Commissioner of Taxation of the Commonwealth of Australia v Word Investments Limited

Commissioner of Taxation of the Commonwealth of Australia v Word Investments Limited - [2008] HCA 55 - HCA 2008 case summary — Zoe

[14]

The role of Wycliffe. Wycliffe Bible Translators (International) is a missionary organisation. It seeks to spread the Christian religion through missionaries. It is particularly active in developing countries, and among sections of the population who have no written language. The missionaries learn the local language, teach people to read and write that language, translate the Bible into that language, and then teach the people how to read the Bible. It has about 5,300 workers and 56 members. One of the members is Wycliffe Bible Translators Australia ("Wycliffe"). From 1 July 2000 Wycliffe has been endorsed by the Australian Taxation Office as an income tax exempt charity under subdiv 50-B of the Income Tax Assessment Act 1997 (Cth) ("the 1997 Act"). Word was founded by members closely associated with Wycliffe who wanted to use Word to raise money within Australia and give it to Wycliffe for the carrying out of its purposes, which, at least to some degree, are fulfilled overseas.
The issues in the appeal centre on the fact that although Word has paid Wycliffe to carry out Bible translation on its behalf, Word does not itself directly carry out the training or dispatching of missionaries overseas, the publishing of the Bible or the preaching of the gospel, but gives its profits (less sums retained by it[4]) to Wycliffe, and other similar Christian organisations, to enable them to perform these activities.
Word's memorandum. Word was incorporated under the Companies Act 1961 (Vic) on 8 August 1975, as a company limited by guarantee. The parties are agreed that at least some of the objects are charitable; Word contends that they all are. Clause 4 of the memorandum of association prohibits the payment of any of Word's income and property to members, save in return for services rendered or goods supplied. Clause 7 provides that on a winding up or dissolution any surplus is not to be given to the members, but only to some institution or institutions having objects similar to those of Word and having restrictions on distributions to members at least as great as those in Word's memorandum.
Word's activities. From about 1986 Word began to accept deposits from members of the public. The depositors received little or no interest from Word, but Word invested the money at commercial rates of interest. In the period 1996-2002, Word operated a business of conducting funerals, not all of Christians, for profit. The profits generated from the investment business and the funeral business were used to support Christian activities in the form of Bible translation and missionary work largely carried out by Wycliffe and other bodies to whom the non-retained profits were given. The parties accepted that although the Administrative Appeals Tribunal had seen the operation of the funeral business as depriving Word of its status as a charitable institution, nothing turned on the different sources of profit for the purposes of the arguments in this Court.
Endorsement of tax exempt entities. This appeal arises in relation to Divs 50 and 50-B of Pt 2-15 of the 1997 Act[5]. Word claims to be a "charitable institution", which is an "entity" covered by item 1.1 of the table set out in s 50-5 of that Act[6]. Section 50-52 provides that an entity covered by item 1.1 is not exempt from income tax unless the entity is endorsed as exempt from income tax under subdiv 50-B[7]. In subdiv 50-B there appeared at the relevant time s 50-115, which provided that an entity might apply to the Commissioner for endorsement as exempt from income tax. Section 50-105 obliges the Commissioner to endorse an entity which has applied for endorsement as exempt from income tax if it is entitled to be so endorsed. Section 50-110(1) provides that the entitlement of an entity to be endorsed depends on meeting the requirements of s 50-110. Section 50-110(2) provides that one requirement is that the entity be a "charitable institution" as described in item 1.1 of the table set out in s 50-5. Section 50‑110(5)(a) provides that another requirement for an entity in the circumstances of Word is that the entity meet the conditions referred to in the column headed "Special Conditions" against item 1.1 of the table. One of those special conditions, created by s 50-50(a), is that the entity be one which "has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia".
Word's application to the Commissioner. Word applied to the Commissioner for endorsement as exempt from income tax. The Commissioner refused that application by letter of 2 May 2001. The letter said:

[30]

The central authorities. It must be said at the outset that the Commissioner relied on authorities coming from a range of fields and on a range of issues - whether land was being used exclusively or wholly for charitable purposes so as to enjoy immunity from rates[16]; whether a bequest for a particular purpose was for charitable purposes[17]; whether a gift for charitable and non-charitable purposes, the whole gift being capable of devotion to the latter, was charitable[18]; will construction cases[19]; and cases about whether, for example, a building was exempt from rates on the ground that it was used exclusively for the religious work of a religious organisation[20]. The primary relevant line of authority, however, is that which is concerned with the predecessor to ss 50-5, 50-50 and 50-110 of the 1997 Act, namely s 23(e) of the Income Tax Assessment Act 1936 (Cth) ("the 1936 Act")[21]. The Commissioner did rely on this line of authority[22]. The principal statements made in it were made about companies in an age in which the ultra vires doctrine existed and in which it was mandatory for companies to state their objects in a memorandum of association. In that age, a failure by a company to comply with its objects could have deleterious consequences for third parties dealing with the company. It is not now mandatory for companies to state their objects in a memorandum of association, and the ultra vires doctrine no longer exists[23]. But there is no reason to suppose that the tests laid down in the s 23(e) line of cases no longer apply in relation to the 1997 Act to companies like Word, which state objects in a memorandum. That is, it is necessary to examine the objects, and the purported effectuation of those objects in the activities, of the institution in question. In examining the objects, it is necessary to see whether its main or predominant or dominant objects, as distinct from its concomitant or incidental or ancillary objects, are charitable[24].
The distinction between purposes and objects. In H A Stephenson & Son Ltd (In Liq) v Gillanders, Arbuthnot & Co[25] Dixon J drew the following distinction:

[41]

So far as sub-cl 3(u) is concerned, a power to retain profits conferred on directors of a company which has charitable purposes cannot negate its character as a charitable institution. Its exercise, while it may delay the moment when assets are applied to charitable purposes, also increases the chance that more assets will eventually be so applied. So far as sub-cl 3(k) and cl 7 of the Third Schedule are concerned, they do not create purposes. They confer powers only. Those powers do not authorise conduct which does not further the charitable purposes of Word.
The Commissioner's reliance on Roman Catholic Archbishop of Melbourne v Lawlor was misplaced. In that case Rich J, Starke J and Dixon J held that a gift by will of personal property "to establish a Catholic daily newspaper" extended beyond charitable purposes. Gavan Duffy CJ and Evatt J, and McTiernan J, held that it did not. The question whether the "purposes" stated in sub-cll 3(a)(xvii) and (b)-(ak) are in truth purposes or merely powers is quite different from the question in Lawlor's case. It is true that the question whether all the purposes stated in sub-cl 3(a) are charitable purposes and no more bear some analogy with that discussed in Lawlor's case, but it is clear that when the purposes in sub-cl 3(a)(i)-(xvi) are read together they are all charitable purposes.
It is therefore necessary to reject the Commissioner's arguments so far as they submitted that Word had a "commercial object of profit from the conduct of its business" which was "an end in itself" and was not merely incidental or ancillary to Word's religious purposes. Word endeavoured to make a profit, but only in aid of its charitable purposes. To point to the goal of profit and isolate it as the relevant purpose is to create a false dichotomy between characterisation of an institution as commercial and characterisation of it as charitable.
Circumstances of Word's formation. In addition to what flows from the construction to be given to the memorandum of association, it is necessary to take into account the circumstances in which Word was formed[27]. The Administrative Appeals Tribunal found that the founders of Word "had a clear intention that its function was to raise funds for the benefit of [Wycliffe] and/or similar religious organisations." Among the evidence supporting that finding was the assertion of Mr Ross Wilkerson, a director of both Word and Wycliffe, that the "intention in establishing [Word] was to create a fundraising auxiliary primarily to support the religious activities of [Wycliffe] and the propagation of Christian religion." He also said that Word "was established as a financial support company for Wycliffe." He further said that Word "regards itself as a supporting arm of Wycliffe and the directors of [Word] have a close interest and involvement in the work of Wycliffe"; that Wycliffe recommends people to be directors of Word; and that the two companies share offices and staff. There was also evidence of David Cummings, who had served with Wycliffe Bible Translators (International) from 1957 (ie before Word was incorporated). He said that the group who founded Word had three points in mind:

[45]

