Navy Health Limited v Deputy Commissioner of Taxation

Federal Court of Australia|2007-06-20|Before: Jessup J

REASONS FOR JUDGMENT 1 Before the court are three appeals pursuant to s 14ZZ of the Taxation Administration Act 1953 (Cth). Each appeal is against an assessment under the Fringe Benefits Tax Assessment Act 1986 (Cth) ("the FBTA Act"), the three years in question being those ended 31 March 2001, 2002 and 2003. The only questions which the court is required to determine in each of the appeals are whether the applicant was, at the relevant time, (a) a "charitable institution" within the meaning of s 65J(1)(b) of the FBTA Act; or (b) a "non-profit association, … established for community service purposes" within the meaning of s 65J(1)(j) of the FBTA Act. If the answer to either of these questions is yes, the applicant will be a "rebatable employer" for the year in question. The proceeding was conducted on the basis that no distinction was to be made between the years to which the three appeals relate. 2 The applicant is a not-for-profit company, limited by guarantee, which provides private health insurance. It is not suggested that such an activity is charitable as such; rather, the applicant's claim to be a charitable institution is based upon the limitation, in its rules, of the class of persons whom it may accept as members of the fund which is conducts. Broadly, that class is confined to serving members of the Navy (and other arms of the services) who have dependants and other identified categories of persons having particular connections with the Navy (or the other arms). The applicant contends that its objects are thus to promote the efficiency of the Defence Forces and thereby manifest a concern with the benefit of the community as a whole sufficient to invoke the fourth class of charitable purposes identified in Lord Macnaghten's speech in Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531.

CHARITABLE INSTITUTION 47 Do the facts and circumstances referred to above sustain the conclusion that the applicant was "charitable" in the years to which this proceeding relates? The applicant made it clear that its case did not depend on the direct proposition that it provided benefits to serving and previous members of the Navy (or of other arms of the services) as individuals. Rather, it relied upon a line of cases that have upheld as charitable trusts - or institutions - which "promote the efficiency" of the armed forces. That is said to be a purpose which falls within Lord Macnaghten's fourth class in that it benefits the community as a whole. 48 The line of cases upon which the applicant relies commences with In re Good [1905] 2 Ch 60. There, the testator left his residuary personalty upon trust for the officers mess of his old regiment, the income to be applied in maintaining a library for the mess, and any surplus to be expended in the purchase of plate. Within the residue there were also two houses, and the testator directed that they be for the use of "old officers of the regiment" at a small rent during their lives. Dealing first with the bequest, Farwell J referred to an affidavit by the Assistant Adjutant General in the Army which stated that many messes already had libraries, and that the military authorities had considered whether a library should be regarded as part of the necessary equipment of a mess "on the ground that access to books, and particularly books dealing with military matters, is conducive to military efficiency". His Lordship held that the bequest was charitable under the fourth class. He said: I am not of course suggesting for a moment that the officers are objects of charity. It is the public, not the officers, that are benefited by better means being put at the disposal of the officers to enable them to make themselves efficient servants of the King for the defence of their country. On that ground I think this gift can be upheld. I may observe that Kekewich J. in In re Stephens held that a prize for shooting is a good charitable gift; and Romer J. in In re Lord Stratheden and Campbell considered that a gift to a volunteer corps was a good charity. I think it would be difficult to say that money given to be expended in terms in some specific way in order to increase the efficiency of a regiment in a particular mode is not a good charity. This gift, to my mind, does tend to increase the efficiency of the army by giving the officers greater opportunities of providing themselves with literature. It is suggested that the literature that may be bought may not necessarily be confined to military literature; but I cannot regard that as a consideration in this case any more than the Courts have considered that in the case of a provision for a public library the library may contain rubbish as well as useful books. I must assume that the books bought will be books of merit, and, after all, so long as they are books of merit they need not necessarily be confined to military literature. An officer is all the better equipped if he can speak several languages, and if he knows the history and geography of his own nation as well as many other nations, as well as being instructed in the military art. I should be sorry to have to hold that any gift which tends to educational equipment in that way is not a charitable gift. I mention in passing that Farwell J did not uphold the devise. It was conceded that, if the word "old" in the passage "old officers of the regiment" meant "former", the gift was bad. His Lordship held that it did mean "former" and, therefore, that the gift failed. 49 Good was followed by Romer J in In re Gray [1925] Ch 362. There the testator had left a sum of money to form the nucleus of a fund for his old regiment "for the promotion of sport (including in that term only shooting, fishing, cricket, football and polo)". Referring to an argument that it had previously been held (in In re Nottage [1895] 2 Ch 649) that a gift to encourage sport was not charitable, his Lordship said: But in my opinion it was not the object of the testator in the present case to encourage or promote either sport in general or any sport in particular. I think it is reasonably clear that it was his intention to benefit the officers and men of the Carabiniers by giving them an opportunity of indulging in healthy sport. It is to be observed that the particular sports specified were all healthy outdoor sports, indulgence in which might reasonably be supposed to encourage physical efficiency. His Lordship referred to the "established principle" of Farwell J in Good. He took the view that the judgement of Farwell J was based primarily on the ground "that the gift on trust for the maintenance of the library was a gift tending to increase the efficiency of the Army" ([1925] Ch 366 and 367). Romer J continued (at 367-368): In the case before Farwell J the efficiency was mental efficiency, and the only distinction between that case and the present case is that in the present case the efficiency is physical as opposed to mental efficiency. But it is obviously for the benefit of the public that those entrusted with the defence of the realm should be not only mentally but also physically efficient, and I think I am justified in coming to the conclusion that there is no difference between mental and physical efficiency for the present purpose. 