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[2013] WASAT 89
State Administrative Tribunal (WA)
2013-06-17
Mr J
Original judgment source is linked above.
The applicant owns and operates a retirement village within the City of Mandurah. The applicant sought an exemption from rates on the ground that the property was used exclusively for charitable purposes. The City refused the exemption, saying that the residents of the village occupied their units for full cost. This precluded the land from being used for a charitable purpose. The parties agreed that the effect of charging for the units was the only point of difference between them and the applicant referred the matter to the Tribunal. The Tribunal considered the legal technical meaning of a charitable purpose. The Tribunal noted that no profits from the village were paid to a private owner but instead were retained by the applicant, which is a notforprofit organisation. The Tribunal concluded that the charging of occupancy costs at or around commercial rates did not affect the charitable status of the village. The Tribunal noted, however, that the outcome might have been different if the rates charged were so high that only a limited portion of the community, namely the very wealthy, could afford to take up a place at the village.
Income Tax Special Purpose Commissioners v Pemsel [1891] UKHL 1; [1891] AC 531
Inland Revenue Commissioners v Society of Widows & Orphans of Medical Men (1926) 136 LT 60
Joseph Rowntree Memorial Trust Housing Association Ltd v AttorneyGeneral [1983] 1 All ER 288
Lloyd v Federal Commissioner of Taxation [1955] HCA 71; (1955) 93 CLR 645
North Fremantle Municipality v Saw [1906] WALawRp 38; (1906) 8 WALR 164
Retirees WA (Inc) and City of Belmont [2010] WASAT 56
Thompson v Federal Commissioner of Taxation [1959] HCA 66; (1959) 102 CLR 315
Uniting Church Homes (Inc) and City of Stirling [2005] WASAT 191
West Australian Baptist Hospital & Homes Trust Inc v City of South Perth [1978] WAR 65
1 Between January 2009 and November 2011, the applicant (RAAFA) had lodged a series of objections with the respondent (City) about the City's rate records for the 2008/2009, 2009/2010, 2010/2011 and 2011/2012 rating years (Relevant Rating Years). The objections relate to land belonging to RAAFA and comprising Lots 102, 711 and 212 Oakleigh Drive, Erskine (Land). RAAFA operates a retirement village on the Land known as Erskine Grove (Erskine Grove). RAAFA claims that for each of the Relevant Rating Years the Land was used exclusively for charitable purposes and, pursuant to s 6.26(2)(g) of the LG Act, is not rateable land.
2 On 25 January 2012, the City dismissed RAAFA's objections under s 6.76(1)(a)(ii) of the Local Government Act 1995 (WA) (LG Act). The City's reasons for its decision are set out as follows:
Each of the rating objections lodged by [RAAFA] in relation to [the Property] for the [Relevant Rating Years] BE DISALLOWED pursuant to s 6.76(5) of [LG Act] for the following reasons:
1.1 [RAAFA] uses the Land to provide accommodation and services to residents in return for the full cost of so doing;
1.2 this use does not constitute a charitable purpose within the meaning of s 6.26(2)(g) of [LG Act]; and
1.3 as a result of this, (the Land) is not being used 'exclusively for charitable purposes' within the meaning of s 6.26(2)(g) of [LG Act] and is therefore rateable land.
3 RAAFA applied to the Tribunal on 6 March 2012 for a review of that decision.
4 The matter first came before the Tribunal for directions on 23 March 2012. Various orders were made which were to be complied with by the next hearing, on 8 June 2012. The time for compliance with those orders was extended on numerous occasions by consent and by February 2013 the parties had agreed between them that the issues in contention had been considerably narrowed. That gave rise to the identification by the parties of preliminary issues about which these reasons are concerned.
5 The Tribunal then ordered the parties to file a statement of those preliminary issues, which they did on 19 March 2013. The applicant summarised those preliminary issues in its written submissions filed with the Tribunal on 28 March 2013 as being 'whether or not fees and charges that are payable by residents of Erskine Grove to RAAFA are such as to preclude the use of the [Land] being for a charitable purpose'.