Word's activities. In Royal Australasian College of Surgeons v Federal Commissioner of Taxation[28] McTiernan J said that whether the appellant in that case fulfilled the description of a scientific institution depended less on the fact that it could direct its efforts to scientific objects than "what it does in pursuit of each of them." The inquiry, so far as it is directed to activities, must centre on whether it can be said that the activities are carried on in furtherance of a charitable purpose. So far as the actual activities of Word in furtherance of its purposes are relevant, it is plain that, subject to the Commissioner's contentions in relation to the second and third issues[29], the funds paid out by Word were paid to bodies fulfilling charitable purposes. The activities of Word in raising funds by commercial means are not intrinsically charitable, but they are charitable in character because they were carried out in furtherance of a charitable purpose.
The Sunny Brae case. The short answer to the Commissioner's reliance on R v The Assessors of the Town of Sunny Brae[30] is that Word's position does not depend on the mere fact that its revenues are applied solely to charitable purposes, but on the related fact that those are its sole purposes. Unlike the society in that case as viewed by the majority of the Supreme Court of Canada, Word is not a company with both charitable and non-charitable purposes which carried on commercial businesses and incidentally conferred benefits on charity; Word is a company having purposes which are solely charitable and which carried on commercial businesses only in order to effectuate those purposes.
Christian Enterprises Ltd v Commissioner of Land Tax. The Commissioner relied on the opinions of Nagle J at trial[31] and Walsh JA (Asprey JA concurring) on appeal in Christian Enterprises Ltd v Commissioner of Land Tax[32]. Christian Enterprises Ltd was a company limited by guarantee. Its primary objects were either religious or raising funds for religious purposes. Its objects were expressed to include commercial objects, but these were expressed to be for the purposes of carrying out the primary objects. The Commissioner of Land Tax assessed it as liable for land tax, and rejected its claims that it was exempt as a "charitable institution" pursuant to s 10(1)(d) of the Land Tax Management Act 1956 (NSW) or a "religious society" pursuant to s 10(1)(e). Nagle J said that in view of the religious purposes, it could be said that the company was being carried on for charitable purposes, but held that it was not a charitable institution: it was not enough to constitute an institution that seven individuals with charitable intentions formed themselves into a company[33]. He also held that it was not a religious society. In the Court of Appeal, Walsh JA and Asprey JA (Wallace P dissenting) agreed on the first point, but disagreed on the second. Contrary to the Commissioner's submissions in the present appeal, Walsh JA (like Nagle J) did not construe the phrase "charitable institution" as a single composite expression, but saw it as having two integers - one to do with objects which were charitable, the second to do with "institutional" characteristics. Thus he said[34]:

[47]

Walsh JA went on to deny that every company with charitable objects was a charitable institution. The Commissioner submitted in this appeal that the "authorities and dictionary references discussed by Nagle J and Walsh JA suggest that for an entity to be a 'charitable institution' it must possess a public character, purpose or object". The authorities and dictionary references do not in fact suggest this. Walsh JA summarised an argument of counsel which assumed that the word "institution" included "a notion of something which has a public character or serves a public purpose", but he rejected the argument which made that assumption[35]. If Walsh JA, despite that rejection, was intending to adopt counsel's assumption, the Commissioner did not explain why Word's purpose of advancing religion - a charitable purpose having, ex hypothesi, benefit to the public, and carried out on a substantial basis financially speaking - caused it to lack a public character or not to serve a public purpose. Although Nagle J and Walsh JA discussed examples of what was and what was not an institution, as did the Privy Council in the main case they relied on, Minister of National Revenue v Trusts and Guarantee Co Ltd[36], neither they nor the Privy Council explicitly offered any test for the meaning of "institution". In that case the Canadian settlor had settled a fund to be used "for the benefit of the aged and deserving poor" of the town of Colne in Lancashire, but there was no "charitable institution" as required for exemption from Canadian income tax; the trust was "an ordinary trust for charity"[37] and there was no "institution" "in the sense in which boards of trade and chambers of commerce are institutions"[38]. Accordingly, this case can readily be distinguished, since it concerned a gift to a trustee on trust for charitable purposes as distinct from an "institution" not holding property on trust, but owning it outright and having charitable objects. Christian Enterprises Ltd v Commissioner of Land Tax, too, can be distinguished: unlike Word, the company had not begun to carry out its purposes, but it only engaged in the preparatory acts of investing funds for a short time before buying land on which it planned to build, but had not yet built, houses for resale[39]. In contrast, Word's activities in pursuance of its purposes have been carried on for years.

[66]

The resolution of the first two issues against the Commissioner means that the purposes and activities of Word were charitable, that it is a charitable institution and that that character is not lost by reason of the fact that it did not itself advance charitable purposes directly, but gave its profits to other institutions which did. Despite that, the Commissioner submitted that if Word were to be a charitable institution, it had to ensure that the distributions it made were utilised by the donees for the advancement of religion.
The Commissioner's submissions. The Commissioner submitted that the potential donees of Word's funds were not confined to religious or charitable institutions, and the distributions were not confined to religious purposes. He submitted, by reference to evidence, that the "amounts distributed were able to be utilised by Wycliffe and the other organisations as they deemed fit". In another version of his argument, he accepted that all the donees were religious institutions, but submitted that while the money may have been used by the donees for religious purposes (which he conceded could have been charitable), it may also have been used for purposes conducive to religion (which he submitted were not charitable). He further submitted that sub-cll 3(a)(iii), (k), (u) and (aj) (incorporating cl 7 of the Third Schedule to the Companies Act 1961 (Vic)) and cl 4 "did not require that a distribution be confined to charitable purposes or to charitable institutions."
Word's memorandum. The last point was to some degree also made in connection with the first issue[54]. It is convenient to deal with it at the outset. Sub-clause 3(u) and cl 4 have nothing to do with the present issue, namely how far the recipients of Word's bounty were free to deal with it as they pleased: that is because sub-cl 3(u) deals with the power to retain, not only power to distribute or purpose of distribution, and because cl 4 deals only with the use of Word's property to promote its objects and not to benefit members. As to sub-cl 3(a)(iii), even if, read in isolation, that might permit a distribution for a non-charitable purpose, when read with the other relevant parts of sub-cl 3(a) (namely sub-cl 3(a)(i)-(ii) and (iv)-(xvi)), it is clear that Word is not authorised to make distributions for non-charitable purposes. It is true that sub-cl 3(k) and cl 7 of the Third Schedule[55] on their face confer a power to make payments to non-charitable objects or institutions. But sub-cl 3(k) and cl 7 of the Third Schedule, read in context, would not be construed to permit payments to non-charitable institutions or for purposes outside those charitable purposes described in sub-cl 3(a)(i)-(xvi). One arm of the Commissioner's submission thus fails: no part of the memorandum of association authorises payments to institutions which are entirely free as to the use they make of the payments.
Did Word leave the recipients at liberty to spend the amounts as they wished? The other arm of the Commissioner's submission turns on whether in fact any conditions were imposed by Word on the recipients of its gifts, or whether they were left free to spend the gifts as they wished. This was not a matter the Commissioner explicitly raised in his Statement of Facts Issues and Contentions before the Administrative Appeals Tribunal. However, in this appeal he relied on the evidence of Mr Wilkerson who said:

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The 1997 position. The 1997 Act was enacted as Act No 38 of 1997. When originally enacted, it did not contain Pt 2-15, Div 50, which contains sections of importance for the present appeal[69]. The 1997 Act in that form came into force on 1 July 1997. On the same day Sched 1 to the Tax Law Improvement Act 1997 (Cth), which was Act No 121 of 1997, came into force: see s 2(2) of that Act. It contained in Pt 2-15, Div 50, the precursor to the present s 50-5, but did not contain s 50-50.
The 1998 changes. Then the Taxation Laws Amendment Act (No 3) 1998 (Cth) was enacted. The changes it made to Pt 2-15, Div 50, apart from amending the sections introduced by the Tax Law Improvement Act 1997, included introducing s 50-50 in substantially its present form. (The only difference is that in 1998 s 50-50(b) referred to "Subdivision 30-B", not s 30-15.) Another change was to introduce s 50-60 in substantially its present form.
When the amendments to the 1997 Act effected by the Taxation Laws Amendment Act (No 3) 1998 came into force the four additional sub-paragraphs at the end of par 23(e) of the 1936 Act introduced in 1997 appeared in s 50-50 as follows. Paragraph 23(e)(i) became s 50-50(a). Paragraph 23(e)(iii) became s 50-50(c). Paragraph 23(e)(iv) became s 50-50(d), save that the words "charitable or religious" were deleted. The provision corresponding to par 23(e)(ii), namely s 50-50(b), was: "is an institution which is referred to in a table in Subdivision 30-B". Paragraph 23(e)(ii) and s 50-50(b) had a similar effect, in that each required the relevant entity to have what the Commissioner called "tax deductible gift recipient status".
The Explanatory Memorandum relating to s 50-50. The Explanatory Memorandum relating to s 50-50 was originally directed to the Taxation Laws Amendment Bill (No 7) 1997. It stated that it was now necessary to amend the 1997 Act "to 'catch up' the amendments made" by the Taxation Laws Amendment Act (No 4) 1997 to the 1936 Act[70]. It said, speaking of what became s 50-50(a)[71]:

