Judgement Paves Way for More PBI Endorsements
22 August 2013 at 9:50 am
A Federal Court decision has removed the requirement of 'direct relief' used by the Tax Office to deny Public Benefit Institution endorsement and is set to have a significant impact on organisations that have previously been denied PBI status, according to a Not for Profit tax expert.
The Australian Federal court decision was made in July in a case by the Hunger Project Australia.
“This has provided another loss to the Taxation Commissioner in the charity space, this time the loss relates to the definition of a Public Benevolent Institution (PBI). The case removed the requirement of 'direct relief' which has been the foundation for substantial denials of PBI endorsement from the ATO,” Tax Director with Moore Stephens in Melbourne, Stephen O’Flynn
The Hunger Project Australia is a participant in a global collaboration of organisations whose principal aim is the relief of hunger. The court heard that the Project's predominant activity is fundraising. Funds raised are paid to other organisations who undertake the direct hunger relief activities across the globe.
The court was told that the Project does not itself participate directly in any charitable activities of substance.
The organisation applied for endorsement as a PBI from the Commissioner of Taxation. The Commissioner rejected this application on the basis that the Project was not involved directly in benevolent relief. The organisation appealed this decision.
“In its decision, the Federal Court expanded a previous decision made in Commissioner of Taxation v Word Investments (2008). In Word Investments it was held that an organisation was not prevented from being a charity merely because it directed funds to other charitable entities rather than carrying out its own charitable activities,” O’Flynn said.
“In the Project's case His Honour found that the principles in Word Investments should be expanded to PBIs and not purely to charities. His Honour stated that where an organisation has a benevolent objective that is clear and not merely abstract in nature, and the organisation engages in fundraising activities to support this objective, it can qualify as a PBI. There is therefore no need for direct relief to be provided.”
O’Flynn said that whilst this case may be subject to an appeal, cases have not been falling in the Commissioner's favour and a re-application for endorsement may prove successful in light of the decision in the Project's case.
“With the need for direct relief having been removed by the Federal Court there is now an encouraging pathway for PBI's that currently have, or intend to develop, either a fundraising division of their institution or a connection with charitable activities to still be endorsed as PBIs for the purposes of the FBT exemption,” O’Flynn said.