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    Australian Modernising Charity

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    Modernising Charity Law Day 1: Thursday 16 April 2009 10:00 am — ‘Overview and ‘Themes of Modemising Charity Law since 2001" Australia; critical drivers, barriers, outcomes ancl unresolved issues and future challenges. Myles MeGreger-Lowndes Prepared by Prof Myles McGregor-Lowndes Director The Australian Centre for Philanthropy and Nonprofit Studies (CPNS) ‘Queensland University of Technology GPO Box 2434 BRISBANE QLD 4001 Telephone: 07 3138 1020 Fax: 07 3138 9134 Introduetion ‘This paper presents an overview of proposed reform of Australian chatty Jaw over the last couple of decades. It has been a frustrating journey as a significant reform effort has failed to materialise into any major reform unlike other charity law jurisdictions. Various Australian inquires and reports have produced 12,920 pages of ic submissions, 56 days of hearings, 45 site visits, 1,344 pages of official reports,’ and las resulted directly ina mere seven pages of legislation about the definition of charity.? Piecemeal reforms to incorporated association, fundraising and charitable gaming legislation have been pasted in various states and terttories as ‘well as an incremental development of taxation compliance measures for exempt andl ceductible entities. One klimmer of successfl reform has been the introduction of a number of taxation incentives directed at ‘encouraging philanthropic giving, such as the Presetibed Private Fund.? ‘Compared to the reforms to the law and regulation of charities of Australia’s near neighbours New Zealand and Singapore, the record of legislative output appears to be very slim and minor in import. Both these jurisdictions have natiowal charity regutators end accompanying reforms to ensure the fidelity of regulated organisations through reporting and registration. The paper raises for discussion some of the apparent barriers to charity law reform in Australia and the future challenges ifa reform agends is not advanced, Background Prior to 2001 Charity law in Australian state and federal jurisdictions closely follows the English definition of charity based ‘on the Preamble to the Elizabethan Statute of Charitable. Uses in 1601* Australia’s near neighbours, New Zealand and Singapore, also adopt the English law. English case authority is consistently used asthe basis for ‘Australian law in both federal and state cours as well as in New Zealand and Singapore. This reliance on the common law is demonstrated in @ taxation ruling by the Australian Taxation Office (ATO) on the meaning of “charity” for the purposes of the Jncome Tax Assessment Act 1997: in the course of & 70 page explanation, the ruling cites 145 English cases and only 113 Australian, with 28 decisions from other jurisdictions. Australian state and federal jurisdictions have remained almost identical in their interpretation of the common lav definition of charity, but there are variations in some minor statutory extensions. The main extension has been to follow the Recreational Charities Act 1958 (UK) which provides tha itis charitable to provide, or to assist in the provision of, facilities for recreation or other leisure-time occupation, if those facilities are provided “in the interests of social welfare’. This extension was in response to Jnfand Revenue Commissioner v Backdeley? and has been adopted with minor variations in Queensland, Westem Australia, South Australia, Tasmania and ‘New Zealand.” State courts mainly refer tothe definition of charity in respect of the supervision of charitable truss, dispositions in will, fund-raising regulation -onneetion with various statutes governing local tax exemptions. The federal courts have been dominated by cases stemming from the federal income tax legislation’s exemption of | “chtitable institutions’, For thirty years the only significant charity case pursued to the ultimate appeal court “Industry Commission, Charitable Organisations in Australia, Report No 45, AGPS, Canberra, 1995; Inquiry 3s, available at http/Avww.cdi.gov.au; Board of ‘Taxation, Consultation on the Definition of @ Charity — A report to the Treasurer, December 2003 available at hitp:/ivww taxboard.gov.au; Senate Feonomics Committee Report, December 2008 available at hitp:/ivwwaph.gov-aw/senatelcommitteeleconomics.ctte/charties.08/index.htmn 2 Extension of Charitable Purpose Act 2004 (Cth). * Prescribed Private Funds (PPP) are a tax effective vehicle for individuals, families and corporations to establish a foundation. ‘The sole purpose of a PPE must be to provide money, property or benefits to finds, authorities or institutions, which are deductible gift recipients. PPFs were patt of the Howard Government's response fo the report on philanthropy in Australia by the Business and Community Partnerships Working Group on Taxation Reform dated 26 March 1999. 