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The 1999 changes. Then an Act called A New Tax System (Tax Administration) Act 1999 (Cth) was enacted. Schedule 8, which came into force on 22 December 1999, introduced ss 50-105, 50-110, 50-120, 50-140, 50-145 and 50-155.
Section 50-50 contrasted with ss 50-57, 50-60 and 50-65. The Explanatory Memorandum did not explain why, in s 50-60 (and ss 50-57 and 50‑65), there was a requirement that the fund claimed to be exempt was "applied for the purposes for which it was established", while there was no equivalent requirement in s 50-50[73]. The distinction has long existed in the precursors to the modern legislation[74]. As the Commissioner submitted in this appeal, the reason appears to lie in the difference between a "charitable institution", to which s 50‑50 applies, and a "fund", or "trust", to which ss 50-57, 50-60 and 50-65 applies. Whether an entity is a "charitable institution" depends in part on its purposes and in part on its activities so far as they carry out those purposes; if its activities involve ceasing to apply its assets to the purposes for which it was established, it ceases to be a charitable institution. In s 50-50 it was thus not necessary to provide in terms that the assets of a charitable institution be "applied for the purposes for which it was established". On the other hand, s 50-60 applies to item 1.5A in the table in s 50-5 (a "trust covered by paragraph 50‑80(1)(c)") and to item 1.5B (a "fund established in Australia for public charitable purposes by will or instrument of trust (and not covered by item 1.5 or 1.5A)"). And s 50-57 applies to item 1.5 (a "fund established for public charitable purposes by will before 1 July 1997"). Further, s 50-65 applies to item 1.6 (a "fund established to enable scientific research to be conducted by or in conjunction with a public university or public hospital"). In context the expression "fund" means a fund held by a trustee for charitable purposes. The trust covered by s 50-60, and the funds covered by ss 50-57, 50-60 and 50-65, continue to have their status as a trust or a fund even if the trustees are acting in breach of trust and not applying the assets to the relevant trust or fund purposes. Hence it was necessary to do in relation to ss 50-57, 50-60 and 50-65 what it was not necessary to do in relation to s 50-50, namely make express provision for loss of tax exemption where the trust or fund was not applied for the purposes for which it was established[75]. As Word submitted, the difference in drafting flows from the fact that ss 50-57, 50-60 and 50-65 (unlike s 50-50) speak of funds or trusts which were "established" for certain purposes, and the legislation requires not merely that they be established at the outset for those purposes, but also that their assets be applied for those purposes from time to time thereafter. The difference between the two categories of provision casts no other light on the meaning of "charitable institution".
Difficulty of monitoring funds? It is convenient at this point to turn to a central submission by the Commissioner. The Commissioner argued:

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The Commissioner's contention that the revenue authorities would have great difficulty in monitoring the use of funds generated by a body in Australia and given to another body active overseas is exaggerated. It is exaggerated because, if s 50-50(a) has an anti-avoidance purpose, this may be because the requirement it imposes makes it easier for the Commissioner to monitor organisations entitled to the exemption by using the information gathering powers backed by a criminal sanction which s 50-140(1)[76] conferred and by using the power to revoke endorsement given by s 50-155(1)(b)[77]. The Commissioner's contention is also exaggerated in the light of s 50-145[78]. If the Commissioner had reason to suspect that funds given by Word to Wycliffe were not being expended on charitable objects, this may attract the exercise of the power to request from Word the information and documents it had relevant to the subject. They could be relevant to Word's entitlement to be endorsed as income tax exempt, because if Word were giving funds to Wycliffe knowing that they would not be expended on charitable objects, it could not be described as a charitable institution. The same would be true if there were doubts whether Wycliffe was expending the funds on charitable objects. Word would be obliged to comply with the Commissioner's request, on pain of criminal sanctions and loss of endorsement. If Word's response to the request revealed, whether positively or by silence, that it knew that the funds were not being applied for charitable purposes, it would have ceased to be entitled to be endorsed and obliged by s 50-145(1) to give the Commissioner notice of that cessation. The same would be true if Word's response revealed that it was indifferent or careless about whether the funds were being applied for charitable purposes.
The intractable language. The difficulty with the balance of the Commissioner's submissions is that, once it is concluded, as it was above[79], that Word's sole purposes are charitable, and that they can be fulfilled by making payments to other institutions which have charitable purposes (as sub-cl 3(a)(iii) of the memorandum provides), s 50-50(a) does not contain language apt to deny Word exemption from income tax. That conclusion is not affected either by the context in which s 50-50(a) appears or by the history of the legislation since 1916. Section 50-50(a) requires Word to have a physical presence in Australia. This it has. Indeed it has no physical presence anywhere else. Section 50-50(a) also requires that, to that extent, Word incur its expenditure and pursue its objectives principally in Australia. That it did. The decisions to pay were made in Australia, the payments were made in Australia, the payments were made to Australian organisations, and the objects of Word included giving financial assistance to those organisations. The incurring of the expenditure and the pursuit of Word's objectives in this way took place nowhere but in Australia. Section 50-50(a) does not impose a prohibition on distributing to other charitable institutions. Nor does it require the money, when ultimately expended by Wycliffe and the other institutions, to be expended in Australia. Section 50-50(a) could have imposed a requirement of that latter kind, but it did not. It only imposed a requirement that Word incur its expenditure and pursue its objectives principally in Australia - not that Wycliffe and the other institutions do so. No doubt the ultimate benefit to charity which Word causes is effected by Wycliffe indirectly and to some extent outside Australia, not directly and in Australia: but s 50-50(a) draws no distinction between direct and indirect effects.
There are admittedly, difficulties with s 50-50(a). Do the words "to that extent" govern "physical presence"? Or do they govern the incurring of expenditure and the pursuit of "objectives principally in Australia"? These difficulties do not arise in the present appeal. While in some instances the words "to that extent" may cause difficulty, the incurring by Word of expenditures and the pursuit of its objectives are acts not only done to the extent of its physical presence in Australia, but to any extent at all. The requirement of s 50-50(a) that Word have a physical presence in Australia, as it did, and incur its expenditure and pursue its objectives principally in Australia, as it did, carries the consequence that Word was completely open to scrutiny by the Australian authorities under s 50-140(1), was subject to the duty created by s 50-145(1), and was subject to the risk of revocation described in s 50-155.

[154]

Where Australian legislatures have enacted relevant provisions, decision-makers must give effect to the will of the legislature as expressed in the language adopted, understood in light of the text, context, purpose and history. This Court, with substantial unanimity, has insisted on this approach[84]. Decision-makers must not cling inconsistently to judicial observations in decisional law that do not reflect the enacted law. To some extent, the notion of what is a "charitable institution" or what are "charitable purposes" has been treated as standing apart from the requirement mentioned above[85]. My own attempt to drag this body of law into the twenty-first century, in conformity with modernity and the applicable general principles, came to nothing[86].
No fresh judicial heroism was called for in this case. Both parties agreed that, generally, the taxation legislation in issue here was written against the background of the Statute of Elizabeth[87], the decision of the Privy Council in Commissioners for Special Purposes of the Income Tax v Pemsel[88] and judicial decisions in the United Kingdom, Australia and other countries that have followed that line of authority.
The parties agreed that where specific legislation had been enacted, effect had to be given to it. Nevertheless, to resolve the present appeal, the general notion of what is a "charitable institution" and what are "charitable purposes" (so expressed for tax exemption purposes by the applicable taxation statute, the Income Tax Assessment Act 1997 (Cth) ("the 1997 Act")) are to be determined by reference to the "technical meaning" of those expressions.
The issues in this appeal arise out of a judgment of the Full Court of the Federal Court of Australia[89]. That Court, in turn, affirmed the decision of the primary judge[90]. These decision-makers uniformly upheld the challenge by Word Investments Ltd ("Word") to the decision of the Commissioner of Taxation ("the Commissioner") rejecting Word's claim to be endorsed as an exempt "charitable institution" for income tax purposes.
In my opinion, the decisions below erred in so concluding. The Commissioner is entitled to succeed. This Court should allow the appeal and restore the Commissioner's decision to refuse to endorse Word as an exempt charity.