50 Good and Gray were both relied on by Walsh J, giving the judgment of the High Court, in Downing v Commissioner of Taxation (1971) 125 CLR 185. There, the testator had devised and bequeathed his residuary estate for a number of purposes, any one or more, or all, of which might have been resorted to by the trustee. The final such purpose was - … for the amelioration of the condition of the dependants of any member or ex-member of her Majesty's naval, military or air forces or the naval, military or air forces of the Commonwealth. For presently relevant purposes, it will be sufficient to confine attention to so much of this gift as related to former forces of the Commonwealth, and to ignore the complications introduced by the inclusion of the former forces of her Majesty elsewhere. 51 Downing involved a question which arose under the Estate Duty Assessment Act 1914 (Cth). Section 8(5) of that Act exempted from assessment dispositions and gifts for a range of purposes there set out with considerable specificity, not including the purpose identified in the final part of the disposition of residue to which I have referred above. This had the result that, if that disposition were good, estate duty would be assessed. On the other hand, if the disposition were bad, it could be ignored, and, since the other elements of the disposition of residue were within the exceptions set out in s 8(5), estate duty would not be assessed. The question which came before the High Court was whether the final part of the disposition of residue was good, it being contended by the executor that it was not, because it tended to perpetuity and was not charitable. The central issue, therefore, was whether the disposition was charitable. 52 The primary basis upon which Walsh J decided Downing was that the disposition was for the relief of poverty, and thereby charitable under Lord Macnaghten's first class. His Honour reached that conclusion because of the use of the word "amelioration", holding that the object was "to benefit persons whose lot needs improvement" (125 CLR at 194). Alternatively, his Honour held that, even if the relevant part of the disposition did not refer exclusively to dependants who were poor in the relevant sense, nonetheless "its main object is to enable relief to be given to persons of the specified description, who are through poverty in real need of such relief." (125 CLR at 195). He held that s 131 of the Property Law Act 1958 (Vic) might then have operated to validate the trust (ie on the basis that it included invalid, as well as valid, purposes). However, he proceeded to consider the validity of this part of the disposition from yet another angle which might, depending upon the outcome, have rendered it unnecessary to turn to s 131 at all. He considered whether, even apart from its tendency to fall within Lord Macnaghten's first class, the disposition was for charitable purposes within the fourth class. If it were (and proceeding still on the basis, contrary to his Honour's primary conclusion, that the notion of "amelioration" involved in the disposition did not refer exclusively to the relief of poverty), there would be no need to have recourse to s 131. It is at this point, and at this point only, that Downing becomes relevant to the question presently before the court. 53 Having considered a number of authorities, including Good and Gray, Walsh J said (125 CLR at 198): The rule that the promotion of the efficiency of the armed forces is a good charitable purpose may have been derived from the notion that gifts for that purpose tend towards the aid or ease of "poor inhabitants" concerning "setting out of soldiers, and other taxes" and so come within the very words of the preamble to the Statute of Elizabeth. But that does not seem to be a satisfactory basis for the rule as it has developed and, in my opinion, trusts which tend to increase the efficiency of the armed forces, as well as trusts which tend to encourage recruitment to them (see Re Meyers (1951) Ch 534, at p 544), may be regarded as beneficial to the public in a way which the law regards as charitable, because they assist in the promotion of public defence and security. His Honour then dealt with so much of the judgment in Good as concerned the house, but noted that it was conceded that the devise would be bad if the class of beneficiaries were merely former, as distinct from elderly, members of the regiment. His Honour continued (at 199): In my opinion, a decision whether a trust for the benefit of former members of the services is or is not a valid charitable trust must depend upon the nature and the terms of the gift. I am of opinion that there is no justification for laying down a rule that either a trust for the benefit of ex-servicemen or a trust for the benefit of the dependants of ex-servicemen cannot be a valid charitable trust. I do not accept the cases to which I have just referred as authorities which on that point should be followed. A trust of either of those kinds may tend to promote the efficiency of the armed forces and to promote the security of the country and may be held for that reason to be charitable. 54 Walsh J next turned to Verge v Somerville [1924] AC 496. He said that it stood in the way of holding that no trust for the benefit of ex-servicemen could be valid under the fourth class. In Verge, there had been a bequest to the trustees of "the 'repatriation fund' or other similar fund for the benefit of New South Wales returned soldiers". Much of the opinion of the Judicial Committee in that case was concerned to deny the proposition that, to be valid under Lord Macnaghten's fourth class, it was necessary that the purposes of the trust be in some sense directed to the assistance of the poor. Having dealt with that aspect, their Lordships continued (at 506): There can be no question but that the gift in the testator's will satisfies the first test required to support it as a good charitable trust. It is a public trust and is to benefit a class of the community - namely, men from New South Wales who served in the war and were returned or to be returned to their native land. Further, if it were necessary to consider at all the question of a trust for the poor, it is a gift which is to benefit that class in some sense expressed by the word "repatriation." This does not mean simply restoring them to New South Wales by paying their fare home. They may be "returned" already, not "returning" soldiers. It means restoring them to their native land and there giving them a fresh start in life. Their Lordships have no doubt that this is a charitable purpose. If it were (which in their opinion it is not) necessary to find that need of assistance is to be a qualification for benefit - that the gift is charitable in the sense of assisting the needy - they find that the words "Repatriation Fund," in relation to the facts as to the Australian Repatriation Fund of which no doubt the testator had knowledge, indicate