6 The matter was heard by the Tribunal on 5 April 2013.
Rateable land and objections to rate record legislative background
7 Part 6, Div 6 of the LG Act contains the provisions that govern the imposition of rates and service charges.
8 Pursuant to s 6.26(1) of the LG Act 'all land within a district is rateable land' except as provided in that section. However, under s 6.26(2)(g), 'land used exclusively for charitable purposes' is not rateable.
9 Section 6.26(6) of the LG Act provides that land does not cease to be used exclusively for a charitable purpose merely because it is used occasionally for another purpose which is of a charitable, benevolent, religious or public nature.
10 Section 6.41(1)(a) of the LG Act provides that a local government is required to give to the owner of rateable land a rate notice stating the date the rate notice was issued and incorporating or accompanied by the details and particulars prescribed.
11 Pursuant to s 6.76(1)(a)(ii) of the LG Act, a person may object to the rate record of a local government on the ground that there is an error in the rate record on the basis that the land or part of the land is not rateable. The local government is to promptly consider any objection and may either disallow it or allow it, wholly or in part: s 6.76(5) of the LG Act.
Any person who is dissatisfied with the decision of a local government on an objection by that person under section 6.76 may, within 42 days (or such further period as the State Administrative Tribunal, for reasonable cause shown by the person, allows) after service of notice of the decision, apply to the State Administrative Tribunal for a review of the decision.
(1) Upon a review by the State Administrative Tribunal under section 6.77 or 6.78, the State Administrative Tribunal may consider
(a) grounds in addition to those stated in the notice of objection; and
(b) reasons in addition to any reasons previously given for the local government's decision that is under review.
If the State Administrative Tribunal considers that an order it makes determining a matter coming before it on a reference under section 6.77 or 6.78 is of general interest or significance, it is to prepare written reasons for its order and give a copy of the reasons to each party and publish the written reasons.
15 The facts of this matter are set out in an agreed statement of facts filed on 27 March 2013. So far as they are relevant, they are as follows.
16 RAAFA is a body corporate and an association incorporated pursuant to s 9(1) of the Associations Incorporation Act 1987 (WA). RAAFA operates a number of aged care and independent living unit facilities in Western Australia. RAAFA is a notforprofit organisation, the income and property of which are applied solely to the promotion of its objects and are not paid directly of indirectly by way of pecuniary profit to any member or any other person. RAAFA is:
17 RAAFA is the registered proprietor of the Land. During each of the Relevant Rating Years referred to above, the City issued approximately 197 rates notices to RAAFA in relation to the Land (Rates Notices). The Rates Notices were issued by the City in accordance with Pt 6 Div 6 of the LG Act, and were issued to RAAFA as the owner of the Land.
18 Erskine Grove consists of 197 independent living units (ILUs) and a village centre and community centre (Village). The ILUs are operated as a retirement village under the provisions of the Retirement Villages Act 1992 (WA). The Village includes such facilities as a gymnasium, an activity room, a library and an arts and crafts workshop. With some exceptions, the residents may use those facilities within the Village without paying any additional fee.
19 Apart from occasional Lotterywest grants, RAAFA does not receive any funding in respect of the facilities and services provided either from the Commonwealth or State Governments or from any other external source. The costs to RAAFA of providing the facilities and services at Erskine Grove are funded through entry loans, retention sums and operating costs charges.
20 An ingoing resident to an ILU must pay an interest free entry loan to RAAFA in consideration of the grant of a Lease (Entry Loan). Since Erskine Grove commenced operations, each resident of an ILU has paid an Entry Loan ranging from $160,000 to $307,000 depending on the ILU concerned. This is calculated based on the median house price of the locality and the equivalent charges being made by other retirement villages in the locality. Upon the termination of the Lease, RAAFA must repay the Entry Loan, less a retention sum, to the resident or his or her estate.
21 The residents of each ILU must also pay to RAAFA an operating costs charge as a contribution to operating costs by monthly payments in advance. The operating costs charge is an annual charge equal to 25% of the Single Aged Pension per annum where an ILU is occupied by one person (or 30% if an ILU is occupied by two persons). The operating costs charge may be increased in the following financial year where it is anticipated that there will be a shortfall between this charge and the Village's operating costs. Where the actual operating costs of Erskine Grove are less than the fee collected by the operating costs charge in any financial year, RAAFA must either apply the surplus against the following financial year's operating costs or, where the residents so resolve, to a purpose that is of benefit to the residents.
