Sargents Charitable Foundation v Chief Commissioner of State Revenue

Mayor etc of Manchester v McAdam [1896] AC 500 Minister of National Revenue v Trusts and Guarantee Co [1940] AC 138 Stratton v Simpson (1970) 125 CLR 138 CASES CITED : Incorporated Council of Law Reporting (Q) v Federal Commissioner of Taxation (1967-1971) 125 CLR 659 Commissioner of Land Tax (NSW) v Joyce (1973-1974) 132 CLR 22 Pamas Foundation (Inc) v Commissioner of Taxation (1992) 35 FCR 117

Sargents Charitable Foundation Ltd - Plaintiff PARTIES : Chief Commissioner of State Revenue - Defendant

Mr D Warren/ Ms N Obrart - Plaintiff COUNSEL : Mr I Mescher/ Mr G Donnellan - Defendant

Otto Stichter & Associates Solicitors SOLICITORS : I V Knight Crown Solicitor

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5109/04 SARGENTS CHARITABLE FOUNDATION LTD v CHIEF COMMISSIONER OF STATE REVENUE JUDGMENT Introduction 1 Sargents Charitable Foundation Ltd is the trustee of the Sargents Charitable Foundation. It seeks an exemption from duty under the Duties Act 1997 on dutiable transactions.

The dutiable transactions 2 On 30 June 2000, Sargents entered into agreements for the transfer to it of 6 vacant lots at Minchinbury in New South Wales. On 19 December 2002, it entered into an agreement for the transfer to it of two lots in East Circular Quay in New South Wales. These lots were subject to a lease to Cadmus Restaurant Pty Ltd. It conducted the Cadmus Restaurant on the site. On 15 September 2003, Sargents entered into an agreement for the transfer to it of a further lot in Opera Quays that was a storage area. 3 Sargents' purpose in acquiring each lot was to hold it as an investment. The vacant lots could be developed in the future or sold. The intention was to use the income or profit on sale for the purposes of the Foundation. 4 Each agreement constituted a dutiable transaction in terms of the Duties Act 1997, s 8(1)(b)(i). It charges duty on an agreement for the sale or transfer of dutiable property. Land in New South Wales is dutiable property under s 11(1)(a).

The purposes of the Foundation 5 The trust deed of the Foundation provided that Sargents should hold the trust fund as a common fund in perpetuity for the "Charitable Purposes". That term was defined to mean the relief of poverty, suffering, distress or misfortune within Australia and, without limiting its generality, the provision of food, clothing, housing, accommodation and other items and facilities to meet the needs of persons in necessitous circumstances within Australia and the making of donations to other funds, institutions or authorities approved under the former s 78(4) of the Income Tax Assessment Act 1936 (Cth). 6 That section provided that a gift to a fund, authority or institution mentioned in any of the following tables was an allowable deduction for the year of income in which the gift was made, if the fund, authority or institution was in Australia, the gift was money or property purchased during the 12 months before the gift was made or was trading stock of the taxpayer, the value of the gift was $2 or more, the gift was not a testamentary gift and any special conditions were satisfied. 7 The tables accompanying the section covered 12 categories: health, education, research, welfare and rights, defence, the environment, industry, trade and design, the family, international affairs, sports and recreation, philanthropic trusts and cultural organisations.

The exemption provision 8 When the dutiable transactions occurred, the Duties Act 1997, s 275 was in the following terms: "Duty under this Act is not chargeable on a transfer, or an agreement for the sale or transfer, or a lease, of dutiable property to, or a declaration of trust over dutiable property held or to be held on trust for, or a mortgage given by or on behalf of: (a) any society or institution for the time being approved by the Chief Commissioner for the purposes of this paragraph whose resources are, in accordance with its rules or objects, used wholly or predominately for: (i) the relief of poverty in Australia, or (ii) the promotion of education in Australia, or (b) any society or institution that, in the opinion of the Chief Commissioner, is of a charitable or benevolent nature, or has as its primary object the promotion of the interests of Aborigines and if the dutiable transaction or instrument is for such purposes as the Chief Commissioner may approve in accordance with guidelines approved by the Treasurer."

The exemption application 9 Sargents made application for the exemption of the dutiable transactions under the Duties Act 1997, s 275(b). The Chief Commissioner refused the application. Sargents lodged an objection which was disallowed by the Chief Commissioner and Sargents sought review by the court of that decision under the Taxation Administration Act 1996, s 97(1). 10 Before the court, counsel for Sargents sought to raise the Duties Act 1997, s 275(a) in support of the application for exemption. That course was not opposed by counsel for the Chief Commissioner. The Taxation Administration Act 1996, s 100(2) provides that neither the applicant's nor the respondent's cases on an application for review are limited to the grounds of the objection.