an intention to benefit the needy. If his words "Repatriation Fund or other similar fund" are referable at all to the statutory Australian Soldiers' Repatriation Fund, and if it were necessary to find a reference to poverty, their Lordships have no difficulty in finding it. It may be seen that the principle upon which Verge was decided was not that the trust tended to promote the efficiency of the armed forces - indeed, their Lordships made no reference to the judgment of Farwell J in Good, and the judgment of Romer J in Gray was still some 13 months away. Rather, Verge was decided on the basis that repatriated service personnel were themselves a significant class of the community who would benefit as individuals, and that the spirit and intendment of the Statute of Elizabeth was satisfied in their case. 55 Returning to Downing, Walsh J said of Verge (125 CLR at 199-200): The appellant seeks to explain that case as warranting only the conclusion that it is a charitable purpose to re-establish servicemen in civilian life and submits that there is no basis in this or in other authorities for treating as charitable the purpose of providing any other types of benefit to ex-servicemen. It was said that a gift for the setting up again in civilian life of ex-servicemen could be regarded as analogous to "the maintenance of sick and maimed soldiers and mariners", mentioned in the preamble. But I am unable to agree that the re-establishment of ex-servicemen is analogous to the preamble in a way in which other forms of assistance to them cannot be, or that re-establishment (independently of indigence) should be placed in a special category governed by a special rule. Nor do I think it is fatal to the validity of a trust in which the object is indicated of assisting ex-servicemen, that an application of the fund for the benefit of their children or of their dependants is also permitted. It is to be noticed that although the gift in Verge v Somerville [1924] AC 496 was "for the benefit of New South Wales returned soldiers" and did not mention their dependants, their Lordships referred [1924] AC, at pp 505-506, to the Acts under which repatriation benefits were provided, and those benefits included the assistance of dependants. In Re Elgar (deceased) (1957] NZLR 556, the primary object of the trust was the re-establishment of members of the forces but the trust allowed the trustees to apply the fund otherwise for their benefit or for the benefit of their children. It was held to be a good charitable trust. That decision was not challenged when an appeal on other grounds was brought [1957] NZLR 1221. In my opinion the decision was correct. It is in keeping with the generally accepted view that it is part of the responsibility of the community to care for the welfare not only of servicemen but also of their dependants. His Honour concluded his reasons on the point which is presently relevant in the following terms (at 200): I do not doubt that there may be gifts for the benefit of a class of ex-servicemen which are not good charitable gifts. For example, the object of a gift may be merely of a social or of a sporting character or of some other character such that the purpose could not be classed as one which the law would recognize as charitable. But I am of opinion that valid charitable trusts may be created for purposes relating to the welfare and to the assistance of ex-servicemen or of their dependants, as well as for the welfare and assistance of persons who are still serving members of the forces, if the purposes can reasonably be considered to advance the safety and security of the country. I am of opinion that a trust may be considered to tend towards that result by means of providing aid comfort and encouragement to the armed forces or a section of them, notwithstanding that those who will directly benefit from the trust are those who have ceased to serve or their dependants. 56 I consider that, properly understood, the judgment of Walsh J in Downing involved an extension of the principle for which Good and Gray stood, such that it may now be regarded as promoting the efficiency of the armed forces - and in that sense as being for the good of the community generally - that a bequest, trust or the like has the purpose of providing aid, comfort and encouragement to serving personnel, retired personnel, or their dependants in either case. If there were a settlement as such to establish a fund to meet the hospital and medical expenses of such persons, there could be little doubt but that it would come within the principle for which Downing stands. That such persons should be relieved of the concern otherwise occasioned by the potential exposure to substantial hospital and medical expenses has, in my view, all the qualitative elements of "aid, comfort and encouragement" to which Walsh J referred. There is, of course, also the question whether such a purpose would be within the spirit and intendment of the Statute of Elizabeth. From the fact that the purpose of providing comfort etc to the dependants of former members of the forces was held to be charitable in Downing (although the matter was not specifically mentioned by Walsh J), it would seem to be so. However, it is sufficient for present purposes to point out that the preamble itself refers to "the maintenance of sick and maimed soldiers and mariners". I consider that such a purpose should be regarded as closely analogous to this provision in the preamble. 57 Applying this line of jurisprudence to the circumstances of the present case, there are two particular matters which have the potential to stand between the applicant and the conclusion which it seeks, namely, that it was charitable in the years to which this proceeding relates. The first matter is whether a difference is made by the circumstance that the health cover provided by the applicant was not given to its members, nor even made available to them at heavily subsidised rates. Rather, that cover was sold to those members at normal premiums much in the way that any health cover would be sold by any registered organisation. Given the absence of private gain, it is clear that these circumstances would not disqualify the applicant's activities from being regarded as charitable: Incorporated Council of Law reporting (Qld) v Commissioner of Taxation (1971) 125 CLR 659, 669-670; Scottish Burial Reform and Cremation Society Ltd v Glasgow Corporation [1968] AC 138; and see Dal Pont, Charity Law in Australia and New Zealand, OUP, 2000, pp 25-26. 