a disqualified object.
    Step 6 Establish that the organisation is pursuing its principal object.
    Step 7 Consider which provision of the particular taxation statute the taxpayer should apply for exemption under. Specific provisions should be applied prior to general provisions.
    Step 8 Make application to the Commissioner detailing why the organisation should qualify for exemption.

Step 1 Where relevant, establish that the organisation is an institution.

  1. In most cases, entitlement to exemption is dependent upon the organisation being an institution.
  2. That term is defined in the Oxford Dictionary as:

an establishment, organisation or association, instituted for the promotion of some object, especially one of public utility, religious, charitable, educational, etc., e.g. as church, school, college, hospital, asylum, reformatory, mission, or the like; as a literary and philosophical institution; a deaf and dumb institution … etc.

  1. This definition was quoted with approval by Higgins J. in Young Men’s Christian Association of Melbourne v F C of T.2 A shortened form of this definition contained in the Shorter Oxford English Dictionary has also been adopted by the High Court; see Stratton v Simpson.3
  2. Ordinarily, the term will connote more than a mere trust. In Minister of National Revenue v Trusts & Guarantee Co Ltd4, the Privy Council held that a trust to pay a fund and accumulations to a municipal council for the benefit of the aged and poor was a charitable trust but not a charitable institution. Lord Romer said at p.149:

In view of the language that has in fact been used, it seems to their Lordships that the charitable institutions exempted are those which are institutions in the sense in which boards of trade and chambers of commerce are institutions, such, for example, as a charity organisation society, or a society for the prevention of cruelty to children. The trust with which the present appeal is concerned is an ordinary trust for charity…An ordinary trust for charity is, indeed only a charitable institution in the sense that a farm is an agricultural institution.5

  1. An organisation will therefore require some form of administrative structure to attain the status of an institution.

Step 2 Where relevant, establish that the constituent documents prohibit distributions of income or property to members and the income and property is used solely for promoting its objects.

  1. Section 149C(5) of the Adminstration Act provides that an institution, other than an institution or trustee of an institution mentioned in s.149C(2)(a)6 or (c)7 of the Administration Act must not be registered unless, under its constitution, however described:
    1. its income and property are used solely for promoting its objects
      and
    2. no part of its income or property is to be distributed, paid or transferred by way of bonus, dividend or other similar payment to its members
      and
    3. on its dissolution, the assets remaining after satisfying all debts and liabilities must be transferred:
      1. to an institution that, under this section, may be registered
        or
      2. to an institution the Commissioner is satisfied has a principal object or pursuit that is fulfilling a charitable object or promoting the public good
        or
      3. for a purpose the Commissioner is satisfied is charitable or for the promotion of the public good.

Step 3 Determine the institution’s principal object and pursuit.

  1. In order for the institution’s principal object and pursuit to be ascertained, the institution’s constituent documents must be produced for perusal.
  2. Constituent documents are commonly drafted widely and it is necessary to determine whether any of an institution’s objects may disqualify it from entitlement to exemption. In these circumstances, a distinction must be drawn between:
    1. independent
      and
    2. ancillary, incidental or dependent objects.
  3. The following approach will be taken to establish the institution’s true nature, objects and activities.
    1. The constituent documents will be examined to ascertain what is the main or dominant purpose.
    2. To determine what is the main or dominant purpose, the objects contained in the constituent documents will not be examined disjunctively. Rather, they will be examined in conjunction with one another and in light of the circumstances in which the organisation was formed and of the manner in which the organisation is fulfilling the purpose for which it was established.
    3. A non-charitable object which is expressed to be, and is accepted by the Commissioner as, a means of achieving the entity’s principal object will be treated as ancillary to the principal object and will not disqualify the entity from treatment as a charitable institution.
    4. An institution’s objects and activities may be of a mixed character—partly charitable and partly non-charitable. If the non-charitable object is not expressed to be, or is expressed to be but is not accepted by the Commissioner as, a means of achieving the institution’s principal object, the question is determined not by the fact that the entity can direct its efforts to all of its objects but rather by what it does in pursuit of each of them. In such cases, the institution’s activities will be examined. If those activities are mainly or predominantly directed towards the charitable object, the non-charitable objects will be treated as ancillary or incidental to that object.
    5. The question is dependent upon the intrinsic character of the object which the institution promotes and not upon the scope of the benefits which may result from its transactions. The fact that ancillary or subsidiary functions may indirectly and incidentally be of benefit to members of the institution does not destroy the exemption claimed.
  4. This approach is consistent with the relevant case law.8

Step 4 Establish that the principal object is a qualifying object.

  1. The institution’s principal object and pursuit must be one which falls within one of the categories listed in s.149C of the Administration Act. Where an institution qualifies as a charitable institution under more than one provision, the more specific provision should be applied.

Step 5 Determine whether the principal object is a disqualified object.

  1. Despite the fact that an institution’s principal object and pursuit may fulfil a charitable object or an object promoting the public good, the entity will be disqualified from obtaining an exemption where that object or pursuit involves a leisure, recreational, social or sporting activity. For example, an institution the principal object and pursuit of which is education will not qualify as an exempt institution if its activities, considered objectively, also have a leisure or social purpose.

Step 6 Establish that the organisation is pursuing its principal object.

  1. The institution must pursue its principal object. In this respect, the institution will be required to produce evidence of the nature of its activities and how those activities further the attainment of its principal object.

Step 7 Consider which provision of the particular taxation statute the taxpayer should apply for exemption—specific provisions should be applied prior to general provisions.

  1. Separate Public Rulings9 are issued in relation to determining whether an institution’s principal object and pursuit qualifies it as a charitable institution on the basis either that it pursues the relief of poverty or is a public benevolent institution.

Step 8 Make application to the Commissioner detailing why the organisation should qualify for exemption.

  1. The general guidelines in this Public Ruling are subject, in each case, to the requirements of the relevant statutory provisions. In particular, statutes specify the use to which property must be put as a condition of exemption.

Date of effect

  1. This Public Ruling takes effect from the date of issue.

 

David Smith
Commissioner of State Revenue
Date of issue: 30 June 2010

References

 Public Ruling Issued  Dates of effect
From To
GEN003.3 30 June 2010 30 June 2010 Current
GEN003.2 3 July 2009 30 June 2009 29 June 2010
GEN003.1 24 February 2009 24 February 2009 29 June 2009
Supersedes Revenue Ruling G 2.3 1 July 2005 1 July 2005 23 February 2009

Footnotes

  1. Duties Act 2001, Payroll Tax Act 1971 and the Land Tax Act 2010 (collectively, the relevant statutes)
  2. (1926) 37 CLR 351 at 361
  3. (1970) 125 CLR 138 at 158
  4. [1940] AC 138
  5. See also Case X13 90 ATC 165.
  6. A religious body or a body that is controlled by, or associated with, a religious body and whose principal object and pursuit is the conduct of activities of a religious nature
  7. University or university college
  8. The Royal Australasian College of Surgeons v FC of T (1943) 68 CLR 437, Nungera Co-operative Society Ltd v Maclean Shire Council (1991) 73 LGRA 178, Barclay & Ors v Treasurer of Queensland 95 ATC 4496
  9. Public Ruling GEN004—Relief of poverty and Public Ruling GEN005—Public benevolent institutions