The Commissioner of Taxation v The Triton Foundation

REASONS FOR JUDGMENT 1 This is an appeal from a decision of the Administrative Appeals Tribunal ("the Tribunal") pursuant to s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) ("the AAT Act"). The appeal raises the question whether the respondent, The Triton Foundation ("Triton"), is a charitable institution within the meaning of item 1.1 of the table in s 50-5 of the Income Tax Assessment Act 1997 (Cth) ("the Act"). 2 Section 50-1 of the Act exempts from income tax the ordinary income and statutory income of various entities - although, in some cases, subject to special conditions. Item 1.1 of the table in s 50-5 identifies a "charitable institution" as an exempt entity subject to the special conditions in ss 50-50 and 50-52. It is common ground that Triton is an "institution" and satisfies s 50-50, in particular, s 50-50(a). 3 Subject to qualifications that are not presently relevant, s 50-52 requires certain entities, including charitable institutions, to be endorsed as exempt from income tax under subdivision 50-B. By virtue of s 50-105 (in subdiv 50-B) the Commissioner must endorse the institution as exempt from income tax if it is entitled to be endorsed by satisfying s 50-110 and has applied for endorsement. An entity such as Triton is entitled to endorsement if it is a charitable institution, has an ABN and meets the other specified special conditions: s 50-110. 4 The Commissioner refused Triton's application for endorsement on the basis that it was not a charitable institution covered by item 1.1 of the table in s 50-5 of the Act because it did not have a charitable purpose, being neither for the purpose of the advancement of education nor for other purposes beneficial to the community. The Commissioner disallowed Triton's subsequent objection to this decision, and Triton made application to the Tribunal. The Tribunal set aside the Commissioner's decision to disallow Triton's objection, on the basis that Triton was a charitable institution within item 1.1 of the table in s 50-5, because, although its main purpose was not the advancement of education, its main purpose was beneficial to the community in the legal, charitable sense. 5 The Commissioner appeals against the Tribunal's decision and seeks orders that the Tribunal's decision be set aside. By a Notice of Contention, Triton also maintains that the Tribunal was wrong in holding that Triton's services were not for the advancement of education and that it was not a charitable institution on this basis. the tribunal's decision 6 The Tribunal made the following findings of fact. a) Triton was established as a not-for-profit organization in 2000 by a successful inventor, Mr George Lewin, following the National Innovation Summit, which was sponsored by the Federal Government in February 2000. Mr Lewin was committed to contributing up to $3 million over 5 years. The Victorian and Queensland Governments have also funded Triton. b) The principal object of Triton is "the promotion of a culture of innovation and entrepreneurship in Australia, particularly among the young, by visibly assisting innovators to commercialise their ideas". In this connection, the Tribunal referred to Triton's constitution and a "Mission Statement". c) Triton is involved in a number of activities. d) Triton provides advice to inventors on marketing, intellectual property, business planning, etc, by telephone, facsimile, e-mail or in person. e) Triton has an interactive website that provides a self-assessment module "to assist inventors identify gaps in their knowledge and to determine where they are placed in the pathway to a commercial product". f) Triton has case managers, who review applications for assistance and provide guidance. If approved by a case manager, an invention is assessed by an assessment panel, constituted by experienced people who act on a voluntary basis. The panel provides comments and suggestions to the inventor. Where an inventor requires professional services, he or she may be referred to an appropriate professional. g) Triton's "initial services, up to the assessment by a case manager, are available to any person, but the result of the assessment may well be advice to an applicant that there is no point in continuing the process". Triton is free to decline assistance to any individual and is "more likely to concentrate its resources on ideas that are more likely than others to be successful". h) Triton has not yet charged an investor any fee for its services, although, according to its executive director, Triton "may need to charge for some services and/or enter into an income sharing arrangement for successful inventions", in the event of a reduction in Government grants. i) In conjunction with the Victorian Department of Education and Training and the Education Foundation, Triton promotes a competition for students in years 5 to 10 at government schools called "The Dreams and Schemes Award - Students as Innovators". In collaboration with the Australian Design Awards, Triton selects three inventions, registered with it, to be considered for the Australian Invention of the Year Award. j) Triton also seeks media exposure to promote innovation in Australia frequently using examples of innovative inventions. Although it had not proceeded with an initial proposal to develop a television series to be called the "Clever Country", Triton has received a specific Commonwealth grant to create a pilot of such a program. In this connection, the Tribunal simply noted that Triton's executive director agreed that "one role of such a series would be the promotion of a market for inventions featured but maintained that it was equally envisaged as a promotion of the concept of innovation and entrepreneurship in Australia". k) From time to time, Triton organizes seminars and workshops for prospective inventors. 