443 Bliz, 1, Caps § Australian Taxation Office, Income fax and fringe benefits tax: charities, TR 2008/21 &22, dated 21 December 2005, $ [1985] AC S72 7 Trusts Act 1973 (Qld) s 103(2); Charitable Trusts Act 1962 (WA) s 5 (1); Charitable Trusts Act 1957 (NZ)s 61A(I; Trustee Act 1936 (SA) 69C; Variation of Trusts Act 1994 (Tas) $4 (8) 2 sas Commissioner. of Land Tax (NSHV) v. Joyce which was essentially concerned with whether charitable trustees could be an ‘institution’ for the purposes of taxation exemption.” Without a vibrant case flow the mn law began to show signs of ossification and there was no quasi-judicial body such as a Chavity jon to promote new understandings of charity relevant to the current environment “There are 15 pieces of Commonwealth legislation and 163 pieces of State and Territory Icgislation, under whieh ascertaining entitlement to a benefit or some other legal outcome involves determining the charitable purpose or status of an organisation.” The common legislative patter is thatthe common law definition of charity is not the sole gateway in determining charitable purpose. Charity is used as one word in a broader phrase such as "conimunity, patriotic or sporting purpose or 2 similar purpose prescribed under a regulation." Its the federal taxing statutes that use the term ‘charity’ alone and not as part ofa collection of ‘community purpose’ words. ‘The Industry Commission which examined charitable organisations in a long and wide-ranging report in 1995 :made a number of findings and recommendations about the inconsistent and poor state of ATO regulation and ‘uncertainty of the law of charity. Its recommendations have never been squarely address by the federal ‘government, partly as a consequence of the report being released at a time of a change of government, Some basic issues such as accounting standards, national legal form and funding arrangements identified for reform are sill awaiting attention. State Attorneys General are, in theory, responsible forthe supervision of charitable trast, but rarely is there any ‘evidence of any prosetive regulation. The ATO serves as the closest body to 2 national regulator, but does not require any annual reporting, financial or otherwise, from its endorsed charitable organisations. It was not until 2000 that it began constructing a formal register of charitable organisations with a taxation exemption, The urn of the century marks the begiming of change for Australia’s nonprofit sector and the fashioning of a reform agenda Australia’s Charity Law Reform In 1999 the federal government decided to reform the Ausiralian taxation systein by adopting a broad based transaction tax to replace a wholesale sales tax and some other state transaction taxes. The Federal government ‘would collect the tax, but the states were fo receive the proceeds and approve any amendments to it, The federal government did not control the upper house and required the votes of minor political party (Australian Democrats) fo pass the legislation. The Australian Democrats were sympathetic to the plight of nonprofit organisations many of whom had been exempt from wholesales sales tax (WST) based on theit taxation status, Ttwvas proposed that the broad-based transaction tax (known as the Goods and Services Tax (GST) would extend to all nonprofit organisations over a certain threshold, which would be subject to the GST apart from some minor exemptions for uncommercil trading, charitable gaming and the like, These exemptions were tied to the definition of “charitable institution” and “charitable fund”. Further, all charitable organisations would be rrequited to be endorsed through the revenue authorities before being able to access these and other exemptions As previously noted, in 1995 the Industry Commission had a number of serious concerns about the administration and clarity of tax Inw applying to charitable organisations and these concerns had also been ‘prowing in the sector.”? The prospect of losing a significant tex concession in the form of complete exemption from WS, and the imposition of a new tax in the form of the GST, with concessions tied closely to legal definitions, caused the nonprofit sector to lobby for a review ofthe definition of charities and related organisations. ‘To pass the GST legislation through the upper houise of the Australian Patliament the government made @ umber of concessions to secure the support of the Australian Democrats, including & promise to hold an inquiry into the definition of charity which was used to exempt or preference certain nonprofit organizations in respect 8 (1974) 132 CLR 22 (High Court). °-There was a minor matter involving a church car park in Bathurst City Council v. PIPC Properties (1998) 195 CLR 566, but itis hardly of any moment. "© Refer Submission 170 by the National Roundtable of Nonprofit Organisations, Senate Economies Committee Report, December 2008 available at httpu/svwvw.aph.govawisenate/eommittee/economics_ette/charities O8/index.htm 1 Industry Commission, Charitable Organisations in Australia, Report No 45, AGPS, Canberra, 1995 2 Industry Commission, Charitable Organisations in Australia, Report No 45, AGPS, Canberra, 1995 3 ‘of the tax. Nearly two yeats later the political promise was delivered, not through a full independent Law Reform Commission brief as expected by the Democrats, but a relatively quick ‘conmmittee” inquiry. On _18 September 2000, the then Prime Minister, John Howard, announced the establishment of an inquiry into definitional issues relating to charitable, religious and community service not-for-profit organisations. He said: “We need to ensure that the legislative and administrative framework in which thoy operate is ‘appropriate to the modem social and economic environment. Yet the common