58 The second matter is more complicated. It relates to what is sometimes referred to as the problem of "mixed purposes". The problem arises from the fundamental requirement that a bequest or gift (etc), and therefore, I consider, an institution, is not charitable unless (in the case of a bequest or gift) the property or funds may be applied to charitable purposes only or (in the case of an institution) its objects are charitable ones only. It is sufficient to refer to A-G (NSW) v Adams (1908) 7 CLR 100 and to Smith v West Australian Trustee Executor & Agency Co Ltd (1950) 81 CLR 320 in this respect. I consider that this requirement informs the construction of s 65J(1)(b) of the FBTA Act, although I note that many of the authorities commonly referred to on the question of the proper characterisation of a body with multiple, or mixed, objects are found, on the examination, to arise under legislation in which the relevant quantitative requirement is stated in terms. Thus one finds that, in what is often treated as a leading Australian case on the subject, Salvation Army (Vic) Property Trust v Shire of Ferntree Gully (1952) 85 CLR 159, the question was whether the lands in question were used "exclusively for charitable purposes". One finds also that many of the English cases - of which Commissioners of Inland Revenue v Yorkshire Agricultural Society [1928] 1 KB 611, Inland Revenue Commissioners v City of Glasgow Police Athletic Association [1953] AC 380 and Commissioner of Inland Revenue v Royal Naval and Royal Marine Officers' Association (1955) 36 TC 187 are examples - were concerned with the question whether a body was established "for charitable purposes only". To the extent that such cases are of interest in the present context, it is because of their approach to the problem of mixed purposes, rather than because they establish the basal requirement that, for an institution to be charitable, it must be exclusively so. That requirement, I consider, is part of the general law. 59 There is an exception to the requirement that the purposes of an institution must be wholly charitable if it is to meet the description of a charitable institution. The exception was stated by Dixon CJ, McTiernan, Williams and Fullagar JJ in Congregational Union of NSW v Thistlethwayte (1952) 87 CLR 375, 442: We are here concerned with the question whether a particular corporate body is a charitable institution. Such a body is a charity even if some of its incidental and ancillary objects, considered independently, are non-charitable. The main object of the Union is predominantly the advancement of religion. It is a religious institution composed of ministers and members of Congregational churches combining for certain religious purposes of common interest and a bequest to a religious institution is prima facie a bequest for a charitable purpose (Re White; White v White [1893] 2 Ch 41). In a recent case in this Court, Salvation Army (Vic) Property Trust v Fern Tree Gully Corporation (1952) 85 CLR 159, cases were cited in which it was held that an institution is a charitable institution if its main purpose is charitable although it may have other purposes which are merely concomitant and incidental to that purpose. It is true that, in Salvation Army, the question was whether certain lands were used "exclusively for charitable purposes", but their Honours in Thistlethwayte appear to have expressed the principle broadly, as applicable to any situation in which the question arises whether a particular body is "charitable". 60 The same conclusion was expressed by Gibbs J, with the assent of a majority of the court, in Stratton v Simpson (1970) 125 CLR 138. In that case, a testator had directed that his residuary estate be held upon trusts for "the institutions and bodies … in respect of which … any gift devise bequest or legacy is exempt from duty under [s 134] of the Administration Act, 1903-1956 …." Relevantly for present purposes, the question was whether certain institutions or bodies, identified in s 134 by reference to their "main objects" (which were, as so identified, undoubtedly charitable ones) were themselves charitable so as to save the trust from the consequences of the rule against perpetuities. Gibbs J, with the assent of a majority of the court, said (at 157): I do, however, agree that cl 15 upon its proper construction creates a trust of the income of the residuary estate which is of indefinite duration, without making any gift of the capital from which the income is derived, and it follows that unless the purposes to which the income must be applied are exclusively charitable the trust fails … Having considered the particular institutions referred to in the will, his Honour continued (at 159-160): Paragraphs (d) and (e) would include institutions whose purposes were charitable as being for the relief of "impotent" persons within the intendment of the preamble to 43 Eliz c 4, but a difficulty is created by the fact that the charitable object mentioned need only be "the main object"; the institution might have other non-charitable objects. It is established that "an institution is a charitable institution if its main purpose is charitable although it may have other purposes which are merely concomitant and incidental to that purpose" or in other words if each of its objects is either charitable in itself or should be construed as ancillary to other objects which themselves are charitable: Congregational Union of New South Wales v Thistlethwayte (1952) 87 CLR, at pp 442 and 450. If however the non-charitable purpose is not merely incidental or ancillary to the main charitable purpose, the institution will not be charitable: Oxford Group v Inland Revenue Commissioners (1949) 2 All ER 537; and In re Harpur's Will Trusts (1962) 1 Ch 78, at p 87. There is no evidence to show whether at the date of the testator's death there was in Western Australia any institution which answered the description contained in para (d) or (e) of s 134(1) and yet was not charitable because it had a non-charitable object which although not its main object was not merely incidental or ancillary to a charitable object. In Harpur's Will, one of the two English cases to which Gibbs J referred, a testatrix had directed the division of her residuary estate between "such institutions having for their main object" an object which was undoubtedly charitable. In the passage to which Gibbs J referred, Lord Evershed MR said ([1962] Ch at 87): It has been conceded for the purposes of the argument that the class of institutions which I have read, "Institutions and associations having for their main object," etc., is not one which is presently ascertainable. It is further conceded that although the assistance and care of soldiers, sailors and airmen and other members of the Forces wounded and incapacitated would be a charitable purpose, nevertheless the words used by the testatrix are not apt to confine the institutions to those which are exclusively devoted to charitable objects. It follows, therefore, inevitably, that unless the Charitable Trusts (Validation) Act, 1954, can be invoked to save the provision, that provision must, according to the well-established law, be held invalid and ineffective. The assumption, therefore, that the fact that a body had as its main object a charitable one would not make it a charitable institution underlay the judgment of the Court of Appeal in Harpur's Will. I should treat that assumption as carrying the approval of the High Court in Stratton, subject only to the permissible existence of objects which were incidental or ancillary to the charitable object. More importantly, his Honour proceeded to apply the provisions of s 102 of the Trustees Act 1962 (WA) to save the gift from invalidity in relation to institutions which were not exclusively, but only mainly, charitable. 