22 RAAFA's ByLaws contain provisions for determining priority for entry to residency in an ILU, through a points system and a waiting list. However, in practice, none of the vacancies that were filled at Erskine Grove during the Relevant Rating Years were filled from persons on the waiting list. All of the vacancies were advertised and offered to the general public.
By virtue of their residency of a Division Residential Aged Care Facility all residents of Aged Care Facilities are automatically Division Social Members (of RAAFA) in accordance with Rule 5 of the Division Constitution.
24 During the Relevant Rating Years, RAAFA did not receive any requests for concessions in relation to the Entry Loan from people wishing to take up residency at Erskine Grove but who were unable to pay the full amount of the Entry Loan due to their financial circumstances. RAAFA had received several such requests prior to the Relevant Rating Years, all of which were agreed to and were still in effect during at least some of the Relevant Rating Years.
25 As I mentioned earlier in these reasons, the parties have agreed the issues to be determined (Preliminary Issues) and a statement setting out the Preliminary Issues was filed with the Tribunal on 19 March 2013. At the hearing of this matter on 5 April 2013, the parties agreed on a minor amendment to that statement (T:41; 05.04.13). The amended statement of the Preliminary Issues for determination by the Tribunal (with the amendment shown in italics) now reads as follows:
Could it be concluded that the Land was used exclusively for charitable purposes within the meaning of s 6.26 of (LG Act) by providing relief of the aged if:
In these questions 'services' means 'services, facilities, benefits and advantages.
Land used for charitable purposes matters not in dispute
26 The Tribunal has previously considered the application of the exemption from rates under s 6.26(2)(g) of the LG Act to 'retirement villages' in Uniting Church Homes (Inc) and City of Stirling [2005] WASAT 191 (Uniting Church) and Retirees WA (Inc) and City of Belmont [2010] WASAT 56 (Retirees WA). There are a number of matters and issues dealt with in those decisions which are not disputed by the parties in this proceeding.
27 There are a variety of needs of aged persons attributable to their condition as being aged; Retirees WA at [95][99] and the decisions there cited. Those needs include:
28 The words 'charitable purposes' are not defined in the LG Act, but the term 'charitable' is understood in its technical legal sense; Uniting Church at [95] and Retirees WA at [76].
29 As the Full Court said in West Australian Baptist Hospital & Homes Trust Inc v City of South Perth [1978] WAR 65 at [68] (Baptist Hospital), it is generally accepted that in order to be charitable, a purpose must either fall within the list of purposes enumerated in the Charitable Uses Act 1601 'the Statute of Elizabeth I' or within one of the four categories of charitable purposes laid down by Lord Macnaughton in Income Tax Special Purpose Commissioners v Pemsel [1891] UKHL 1; [1891] AC 531 at [583] (Pemsel). Amongst the purposes accepted as being 'charitable' is 'the relief of aged, impotent and poor people'; Uniting Church at [94] and Retirees WA at [77]. Those elements are to be construed disjunctively, so that the relief of the aged need not be confined to the relief of aged people who are also poor; Uniting Church at [96] and Retirees WA at [102].
30 There is then a second requirement for a purpose to be charitable (except possibly in relation to the relief of the poor) namely that there be a public benefit, meaning a benefit that is directed to the general community or to a sufficient section of the community to amount to the public: Lloyd v Federal Commissioner of Taxation [1955] HCA 71; (1955) 93 CLR 645 at 662 (McTiernan J), 667 (Fullagar J) and at 670 671 (Kitto J); Thompson v Federal Commissioner of Taxation [1959] HCA 66; (1959) 102 CLR 315 at 321 (Dixon CJ, Fullagar J and Kitto J agreeing), and at 327 (Menzies J).
31 The parties confirmed at the hearing (T:43; 05.04.13) that it is not in contention that the facilities provided at Erskine Grove and the activities conducted, of themselves, satisfy the description of 'relief of the aged'.
32 In the words of the City, the Preliminary Issues all concern different degrees of the same question, which the City says is this if the Land is used to provide accommodation and other services for the aged and most residents pay the costs associated with the provision of those services to them, is the Land used exclusively for charitable purposes such that it is not rateable land under the LG Act?