Society or institution 11 Since both limbs of the Duties Act 1997, s 275 limit the exemption to a taxpayer being a society or institution, the preliminary question is whether Sargents or the Foundation answers this description. 12 In Mayor etc of Manchester v McAdam [1896] AC 500, the House of Lords considered an exemption from income tax with respect to any building, the property of any literary institution. At 507, Lord Herschell said the essential idea conveyed by the expression was no more than a system, scheme or arrangement by which literature was promoted: "The essential idea conveyed by it in connection with such adjectives as "literary" and "scientific" is often no more than a system, scheme or arrangement, by which literature or science is promoted without reference to the persons with whom the management may rest, or in whom the property appropriated for these purposes may be vested, save in so far as these may be regarded as a part of such system, scheme or arrangement."

His Lordship referred to a dictionary definition that seemed to equate the notion of an institution with that of a society: "A system, plan, or society, established either by law, or by the authority of individuals, for promoting any object, public or social." 13 At 511, Lord Macnaghten regarded an institution as an undertaking formed to promote some defined purpose: "It is a little difficult to define the meaning of the term "institution" in the modern acceptation of the word. It means, I suppose, an undertaking formed to promote some defined purpose having in view generally the instruction or education of the public. It is the body (so as to speak) called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle." 14 In Minister of National Revenue v Trusts and Guarantee Co [1940] AC 138, the accumulations of a trust were to be paid to the municipal council of a town in Lancashire to be used for the benefit of the aged and deserving poor of the town. One of the issues considered by the Privy Council was whether the trust was exempt from income tax as a charitable institution. It was held that while the trust was charitable, it was not an institution. Lord Romer delivered the judgment of the their Lordships. At 149-150 he said: "It is by no means easy to give a definition of the word "institution" that will cover every use of it. Its meaning must always depend upon the context in which it is found. It seems plain, for instance, from the context in which it is found in the sub-section in question that the word is intended to connote something more than a mere trust. Had the Dominion Legislature intended to exempt from taxation the income of every charitable trust, nothing would have been easier than to say so. In view of the language that has in fact been used, it seems to their Lordships that the charitable institutions exempted are those which are institutions in the sense in which boards of trade and chambers of commerce are institutions, such, for example, as a charity organization society, or a society for the prevention of cruelity to children." 15 Both these authorities were considered by Gibbs J in Stratton v Simpson (1970) 125 CLR 138. The court had to consider a will by which the testator directed his residuary estate be held upon trust to distribute the income between institutions and bodies, gifts to which were exempt from duty. At 158, his Honour concluded that an institution is an establishment, organisation or association instituted for the promotion of some object: "In its ordinary sense "institution" means "an establishment, organisation, or association, instituted for the promotion of some object, especially one of public utility, religious, charitable, educational etc" ( The Shorter Oxford English Dictionary ). It means, as was said in Mayor etc of Manchester v McAdam , "an undertaking formed to promote some defined purpose…" or "the body (so to speak) called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle". Although its meaning must depend on its context, it would not ordinarily connote a mere trust (cf Minister of National Revenue v Trusts and Guarantee Co Ltd ). A school could appropriately be called an institution within the ordinary meaning of the word." 16 Windeyer J at 145, having referred to the passage from the judgment of the Privy Council set out above, questioned the similarity between a society for the prevention of cruelty to children and a chamber of commerce while accepting a distinction between such institutions and mere trusts: "The similarity of a society as last mentioned to a chamber of commerce may not be at once apparent, although the distinction there made between such institutions and "mere trusts" is clear enough. But I can see no reason why, unrestrained by context, a fund raised by public contributions and administered by trustees could not be properly called an institution." 17 While the trust deed of the Foundation in this case provided that Sargents could, for the purpose of enabling it to carry out the Charitable Purposes, have the power to raise funds from the public, no such funds have been raised. 18 Like the chamber of commerce or the society for the prevention of cruelty to children, a council of law reporting that had as its only substantial purpose the production of law reports was held to be an institution in Incorporated Council of Law Reporting (Q) v Federal Commissioner of Taxation (1967-1971) 125 CLR 659. 19 On the other hand, trustees who held land upon trust to be employed for any charitable purpose or purposes that the trustees might from time to time in their absolute discretion select, and which was used for the purposes of a Christian sect known as the Brethren, were held not to be an institution in Commissioner of Land Tax (NSW) v Joyce (1973-1974) 132 CLR 22. McTiernan J at 27 said it would be a novel application of the term "institution" to apply it to the trustees. Menzies J at 28 said the trustees were not a charitable institution. They were individuals holding as trustees for charitable purposes. To similar effect were the observations of Stephen J at 31-32. The respondents were no more than simple trustees and possessed no quality or function that could justify their being described as an institution. 20 In Pamas Foundation (Inc) v Commissioner of Taxation (1992) 35 FCR 117 the court had to consider a foundation established by a medical practitioner and his family together with two other persons. Its objects were to use funds collected for trading purposes and then to distribute the profits for Christian and charitable works. It was held that the foundation was not a religious institution. 21 In the context of an exclusion from debits tax of a debit made to an account kept with a financial institution in the name of a public benevolent or a religious institution, Beaumont and Lee JJ took the view, at 125, that the context which juxtaposed a religious institution and a public benevolent institution, tended to suggest that the word "institution" was to be given a meaning greater than a structure controlled and operated by family members and friends. Furthermore, the fact that the foundation was a body corporate under the Associations Incorporation Act 1984, did not mean that as a corporation it was also an institution. 22 Davies J took a narrower view. For him, a religious institution referred to those significant institutions that were recognised as part of society. At 118-119 he said: "The meaning given to a term by the context of a statute is, however, a question of law. The Debits Tax Administration Act uses the term "religious institution" in the sense in which, for a very long time, that term has been used in tax and rating statutes, that is, as referring to those significant religious institutions which are a recognised part of society, the establishment and maintenance of which is seen to provide a public benefit justifying exemption from fiscal charges and tax. The use of the term in this sense is reflected in definition 7a of the definition of "institution" in the Oxford English Dictionary , which is a dictionary which proceeds on historical principles. That definition reads: "7.a An establishment, organization or association, instituted for the promotion of some object, esp one of public or general utility, religious, charitable, educational etc, eg, a church, school, college, hospital, asylum, dormitory, mission, or the like; as a literary and philosophical institution, a deaf and dumb institution, the Royal National Life-boat Institution, the Royal Masonic Benevolent Institution (instituted 1798), the Railway Benevolent Institution, etc. The name is often popularly applied to the building appropriated to the work of a benevolent or educational institution." The meaning is not so well conveyed by the definition of "institution" in the Macquarie Dictionary , which dictionary emphasises the current, ordinary use of a term. The word "institution" can be used in ordinary parlance in a much wider sense than it is used in the expression "religious institution" in tax and rating statutes." 23 In my view, the fact that Sargents is a corporation is insufficient to constitute it as an institution. On the other hand, the fact that it is a corporation does not exclude it from possibility of being recognised as a society. An organisation established for a charitable purpose and named as a society does not cease to be such because it is incorporated. A society for the prevention of cruelty to children, if incorporated, remains a society. 24 While the context of the expression "any society or institution" in the Duties Act 1997, s 275 arises in a taxing statute, that use of words does not so strongly exclude a charitable trust as did the juxtaposed expressions referred to in Pamas. 25 Nevertheless, the feature that is lacking in the instant circumstances is the establishment, organisation or association created to bring to fruition the purpose conceived by the founders of the Foundation. Here there is but a corporate trustee of a charitable trust. There is no establishment, no organisation and no association. Sargents acts alone exercising the powers conferred upon it by the trust deed. 26 In my judgment, Sargents is not a society or institution and neither the exemption in the Duties Act 1997, s 275(a) nor the exemption in s 271(b) applies to it.