61 An authority which is often referred to in this area of the law, and which is binding on me, is the judgment of the Full Court in Cronulla Sutherland Leagues Club Ltd v Commissioner of Taxation (1990) 23 FCR 82. That case concerned a company which conducted a social club but which also provided facilities for a rugby league football club. The question which arose was whether the company was "established for the encouragement or promotion of an athletic game or athletic sport in which human beings are the sole participants" within the meaning of what was then s 23(g)(iii) of the Income Tax Assessment Act 1936 (Cth). Lockhart J undertook a detailed examination of the five separate judgments of the High Court in Royal Australasian College of Surgeons v Federal Commissioner of Taxation (1943) 68 CLR 436, where the question was whether the College was a scientific institution within the meaning of s 23(e) of the Act of 1936, which exempted from tax "the income of a religious, scientific, charitable or public educational institution". Disagreeing with the conclusion reached by Waddell J in the Supreme Court of NSW in "The Waratahs" Rugby Union Club Ltd v Federal Commissioner of Taxation (1979) 37 FLR 413, Lockhart J said (23 FCR at 92): The principles which I distill from the Royal Australasian College of Surgeons case are that the question whether the College was a scientific institution within the meaning of s 23(e) depended upon whether its main object was to promote the science of surgery and that the exemption was available even if its objects were of a mixed character, partly professional and partly scientific, provided that its main object was the promotion of science of surgery. And (at 93): Each of their Honours agreed that the test is to determine the main purpose of the College. In none of the judgments do I see support for the proposition that, if the promotion of the professional interests of the members concerned was not properly characterised as concomitant, incidental or ancillary to the main object of the promotion of the science of surgery but was a secondary purpose, it would bar the College from the exemption offered by s 23(e). And (at 94-95): The approach adopted in the "Waratahs" case was, as the passages extracted from the judgment demonstrate, that the existence of a secondary purpose is fatal to the claim for exemption under s 23(g)(ii) notwithstanding the existence of the stated purpose as the main purpose. For the reasons which I have given I cannot distill that proposition from the Royal Australasian College of Surgeons case myself and respectfully disagree with Waddell J: see also R W Parsons, Income Taxation in Australia (1985), par 2.63. The view that the existence of an independent or secondary purpose precludes another purpose from being the main purpose within s 23(g)(iii) is one which I reject. It implies that a purpose may not be the main purpose simply because some other purpose is regarded as secondary or independent. There are cases, however, where one can discern a main or predominant purpose and other purposes, not being merely ancillary or incidental thereto, but secondary and even independent of the main purpose, yet this would not detract from the former purpose being correctly described as the main purpose. To say that the presence of a secondary purpose prevents another purpose being the main purpose is really to say that the main purpose must be the sole purpose. 62 If the reasoning of Lockhart J were transferable to the context of the question whether a body was a "charitable institution", it would seem to sustain an affirmative answer to such a question in the case of an institution whose main object was charitable, even if it had other non-charitable objects that were not merely incidental or ancillary to its main object. I do not, however, consider that his Honour's reasoning is transferable in this way. Cronulla was an appeal from a judgment which had relied upon the reasoning of Waddell J in Waratahs. Of that reasoning, and of the approach of the primary judge, Lockhart J said (at 94): The primary judge adopted substantially the same approach as Waddell J but the correctness of Waddell J's analysis of the Royal Australasian College of Surgeons case was not challenged before him. The primary judge said: "However, having regard to the later decision of the High Court in Stratton v Simpson (1970) 125 CLR 138 it now seems clear that Waddell J had correctly construed the Royal Australasian College of Surgeons case." In my opinion Stratton's case does not support that proposition. Stratton's case concerned an originating summons seeking a declaration that the residuary bequest contained in cl 15 of the testator's will was void and that there was an intestacy as to the residuary estate. The case turned on the terms of the will and the provisions of s 134 of the Administration Act 1903 (WA) and s 102 of the Trustees Act 1962 (WA). For a body to be a charitable institution its main purpose must be charitable, although it may have other purposes concomitant and incidental to that purpose: Congretational Union of New South Wales v Thistlewayte (1952) 87 CLR 375 at 442; and other cases cited by Gibbs J in Stratton's case at 160. Stratton's case has, in my view, no application to the interpretation of s 23(g)(iii) of the Act which is a different area of discourse. In this passage, Lockhart J made it tolerably clear that he would not apply the conclusions he reached in Cronulla itself to the resolution of the question whether a body was a "charitable institution", which he regarded as a "different area of discourse". 63 The other member of the majority in Cronulla, Beaumont J, relevantly based his judgment on College of Surgeons. He said that it was sufficient if the object that met the description in s 23(g)(iii) was the main or predominant object. His Honour continued (at 117): That is, although it is not necessary that the promotion or encouragement of the sport or game be the only, or exclusive, object, in order to qualify for the exemption of its income from tax, the institution must have, as its predominant purpose, the promotion or encouragement of the sport or game. If the institution has such a purpose, that will be the intrinsic character of the object it seeks to promote and the existence of merely incidental functions and purposes will not destroy the claim for exemption. As I read this passage, Beaumont J did not agree with Lockhart J that the secondary object need not be merely incidental for the exemption in s 23(g)(iii) to apply. Although the third member of the Full Court, Foster J, relevantly agreed with Lockhart J, he was in dissent in the outcome, which circumstance complicates, to say the least, the court's task of identifying what, if anything, was the ratio decidendi of the case as a matter of the construction of that provision. However, that issue need not concern me here, since, as I have said, I think that (although it might be considered to be obiter in the circumstances) Lockhart J did accept what I would call the Beaumont J approach in relation to the question whether a body was a "charitable institution". 