[177]

Failure to conform to this condition would mean that Word would not fulfil a necessary requirement of the 1997 Act. It could not, therefore, be an exempt "charitable institution" under Item 1.1 of the table in s 50-5. Accordingly, that "Special condition" was a threshold statutory requirement for Word. Failure to satisfy that requirement would make redundant all other issues in this appeal as litigated. The other anterior questions as to whether, according to the general law, Word qualifies as a "charitable institution" only arise if that "Special condition" is satisfied.
This appeal thus presents both a special and a general statutory question. The special question is the applicability of the "Special conditions" identified. The general question involves the other arguments raised by the Commissioner against Word's entitlement to be recognised as a charitable or religious institution. Logically, it is appropriate to deal first with the relevant "Special condition". If it cannot be satisfied, everything else said in this appeal constitutes obiter dicta.
The joint reasons explain in some detail the propounded "Special condition" (described as the "fourth issue")[99]. Specifically, they describe the requirements in s 50-50 of the 1997 Act[100]; the legislative context of that provision[101]; various counterparts for s 50-55(a) elsewhere in the Act[102]; and the powers of the Commissioner to seek information from an entity claiming to be entitled to an endorsement as exempt from income tax and the entity's corresponding obligation to comply with such a request[103]. The joint reasons also describe the earlier provisions of federal income tax law that provided for exemption from income tax of the income of charitable and religious institutions[104]. They outline the way the particular language of what is now s 50-50(a) of the 1997 Act came into the Income Tax Assessment Act 1936 (Cth) ("the 1936 Act") as s 23(e)[105]. They set out extracts from the Explanatory Memorandum that was furnished with the applicable Bill[106]. Finally, the joint reasons describe the way in which the requirement now appearing in s 50-50 was inserted in the 1997 Act and outline the relevant Explanatory Memorandum[107]. I accept, without repeating, this description of the background. I can now deal with what I regard as the first (and ultimately decisive) issue in the appeal, namely that presented by s 50-50(a) of the 1997 Act. I will then deal with the other issues argued in case my conclusion on the first issue is wrong.
It is useful at the outset to set out some general propositions concerned with the approach to be taken to the legal issues in dispute; to collect some of the legal principles that the case raises; and to identify certain considerations of legal policy that need to be considered in deciding all of the applicable issues.

[178]

