Glasby & Ors as trustees of the BCS Foundation v Attorney General of New South Wales

Supreme Court of NSW|2017-06-13|Before: Sackar J

Proceedings

This is an application for the establishment of an administrative scheme to amend terms of a charitable trust known as the BCS Foundation (the Trust).
The Plaintiffs are the trustees of the Trust. By Summons filed 6 April 2017, they make an application to settle an administrative scheme relating to the Trust in order to preserve the Trust's tax deductible recipient status for income tax purposes (Plaintiff's written submissions [7]).
The proposed scheme is set out in Annexure A to the Summons (proposed scheme). In short, the scheme seeks to: 1. Update references in clause 4 of the Trust Deed setting out the purpose of the Trust to reflect legislative and administrative changes, replacing: 1. references to the repealed section 78(4) of the Income Tax Assessment Act (presumably the Income Tax Assessment Act 1936 (Cth) (ITAA 1936)) with Subdiv 30-B and section 30-15 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997); and 2. references to 'Baptist Community Services - NSW & ACT' with 'BaptistCare - NSW & ACT' (BaptistCare). 1. Amend the Trust's terms to conform to the Australian Tax Office's (ATO) model trust deed for public ancillary funds to ensure the Trust's continued status as a deductible gift recipient.
The Plaintiffs support their application with affidavits of John Frederick Church sworn 31 March 2017 and James Arthur Creech sworn 4 April 2017.
The Attorney-General has taken an active part in these proceedings as Defendant. It does not oppose the relief sought, except to note the amendments to clause 4 regarding the ITAA references sit more comfortably within the rubric of a cy-près scheme, rather than an administrative scheme. The Plaintiffs agreed to this distinction in oral submissions (T2/25-45).
Having had the benefit of the parties' written and oral submissions, I made orders to grant the relief sought in prayers 1, 4 and 5 of the Summons, and indicated to the parties I would give my reasons. These reasons now follow.

Background to the Trust

The Trust was established by a Trust Deed dated 6 June 1995, as a provider of aged and community care across NSW and the ACT. As at 31 March 2016, the Trust had net assets of approximately $11,230,000.00.
Clause 4(a) of the Trust Deed sets out the purpose of the Trust: "The Trust Fund shall be held by the Trustees upon trust for the purpose of providing money property or benefits to or for funds of the Baptist Community Services - NSW & ACT for the purposes (if any) refereed to, in any of the sub-paragraphs of Section 78 (4) of the Income Tax Assessment Act, provided such purposes are charitable."
The Trust Deed contains no power of amendment. Thus, following legislative changes to the requirements for charities to be eligible for tax deductibility status, the Plaintiffs seek an order for the settlement of an administrative scheme so the Trust can comply with these amended requirements.

Preliminary requirements

I am satisfied the Trust is a charitable trust within the meaning of section 3 of the Charitable Trusts Act 1993 (NSW) (Charitable Trusts Act). Clause 4(a) of the existing Trust Deed makes clear the Trust was "established for charitable purposes," and these proceedings are plainly charitable trust proceedings within the meaning of section 5 of the Charitable Trusts Act. Further, I am satisfied the procedural requirements for these proceedings have been satisfied, with the Attorney-General (through his delegate the Solicitor-General) authorising the bringing of these proceedings under section 6 of the Charitable Trusts Act on 14 December 2016.

Nature of the amendments

Before determining the appropriateness of the amendments, it is necessary to consider the proper nature of the amendments sought.