64 For the above reasons, I consider that I am bound by Stratton to conclude that a body cannot be regarded as a "charitable institution" so long as it has a non-charitable object, or objects, which is, or are, more than merely incidental or ancillary to its main charitable object or objects, and that Cronulla does not stand in the way of that conclusion. The conclusion is consistent with two recent judgments of single members of the court to which I was referred. In Tasmanian Electronic Commerce Centre Pty Ltd v Commissioner of Taxation (2005) 142 FCR 371, Heerey J said (at 385): The main object of the institution must be shown to be charitable. There may be objects that are incidental or ancillary to the main object, but an object that is not charitable, and not incidental or ancillary, will disqualify the institution as a charity. In Commissioner of Taxation v Triton Foundation (2005) 147 FCR 362, Kenny J said (at 370): If the main purpose of such a body is charitable, it does not lose its charitable character simply because some of its incidental or concomitant and ancillary objects are non-charitable. 65 When the courts have described objects of an institution as ancillary, incidental or concomitant to a main object, they have not meant that the lesser object was merely a minor one in quantitative terms. Rather, they have required that object not be of substance in its own right, but only to be something which tends to assist, or which naturally goes with, the achievement of the main object. Thus in Salvation Army, it was held that trading in the inevitable produce of a training farm established for delinquent boys did not mean the lands in question were not used exclusively for charitable purposes. Thus in Yorkshire Agricultural Society the receipt of private benefits by members - free admission to shows, access to reading rooms, reduced fees for analysis of manures and foodstuffs, special railway facilities, and the like - were held not to disqualify the society from being regarded as charitable. 66 The authorities also show that the need to discriminate between the various objects of an institution - for the purposes of identifying the main object and of deciding whether objects are merely incidental or ancillary - often in practice arises in two quite different contexts. The first is where there is a single bundle of activities, as it were, and the question is whether they are engaged in for charitable, or for non-charitable, purposes, or both. That question is essentially one of characterisation. It arose, for example, in Glasgow Police, where an association was formed by serving and retired police officers to organise and conduct healthy sporting contests and recreational pastimes. It was contended that the association was charitable in that it promoted the efficiency of the police. While recognising that that object was most probably achieved as a result of the association's activities, the House of Lords nonetheless held that it was not the association's main purpose, which was the recreation and amusement of the members themselves. A question of this kind arises where the legal principle remains expressed in a fairly abstract way, such as that an institution which has the purpose of promoting the efficiency of the armed forces (or, by analogy, the police) should normally be regarded as charitable. The next issue, in an actual case, will be whether the activities of the institution in question clearly bespeak such a purpose. It was upon that issue that Glasgow Police turned. In Australia, however, and in the context of the present case, I consider that Downing has taken the law a step further. I refer to what I have said in par 56 above. Subject to the exclusion of benefits or gifts to which Walsh J referred as being "of a social or … sporting character", it is no longer open to ask whether the purpose of providing aid, comfort and encouragement to serving and former defence personnel and their dependants would tend to promote the efficiency of the forces. That question was, I consider, resolved in the affirmative by Downing. For that reason, the matter of characterisation to which I refer in this paragraph does not present a problem for the applicant. 67 The second context of discrimination between objects is that in which an institution, say, has different categories of purposes reflected by different activities in which it may, or does, engage. This is the Salvation Army, Thistlethwayte or Stratton kind of case. Here the institution will have a main object which is charitable and, consistently with the authorities to which I have referred, the question will be whether the other objects (in practice, the other activities) are more than merely ancillary or incidental to the achievement of that main object. It is in this area that I consider that the applicant is in some difficulty. 68 In the absence of other evidence - the onus to call which lay upon the applicant - I consider that the applicant's membership categories should be used to identify what was its main object and any other objects, at least for the purpose of fitting the present case into the conceptual framework provided by Downing. Of the classes set out in par 44 above, clearly those in (a) and (g) would fall within the principle in Downing. To the extent that they were dependants of those in (a) or (g), those in (l) would also be included. I am not sure whether members of the Reserve would fall within Downing, and cadets would probably be regarded as more doubtful again. Both, it seems to me, were in something of a grey area. On the other hand, there were several classes which, on any view, fell outside Downing, namely those in (d), (e), (f), (i), (j) and (k). 69 Going on the figures referred to in par 46 above, about 58% of the applicant's membership in 2001 consisted of serving military personnel and those who had been serving personnel and who had retained their membership of the applicant's fund on discharge. Clearly this group would come within Downing. Something less than 10% were purely civilian members. Clearly that group would fall outside Downing. Because the applicant called no evidence on these important statistics, and gave only a very broad indication from the Bar table, exactly who were regarded as "civilians" is unclear. 70 I was informed that the remaining 32% or thereabouts consisted of former members of the forces who were not members of the applicant's fund at the time of discharge but subsequently became so, and of those who were members at discharge, but who had subsequently allowed their memberships to lapse, and later re-joined the fund. This information was neither given in the form of evidence nor tested in cross-examination. Counsel for the respondent said that they did not object to the court being informed in this way, "subject to questions of weight, of course". I do not know what to make of that qualifier: either the information is correct or it is not, and it is the only information available to the court on something that has become rather critical. 