Appellate requirement of error: The appeal comes to this Court under the Constitution[108]. This Court is a court of error. The Commissioner must establish error in the reasons of the court below if this Court is to be authorised to set aside the judicial orders earlier made. Absent established error, it is not the function of this Court simply to decide the matter for itself or to substitute its conclusion on the facts for that reached by the decision-makers below.
In the reasons both of the primary judge and the Full Court of the Federal Court, there was a high degree of unanimity on the application of the 1997 Act to the special and general questions raised in the Commissioner's submissions. Although the AAT partly accepted the Commissioner's submissions on the general questions, its conclusion that Word was "not … itself a charitable institution whilst operating [its] business"[109] was the Commissioner's only victory so far in this protracted litigation.
The fact that experienced judges have concluded against the Commissioner's submissions is a reason to pause before deciding that error has occurred and giving effect to a contrary conclusion. However, after a grant of special leave, this Court must consider whether error has been shown and, if so, it must identify and correct that error.
Special and general statutory provisions: As the statutory materials set out in the joint reasons demonstrate, the 1997 Act incorporates both special and general requirements. These are what must be fulfilled for an Australian entity, otherwise in receipt of taxable income, to be exempt from income tax as a charitable or religious institution. The special provisions are found in the comparatively new and additional requirements now appearing in s 50-50(a) of the 1997 Act.
The general provisions arise in the appeal because of the use in the 1997 Act (as earlier in the 1936 Act and indeed the original federal income tax statutes) of concepts such as "charitable purposes", "charitable institution" and "religious institution". These concepts are taken to be derived, through Pemsel and other decisions, from the Statute of Elizabeth which gave rise to a "technical" meaning of these phrases. It is common ground that those phrases pick up and apply judicial elaborations of such expressions as found in legislation and other similar legal texts in Australia, the United Kingdom and other countries of the same legal tradition.
Section 50-50(a) is a disqualifying provision. "[C]haritable institution" (Item 1.1) and "religious institution" (Item 1.2) are set out in the table to s 50-5 of the 1997 Act. Section 50-50(a) makes it clear that such institutions, even if otherwise satisfying all of the requirements of the Act and of the common law that preceded it, will nonetheless not be exempt from income tax if the stated preconditions are not met. The applicable precondition here is that the entity concerned has, at the relevant time, "a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia".
Consequently, I will deal first with what the joint reasons describe as the "fourth issue"[110]. It affords the speediest and most direct route to an outcome favourable to the Commissioner, if his argument on s 50-50(a) succeeds.
Taxpayers' burden of persuasion: The 1997 Act, like the 1936 Act and others before it, imposes an obligation upon Australian taxpayers to pay income tax on income received during the taxation year. In the circumstances of this case it follows that the burden of persuasion is on Word to establish that it fell within an exemption provided for charitable or religious institutions.
In Canada, it has been held that exemption provisions are subject to a "strict construction" in statutes that otherwise impose an obligation to pay a generally applicable tax[111]. This approach may not now generally accord with the Australian approach to the construction of taxing statutes[112]. However, it remains the fact that Word is attempting to secure for itself a special privilege provided by a statutory exemption of charitable and religious institutions from the general liability to pay tax upon income.
Throughout this litigation, it was therefore Word that bore at least the forensic obligation to bring itself within the exempting provisions of the 1997 Act. Word did not contest that burden. It is enough to say that, in approaching any questions of uncertainty in the facts or the governing law, it is Word that is looking for favours under the Act. Certainly, it received income from its investment and commercial funeral business activities. Prima facie such income was taxable. Word must establish any exemption.
Importance of income tax: The first income tax statute in Australia was enacted in Tasmania in 1880 with a withholding tax on dividends, annuities and rents[113], followed by a general income tax statute in South Australia in 1884[114]. By 1907, all of the States had similarly introduced income tax, whilst the first federal income tax was introduced in 1915[115]. Since then, the demands upon and activities of the federal government have expanded greatly, with consequent demands on the revenue of the Commonwealth. As Gummow, Hayne and Crennan JJ observed in White v Director of Military Prosecutions[116], a "modern regulatory state arrived after 1900 and did so with several pertinent consequences". One such consequence was a significant increase in the need for revenue to support the expanding activities of the government of the Commonwealth. Those activities are performed for all people in Australia - citizen and non-citizen, natural and legal persons, those who are religious and those who are non-religious.
Charitable and religious institutions contribute to society in various ways. However, such institutions sometimes perform functions that are offensive to the beliefs, values and consciences of other taxpayers. This is especially so in the case of charitable institutions with religious purposes or religious institutions. These institutions can undertake activities that are offensive to many taxpayers who subscribe to different religious beliefs or who have no religious beliefs. Although the Parliament may provide specific exemptions, as a generally applicable principle it is important to spare general taxpayers from the obligation to pay income tax effectively to support or underwrite the activities of religious (and also political) organisations with which they disagree. This states a reason of constitutional principle for ensuring that any exemption of a "charitable institution" with religious purposes or any specific "religious institution" does not extend beyond an exemption that is clearly provided by law.
Any ambiguity as to the ambit of an exemption for such an institution should therefore be construed against the claimed exemption and in favour of liability of that body to pay otherwise generally applicable tax obligations. As Lord Simonds remarked in Oppenheim v Tobacco Securities Trust Co Ltd[117], "[i]t must not, I think, be forgotten that charitable institutions enjoy rare and increasing privileges, and that the claim to come within that privileged class should be clearly established."
Constitutional secularism: In the Australian context, the foregoing considerations are reinforced by the language of s 116 of the Constitution. Although, to the present time, this Court has interpreted that provision narrowly[118], it is not devoid of meaning or purpose. In several respects it follows the language of the First Amendment to the Constitution of the United States. That Amendment has been interpreted broadly to uphold a separation between religion and the constitutional polity[119]. Section 116 was obviously included in our Constitution for a similar general purpose. And apart from the section, for clear historical reasons, the secular character of the Commonwealth and its laws and the separation of the governmental and religious domains constitute settled features of constitutionalism in this country.
The decision of this Court in Combet v The Commonwealth[120] considered an analogous requirement for citizens, by their taxation, effectively to support widespread governmental political advertising of opinions with which many citizens might have disagreed. In my reasons in Combet, I referred to the opinion of Souter J in the Supreme Court of the United States in Johanns v Livestock Marketing Association[121]. His Honour there quoted, and applied, Thomas Jefferson's 1779 statement that "to compel a man to furnish contributions of money for the propagation of opinions which he disbelieves … is sinful and tyrannical"[122]. Yet exempting charitable and religious institutions from income tax may effectively have the same consequence. Such institutions are the beneficiaries of public services like everyone else. However, unlike everyone else, they are excused from contributing to income tax, the universal liability to which has been such a long-established feature of the general economic success of the Australian Commonwealth.
No constitutional objection to the exemption of charitable and religious institutions from income tax was raised in this appeal. However, Word's claim to the statutory exemption falls to be determined in a society, and a system of law, that generally upholds secular government and maintains a divorce between personal religious beliefs and governmental favours.
A taxation exemption for religious institutions, so far as it applies, inevitably affords effective economic support from the Consolidated Revenue Fund to particular religious beliefs and activities of some individuals. This is effectively paid for by others. It involves a cross-transference of economic support. The courts must recognise that this is deeply offensive to many non-believers, to people of different faiths and even to some people of different religious denominations who generally share the same faith. As the provision of public economic support can obviously favour particular religions, courts are guardians of neutrality. Courts thus act properly when they approach claims to statutory exemption from the payment of income tax of such charitable and religious institutions with a degree of strictness. Certainly, courts should do this where the relevant income is derived from investment and commercial business activities and is to be devoted specifically to proselytising activities, such as translation and distribution of the religious texts of a particular religion.
On the face of things, charitable and religious institutions should share with other Australian taxpayers the liability to pay income tax upon their income. Exemption needs to be clearly demonstrated as conformable to law. Any ambiguity should be construed so as to deny a claimed exemption that is not clearly justified in law.
Context of exemptions: A wide range of exemptions for charitable and religious institutions is already afforded in Australia under federal and State law. This is an additional consideration to suggest the need for the strict scrutiny of arguments for expanding statutory exemptions to apply to such institutions. The broad ambit of such exemptions is specially notable when contrasted to the international treatment of such non-profit ventures when they engage with other countries in investment or commercial business activities.
In 1995, the Australian Industry Commission conducted a review of charitable organisations in Australia[123]. On the specific issue of the income tax exempt status of charities, the Commission concluded that such exemption did not compromise competitive neutrality between organisations[124]. However, its report reveals that this conclusion was contested by organisations that were in commercial competition with the business arms of such bodies[125]. Referring to the taxation regimes then applicable in Australia, the competitors emphasised that income tax exemptions were not the only such exemptions applicable. The exemptions also included federal sales and fringe benefits taxes, State payroll and land taxes, and other taxes and charges[126]. The report contrasted the international treatment in comparable countries of commercial activities of non-profit organisations[127]. It found that the law in most of those countries subjected non-profit organisations, including charitable and religious institutions, to taxation in respect of income derived from their commercial activities[128]. By this standard, an Australian exemption of such income would appear to be exceptional if expanded to a case such as the present. It is hard to deny that, at the very least, the infrastructure and management costs of providing for tax liabilities in non-exempt investment and commercial business organisations, performing similar functions to Word, would significantly increase costs compared to those of the exempt Word.
The scheme of the 1997 Act provides that the exemption claimed by Word is not there just for the asking. A funeral business in competition with the funeral business operated by Word is entitled to expect that the provision to Word of the special exemption from income tax (with consequential savings in infrastructure costs) should be clearly demonstrated where the Commissioner contests it. This is especially so because, despite the high sounding "philosophy" adopted for the conduct of its funeral business, Word specifically acknowledged that it would be run as a "professional … business" with expansion of its activities into related businesses; an objective of securing a "margin of profit"; a search for "new business opportunities"; and with no confinement of its services specifically to the funerals of Christian believers or Wycliffe supporters.
In short, Word's aim was (as it stated) "[to] enable [it] to capture a section of the current market". In a secular society, an exemption will be provided to "charitable institutions" with religious purposes or to religious institutions because such a society respects the religious consciences of persons living there. However, to the extent that such institutions engage in investment and commercial business undertakings with a view to profit, they invite upon themselves a strict scrutiny. In such a case, they are in competition with others in the marketplace who do not enjoy any of the economic advantages that the exemption affords.
Width of "religion": There is a further consideration. In respect of the exemption from State payroll tax, this Court has adopted a broad view of "religion"[129]. In his reasons for upholding that view, Murphy J concluded that any attempt "to determine what religion is … poses a threat to religious freedom"[130].
For consistency, it appears inevitable that a similar view would be taken about the "religions" that might become the purpose of a "charitable institution" with religious purposes or a "religious institution" that is granted exemption under the 1997 Act. The classification could not be confined to Christian institutions that generally propound doctrines familiar to the courts. In a society such as Australia, the characterisation would have to extend to a very large range of "religious" beliefs. Then, according to the proposition advanced by Word, it would have to extend to bodies which, although not themselves engaged in propagating religious beliefs, constitute the "commercial arms" of such bodies.
The potential significance of the expansion of the category of exemptions immediately becomes plain. It is at least open to doubt that charitable and religious institutions that have traditionally been exempted from income tax liability in Australia would necessarily share their generally tolerant and mutually respectful attitudes with at least some institutions claiming "religious" purposes and objects. Thus, to exempt commercial bodies established to provide subventions for overseas televangelists or for overseas madrasas teaching religion to very specialised groups potentially stretches significantly the application of the exemption in the 1997 Act. At the least, such an exemption presents a serious question as to whether it was truly what the Australian Parliament intended when it enacted s 50-50(a) of the 1997 Act.
As it happens, my own religious tradition, and that of many Australians, is that derived from John Wycliffe, the "Morning Star" of the Christian Reformation in England[131]. Providing an exemption to an institution such as Wycliffe or Wycliffe International is comprehensible to me and arguably within the Parliament's purposes. However, the issue must be decided neutrally. Expanding the exemption to other unknown "charitable institutions" with religious purposes or to "religious institutions", especially to investment and commercial funeral or like business enterprises established to compete in the market with others and to provide funds for the religious objectives of such institutions, presents concerns that cannot be ignored in the present case.
In short, to the extent that the exemption is confined to "institutions" that are themselves religious in character, purpose and activities, the law draws what is arguably the intended and limited boundary of the specially privileged class. In a society such as Australia, there are only a limited number of people engaged in such institutions and providing income to them. The class is necessarily greatly expanded if the income tax exemption is expanded to include investment and commercial business activities that are somehow linked with such institutions. This would potentially increase the application of the exemption significantly and likewise enlarge the potential revenue thereby lost to the Commonwealth.
It follows that, arguably, if the expansion of the exemption to a company such as Word is to be sanctioned by law, it should be done by express legislation enacted for that purpose by the Parliament after a full debate about the issues of principle and policy that are raised. Likewise, in so far as the recent enactment of s 50-50(a) of the 1997 Act may be thought to respond to this new phenomenon, it should be given an interpretation that confines the ambit of the exemption rather than one that would expand it.