33 Because of the confined nature of the Preliminary Issues, it is unnecessary for me to make what is described in Uniting Church at [100] as an 'overall judgement' on whether the Land is being used exclusively for the purpose of the relief of aged persons. In particular, I do not need to consider the meaning of 'aged', which the parties agree includes the residents of Erskine Grove. In any event, I note that the average age of the residents of Erskine Grove is 76. Nor do I need to consider the integrated nature of the facilities being provided at Erskine Grove. The focus of my deliberations is whether the effect of the adopted financial model precludes a finding that the Land is used exclusively for a charitable purpose.
34 In Uniting Church, the Tribunal concluded that the fact that residents were generally required to purchase the right to occupy their unit, in some cases at market value, and pay maintenance fees, did not alter the 'charitable' characterisation of the use, as a matter of law. The Tribunal said at [90]:
... it is to be noted that, even if the valuation evidence had demonstrated that the land, or part of the land, in question produced a surplus of income over expense, on a consistent basis, and was, therefore, "profitable", such a finding would not dictate a conclusion that the land was not used for the primary purpose of relief of the aged. ... .
35 The Tribunal went on to say at [105] that particular finance models, which, by their very nature, will change over time depending upon such factors as government financing, retirement incomes and the rate of the age pension, are not determinative of the issue as to whether the land in question is being used for the charitable purpose of relief of the aged. For example, a housing scheme for the aged that charges 'an economic consideration for a charitable service' does not cease, thereby, to be considered as charitable; Joseph Rowntree Memorial Trust Housing Association Ltd v AttorneyGeneral [1983] 1 All ER 288 (Rowntree) at 299.
36 In Retirees WA, the Tribunal came to a similar conclusion. Her Honour Judge Pritchard (as she then was) said at [103]:
The fact that each resident was required to pay a lump sum upon entry into the residence contract and to pay weekly maintenance fees, and thus to contribute to the cost of their accommodation, does not, of itself, preclude the conclusion that the Land is used for a charitable purpose: Joseph Rowntree Memorial Trust Housing Association Ltd v AttorneyGeneral (1983) 1 All ER 288 at 295, 298, 299 (Peter Gibson J); West Australian Baptist Hospital and Homes Trust Inc v City of South Perth [1978] WAR 65 at 68 69.
37 Her Honour went on to say, at [150], that the receipt of 'lump sum ingoing payments', provided that those are not applied as profit, does not preclude a finding that accommodation for the aged is for the relief of the aged.
38 I further note that in Baptist Hospital, the facts included payment in 1976 of an 'in-going donation' of from $3,500 up to $6,500 with no reference to any part of this being repayable or refundable together with:
a weekly payment at a level struck by the appellant which weekly payment was intended to cover the cost of management including depreciation on buildings and equipment (at 67).
The undoubted fact is ... that each of the occupiers of the units has paid what is known as an 'in-going' donation, which subject to compliance with the conditions of occupation and a payment of a weekly sum to cover maintenance and similar items of expenditure, entitles that occupier to reside in a unit during the remainder of his lifetime. The first question therefore is whether the receipt of such payments deprives the appellant of the right to claim that the purpose for which the homes were established possesses a charitable element. In Mayor and Councillors of the Municipality of North Fremantle v Saw [1906] WALawRp 38; (1906) 8 WALR 164 MacMillan J thought otherwise.
...
More recently, Sachs LJ in Incorporated Council of Law Reporting for England and Wales v Attorney General [1972] Ch 73 at 90 stated: "It is clear that the mere fact the charges on a commercial scale are made for services rendered by an institution does not of itself bar that institution from being held to be charitable - so long at any rate as all the profits must be retained for its purposes and none can enure to the benefit of its individual members."
In the situation under consideration, the constitution of the appellant ensures that no part of its income received in respect of "Gracewood" from any source whatsoever "shall be paid or transferred directly or indirectly by way of dividend, bonus or otherwise howsoever by way of profits to any other body or any other person or persons."
I entertain no doubt that the aged persons homes are used by the appellant for a purpose which is exclusively 'charitable'.