71 It in the circumstances, I have no option but to accept that, numerically, something less than 10% of the applicant's membership in the relevant years was in classes that would not be covered by the Downing principle. Since the applicant did not tell me how much less than 10% this proportion was, I cannot assume, in the applicant's favour, that it was anything more than insignificantly less than 10%. That such a group of persons, numerically minor though they were in the overall scheme of the applicant's operations, should be within the cohort of persons whom the applicant benefited does, in my view, demonstrate that the applicant had as an object the provision of health benefits to persons who fell outside the Downing principle. This object could not be described as ancillary or incidental in the sense explained above. The object was, I consider, a substantive and free-standing one in its own right. Indeed, it may be noticed how much wider the applicant's membership eligibility rule was in the relevant years than had been the Society's rule in 1955. It may have been convenient, and consistent with a "Navy family" approach, for the applicant to have made these others eligible to participate in its health cover, but I could not regard it as no more than an incident of the carrying into effect of its main object. The persons concerned were distinct members of the applicant to whom the applicant provided benefits from its fund. 72 I also consider that the actual proportion of persons in the non-Downing classes within the applicant's membership from time to time should not - de minimus situations aside - bear conclusively on the question whether the applicant was, or was not, a charitable institution. If the applicant had the scope within its rules to accept as members persons in those classes, I cannot understand why its objects should not, at least to an extent, reflect that circumstance. Potentially, the class was rather wide. The applicant's Managing Director gave evidence that the reference to "persons employed in the Australian Public Service" was limited in practice to those seconded to, or directly associated with, the Department of Defence or the Navy. Even so, when taken with the reference to employees of that Department as such, the cohort of potential membership would have been, I infer, quite large. The inclusion of those who had been, but were no longer, dependants, and anyone who had, at any time in the past, been eligible for membership, were further examples of the width of the applicant's potential for membership. I can think of no reason not to align the applicant's objects with these classes of membership. In my view, they go beyond anything which could be regarded as ancillary or incidental to the applicant's main object in the relevant sense. 73 On this aspect of the case, I need to say only two further things. First, the applicant placed much store by the particular design of its products, and by the focus of its promotions amongst Navy personnel. I accept that these factors bespoke an especial concern with such personnel and their families. Ultimately, however, they do not bear upon the question I consider to be determinative. That is to say, I accept that, to the extent that the applicant offered its products to what I have called the Downing classes of persons, it offered products of some special utility to them, to some of them, or to all of them in some circumstances. I accept that the applicant's activities in that area reflected its main object. But the fact remains that the applicant had other, not merely incidental, objects as I have identified them above, and that creates a problem for the applicant in the present case which the factors referred to in this paragraph do not address. 74 Secondly, I recognise the force in the applicant's reliance on the circumstances that surrounded the formation of the Society in the 1950s, but those circumstances do not affect the findings which I have made. The purposes behind the formation of the Society remained within the applicant's objects down to the period with which this proceeding is concerned, and may be discerned within what I have described as its main object. But their significance cannot, in my view, extend into the area of membership in relation to which the applicant offered conventional health insurance products to persons who were not within the Downing classes. 75 For the above reasons, I am not satisfied that, in the three years ended 31 March 2001, 2002 and 2003, or in any of those years, the applicant was a "charitable institution" within the meaning of s 65J(1)(b) of the FBTA Act.

COMMUNITY SERVICE ASSOCIATION 76 Turning to the question whether the applicant was a "non-profit association, … established for community service purposes" within the meaning of s 65J(1)(j) of the FBTA Act, the first issue is whether the applicant was, at the relevant time, an "association" at all. As I have noted elsewhere in these reasons, the applicant was a company limited by guarantee, with one member only. Notwithstanding the fact of incorporation, I would be prepared to accept that an incorporated body, including a company, with two or more members might, without inaccuracy, be described as an "association". However, the applicant was not such a body, since it had one member only. 77 On any natural reading of the word, "association" denotes a grouping, or coming together, of two or more persons. Relevantly for present purposes, the dictionary meaning of the word is "a body of persons who have combined to execute a common purpose or advance a common cause …" (OED, 2nd Ed). Unless required to decide otherwise by authority, I consider that the proposition that a single person, whether or not incorporated, might constitute an "association" is quite at odds with the natural meaning of the word, and with normal, everyday, usage. 78 The applicant, however, contended that it was an "association" in the relevant years substantially for two reasons. First, it pointed to the comment by James LJ in Smith v Anderson (1880) 15 Ch D 247, 273 that there was no difference "between a company and an association". It followed, according to the applicant, that every company was, at the same time, an association. I cannot accept that submission. Nothing in Smith v Anderson was concerned with a question even remotely similar to the present. Indeed, in the judgments of each of their Lordships in the Court of Appeal, there was clearly an assumption that an association, whatever it otherwise was, would involve a duality or multiplicity of persons. Their Lordships were concerned with s 4 of the Companies Act, 1862 (UK), which proscribed the formation of companies, associations and partnerships of more than 20 persons for certain purposes, unless registered under the Act. Manifestly, "company" in this context was a reference to an unregistered body of persons. It was in that context that James LJ found it difficult to see the distinction between a company and an association. The context is irrelevant to the present circumstances. 