[184]

The issue stated: The first question is whether Word is an entity that is entitled to endorsement as exempt from income tax, complying with the requirements of s 50-50(a) of the 1997 Act. Specifically, to the extent that Word "has a physical presence in Australia", the question is whether it "incurs its expenditure and pursues its objectives principally in Australia".
The courts below, and now a majority in this Court, have concluded that Word has fulfilled all of the conditions for the application of the exemption. I agree (and it has not been contested) that Word has a "physical presence in Australia". Thus the relevant question is whether, to that extent, Word "incurs … and pursues its [charitable] objectives principally in Australia".
The majority in this Court answer this in the affirmative by taking a narrow view of what is involved in Word's incurring its expenditure and pursuing its objectives within Australia. Their approach is that the "objectives" are as stated in Word's constituting document. As far as Word is concerned, it fulfils its objectives (and incurs its expenditure) in Australia when it pays income to Wycliffe (and to Wycliffe International and other charitable beneficiaries as required by its constituting document) so that no difficulty arises in complying with s 50-50(a) of the 1997 Act. This approach sees no difficulty in the fact that the destination of the income that is subject to the tax exemption is (and always was intended to be) principally outside Australia[137].
This is an erroneous reading of the requirement of s 50-50(a) as demonstrated by the language of the provision, its apparent purpose, its history, its stated objectives and its reasonable application in Australia, applied in light of the general considerations of legal principle and policy that I have already mentioned. The proper conclusion is that the requirement of s 50-50(a) was not satisfied in this case. Word is not therefore an "entity" entitled to exemption from income tax as a "charitable" or "religious institution".
For obvious reasons, Word framed its argument in terms of its suggested status as a "charitable institution". No doubt, it considered that it would be more difficult to satisfy the courts that it was a "religious institution", given the colouration of its character by its investment and commercial funeral business activities. However, Word's claim to be a "charitable institution" is based upon provisions in its constituting document that express objects and purposes argued to be for the advancement of religion, a recognised "charitable purpose". Thus the fundamental dilemma posed for the proper characterisation of Word persists. How could a company engaged in investment and commercial funeral business activities for a profit truly be a "charitable enterprise" merely because it ultimately disburses parts of its income to religious institutions?
Charitable institutions and non-charitable objects: Federal income tax statutes in Australia, since 1916, have drawn a distinction between the income of religious, scientific, charitable and public educational institutions and the income of a fund established for public "charitable purposes"[138]. The legislation has specifically required the income of such a fund to be applied for the purposes for which the fund was established. There is no such requirement for an exempt "institution". By inference, this is because the very character of the "institution", without more, means that it will be "an establishment, organization, or association, instituted for the promotion of some object, especially one of public utility, religious, charitable, educational etc"[139].
Obviously, a "charitable institution" may have some non-charitable objects. The presence of these will be accepted but only so long as they are incidental or ancillary to the institution's charitable objects. The introduction of the relevant statutory provisions governing "charitable institutions", in the tabular form set out in the 1997 Act, did not change the substance of the previously enacted provisions. It must be assumed that the Parliament intended to continue to apply the institutional provisions stated in Stratton v Simpson[140] to the analogous exemptions enacted by the 1997 Act.
The Explanatory Memorandum distributed with the Taxation Laws Amendment Bill (No 4) 1997 (Cth) explains the purpose of altering s 23(e) of the 1936 Act. That amendment inserted the additional requirements for obtaining a tax exemption that later became the "Special conditions" contained in ss 50-50 and 50-60 of the 1997 Act[141]. The Explanatory Memorandum cites two reasons for amending the 1936 Act to remove the tax exemptions for (among others) charitable and religious institutions that are "located or pursue their objects offshore". It was[142]:

[192]

Errors of the contrary conclusion: The majority's conclusion about the meaning of s 50-50(a) is, with respect, erroneous. It is a result of reading the requirements of s 50-50(a) without giving sufficient attention to the language of the provision, its history and its stated purposes.
It is irrelevant to argue, as the joint reasons do, that the tax avoidance purpose of s 50-50(a) is immaterial because "[t]he Commissioner did not suggest in the present appeal that Word and Wycliffe were engaged in 'tax avoidance'"[148]. This confuses the relevance of the purpose of anti-avoidance and the purpose of a particular taxpayer or exempt entity's activities. The present question is what the Parliament was seeking to do through the language of s 50-50(a). That understanding assists in giving an accurate meaning to the provision. The section is then interpreted so as to apply equally to those who are engaged in tax avoidance and those who are not.
Once this fact is recognised, the obligation in s 50-50(a) becomes more understandable. It is an obligation imposed inter alios on Word. The joint reasons state that the charitable objectives were easily fulfilled by what Word did in Australia alone[149]. Unless that conclusory approach is adopted, the need to give an informal meaning to the new requirement of pursuing the charitable "objectives principally in Australia" remains. In the factual circumstances of the present case, the "charitable purposes" pursued by Word were principally overseas, not in Australia. By way of contrast, the purposes of Word in Australia were investment and commercial funeral business activities.
The Commissioner's interpretation of s 50-50(a) is convincing and is to be preferred once it is appreciated that the object of s 50-50(a) was to afford the Commissioner a means of preventing, or responding to, the risk of tax avoidance; to provide a means of tracing effectively the money trail alleged to be "charitable" and keeping it principally at home; and to provide for "case by case" approval where the money trail leads to charitable activities principally pursued outside Australia.
A further error: An additional error of the joint reasons appears in the narrow reading of s 50-50(a)[150]. This is said to produce a conclusion that the language of s 50-50(a) is "intractable". I agree; but I reach exactly the opposite outcome.
The starting point, which I do not accept, is that Word escapes the propounded meaning of s 50-50(a) by demonstrating that it was not itself involved in tax avoidance. Word argued that decisions to pay moneys (to Wycliffe, Wycliffe International and other bodies) were made in Australia. Nothing in s 50-50(a) obliged such organisations (including Wycliffe and Wycliffe International) actually to expend their moneys in Australia. It was said that s 50-50(a) draws no distinction between direct and indirect effects. Section 50-50(a) instead requires that for an "entity" to gain an exemption as a "charitable institution" (as distinct from the investment or commercial funeral business that Word otherwise appears to be) it must demonstrate the dual requirements of s 50-50(a).
Word had to pursue its charitable objectives (and incur its expenditure) "principally in Australia". Moreover, that phrase is to be understood in light of its objects to minimise the risks of tax avoidance; to permit scrutiny and effective investigation by the Commissioner; and normally to confine the objectives to those that are pursued principally in Australia. If they were to be pursued principally outside Australia, this had to be authorised individually, as s 50-50(d) contemplated.
Word made the claim that it was pursuing "charitable purpose" objectives. As a precondition to endorsement of exemption from income tax, the language and object of s 50-50(a) required Word to incur its expenditure and pursue its objectives "principally in Australia". The interpretation adopted in the joint reasons does not give effect to the apparent purpose of the provision.
A still further error: The joint reasons also err in their stated opinion that the Commissioner's contention that Word's submission would present him with difficulty in monitoring funds is "exaggerated in the light of s 50-145"[151].
In support, the joint reasons argue that, if "the Commissioner had reason to suspect that funds given by Word to Wycliffe were not being expended on charitable objects", he had the "power to request … information and documents" and to subject Word (in the case of default) to criminal liability. There are many reasons why this argument is unconvincing.
First, the objective of s 50-50(a) is to provide a precondition to entitlement. Its purpose is to avoid the necessity of ex post interrogation where, inevitably, the Commissioner and his officers would be at an informational disadvantage. By confining the pursuit of the charitable objectives to be "principally in Australia", as s 50-50(a) does, the Commissioner is not forced to rely on questioning and invoking criminal sanctions to overcome the information deficit. Within Australia, the Commissioner has his own employees and agents to perform such investigations. He enjoys much more available means than elsewhere for investigating the payments for allegedly "charitable purposes" to parties other than the entity in question itself.
Secondly, the joint reasons repeat the mistake of assuming that the meaning of s 50-50(a) is to be derived by reference to the imputed behaviour of Word alone. It is not. The purpose of s 50-50(a) is to enable the Commissioner to deal systematically with alleged entities who may have attempted to use the entity exemption for "charitable" or "religious institutions" as a means of tax avoidance. Section 50-50(a) must be interpreted to give effect to its large institutional and anti-avoidance purpose. It must not be confined to the particular application to Word.
Thirdly, even in the case of an honest entity like Word, there is an enlarged risk that its payment of subventions for the pursuit of Word's charitable objectives overseas may haemorrhage. They may do so in ways that Word, Wycliffe and Wycliffe International never intended. Section 50-50(a) was introduced into the 1997 Act to prevent and redress that potential problem.
It is impossible to deny that the Commissioner can monitor and ensure the integrity of a flow of funds much more easily where the pursuit of the objectives is principally in Australia rather than overseas. To do so overseas might be difficult, or even impossible. It is a small comfort to answer this contention by saying that the Commissioner can always pursue local criminal sanctions against the entity present in Australia. This does not address the institutional or organisational needs of the Commissioner, with his legitimate obligations to defend the revenue and to redress and discourage tax avoidance.
Factually: principally overseas objectives: If the interpretation of s 50‑50(a) urged by the Commissioner is adopted, do the facts of Word's case warrant a conclusion that Word's charitable objectives were pursued principally outside Australia?
The investment and commercial funeral business activities of Word that were conducted wholly within Australia did not involve charitable objectives that would attract exemption under the Act. Any charitable "objectives" were pursued mainly through Wycliffe and Wycliffe International which arranged the Bible translations. They were not performed by Word itself.
The evidence before the AAT and the agreed facts in the Federal Court reveal that some Bible translation for indigenous peoples with hitherto unwritten languages took place in Australia, out of Darwin and Alice Springs. However, it was conceded that this activity was "now less active than it was previously". As the joint reasons state, the uncontested evidence was that Wycliffe and Wycliffe International were seeking to spread the Christian religion through particular activities "in developing countries, and among sections of the population who have no written language"[152].
More specific evidence from Word about these activities indicated how Word "achieves its religious objects in practice", by securing the publication of the Bible "in the mother tongue or 'heart language' of peoples in all parts of the world … [including] the Australian Aborigines, the indigenous people of Papua New Guinea, and people in Indonesia, Africa and South America". The pursuit of the same objective in the Philippines was also mentioned.
It follows that the only conclusion available from this evidence, including the particularisation of the claim for exemption by Word's lawyers, is that the "charitable purposes" relied on by Word were pursued principally outside Australia. Once Australia's Aboriginal peoples are effectively excluded, the very nature of the "charitable purposes" relied on confined the pursuit of Word's charitable objectives to overseas activities. On this issue, the evidence spoke with a single voice.
With this conclusion, it is impossible for Word to comply with the requirement stated for endorsement as an "entity" exempt from income tax under s 50-50(a) of the 1997 Act. Word had a physical presence in Australia. But in so far as it pursued any charitable objectives, it did so principally outside Australia. It was therefore not an entity entitled to exemption.
Conclusion on s 50-50(a) of the 1997 Act: The foregoing conclusion is fatal to Word's case. The other ingredients necessary for exemption as a "charitable institution" under the general law might attract the operation of the other provisions of the 1997 Act. But without compliance with s 50-50(a), Word was disentitled. The entity could not then be endorsed as exempt from income tax.
This conclusion is not surprising once the language and purposes of s 50‑50(a) (read with s 50-50(d)) are understood. The exemption is exceptional. Without saying anything about Word, the exemption it sought is susceptible to misuse, dishonesty and tax avoidance. To that end, the Australian Parliament has enacted "Special conditions" designed to enhance the Commissioner's capacity to monitor the money trail of expenditures on claimed "charitable purposes" and the pursuit of such objectives. One such express requirement is that the pursuit of the charitable objectives should be "principally in Australia". In so far as Word had charitable objectives (as distinct from investment and commercial funeral business objectives for profit) it did not pursue those "objectives principally in Australia". It pursued them through other entities and principally overseas. It was therefore not qualified for exemption from income tax. The Commissioner was correct to so decide.
Even assuming all other considerations might be found in favour of Word, the foregoing conclusion requires that the Commissioner's appeal be allowed.

