The Australian Taxation Office’s (“ATO”) construction of a public benevolent institution (“PBI”) as having to provide direct relief to people in need has again been rejected.
The Full Federal Court’s decision in Commissioner of Taxation v Hunger Project Australia on 13 June 2014 confirms that a fundraising organisation can be recognised as a PBI even though it does not provide direct relief. The Federal Court previously reached the same conclusion. In the case, the Hunger Project Australia (“HPA”) raised funds in Australia to relieve world hunger. It passed those funds to Hunger Project entities in developing countries (for example, Hunger Project Bangladesh), which in turn delivered the relief.
The Court rejected the submissions of the ATO and reaffirmed the approach taken in Word Investments in which the High Court found that an organisation which raised money through commercial activity was accepted to be an institution.
The Court considered the ordinary meaning of a PBI to include an institution “which is organised, or conducted for, or promotes the relief of poverty or distress”. Benevolence need not manifest itself in the form of the organisation’s volunteers or employees providing relief like food or shelter.
The key concluding remark by the Court was that “public benevolent institution is broad enough to encompass an institution, like HPA, which raises funds for provision to associated entities for use in programs for the relief of hunger in the developing world. The fact that such an institution does not itself directly give or provide that relief, but does so via related or associated entities, is no bar to it being a public benevolent institution. Such an institution is capable of being considered to be an institution organised or conducted for the relief of poverty, sickness, destitution and helplessness”.
This is a positive outcome as charities previously denied PBI status (eg those that fundraise and pass funds to others) may now be considered eligible. It also assures existing PBIs that they can engage contractors to pursue their benevolent purposes. This is a great result for the not-for-profit sector.
The ATO has until 11 July 2014 in which to seek special leave to appeal to the High Court. Special leave is only granted where a question of law is raised that is of public importance or is “in the interests of the administration of justice”. If an appeal is allowed to proceed to the High Court, it may be some time before the final outcome is known.