7 In concluding its discussion of the facts and evidence, the Tribunal noted that Triton's executive director maintained that: "[T]he role of the Foundation is to provide structured and organised information to inventors. He maintained that this involved education packages, self-assessment tools, an education pathway through the commercialisation process and individual review and assessment. He noted a number of inventions, which, in his view, may never have been commercially successful without the assistance of the Foundation and which have been of benefit to the community." 8 The Tribunal summarized its conclusions about the objects and activities of Triton by observing that Triton: "was established for, and operates to provide, assistance to actual or prospective inventors by way of providing information, evaluation and assistance in developing an invention to a commercial product". 9 The Tribunal stated that, before it, Triton primarily claimed that it was a charitable institution because its main purpose was the advancement of education. After discussing Property Services Industry Training Advisory Board Ltd v Federal Commissioner of Taxation (1999) 99 ATC 2076, the Tribunal said that: "Here, I am of the view that what the Foundation provides is a structured information package rather than education. The information and self-assessment part of its service may be seen as a means of condensing information which would otherwise need to be obtained by an inventor from a variety of sources of such information, such as books or manuals on preparing business plans, marketing, intellectual property protection, etc. To the extent that it is education, in the sense of enabling users to be better informed, it is difficult to comprehend the service as being the advancement of education." 10 The Tribunal noted that "[w]hile the main thrust of the submissions related to advancement of education", it considered it "appropriate to consider this Foundation under the fourth of the four heads of charity", namely, other purposes beneficial to the community. In this connection, the Tribunal said: "The question can be asked as to whether the objects of the Foundation are, to paraphrase the words of Windeyer J, the promotion of innovation, the promotion of the learning of skills and results of innovation and adding to the number of persons skilled in innovation and augmenting their learning and are themselves charitable objects and beneficial to the community." (Emphasis added) The Tribunal answered this question in the following way: "In this case, it is said that the services of the Foundation are available to any member of the community who has a desire or inclination to use them and the accomplishment of the objects of the Foundation in the encouragement and assistance in innovation and entrepreneurship in Australia is of benefit to the whole community. It is clear, and not in dispute, that the Foundation is a 'not-for-profit' institution. In my view, the present objects and operations of the Foundation are for purposes beneficial to the community in the sense of providing direct services to a section of the community and overall future benefits to the community as a whole. Consequently, I find that the Foundation is a charitable institution within the meaning of Item 1.1 of s.50-5 of the Act and is entitled to be endorsed as exempt from income tax under s.50-105." competency of the appeal 11 The Commissioner submitted that the question that arose on this appeal was a question of law such as to ground an appeal under s 44 of the AAT Act, because the expression "charitable institution" was used in item 1.1 of the table to s 50-5 of the Act in a technical legal sense. The question of law was whether the facts found by the Tribunal brought Triton within the legal meaning of the words "charitable institution". The Commissioner also submitted that the Tribunal erred in law by failing to consider whether, in addition to being beneficial to the community, the objects and activities of Triton were "charitable" in this technical legal sense. This too was said to raise a question of law. 12 Triton challenged the competency of the appeal. Relying on Collector of Customs v Pozzolanic (1993) 43 FCR 280 ("Pozzolanic") at 286 and Commissioner of Taxation v Brixius (1987) 16 FCR 359 ("Brixius") at 365, Triton contended that the present proceeding invited the Court to reconsider questions of fact and degree that had been decided by the Tribunal against the Commissioner. The proceeding was not therefore an appeal that lay to this Court under s 44 of the AAT Act. Alternatively, Triton submitted that the only question that could arise on this appeal was whether the Tribunal's finding of fact was open on the evidence before it. The Court should, so it submitted, be astute to resist attempts to secure a review on the merits under the guise of an appeal under s 44 of the AAT Act. 13 I accept that the word "charitable" in item 1.1 of the table in s 50-5 of the Act is to be understood in the legal sense, and not in accordance with ordinary English usage. The character of the Act and the authorities preclude any other conclusion: see, e.g., Salvation Army (Victoria) Property Trust v Ferntree Gully Corporation (1952) 85 CLR 159 ("Salvation Army") at 175 per Dixon, Williams and Webb JJ and 182, 184 per Fullagar J; and The Incorporated Council of Law Reporting for the State of Queensland v The