law definition of a charity, which is based on a legal concept dating back to 1601, has resulted in a numbet of legal definitions and often gives rise to legal disputes. The Inquiry will provide the government with options for enhancing the clarity and consistency of the existing definitions with respect to Commonwealth law and administrative practice, These should lead to legislative and administrative frameworks appropriate for Australia’s social and economic environment in the 2st Century.”” ‘Three lawyers were chosen to head the inquiry. The Chairman was the Hon I F Sheppard QC, former Judge of the Supreme Court of NSW and Federal Court of Australia, The other members of the Inquiry Committee were ‘Mr Robert Fitzgerald, Commissioner of Community Services NSW and former President of the Australian Council of Social Service (ACOSS), and Mr David Gonski, principal of a merchant bank, public company director and member ofthe Prime Minister's Community-Business Partnership. The Inquiry reported on 30 June 2001 to the Federal Treasurer: * The report made 27 recommendations, among which was the introduction of a statutory definition of ‘charity’ with an independent administrative body for federal law. Although the inquiry ‘worked under tight time constraints, @ large number of submissions were made by the sector, the general public and professional firms. TThe suggested definition of charitable purposes was as follows: Charitable purposes shall be: «+ the advancement* of health, which withou limitation includes: — the prevention and relief of sickness, disease or of human suffering; + the advancement* of education; «+ the advancement* of social and community welfare, which without limitation includes: = the prevention and relief of poverty, distress or disadvantage of individuals or families: = the care, support and protection of the aged and people with a disability; ~ the care, support and protection of children and young people: ~ the promotion of community development to enhance social and economic participation; and = the care and support of members or former members of the armed forces and the civil defence Sores and their families; + the advancement* of religion; + the advancement* of culture, which without limitation includes: ~ the promotion and fostering of eulture; and the care, preservation and protection of the Australian heritage; «+ the advancement* of the natural environment; and + other purposes beneficial to the community, which without limitation include: ~ the promotion and protection of efvil and human rights; and = the prevention and relief of sufering of animals, (“Advancement is taken to include protection, maintenance, support, esearch, improvement or enhancement.) ‘The Inquiry made a number of other recommendations such as: ‘+ thatthe common law exemption from the public benefit test in the case of poor relations’ and ‘poor ‘employees’ charities was considered anomalous and that such purposes should no longer be regarded as chacitable; "Available at hitp:/pandora.nla.gov-au/pan/10052/20010821- 0000/svww.pm.gov.awnews/media releases/2000/media_yelease456,him (Pandora Archive, National Library of ‘Australia, Inquiry into the Definition of Charities and Related Organisations, available at hitp:/Avww.edi,gov.au, ‘© that the public benefit test be strengthened by requiring the dominant purpose of a charitable entity to be altruistic; ‘© that selfhelp groups which have open and nos: the public benefit test; that care, support and protection of children and young people be recognised as a charitable purpose; that closed or contemplative religious orders regularly undertaking prayerful intervention at the request “of the public be held to satisfy the publie benefit test; that an independent administrative body or permanent advisory pancl be established; and ‘© that the federal goverument seek the agreement of all stato and territory governments to the adoption of the new definition, so the definition would remain similar across all Australian jurisdictions iminatory membership be regarded as having met On the 22nd July 2003, after corisidering the Inquiry report, the Federal Treasurer released a draft Bill and directed the Board of Taxation to consult on the workability of the proposed definition of charity. The Board of ‘Taxation is a body, independent of government, which reviews potential taxation legislation and advises the government on improving the design and effectiveness of the taxation system. It was established after the tax reforms accompanying the GST; as a means for the government to consult about the fine detail of proposed legislation and review the effect of implemented legislation. The Board was to consuit not about the announced policy of the Government, but about its workability. ‘The ‘Treasurer announced that: “The legislative def closely follows the definition that has been determined by over four centuries of common law, but will provide greater clarity and transparency for charities. I explicitly allows notefor-profit child care available to the public, self-help bodies that have open and nnon-discriminatory membership and closed or contemplative religious orders that offer prayerful intervention for the public, to be charities. The legislation is expected to begin on 1 July 2004.""" 