ATO Appeals Charity 'Business' Decision

The Commissioner of Taxation has applied for special leave to appeal to the High Court against a decision made last November that a charity could raise money through business without paying company tax as long as the charitable purpose is its only motive for making profit.

The Federal Court ruling in November relates to the case of a Melbourne funeral business called Bethel Funerals, which is run to raise money for the Not for Profit organisation Wycliffe Bible Translators to translate the Bible into hundreds of different languages.

The business was set up under the name of Word Investment Limited.

Wycliffe’s solicitor, Murray Baird of Moores Legal Services told The Age newspaper that the drying up of government funding for charities, combined with donor fatigue, meant that charities had to become more entrepreneurial to survive.

The Tax Office took the view that they had crossed the line, that churches and charities must not be too entrepreneurial.

But the Tax Office had been over-ruled in the Administrative Appeals Tribunal and the Federal Court, and then the full bench of the Federal Court confirmed that businesses were not taxable as long as the profits were entirely used for the charity and to advance religion.

The ATO says it will continue to apply the Tax Office view pending the High Court’s decision on the application for special leave to appeal and any subsequent decision should the application be granted.

However, solicitor, Murray Baird says it’s surprising that the ATO has decided not to abide by the Federal Court ruling until the appeal process is complete.

He says Special leave application is a process whereby the High Court decides whether it will hear a proposed appeal.
The Court primarily has regard to two matters:
1. whether the question of law in the case is of public importance; or
2. whether the Court should resolve differences of opinion between Courts as to the state of the law.

Baird says it could take some months for the application to be heard. In the meantime, the law is as stated by the Full Court of the Federal Court. Provided the purpose of activity is charitable then the fruits of that activity ought not to be subject to income tax.

According to tax experts the ruling means that charities may seek millions of dollars back from the Australian Taxation Office and may venture into new businesses.

Tax lawyer Duncan Baxter told The Age newspaper that the outcome was doubly helpful for charities, because they won the case and because it clearly showed what they could do while staying tax-exempt.

Baxter, the practice head-tax at the law firm, Blake Dawson is reported as saying charities would be well-advised to have a close look at their activities and see whether some can be extended.