[193]

Remaining issues in the appeal: Mine is a minority opinion and my reasons thus far are sufficient to sustain the orders that I favour. However, it is appropriate for me to address the other issues argued in support of the Commissioner's submissions. Out of respect for the importance of these issues, the careful arguments of the parties and my disagreement with the joint reasons, I will respond to the question whether, in the facts of this case, Word otherwise qualified as a "charitable institution" for the purposes of the 1997 Act.
The 1997 Act (like its predecessors) does not define the term "charitable institution". However, it is settled law in this Court that, if the entity claiming exemption from income tax is an "institution" for the purposes of the law, it is "charitable" if it has "charitable purposes"[153]. It was common ground in this appeal that, absent any statutory modification or definition, the word "charitable" in this context takes on a "technical meaning". It is a meaning that can be traced to the law of trusts and, ultimately, to the preamble to the Statute of Elizabeth[154].
Characterising charitable institutions: To determine whether a propounded "institution" or its purposes are "charitable", it is necessary in every case for the decision-maker to engage in an act of characterisation. This is not a simple task. First, there is uncertainty as to which factors may be considered when classifying the purpose of a propounded institution. Secondly, the characterisation may, in the particular case, involve a finely balanced determination of the facts, upon which informed decision-makers might disagree. Thirdly, institutions typically have many purposes pursued through a range of activities. Some such purposes and activities may be charitable, whereas others may not. Some may be major whereas others may be minor or incidental.
Without statutory guidance, characterisation of an institution typically requires the decision-maker to consider a mass of cases and search for the most analogous decisions. In today's society, this must be done in circumstances where the activities of charities, their purposes, objectives and mode of operation are changing. Such changes result partly from new and different social conditions. They partly flow from the attempt of putative "charitable institutions" to carry out new, larger and different objects but within legislation that was substantially enacted in earlier times, traceable to much earlier times, and addressed to charitable activities somewhat different from those now often undertaken by not-for-profit bodies.
Care must be observed in citing dicta from the reasons of judges given in earlier times, especially in foreign courts, to decide the correct operation of a local income tax statute such as the 1997 Act. As the joint reasons point out, many of the cases cited in argument by both parties arose in a context involving "charitable purposes" that was different to the way that phrase becomes relevant to the application of the 1997 Act to resolve Word's "charitable institution" claim[155].
Special care must also be taken in applying general judicial observations in both local and overseas cases. Sometimes such observations have been written with a close eye to the particular statutory scheme under consideration. For example, R v The Assessors of the Town of Sunny Brae[156] considered s 4(1) of the Rates and Taxes Act 1927 RSNB (Canada), c 190. That provision exempted from taxation:

[195]

The Supreme Court of Canada was closely divided about the application of that statute[157]. The Court held that a building, which included both a school and a public laundry service conducted by the school, was not entitled to exemption from the relevant rates and taxes. To a very large extent, the respective opinions of all the Canadian judges turned on the adverb "exclusively". Self-evidently, it would be somewhat risky to derive from such a case any general proposition of immediate application to the definition of a "charitable institution" in the 1997 Australian Act. With so many context-specific decisions on the availability of exemptions from taxation in this corner of the law, special care must be taken in invoking earlier cases. Often, those cases reflect no more than the judicial response to particular facts; specific legislation; changing social circumstances in which charities operate; and (sometimes) apparent preferences towards some charities rather than others[158].
Both words in the expression "charitable institution" are inherently ambiguous. There is a wealth of judicial authority on this expression and a diverse range of the statutory provisions applied in that authority. It is thus inevitable that considerations of legal principle and policy will operate, even if unconsciously, in decisions about contested claims to charitable status arising in new situations. For that reason, I have attempted to identify some of the considerations that operate in the claim by Word to be a "charitable institution". It has made that claim even though Word does not itself perform any charitable activities (except writing cheques); performs instead well-recognised investment and commercial funeral business activities; and only performs its "charitable purposes" through other distinct entities (corporations) which, separately and themselves, might be entitled to classification as "charitable institutions".
The entity's business activities: There are several possible reasons why, in this context, Word should be characterised as a business entity liable to income tax in the ordinary way. Its claim for exemption as a "charitable institution" from income tax liability should be rejected.
First, there is the need to avoid an abuse of claims to be a "charitable institution" and the potential misuse of such claims for the purposes of tax avoidance. Secondly, there is a legitimate concern of competitors operating in the same market as the actual business operations of Word. By linking the business operations of Word with the "charitable purposes" of Wycliffe or Wycliffe International, Word is allegedly afforded an unfair economic advantage that its competitors in the investment and commercial funeral business market do not enjoy. This concern was raised in the inquiry by the Australian Industry Commission in 1995[159] and was also considered by the Australian Charities Definition Inquiry in 2001[160].
The economic issue so described is not new in Australia. The Parliament debated it when considering the provision of the Bill that later became the section of the 1936 Act that exempted charitable and religious institutions from income tax[161]. If the economic transfer costs of the exemption for "charitable" and "religious institutions" have divided the Parliament and official inquiries in the past, it is little wonder that courts, including this Court, have also been divided in deciding such cases. One such example is Roman Catholic Archbishop of Melbourne v Lawlor[162]. That case involved a contested gift by will to establish a Roman Catholic daily newspaper. It resulted in an even division in this Court[163]. Consequently, the decision of the Full Court of the Supreme Court of Victoria was affirmed[164]. That case illustrates the opacity of the applicable legal principles and the necessity to provide transparency as to the real reasons for decisions which go beyond formal explanations and legal fictions.
To reduce the influence of undisclosed considerations for individual judicial attitudes to particular "charitable institutions" or "charitable purposes", several decisions have adopted the course of analysing the constituting document of the propounded "charitable institution". This is the approach taken by the joint reasons. That document has thus become an influential, if not the dominant, factor in characterising the institution's purpose. It is typically the starting point for legal analysis[165].
Identifying the entity's real purposes: With respect, there are real dangers in assigning too much importance to the constituting document. This is especially so now that the doctrine of ultra vires in relation to companies has been discarded as an important element in Australian corporations law[166].
The constituting document can obviously be drafted widely or ambiguously. Its language may generate uncertainty as to the true purposes of the institution propounded as charitable. It may contain multiple purposes but not indicate whether they are all of equal importance or whether some purposes are subsidiary to others. The document may not identify the outer limits of the purposes which the institution may pursue. For these reasons, in my opinion, the real discrimen for the characterisation of an entity propounded as a "charitable institution" is what that entity actually does and what purposes it actually pursues. I take this to be the reason why, in Incorporated Council of Law Reporting (Q) v Federal Commissioner of Taxation[167], Barwick CJ said:

[200]

Similarly, the reasons of Starke J in Royal Australasian College of Surgeons v Federal Commissioner of Taxation[169] may be considered. Although in dissent as to the outcome, Starke J held that it was permissible to examine the actual activities of the College to clarify whether "non-charitable purposes" (such as promoting professional interests) were simply incidental to the accepted "charitable purposes" (of promoting surgical knowledge and practice)[170].
The actual activities of Word were indisputably conducting investment and commercial funeral business activities for profit. If such activities are available for consideration in characterising Word for the purposes of the 1997 Act, it is obvious to me that Word's own activities were not themselves charitable. What was charitable was the ultimate proposed destination of the profits that Word derived from its investment and commercial funeral business activities.
If, then, the focus is upon Word (as distinct from the recipient beneficiaries of its profits after they were accrued by Word) a clear line for the purposes of characterisation may be drawn. The separate corporate "entity", Word, was established to, and did, make profits from investment and commercial funeral business activities. Unless the ultimate destination of the designated profits to other independent corporate entities (including Wycliffe and Wycliffe International) applies retrospectively to colour the characterisation of Word by reason of its subventions, the 1997 Act demands that Word itself be characterised as a business for profit. The ultimate destination of that profit or part of it cannot alter that conclusion.
Inevitably, borderline cases have arisen and Australian courts have addressed the question whether corporate entities, propounded as "charitable institutions", were disentitled to that status because some of their activities were capable of characterisation as professional or commercial business activities for profit[171].
Relevance of unrelatedness: Later Australian decisions have considered the revenue raising business activities of propounded "charitable institutions". This course of authority suggests that courts are reluctant to characterise an institution as "charitable" where it pursues major revenue-raising business activities that are not related to the propounded "charitable purpose". In such a case, the business activity has commonly been classified as non-charitable in character. If it is an important activity of the propounded "charitable institution", the unrelatedness of the revenue-raising activity, for "charitable purposes", will deprive the entity of characterisation as a "charitable institution". For example, selling ice cream or laundry services to raise funds for a religious institution would no doubt be an unrelated activity. By contrast, a Law Reporting body selling law reports would be a related activity[172].
This was the distinction applied by the majority of the Court of Appeal of New South Wales (Priestley JA with McHugh JA concurring; Lee AJA dissenting) in its influential decision in Glebe Administration Board v Commissioner of Pay-roll Tax[173]. A similar approach was taken by Hardie Boys J in New Zealand in M K Hunt Foundation Ltd v Commissioner of Inland Revenue[174]. His Honour explained[175]:

[205]

If a similar criterion is applied in the present appeal, the investment and commercial funeral business activities of Word were not, by any stretch of the imagination, "inherently charitable". They did not relate to Word's propounded "charitable purposes", namely the propagation of religion. They were distinct and separate. A fair reading of the judicial authority relied on by the Commissioner sustains his submission. The reasons of the majority of this Court in this appeal represent a heterodox extension of the ambit of the previous understanding of the requirements for a "charity" to constitute a "charitable institution" that is entitled to exemption from income tax.
Allowing fully for the differences in the applicable language of the respective legislation, several Canadian decisions have adopted an approach to the central issue presented in this appeal similar to that in the above Australian, New Zealand and United Kingdom cases. For example, the decision of the Supreme Court of New Brunswick in Kennebecasis Valley Recreational Centre Inc v Minister of Municipal Affairs of New Brunswick[180]. In that case, five communities incorporated a property to establish a local recreational centre and it was hired out on commercial terms for events to derive profits. The Court there held that it was not used solely for charitable activities as required by the statute[181]. The Court drew a distinction between exempted charitable activities and those of "a company which operates a business on a regular basis and in an efficient business-like manner"[182]. If the same, or a similar, criterion were applied to Word, the actual objectives that it pursued, in practice, were the running of a commercial enterprise for profit. It did so by way of investment and commercial funeral business activities, apparently conducted in a business-like manner.
Several decisions of the Supreme Court of Canada take a similarly strict view towards claims for exemption from general legal obligations otherwise applicable on the propounded ground of the existence of charitable objects or purposes[183]. In one such decision, Gonthier J (although in dissent) differentiated between the identified primary, collateral or independent purposes and merely incidental or ancillary purposes of a propounded "charitable institution". His Lordship said[184]:

[209]

Conclusion: proper characterisation: From the foregoing authorities, which on the general approach are largely consistent, it follows that the propounded charitable institution's purposes, as stated in its constituting document, will only take a decision-maker so far. This is at least the case when the decision-maker is faced with the obligation of characterisation as required by legislation such as Div 50 of Pt 2-15 of the 1997 Act.
The decision-maker is obliged to decide objectively whether a propounded entity is pursuing business or charitable purposes. Given that the only cases likely to reach the courts (especially final courts) are those in which there is evidence both ways, it is necessary to draw the resulting line. Are the non-charitable purposes of the "charitable institution" merely "incidental" or "ancillary" to the primary "charitable purpose"? If so, the institution can be characterised as "charitable". Or are there distinctive factual features, significant to and related to any actual charitable performance, that make the business activities distinguishable from the "charitable purposes" so as to deny the entity the classification of "charitable institution"?
The business activity will more readily be characterised as "ancillary" or "incidental" to the "charitable purpose" that is propounded by the "charitable institution" where it is directed to the charitable activity that first existed[186]. The revenue-raising activity, however, is likely to deprive the entity of characterisation as a "charitable institution" where it is an unrelated activity that pursues a separate and independent purpose (such as running an ice cream parlour or laundry to raise funds for a religious institution).
On the authorities, unrelated revenue-raising activities are more likely to evidence two distinct purposes: a "charitable purpose" (to raise funds for the charity) and a commercial purpose (to conduct a business at a profit). The common law has long insisted that, to be a "charitable institution", the purpose of the institution must be exclusively charitable (with non-charitable activities no more than ancillary). Thus, dual characteristics will be sufficient to deprive the institution of classification as a "charitable institution". Is that the situation in the case of Word?
Word is not a charitable institution: Applying the foregoing criteria rather than a purely formal analysis by reference only to the purposes which a legal draftsman stated in Word's constituting document, Word's argument that it was a "charitable institution" ought to have been dismissed. Application of established decisional authority observed in this country, and in many others of the same legal tradition, required its rejection.
This conclusion provides a separate and additional ground for upholding the Commissioner's appeal. I have thus found for the Commissioner on the substance of each of the issues presented in this appeal. It is unnecessary for me to decide all of the other arguments that the Commissioner presented to support his submission that the Federal Court departed from established authority in elucidating the character of a "charitable institution". That Court erred in misapplying the "Special condition" of s 50-50(a) of the 1997 Act, thereby allowing Word to fall within the exemption from income tax. It also erred in finding that Word was a "charitable institution", despite the substantial business activities of Word that were unrelated to its "charitable purposes", except as a means of raising income.

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