1 took the traditional four heads of charity and divided them into seven heads, following the spirit ‘The Deaft 3 public comment, are ‘of the Inquiry’s recommendations. The proposed sections, which have raised only n 10 References to charitable purpose (1) A reference in any Act 10 a charitable purpose is a reference to any of te following purposes: (@ the advancement of health; (®) the advancement of education; (©) the advancement of social or community welfare: (@ the advancement of religion; (0) the advancement of culture: @ the advancement of the natural environment; (@) any other purpose that is beneficial to the comnnunity. (2) Advancement includes protection, maintenance, support, research and improvement. 11 Advancement of social or community welfare Without limiting what constitutes the advancement of social or community welfare, advancement of social or community welfare includes: (a) the care of, and the support and protection of children ane young people: and (®) inpartieutar, the provision of child cave services, 12 Religion () In determining, for the purposes of paragraph 10(1)(@, whether particular Ideas, practices and observances constitute a religion, regard isto be had to: (a) whether the ideas and practices involve belief in the supernatural; and itp://treasurer,gov.aw/DispliyDoes.aspx?pagelD=Sdoc=pressreleases/2003/059 himé&min=phe Ayailable 5 ©) whether the ideas relate to people's nature and place in the universe and their relation to things supernatural; ard (©) whether the ideas are accepted by adherents as requiring or encouraging them to observe articular standards or codes of conduct or to parteipate in speeifie practices having supernatural significance: and (A) whether, however loosely knit and varying in beliefs and practices adherems may be, they ‘constitute one or more identifiable groups; and (©) whether adherents see the collection of ideas andlor practices as constituting a religion. 2) This section does not limit the matiers to which regard may be had in determining whether articular ideas, practices and observances constitute a religion, ‘Other provisions in the Draft Bill caused significant public discussion. In a move that proved controversial, the Bill made the following disqualifying purposes: illegal activities; ‘dvocating a political party or cause; supporting a candidate for political office; and attempting to change the law or govemment policy. With the exception of illegal activities, the purpose would be a disqualifying purpose if it, either by itself or when taken together with one or both of the other of these purposes, was “more than ancillary or incidental to the other purposes” ofthe entity concerned. ‘A significant number of submissions argued that the draft Bill was an attack on their ability to advocate for @ politcal cause or attempt to change the law or government policy. When that was combined with about how regulators (mainly the ATO) would actually decide whether a disqualifying purpose “i ‘ancillary or incidental to the other purposes ofthe entity concemed”, it created a deep sense of foreboding in the nonprofit sector, These debates were occurring a the same time as federal government funding contracts for ‘community services were increasingly containing ‘gag’ clauses which prevented to varying degrees a funded ‘organisation from speaking publicly on an issue unless it had prior government approval Further, there was concern about how the ATO would determine what were the ‘purposes’ of an organisation and what was merely an ‘activity to achieve a purpose” in its draft ruling on the definition of charity (TR1999/D21) and the effect ofthe Bill provisions. The issue, crudely stated, was how to determine whether an organisations is a business that does ‘chatity’ work or a charity that cross-subsidises its work with some business activites? An exampie which illustrates this point hos recently come before the High Court: an organisation which operates a funeral business with all profits given toa charitable purpose. ‘The draft Bill also sought to prevent any organisation that had engaged in a serious criminal offence Getrospective and no recording ofa convietion required) from charitable status, with no means of rehabilitation. Many organisations were nervous about such a provision given the increasing move to stvet liability offences for the actions oftheir employees and volunteers; and it was not a recommendation or issue of discussion by the CDI. It was perceived by many as a legislative weapon (o wield agains strident and politically embarrassing nonprofit organisations. ‘The draft Bill also sought to alter the public benefit element of the common law definition. Under the first three heads of charity in the common law there is « general presumption tht, printa facie, the element of public benefit is satisfied. Under the draft Bill this would no longer be the case and all organisations would be required to positively satisfy the test oPhaving a purpose for the public benefit whieh + is aimed at achieving a universal or common good; has practical utility; ane * is directed to the benefit of the general community or toa sufficient section of the general community. ne such as private schools and religious bodies were concemed about the application of such a provision to their operations, as has occurred in the UK jurisdictions over similar provisions. ‘ Commissioner of Taxation v Word Investments Ltd [2008] HCA $5 (High Court of Austealia, 3 December 2008). 