Commissioner of Taxation (1971)125 CLR 659 ("ICLR") at 666 per Barwick CJ and 671 per Windeyer J. 14 There are well-accepted legal principles for determining whether an entity is "charitable" in this technical sense. In ICLR, Barwick CJ and Windeyer J referred to these principles in the following way. At 666, Barwick CJ stated: "[W]hether or not the institution is relevantly charitable will be determined according to the principles upon which the Court of Chancery would act in connexion with an alleged charity. That means that the indications contained in the preamble to the Statute of Elizabeth 1601 and the classifications in Lord Macnaghten's speech in Commissioner for Special Purposes of Income Tax v Pemsel (Pemsel's Case) [[1891] AC 531 at 583] are to be observed in deciding whether or not the institution is charitable for the purposes of the Act." In the same case, Windeyer J said, at 671: "A charitable institution is an instrument designed for carrying a charitable purpose into effect … . What in law is a charitable purpose is to be gathered from the miscellany of objects set out in the preamble to the statute, 43 Eliz I., c. 4. The spirit and intendment of that enactment, as well as its words, have for centuries dictated the meaning of charity in law." 15 The distinctions that may be drawn between questions of law, questions of fact and mixed questions of fact and law can be elusive, as was acknowledged in Pozzolanic at 287. Plainly enough, the meaning of a technical legal expression is a question of law and, generally, so too, is the question whether facts fully found fall within the provision of a statutory enactment: see Vetter v Lake Macquarie City Council (2001) 202 CLR 439 ("Vetter") at 450; Hope v Bathurst City Council (1980) 144 CLR 1 at 7 per Mason J, with whom Gibbs, Stephen, Murphy and Aickin JJ agreed; and Pozzolanic at 287. In Hope at 7, Mason J said as follows: "Many authorities can be found to sustain the proposition that the question whether facts fully found fall within the provisions of a statutory enactment properly construed is a question of law. One example is the judgment of Fullagar J in Hayes v Federal Commissioner of Taxation, where his Honour quoted the comment of Lord Parker of Waddington in Farmer v Cotton's Trustees, which was adopted by Latham CJ in Commissioner of Taxation v Miller, that where all the material facts are fully found, and the only question is whether the facts are such as to bring the case within the provisions properly construed of some statutory enactment, the question is one of law only. Fullagar J then said: '... this seems to me to be the only reasonable view. The distinction between the two classes of question is, I think, greatly simplified, if we bear in mind the distinction, so clearly drawn by Wigmore, between the factum probandum (the ultimate fact in issue) and facta probantia (the facts adduced to prove or disprove that ultimate fact). The "facts" referred to by Lord Parker ... are the facta probantia. Where the factum probandum involves a term used in a statute, the question whether the accepted facta probantia establish that factum probandum will generally - so far as I can see, always - be a question of law.' However, special considerations apply when we are confronted with a statute which on examination is found to use words according to their common understanding and the question is whether the facts as found fall within these words. Brutus v Cozens was just such a case. The only question raised was whether the appellant's behaviour was 'insulting'. As it was not unreasonable to hold that his behaviour was insulting, the question was one of fact." (Citations omitted) In Vetter at 450, Gleeson CJ, Gummow and Callinan JJ specifically adopted Mason J's discussion and statement of the law on this subject. 16 There is, therefore, ample authority for the proposition that, where the facts have been found and the only question is whether they fall within a statutory provision, the question is one of law: see above; also Commissioner of Taxation v Roberts (1992) 37 FCR 246 ("Roberts") at 252 per Hill J and the authorities there cited; Lombardo v Commissioner of Taxation (Cth) (1979) 40 FLR 208 at 212 per Bowen CJ; Commissioner of Taxation (Cth) v Cooper (1991) 29 FCR 177 at 193-196 per Hill J; and Australian National Railways Commission v Collector of Customs (SA) (1985) 69 ALR 369 at 379 per Sheppard and Burchett JJ. The principal question in this case is whether, on the facts as found by the Tribunal, Triton is a "charitable institution" within the meaning of item 1.1 of the table in s 50-5 of the Act. It is common ground that Triton is an institution. The point of dispute is whether the institution is "charitable" in the legal sense of that term. Clearly enough, the appeal turns on a question of law: see also Tasmanian Electronic Commerce Centre Pty Ltd v Commissioner of Taxation [2005] FCA 439 ("Tasmanian Electronic") at [6]-[7] per Heerey J and Central Bayside Division of General Practice Ltd v Commissioner of State Revenue (2003) 53 ATR 473 at 474-475 [4]-[5] ("Central Bayside")per Nettle J. 17 Brixius has no application in this case. Brixius concerned the deductibility of an item under the first limb of s 51(1) of the Income Tax Assessment Act 1936 (Cth) and the inquiry attracted considerations of a different kind from the present, as Hill J, with whom Jenkinson J agreed, explained in Roberts at 251-252. Moreover, the present case is not concerned with a finding as to the application of a statutory word or expression used in its ordinary English sense, like the expression "mining operations" and "mining property" in NSW Associated Blue-Metal Quarries Ltd v Federal Commissioner of Taxation (1956) 94 CLR 509 (see 511-512 per Kitto J), which was also discussed by Mason J in Hope at 7-8. The inquiry that would properly arise in such a case does not arise on this appeal. As Heerey J said in Tasmanian Electronic at [8], the question whether more than one meaning is reasonably open arises in cases of this latter kind only "because of the anterior affirmative answer to the question of law whether the word or phrase was used in the sense conveyed in ordinary speech". This question does not, therefore, arise in this case, where the relevant expression is used in a specifically legal sense. 