Exemption requirements 27 Argument was addressed to the court as to whether or not the Duties Act 1997, s 275(a) or s 275(b) applied to Sargents if it was held to be a society or institution. 28 For example, it was submitted that there was no evidence that the Foundation's resources were used wholly or predominantly for the relief of poverty in Australia. If they were not, Sargents was not entitled to exemption under the Duties Act 1997, s 275(a). 29 While it was conceded by the Chief Commissioner that the Foundation was of a charitable or benevolent nature for the purposes of the Duties Act 1997, s 275(b), the exemption is not available unless the dutiable transactions were for such purposes as the Chief Commissioner might approve in accordance with guidelines approved by the Treasurer. 30 The Treasurer has promulgated guidelines. They are as follows: "1 The following are approved charitable or benevolent purposes: · the relief of poverty · the relief and prevention of sickness and disability · the relief of suffering and distress caused by old age · the promotion of education · the establishment of organisations to assist sections of the community with special needs · the relief of distress caused by natural disasters or sudden catastrophes. 2 The transaction for which exemption is claimed must be used for the charitable or benevolent purposes of the organisation. It cannot be let or sold for profit. 3 Property acquired for use as the headquarters of a charitable or benevolent organisation will qualify for exemption if the use of the property is part of continuing charitable or benevolent work. 4 A transaction by which property is donated will qualify for exemption if it is to be used for approved purposes, or is to be sold and the proceeds applied to a specific proposal which is for approved purposes. 5 Property acquired by religious organisations must be used for the charitable and benevolent purposes of the organisation as approved under paragraph 1, and not for predominantly religious purposes." 31 It was submitted that guideline 2 required the dutiable transaction in question to be for a direct charitable or benevolent use and that the acquisitions in this case failed that purpose. Two of the lots were let and six of them were to be held for development or sale. 32 It is unnecessary for me to deal with these and the other arguments raised on these issues. They are important questions that deserve better than an obiter dictum.

Conclusion 33 I dismiss the summons. I order the plaintiff to pay the defendant's costs.

03/11/2005 - typo misspelt cruelity - Paragraph(s) 14

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