6 “The strategy of the draft Rill was to codify the existing common law of charity and to expand it in certain respects. A more conservative drafting approach would be simply to add the new purposes and delete undesired purposes, leaving the common Jato stand. This is the approach taken in both England and Australia in the amendment of the definition of charity to include recreational facilities, implementation of which has been quite successful. It was also to be the pattern of the charity reforming legislation in England, Wales, Ireland, Northern Ireland and Scotland. There had been concern amongst some influcntial charity lawyers” submissions that codification would erente unnecessary uncertainty and complications. ‘The draft Bill only applied to the Federal jurisdiction and the stat jurisdictions did not show any enthusiasin to adopt the proposals. This would have led to a situation where the old common law applied to issues reserved under the Constitution to states and territories and the new definition applied to federal matters, chiefly income tax. The CDI had recommended that efforts be made to align the definitions in different jurisdictions. ‘The Boatd of Taxation handed its report on the workability of the proposed definition to the Treasurer in late December, 2003 and the Treasurer announced the government's intention in his budget address. The Ext jon of Charitable Purpose Act 2004 On [1 May 2004 the Federal Treasurer announced that:”” [tJhe common law meaning of charity will continue to apply, but the definition will be extended to include certain child care and sel help groups, and closed or contemplative religious orders. The Government has decided not to proceed with the draft Charities Bill” ‘The Extension of Charitable Purpose Act 2004 (Cth), proposed as part of the Tax Laws Amendment (2005 ‘Measures No, 3) Act 2005 enlarged the charity law definition for federal purposes to include child care, self-help ‘groups and closed religious orders. ‘These three extensions were relatively uncontroversial. In most other charity nw jurisdictions, nonprofit childcare in the form of kindergartens, playgroups and childcare centres is regarded as charitable without any concem, of litigation to establish the point. A deal of confusion had arisen because the ATO, under its interpretation of another taxation exemption provision styled ‘educational institution’, had made ad between a formal school with a curriculum and mere child minding services, The provision resolved tI and the ATO was able to endorse such bodies as charities. ‘The issue of closed religious orders being able to satisfy the public benefit test was also of minimal impact as the vast majority had apparently already been endorsed as charitable institutions by the ATO, The third extension to cure the public benefit defect for self-help groups had been identified by the CDI Report, as such approaches were very effective in achieving beter outcomes for those in need than the passive model of providing assistance that often characterized a chavity model. This was an innovation and to be applauded as an appropriate extension ofthe charitable definition which serves the public interest All federal statutes (not just taxing acts) are now modified by this legislation, but it has not been taken up by any state jurisdiction to reform their definition of charity. ‘Sennte Economics Committee 2008 1.2007 the Australian Labor Party was in power federally, for the first time since the 1995 Industry Commission Inquiry, and had platform of nonprofit sector reform which included: a strong policy theme of ‘Social inclusion’; investigation of a UK-style sector compact; and restoration ofthe ability of nonprofit organisations to participate in policy debates by removing ‘gag’ clauses in funding contracts.” On 18 June 1 Costello, P, "Final Response to the Charities Definition Inquiry’, Press Release, No. 31, 1] May 2004. © Refer chapter 13. ° New Directions: Transforming the Social Economy, Kevin Rudd MP Federal Labor Leader; Julia Gillard MP Deputy Labor Leader, Shadow Minister for Employment and Industrial Relations, Shadow Minister for Inclusion; Senator Ursula Stephens Parliamentary Secretary to the Federal Parliamentary Leader (as she then vas), September 2007; and An Australian Social Inelusion Agenda Julia Gillard MP Deputy Federal Labor 7 2008, Senator Allison (Democrats) moved that the Senate note the recent report on charities by the consumer ‘organisation CHOICE.” That report highlighted the wide variability and inconsistency in the way that chaities disclose information to the public, and acknowledged that the 27 recommendations from the 2001 report of the Inquiry into the Definition of Charities and Related Organisations had not been implemented. ‘The Senate agreed to send the matter fo the Senate Standing Committee on Economics, for report by the last sitting day of November 2008. ‘The Inquiry’s formal terms of reference were to examine: 1. the relevance and appropriateness of current disclosure regimes for charities and all other not-for-profit organisations; 2. models of regulation and legal forms that would improve governance and management of chatities and not-for-profit organisations and cater for emerging social enterprises; and 3. other measures that can be taken by