40 In Rowntree, Peter Gibson J (at 298) addressed an objection by the respondent in that case that the provision being made for the needs of the aged was 'on a contractual basis as a bargain rather than by way of bounty'. He said:
This objection is sometimes expressed in the form that relief is charitable only when it is given by way of bounty and not by way of bargain (see 5 Halsbury's Laws (4th edn) para 516). But as the learned editors recognise this does not mean that a gift cannot be charitable if it provides for the beneficiaries to contribute to the cost of the benefits they receive. There are numerous cases where beneficiaries only receive benefits from a charity by way of bargain. ... It is of course crucial in all these cases that the services provided by the gift are not provided for the private profit of the individuals providing the services.
The source of the statement that charity must be provided by way of bounty and not bargain is to be found in some remarks of Rowlatt J in IRC v Society for the Relief of Widows and Orphans of Medical Men (1926) 136 LT 60 at 65.
...
In my judgment Rowlatt J's remarks must be understood in their limited context.
41 Peter Gibson J found that '(t)he fact that the benefit ... is in the form of a contract is immaterial to the charitable purpose in making the benefit available' (at 298). He emphasised (at 299) that 'the charging of an economic consideration for a charitable service that is provided does not make the purpose in providing the service non-charitable'. He then concluded (at 300):
In my judgment the trustees may provide accommodation in the form of small self-contained dwellings for aged persons in need of such accommodation by granting it to them in consideration of the payment to the trustees of the whole or a substantial part of the cost or market value of such dwellings in accordance with the schemes.
42 In my view, it is clear from these authorities that if RAAFA derives a surplus over expenditure from its operations at Erskine Grove, this does not necessarily lead me to the conclusion that the Land is not used for a charitable purpose.
43 The City disagrees. First, the City submits that, while I should carefully consider the decisions in Uniting Church and in Retirees WA, I should keep in mind that those decisions are administrative in nature and do not determine the law. Therefore, the City submits, these decisions do not provide guidance as to the resolution of the Preliminary Issues.
44 While I accept that I am not bound by the decisions in Uniting Church and in Retirees WA, I consider both of them to be carefully considered and well reasoned. The findings in both are fully supported by well regarded earlier decisions by which I am bound. I see no reason to differ with anything relevantly contained in them.
45 Second, the City argues that neither of the decisions in Uniting Church and in Retirees WA addresses any of the Preliminary Issues. The conclusion in Uniting Church, the City says, was based on the fact that some of the residential units were provided at less than cost and in Retirees WA the decision was based on the fact that residents were to make a contribution to the cost of the accommodation and services rather than paying the whole of that cost (emphasis added).
46 However, I do not consider that the fact that in both decisions costs contributions did not cover the entire costs of the accommodation and services provided was a determinative factor in either case.
47 Third, the City argues that for the relief of the aged to be a charity, the relief must be by way of bounty, not relief by way of bargain. The City contends that if the people who are having their needs met are also the people who are paying the full costs of having their needs met, then there can be no charitable purpose.
48 In support of this proposition, the City refers to two decisions. The first is North Fremantle Municipality v Saw [1906] WALawRp 38; (1906) 8 WALR 164 (Saw). This is a case of a maternity home being 'maintained for young single girls who are not able to pay for their maintenance in the Home'. I agree that this case is authority for the proposition that the charging of fees amounting to less than the full cost of providing the services in question does not preclude a use being charitable (Saw at 165166). However, it is not authority for the conclusion that the charging of fees amounting to the full cost of providing services precludes such a finding, simply because this was not the situation that the Court had to determine (Saw at 165). Also, while the Court did not expressly consider what category of charitable purpose was involved, the description suggests that it involved the maintenance or relief of the poor. This is supported by the principle passage in the reasoning (Saw at 166):
Using ordinary language, it seems to me that a person does receive charity although he or she may contribute something a smaller amount than that which the article which is being given costs towards the cost of the article. It matters not whether it is maintenance, as in this case, or whether, as happens in the case of many charitable institutions, it is the supplying of something to poor people at less cost than it actually takes to make the article.
49 I readily accept that the relief of the poor might carry with it at least some requirement of bounty.
50 The second case cited by the City in support of its contentions is Inland Revenue Commissioners v Society of Widows & Orphans of Medical Men (1926) 136 LT 60 (Medical Men). This case, however, again deals with the relief of poverty and I repeat that I am prepared to accept that the requirement of a bounty might exist in that case.
