The Full Court of the Federal Court recently handed down its decision in Federal Commissioner of Taxation v Hunger Project Australia [2014] FCAFC 69.

Dismissing the appeal of the Commissioner, the Full Court found that Hunger Project Australia (HPA) was a “public benevolent institution” (PBI) within the meaning of s 57A(1) of the Fringe Benefits Tax Assessment Act 1986 (Act).  Accordingly, HPA was entitled to claim an exemption from fringe benefits tax (FBT).

Background

HPA is a not-for-profit company which is part of a global network of entities that operate under the name “The Hunger Project”.  The principal objective of the Hunger Project is the relief of global hunger.  HPA raises funds which are then disseminated to Hunger Project member entities in the developing world.  It is those entities that directly perform charitable acts to relieve hunger.

The Commissioner refused HPA’s application for endorsement as a PBI under the Act.

HPA successfully appealed against that decision.  The judge at first instance held that HPA was entitled to endorsement as a PBI.

The Commissioner’s appeal to the Full Federal Court was dismissed.

Summary

The Commissioner’s main contention, both at first instance and on appeal, was that a PBI must perform charitable works directlyfor the benefit of the public.  It follows, the Commissioner contended, that HPA was not a PBI as it was more or less solely engaged in fundraising activities and did not provide any material direct relief to those in need.

The Commissioner relied on earlier authorities that considered the ordinary meaning of ‘public benevolent institution’ in the context of other legislation.  The Full Court distinguished those authorities and found that none of them stood for the proposition that a PBI entity must directly dispense relief.

Instead, the Full Court adopted the reasoning of the High Court in Federal Commissioner of Taxation v Word Investments (2008) 236 CLR 204 (Word) where the High Court considered the meaning of ‘charitable institution’.  In Word, the majority reasoned that it would be unsound to distinguish between a company that spends money on charitable objects and a company that raises money to distribute to other entities who spend the money on charitable objects.

In determining whether an institution is a PBI, the Court rejected the Commissioner’s approach that focuses on the structure of the organisation, as opposed to the substance of its objectives and activities.  The Court concluded that the ordinary meaning of PBI had changed over time “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”.

Result

HPA was entitled to endorsement as a PBI with the result that the benefits it provided to its employees were exempt from FBT under s 57A(1) of the Act. 

The decision opens the door for organisations which raise funds for use by others who directly dispense relief to apply for endorsement as PBIs.