goverment and the not-for-profit sector to assist the sector to improve governance, stendards, accountability, and transparency in its use of public and government funds, After receiving submissions and taking evidence, the Committee published a report in December 2008.11 red 15 recominencations and its central theme was that the nonprofit secfor requited a single, independent nal regulator overseeing national legislation in respect of fundraising, annual reporting and simplified legat structures. I strongly recommended that the new national regulator develop a Guidestar-type system it Australia for nonprofit financial returns. It proposed that the Government should convene a taskforce to develop stuch reforms together with « new unit within the Department of Prime Minister and Cabinet reporting to a Minister forthe Third Sector. The Government is yet to respond to the report. It appeats that the appetite in the nonprofit sector for an independent, wellvesoureed regulator has fied with 80 out of 178 submissions to the Committee supporting such a regulator, 75 not addressing the issue (including 10 withheld submissions) with just 23 opposing or having mixed views about the concept. Superior Court Cases and Charity As mentioned above, for a period of thitty years there were no significant Australian High Court decisions on the definition of charity and relatively litle lower court activity, Since the ATO's publie ruling on the definition ‘of charity there have been a number of cases on the issuc in the superior courts and two well-argued High Court ecisions.” The challenge to tax status through the ATO endorsement process and funding of test cases by the ATO have directly accounted for some of this increased litigation. Less obvious is the developing willingness of the legal profession to express alternative views to the ATO on charity lay issues and of organisations to seek redross through the judicial system. In the lower courts there has been mixed bag of decisions around the definition of charity, some of which will probably merely stand on their individual facts and findings such as the yacht chub” and the women's lawyers, association,” which were found to be chatitable Central Bayside Division of General Practice Ltd v Commissioner of State Revenuewas a High Coutt ease Which concemed the degree of independence from government control required for an organisation to be regarded as chatitable. Central Bayside Division of General Practice Ltd (Central Bayside) sought exemption from payroll tax in Vietoria on the basis thatthe wages were paid “by a charitable body ... to a person during a Leader, Shadow Minister for Employment and Industrial Relations, Shadow Minister for Social Inclusion ‘Senator Penny Wong Shadow Minister for Workforce Participation (2007 Election Policy document) ® The Democrats hed been the minor party that forced the then government into conducting the CDI, but since none of the party's candies was stccessfil in the 2007 election, they would shortly cease to have any senators in the Parliament, *" Published online in March 2008: http:lAvwnw.choice.com au/viewArticle.aspx?id=106240&catld=10026881id=100008, ® Central Bayside Division of General Practice Ltd v Commissioner of State Revenue [2006] HCA 43; Gommissioner of Taxation of the Commonwealth of Australia v Word Investments Ltd [2008] HCA 55 ® Yachting Australia Incorporated v Chief Commissioner of State Revenue 2005 NSWADT. ™ Victorian Women Lawyers! Association Ine v Commissioner of Taxation [2008] FCA 983 * [2006] HCA 43. 8 the petiod in respect of which the body satisfies the Commissioner thatthe person is engaged exclusively work of the body of charitable nature”. Central Bayside was a company limited by guarantee whose members were general medical practitioners in the Central Bayside area of Melbourne. The directors were appointed by the members without government interference, and the government had no power to dismiss them, Central Bayside was part of a nationwide scheme designed by the Commonwvealth government to promote healthcare ata local level through the Divisions of General Practice Program. It was agreed or assumed by all judges that its constitutional objects were charitable, falling within the head of “purposes beneficial to the community”, About 93% of Central Bayside's \come was from government grants with about 43% being an “outcomes based funding” grant from the ‘Commonwealth. The funding was contractual in nature, rather than a statutory appropriation. Central Bayside's ‘other income was derived from advertising, sponsorship and interest. ‘The Commissioner of State Revenue initially decided that Central Bayside was nota ‘charitable body” because: 1. its main purpose was to protect and advance the interests of its members, and 21 it was merely a governmental conduit executing government policy. (On the first issue, the Commissioner conceded atthe primary appeal heating that Central Bayside’s main purpose was not “to protect and advance the interests ofits members”, Both the primary appeal and full court appeal judges and the High Court remarked that they were not sure why this concession was made. The onteome may have been different if this issue had been argued fully. Central Bayside initially took the matter fo the Vietorian Civil and Administrative Tribunal; then on appeal to the Supreme Court