ITAA amendments
As noted, the Plaintiffs seek an order for the establishment of an administrative scheme so, in part, references to the repealed section 78(4) of the ITAA 1936 in clause 4 of the Trust Deed can be replaced with references to the now applicable provisions of the ITAA 1997.
Section 78 of the ITAA 1936 was repealed with effect from 14 September 2006, pursuant to Schedule 1, clause 86 of the Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 (Cth). While in force, section 78 governed the deductibility of gifts, with section 78(4) providing the cumulative grounds in which a gift would be an allowable deduction. Section 78(4)(e) provided the gift had to satisfy "special conditions" if any were specified as applicable to the relevant fund, authority or institution, in the table contained in Section 78.
Thus, if any special conditions were to be imposed at any time for gifts to the (then) Baptist Community Services - NSW & ACT, then those gifts would need to comply with the conditions to be deductible. In this sense, reference to "any of the sub-paragraphs of section 78(4) of the Income Tax Assessment Act" in clause 4(a) of the Trust Deed can be understood as a means of ensuring gifts applied by the Trust obtained tax deductibility status.
As section 78 of the ITAA 1936 is no longer in operation, the Plaintiffs now seek to amend clause 4 of the Trust Deed to refer to equivalent in force provisions in Subdiv 30-A and 30-B of the ITAA 1997.
As noted, the Defendant does not oppose this aspect of the Plaintiff's application, but submits it is better characterised as invoking the Court's power to order a cy-près scheme, as opposed to an administrative scheme.
In my view, this characterisation is correct and a cy-près scheme is necessary to remove and replace the references to the repealed section 78(4) of the ITAA 1936. As Campbell J (as his Honour then was) observed in Corish v Attorney-General's Department of NSW [2006] NSWSC 1219 at [9]: [9] There is a clear conceptual difference between a cy près scheme and an administrative scheme for a charitable trust. It is the difference between ends and means. A cy près scheme can be directed when it is impossible or impractical to carry out the objects of the trust in all the details the settlor stipulated. An administrative scheme supplements and/or clarifies any provisions the settlor has stipulated concerning the manner in which the objects of the trust are to be pursued, when practical circumstances show that the settlor's stipulation (if any) of the means is inadequate or impractical.
See also Darke J's similar observations in Reverend Father Simon Ckuj (as trustee of the Jaroslaw Andrew Oryszkiewycz Halyckyj Permanent Charitable Fund) v Attorney-General (NSW) [2015] NSWSC 35 (Ckuj) at [4].
I am satisfied these amendments concern the ends, not the means. As the Defendant submits, correctly in my view, the repeal of section 78 means the Plaintiffs can no longer pursue the purpose of clause 4(a) of the Trust Deed as initially drafted (Defendant's written submissions at [22]-[23]). References to a new statutory regime (namely Subdiv 30-B of the ITAA 1997) in clause 4(a) introduce a different, albeit similar, purpose the Plaintiffs must now pursue. In my view, it is therefore more appropriate to consider the amendments to the ITAA references under the rubric of a cy-près scheme, as this court is empowered to do pursuant to section 9(1) of the Charitable Trusts Act and at general law; Dobrijevic v Free Serbian Orthodox Church, Diocese for Australia & New Zealand Property Trust [2015] NSWSC 637 at [426].

BaptistCare amendment
The Plaintiffs also seek an order for the establishment of an administrative scheme so references to Baptist Community Services - NSW & ACT can be replaced by references to BaptistCare, to reflect the organisation's change of name in February 2014.
The Defendant agrees to such an amendment, provided the objects of the organisation, being BaptistCare, remain the same (Defendant's written submissions [19] and [26]). The Plaintiffs point to the absence of any attempts including amendments seeking to change the objects of the organisation as evidence of the objects remaining the same.
I am satisfied such an inference can be drawn, and the change of name is therefore plainly an issue within the proper scope of an administrative scheme.

