Brief summary of the facts
- The Hunger Project Australia (the applicant) applied to the Australian Taxation Office (ATO) to be endorsed as a ‘Public Benevolent Institution’ (PBI).
- The applicant was a member of a global network of organisations with a shared goal of ending world hunger, particularly in the developing world. Some organisations in the network were based in developed countries. Others were based in developing countries.
- The applicant and other network members based in developed countries engaged in active fundraising. They gave the money they raised to network members in developing countries to be used to fund hunger relief projects. The applicant was not involved in the hunger relief projects beyond the provision of money and strategic guidance.
- The ATO refused to endorse the applicant as a PBI because the applicant did not provide benevolent relief directly to people in need. The ATO said it was a requirement that a PBI must give relief directly.
- The applicant appealed the ATO’s refusal decision to the Federal Court. The applicant argued that it was not a requirement that a PBI must give relief directly. Perram J of the Federal Court decided that the applicant was a PBI.
- The Commissioner of Taxation appealed Perram J’s decision to the Full Court of the Federal Court. The Full Court agreed with Perram J that the applicant was a PBI.
Issues decided at first instance
- In reaching the decision that the applicant should be endorsed as a PBI, Perram J of the Federal Court found:
- the applicant did not provide benevolent relief to people in need directly. The applicant was predominantly engaged in fundraising and, to a lesser extent, providing strategic guidance. Its involvement in direct relief activities was ‘negligible’ (paragraph 44).
- the decision in Australian Council of Social Service v Commissioner of Pay-roll Tax (1985) 1 NSWLR 567 (ACOSS) was not authority for the point that a PBI must deliver benevolent relief directly. Instead, it is important to look at the beneficiaries (whom Perram J referred to as the ‘objects’) of the applicant’s fundraising activities to see whether they need benevolent relief (paragraph 70). It was clear that the applicant’s beneficiaries – people in poverty in developing countries – needed benevolent relief.
- the applicant’s role in relieving the hunger of its beneficiaries was sufficiently ‘concrete’ to accept that the applicant was organised or conducted for benevolent relief, as it was ‘a member of a structure of organisations that in fact relieve hunger’ (paragraph 71).
- no court had decisively determined that a PBI must provide benevolent relief directly (paragraph 90).
- Perram J went on to consider whether a PBI must provide benevolent relief directly. In making this assessment, Perram J relied on the High Court of Australia decision in Federal Commissioner of Taxation v Word Investments (2008) 236 CLR 204 (Word Investments) (paragraph 119). That decision considered whether an entity that undertook commercial activities and gave the profits to a charity that had a purpose of advancing religion was itself a charity. The High Court found Word Investments was a charity because, when considered in substance rather than form, its commercial activities were for the purpose of advancing religion. In determining purpose, it did not matter whether the funds were raised in the same or a separate charity.
- Perram J found no reason why an organisation which was established for benevolent relief and which fundraised for benevolent relief should be refused endorsement as a PBI merely because it did not undertake the benevolent relief activities itself, but via partner organisations (paragraph 124).
Issues decided on appeal
- On appeal, the Full Federal Court (Full Court) found that Perram J was correct to reject the argument that a PBI must provide benevolent relief directly (paragraph 26).
- The Full Court did not agree with the Federal Commissioner of Taxation’s argument on appeal that, based on passages from the High Court of Australia’s decision in Perpetual Trustee Co Ltd v Federal Commissioner of Taxation (1931) 45 CLR 224, the ordinary meaning of PBI requires benevolent relief be given directly. Instead, the Full Court found that the question of whether an organisation is a PBI will depend on the common or ordinary meaning of the expression at the relevant time (paragraph 38):
The question is not to be approached as a legal question to be dealt with by the mechanical application of past authority, irrespective of the present current understanding in the currently spoken English language.
- In this context, the Full Court found that the common understanding of PBI can change over time, and accepted that PBIs ‘may be structured in ways that separate fund raising entities from entities that dispense relief or aid using those funds’ (paragraph 39).
- The Full Court agreed with Perram J’s reliance upon the decision in Word Investments and confirmed that it is the substance of an organisation’s objectives and activities that is important to determining whether it is a PBI, rather than its structure (paragraph 64).
- The Full Court concluded that, while there is no single test or definition of a PBI, the ordinary meaning of PBI includes ‘an institution which is organised for, or conducted for, or promotes the relief of poverty or distress’ (paragraph 66). An institution which raises funds and provides them to associated entities to be used for hunger relief is an institution of that nature (paragraph 67).
Our view of these decisions
- Both the Federal Court and the Full Court decisions provide binding guidance to the ACNC on the attributes of a PBI.
- The Federal Court’s decision confirms that, ‘a fund, without more, cannot be an institution’ (paragraph 112). This point was not considered upon appeal.
- These decisions establish that ‘active fundraising’ is sufficient to constitute an activity in the context of determining whether an organisation is an ‘institution’. An organisation which engages in active fundraising is not a mere fund or mere trust.
- These decisions also affirm that there is no requirement that a PBI must provide benevolent relief directly.
- Although both decisions acknowledged that there is no single or irrefutable test or definition of PBI, they found that the concept of PBI includes an institution that is organised, or conducted for, or promoting the relief of poverty or distress, which has:
a. ‘concrete objects of benevolent relief’
This means that the target beneficiaries of the organisation must be recognisably in need of benevolent relief from poverty, sickness, destitution or helplessness. Organisations organised or conducted to advance the welfare of the community generally will not meet this requirement.
b. a role in the relief of poverty, sickness, destitution or helplessness that is concrete.
This means that it must be possible to identify how the organisation’s activities are directed towards the relief of its target beneficiaries. General, but undirected or abstract benevolence will not be sufficient.
These decisions do not stand for the proposition that an organisation which provides benevolent relief indirectly will only be a PBI if it undertakes active fundraising and provides the funds it has raised to other members in the same network to deliver benevolent relief. There may be other ways in which an organisation can demonstrate that it is organised, conducted or promoted for benevolent relief, despite having an indirect role in the delivery of relief.
Impact on guidance
- This Decision Impact Statement has replaced CIS 2013/1: Commissioner’s Interpretation Statement: The Hunger Project case.
- The principles that have arisen from these decisions are reflected in CIS 2016/03 Commissioner’s Interpretation Statement: Public Benevolent Institutions.