51 Also this is the judgment of Rowlatt J which Peter Gibson J in Rowntree suggested should be understood 'in its limited context'.
52 I prefer the view set out in Dal Pont GE, Charity Law in Australia and New Zealand (2010) at [3.35] where the author, after mentioning the decision in Medical Men, goes on to say:
Yet it is well established that, for the purposes of the legal definition of 'charity', the mere fact that charges are made for services rendered by an entity does not of itself bar that entity from being charitable, provided that any profit or surplus the fees generate does not accrue for the private benefit of individuals or other noncharitable objects. Otherwise charitable status would only be available to entities funded entirely by gifts and/or by government, and entities that charged for their services would be denied the fiscal relief that is so crucial to charitable fund raising and operation. This may in turn be detrimental to the public, in that socially utile pursuits (for example, research and medical care) would be cast on the shoulders of government and/or on the whim of voluntary donation.
53 I have stated earlier in these reasons that the term 'charitable' is understood in its technical legal sense. I have also noted that for a purpose to be charitable it must be within the list of purposes in the Statute of Elizabeth I or in one of the four categories of charitable purposes set out in Pemsel.
54 Finally, I have observed that for a purpose to be charitable there must be a public benefit.
55 What is absent from those requirements is a requirement that the relief is given at no cost or at a cost less than the value of the relief being provided. That may be the case where the word 'charity' is used in its ordinary or dictionary sense. In its legal sense, there is no authority to support an argument that this requirement exists where the charitable purpose is the relief of the needs of the aged. Those needs do not necessarily include relief from a shortage of funds. The needs of the aged wealthy, and the aged poor are, in most respects, the same.
56 I should add, however, that the level of the charges must not be so great as to exclude all but the very wealthy, to the effect that the element of public benefit is excluded.
57 Even if the residents of Erskine Grove are required to pay to RAAFA the costs associated with the provision of accommodation and other services for the relief of the aged, and even if, on a consistent basis, the amount paid produces a surplus of income over expense, that will not preclude a conclusion that the Land was used exclusively for a charitable purpose. That statement, however, is subject to the following provisos:
58 It follows that the Preliminary Issues are all answered in the affirmative.
Could it be concluded that the applicant's land known as Erskine Grove was used exclusively for charitable purposes within the meaning of s 6.26 of the Local Government Act 1995 (WA) by providing relief of the aged if:
(i) the total amount paid by residents of Erskine Grove to the applicant for services provided by the applicant at Erskine Grove was equal to or greater than the total cost to the applicant of providing those services (including a reasonable allocation of the cost of capital assets used by the applicant to provide the services)?
(ii) for most residents of Erskine Grove, the amount paid by the individual resident to the applicant in respect of the services provided by the applicant at Erskine Grove was equal to or greater than the total cost to the resident if the resident had obtained the services in the marketplace?
(iii) the total amount paid by residents of Erskine Grove to the applicant for services provided by the applicant at Erskine Grove was equal to or greater than to total cost to the applicant of providing those services (including a reasonable allocation of the cost of capital assets used by the applicant to provide the services) but the difference was no more than a reasonable return for the activity of providing the services?
(iv) the total amount paid by residents of Erskine Grove to the applicant for services provided by the applicant at Erskine Grove was equal to or greater than the total cost to the applicant of providing those services (including a reasonable allocation of the cost of capital assets used by the applicant to provide the services) but the residents enjoy other intangible benefits and advantages as a result of residency at Erskine Grove that account for the difference?
(v) for most residents of Erskine Grove, the amount paid by the individual resident to the applicant in respect of the services provided by the applicant at Erskine Grove was equal to or greater than the total cost to a resident if the resident had obtained the services in the marketplace but the resident enjoys other intangible benefits and advantages as a result of residency at Erskine Grove that account for the difference?
(vi) in each case described above, any surplus was dealt with as provided in the applicant's Constitution and in the leases in favour of the various residents?
The Tribunal answers all of these questions in the affirmative.
I certify that this and the preceding [58] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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(1955) 93 CLR 645
(1959) 102 CLR 315