Public Ancillary Funds amendments
The Plaintiffs also seek the establishment of an administrative scheme to ensure the Trust's legislative status as a public ancillary fund and thus a deductible gift recipient. Since the enactment of the Australian Charities and Not-for-Profits Commission Act 2012 (Cth) and associated regulatory changes, certain funds, such as the Trust, now need to be endorsed for donors to claim an income tax deduction on gifts. Section 30-120(1)(d) of the ITAA 1997 provides an ancillary fund is entitled to be endorsed as a deductible gift recipient if "it complies with the rules in the public ancillary fund guidelines."
Pursuant to section 526-103 of Schedule 1 to the Tax Administration Act 1953 (Cth) (TAA 1953), on 9 December 2011 the Assistant Treasurer issued the Public Ancillary Fund Guidelines 2011, commencing 1 January 2012 (PAF Guidelines). The Plaintiffs seek to adopt the PAF Guidelines, and in particular adopt the Australian Tax Office's model trust deed for Public Ancillary Funds, to secure the Trust's entitlement to be endorsed as a deductible gift recipient (see Affidavit of James Arthur Creech sworn 4 April 2017, Annexure G).

Appropriateness of amendments

In my view, as both parties submit, the amendments to the Trust Deed are appropriate. Clause 4.1 of the proposed scheme provides: (a) The Trustee must pay or apply the Trust Fund solely for the purpose of providing money, property or benefits to or for BaptistCare NSW & ACT formerly known as Baptist Community Services - NSW & ACT being an Eligible Entity in accordance with the Public ancillary fund guidelines to be applied by BaptistCare NSW & ACT for charitable purposes. (b) Where gifts to an Eligible Entity are deductible only if, among other things, the conditions set out in the relevant table item in Subdivision 30-B of ITAA 97 are satisfied, a payment or application of the Trust Fund must be made in accordance with those conditions. (Affidavit of James Arthur Creech sworn 4 April 2017, Annexure G, p 93)
"Eligible Entity" is defined by clause 2 of the proposed scheme to mean: A fund, authority or institution: 1. which is Charitable [or would be a charity within the meaning of the Charities Act 2013 (Cth) if it were not a 'government entity' as defined in that Act]; and 2. gifts to which are deductible under item 1 of the table in section 30-15 of ITAA 97. (Affidavit of James Arthur Creech sworn 4 April 2017, Annexure G, p 90-91)
First, I am satisfied it is appropriate to update the clause to refer to the organisation by its current name, BaptistCare, on the evidence that such a change does not alter the objects of the organisation.
Secondly, I am satisfied in this case it is appropriate to update the references to section 78(4) of the ITAA 1936 to refer to Subdiv 30-B and section 30-15 of the ITAA 1997. The referenced ITAA 1997 provisions operate in substantially the same way to section 78(4) of the ITAA 1936, ensuring the application of the Trust Funds is limited for purposes which will allow gifts to the Trust to be tax deductible. I am therefore satisfied this proposed purpose is as close as possible to the existing purpose of the Trust, and thus it is appropriate for me to order such an amendment in accordance with the doctrine or principle of cy-près.
Finally, I am satisfied it is appropriate to amend the Trust Deed to allow the Trust to adopt and comply with the PAF Guidelines, and thereby ensure it maintains its status as a Public Ancillary Fund and a deductible gift recipient. As Campbell J observed in Corish at [18]: In my view, achieving tax-exempt status for a fund like this is something which is of high importance for the practical operation of the fund. It is within the scope of an administrative scheme to restrict the activities of the Trustees to a manner of proceeding which would accord the Trust Fund significant benefits under the tax law.
Darke J cited Campbell J's remarks in Cjuk at [10], also considering it within the proper scope of an administrative scheme to include provisions obliging the trustees to seek to maintain Tax Concession Charity status for the relevant trust.
I am also satisfied the amendments relating to the Public Ancillary Fund and adoption of the PAF Guidelines are also of significant practical importance to the Trust, ensuring the Trust can maintain its status as a deductible gift recipient. Therefore in my view these amendments are appropriate.

Conclusion

I note I have already made the relevant orders accordingly.

Amendments 23 June 2017 - Hearing date 13 June 2017 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 June 2017

Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006(Cth)

Tax Administration Act 1953(Cth)

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