Government's response to key tax decisions
The Federal Government and Australian Taxation Office (ATO) have each released information in response to the following two decisions regarding the taxation of charitable institutions:
Both cases are in relation to the assessment of a 'charitable institution', and the subsequent tax concessions that are available to these organisations. The Government has recently sought to clarify and limit the impact of these two decisions, as detailed below.
Budget response to Word Investments decision
In announcing the Budget in May 2009, the Federal Government indicated that it will be seeking to amend legislation to reverse the recent High Court decision in Commissioner of Taxation v Word Investments.
As a brief background, December 2008 saw the High Court hand down the Word decision which overturned a determination by the ATO that Word Investments’ business activities (which raised funds for another charity) prevented the organisation from being considered ‘charitable’.
The practical impact of the High Court’s decision is that an organisation could still be considered ‘charitable’ even where it is a commercial venture and profits are put towards charitable purposes. Secondly, the decision suggested that even when that organisation distributes profits to a charity which carries out activities overseas, the organisation is still considered to be pursuing its objectives principally in Australia. A case summary of the High Court’s decision is available at www.pilch.org.au/word/.
The Government now intends to introduce changes that will allow the ATO to fully scrutinize organisations that are seeking to pass money to overseas charities and other entities.
The Government has decided to wait until the outcome of the Henry Review into Australia’s Tax System before addressing the High Court’s treatment of commercial activities of charities contained in the Word decision.
The Government's interim response is available at: http://assistant.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2009/043.htm&pageID=003&min=ceb&Year=&DocType=0
ATO response to decision Australian Women’s Lawyers case
The ATO has released a ‘decision impact statement’ following the Federal Court’s decision in Victorian Women Lawyers’ Association Inc v Commissioner of Taxation. In that decision, the Federal Court held that the VWLA was a charitable institution, despite hosting a number of activities that appeared to only benefit its members (i.e. social functions, seminars and publications).
The Court found that while there were elements of the VWLA’s activities which were private member benefits, the organisation was held to have maintained its principal function of providing a broader community benefit which included the removal of barriers and increasing opportunities for women in the legal profession.
In its decision impact statement, the ATO clarifies that the Federal Court’s approach does not extend the current definition of a ‘charitable institution’. Instead, the ATO holds the view that where there are member benefits within an organisation, it can still be considered charitable where those member benefits are merely ‘incidental or ancillary’ to the broader purpose of providing a benefit to the community.
The full ATO decision impact statement can be found at: http://law.ato.gov.au/atolaw/view.htm?DocID=LIT/ICD/VID1369/00001