79 The applicant also contended that, since 1998, it has been permissible for companies registered as such in Australian to have one member only. It was said that, to decide that a company, which otherwise met the requirements of s 65J(1)(j), should nonetheless be denied rebatable status merely because it took advantage of the facility of having one member only, would be anomalous. The difficulty with this approach, in my view, is that it commences from a starting point that s 65J(i)(j) embodies an assumption that, whatever else, a company was intended to be covered. That starting point may well have been informed by the circumstances of the applicant itself, but it derives no support from the terms of the legislation. For my own part, I can find nothing in those terms which, as a matter of construction, should lead me to regard it as anomalous that a one-person company is unable to satisfy the requirements of par (j). 80 I was referred to some other authorities in connection with this aspect of the case, but none, in my view, has any useful bearing on the question whether a one-person company should be regarded as an "association" under s 65J(1)(j) of the FBTA Act. For the reasons stated above, I am of the view that such a company could not be so regarded, and that the applicant was not such an association in the years to which this proceeding relates. 81 Although not strictly necessary, for the sake of completeness I shall deal also with the question whether the applicant was "established for community service purposes". When used in such a context, "established" refers to the contemporary existence, rather than to the original formation, of the body concerned: see Cronulla 23 FCR at 89 and 116-117. 82 There is, apparently, no authority on the meaning of "community service" in s 65J(1)(j) of the FBTA Act. The provision is based on what was s 23(g)(v) of the Income Tax Assessment Act 1936 (Cth), the explanatory memorandum to which contained the following passage: Paragraph (b) of this clause will introduce subparagraph 23(g)(v) which will exempt from income tax the income of not-for-profit bodies established for community service purposes. The words "for community service purposes" are not defined but are to be given a wide interpretation. The words are not limited to those purposes beneficial to the community which are also charitable. They extend to a range of altruistic purposes. The words would extend to promoting, providing or carrying out activities, facilities or projects for the benefit or welfare of the community, or of any members of the community who have particular need of those activities, facilities or projects by reason of their youth, age, infirmity or disablement, poverty or social or economic circumstances. An exclusion from the exemption will apply to bodies established for political or lobbying purposes. … When purposes are directed to the benefit or welfare of members of the community in particular need, that need must arise by reason of youth, age, infirmity or disablement, poverty or social or economic circumstances. These causes of need are intended to be read broadly. Infirmity or disablement, for example, could be intellectual or physical, and could be congenital or the product of disease or of injury. Similarly, social or economic circumstances could include such varied matters as sex, living in a remote area, or inability to speak English. … All the traditional service clubs such as Apex, Rotary, Lions, Zonta, Quota and the like and community service organisations such as the Country Women's Association of Australia and its constituent Associations are considered to be exempt from income tax under the new subparagraph. I am not sure that I should consider myself under an executive injunction, not carried into the legislation, to give the words a wide interpretation. However, it is clear that the words are not limited to charitable purposes. But neither should the paragraph be applied, in my view, merely as a fall back position for anybody which almost, but not quite, achieves recognition as a charity. 83 Although a composite expression, I consider that the essence of "community service" is that a service is provided to the community, or a section of the community. Here the word "service" is used in the sense of "help, benefit or advantage", particularly "the action of serving, helping or benefiting, conduct tending to the welfare or advantage of another" (OED, 2nd Ed). I consider that the sale of a product at normal market rates is inconsistent with this understanding of the word "service". The applicant's operations during the years in question, therefore, should not be regarded as the provision of a "service" to its contributors. Neither was there any other person, or group of persons, with respect to whom those operations might have been regarded as the provision of a service. 84 That brings me to the concept of "community". I accept, of course, that the word refers not only to the community as a whole but also to any identifiable section of the community, but it does not follow that the receipt of a service by any group of persons should be regarded as the receipt of that service by a section of the community. Those who actually received the applicant's services in years in questions were not a section of the community: they were those who, by their own consumer choices, purchased the applicant's products. Neither, in my opinion, is the broad concept of community benefit upon which the judgment of Walsh J in Downing was based transferable into the context of s 65J(1)(j) of the FBTA Act. His Honour held that, by having a purpose of providing aid, comfort or encouragement to existing or former members of the armed forces, a benefactor (or, in this case, an institution) likewise had the purpose of benefiting the community as a whole, in the sense of promoting the efficiency of those forces. But that is a concept quite different from the one with which I am presently concerned. Section 65J(1)(j) deals with "service" in a much more concrete setting, and requires, in my view, the community, or a section of the community, to benefit by way of the receipt of some identifiable help, benefit or advantage bestowed or provided directly by the putative benefactor. Such a requirement, I consider, is not satisfied merely because, in this case, the operations of the applicant had a tendency to promote the efficiency of the armed forces, thereby benefiting the community as a whole. 85 For the reasons explained above, I am not satisfied that, in the three years ending 31 March 2001, 2002 and 2003, or in any of those years, the applicant was a "non-profit association, … established for community services" within the meaning of s 65J(1)(j) of the FBTA Act.

DISPOSITION OF THE PROCEEDING 86 The parties agreed that, if I should decide the matter in the way I have in these reasons, the appeals should be dismissed with costs. I shall so order. I certify that the preceding eighty-six (86) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup.

Counsel for the Applicant: Mr J W de Wijn QC & Mr S H P Steward

Counsel for the Respondent: Ms H Symon SC & Ms D Harding

Solicitor for the Respondent: Australian Government Solicitor

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