of Victor, and further to the Court of Appeal ofthe Supreme Court of Victoria.” Is argument was dismissed in each of these hearings. The appeals were basically dismissed on the ground that the ‘appellant's "core activities are performed pursuant to the dictates of government” or that Central Baysice was "a ‘creature and agent of government". These conclusions were drawn from output-besed agreements under which it ‘vas funded and from Central Bayside’s being part of an intentional government policy strategy. On the other hand, all five judges of the High Court arrived at the conclusion that Central Bayside was a ‘charitable body’, However, there were three separate judgments with varying reasons for the decision, Gleeson J, Heydon and Crennan JJ all agreed thatthe funding agreements did not take independence away from Central Bayside. It could decide whether to accept or reect the funding, as Central Bayside had an independently formed board which made its own decisions. Just because a chacity has the same goals as government, does not ‘mean, without moro, that itis not independent of government, It may have been different ifthe Central Bayside board were appointed, dismissed or controlled by government, Justice Callinan in a separate judgment agreed in principle with this line of reasoning. Justice Kirby, while reaching the same result, did so after an interesting review ofthe place of the definition of chavty in modem Australian society. He noted that, “For judges, no longer subject to the authority of Imperial or Fnglish courts, to maintain obedience to conceptions of "charity" end "charitable bodies", expressed in such different times, seems, on the face of things, an irrational surrender to the pull of history over contemporary understandings of language used in a modem Australian statute.” However, Justice Kirby did not seek to overturn the current judicial definition of eharity Inthe other High Court case, Commissioner of Taxation of the Commonwealth of Australia v Word Investments ‘Lid there has been a significant challenge to the view of the law published by the ATO. The heart ofthe issue ‘goes to the purpose and activity debate that characterised the CDI inquiry and then the ill-fated draft Charities Bill of 2003. At the time of writing, the ATO or the goverment had not formally indicated their response to the decision which appears to entrench the ‘destination of income test” in Australia. % Contral Bayside Division of General Practice Ltd v Commissioner of State Revenwe VCAT no. 2002/137; Central Bayside Division of General Practice Lid v Commissioner of State Revenue [2003] VSC 285 (Supreme Coutt of Victoria, Commercial and Equity Division, Nettle J); Central Bayside Division of General Practice Ltd +» Commissioner of State Revenue [2005] VSCA 168 (Court of Appeal, Chernov JA and Osbom AJA; Byme AJA dissenting). 2 Central Bayside Division of General Practice Ltd v Commissioner of State Revenue [2006] HCA 43 at ? 2 [2008] HCA 55, 9 ‘Gummow, Hayne, Heydon and Crennen JJ found that Word Investments Ltd (Word) was entitled to be regarded asa ‘charitable institution’ under the Income Tax legislation. Kirby, J found for the Commissioner of Taxation and decided that Word was not entitled to be regarded as a charitable institution. Word (a nonprofit company limited by guarantee) was founded by members closely associated with Wyeliffe (a ‘religious charity), The members wanted to wse Word to raise money within Australia and give it to Wycliffe for carrying ott its purposes, which, atleast to some degree, were fulfilled overseas. From about 1986 Word began to accept deposits from members of the public. The depositors received little ot no interest from Word, but Word invested the money at commercial rates of interest. Inthe period 1996-2002, Word operated a business of conducting funerals, not all Christian, for profit. The profits generated from the investment business and the funeral business were used fo support Christian activities in the form of Bible translation and missionary work largely carried out by Wyeliffe and other boxties to whom the non-retained profits were given. Wor! applied to the Commissioner for endorsement as exempt from income tax. The ‘Commissioner refused that application by leter of 2 May 2001. The leter said: "Commercial enterprise entities are not considered to be charities. This isthe ease irrespective of ‘whether charitable consequences flow fom the entity's activities. ‘The first issue posed by the Commissioner was whether Word was prevented fiom being a "charitable institution" by reason of the fact that its objects were not confined to charitable purposes. The majority of the High Court found that the Word company’s constitutional objectives, although containing ‘povers® was still charitable, being that of advancing religious charitable purposes. Both the intention atthe time Word was formed ard its activities since indicated that it was charitable. The Court noted that this test had to be applied and assessed for each income tax year. ‘The second issue posed by the Commissioner was whether: “an entity, which does not itself engage in any significant charitable activities but, rather, is established to conduct, and conducts, an investment, trading or other commercial activity for profit (albeit not for

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