18 Before turning to the principal question of law that arises on the appeal, I want to dispose of the Commissioner's argument that the Tribunal applied the wrong legal criterion. I reject the Commissioner's second submission that the Tribunal erred in law by failing to consider expressly whether the purposes found were "within the spirit and intendment of the preamble" to 43 Eliz I, c 4 (referred to below as "the Statute of Elizabeth"). On a fair reading of the Tribunal's reasons, there was no such error. The Tribunal referred specifically to this requirement before asking itself whether the objects and operations of Triton were "in themselves charitable objects and beneficial to the community": see [10] above. I reject the Commissioner's contention that this was a pronouncement made without any real understanding of the task. This was a clear statement of the correct test. The Tribunal's conclusion that Triton was a charitable institution must therefore be taken to be a finding that its objects were not only beneficial to the community but also charitable in the legal sense. The Commissioner's complaint, in essence, was that the Tribunal had failed to make a specific finding to this effect. There is no shortage of authority that one must not scrutinise the reasons of an administrative tribunal over-zealously, with an eye for error: see, e.g., Pozzolanic at 286-287 and the cases cited therein. The Tribunal did not misdirect itself as to the correct legal criterion, as the Commissioner submitted. a charitable institution? 19 In this branch of the law, there are some well-settled principles. First, as already noted, the "charitable" character of an institution is to be determined by reference to the preamble to the Statute of Elizabeth and the four classifications in Lord Macnaghten's speech in Income Tax Special Purposes Commissioner v Pemsel [1891] AC 531 ("Pemsel's Case"). By reference to the preamble, in Pemsel's Case, at 583, Lord Macnaghten classified the following purposes as "charitable" purposes, namely, purposes for: 1) the relief of poverty; 2) the advancement of education; 3) the advancement of religion; and 4) other purposes beneficial to the community, not falling under any of the preceding heads. The present case is primarily concerned with the fourth classification, although Triton also relies on the second classification. 20 It is also settled law that whether a particular corporate body is a charitable institution depends on the central or essential object of the institution as determined by reference to its constitution and activities: see, e.g., Salvation Army at 171-172 per Dixon, Williams and Webb JJ; Congregational Union of New South Wales v Thistlethwayte (1952) 87 CLR 375 at 442 per Dixon CJ, McTiernan, Williams and Fullagar JJ; Stratton v Simpson (1970) 125 CLR 138 at 150-151 per Windeyer J; and Crunulla Sutherland Leagues Club Ltd v Federal Commissioner of Taxation (1990) 23 FCR 82 ("Crunulla") at 95-96 per Lockhart J. 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. In relation to this process of characterization, Lockhart J said, in Crunulla at 96: "The material facts and circumstances which should be examined to characterise the main purpose of the relevant body include its constitution, its activities, its history and its control. These may alter from time to time and the purpose of establishment may correspondingly change. It is not sufficient to look to the formation of the body and to ascertain what was at the time the purpose of its formation. The statute gives a periodic operation to the words and directs the inquiry to a particular time, namely, the year of income so that consideration must be given not only to the purpose for which the society was established but also the purpose for which it is currently conducted." This description of the process is also apposite in this case. The description also indicates that the charitable status of an institution can change over time. 21 An institution is not necessarily a charitable institution simply because it has a purpose that is beneficial to the public. In order to qualify as a charitable institution, an institution must have a purpose that is both beneficial to the community and within the spirit and intendment of the preamble to the Statute of Elizabeth. The authorities on this point are clear: see, e.g., ICLR at 667, 669 per Barwick CJ and The Royal National Agricultural and Industrial Association v Chester (1974) 3 ALR 486 at 487 per McTiernan, Menzies and Mason JJ. 22 Further, in order to fall within Lord Macnaghten's fourth class, the purpose must be to benefit the public generally, as opposed to individual members of the community, although the fulfilment of the purpose "either directly or indirectly incidentally may benefit such individuals": see Commissioners of Inland Revenue v Oldham Training and Enterprise Council (1996) 69 TC 231 ("Oldham TEC") at 250-251 per Lightman J. The public may, however, include a section of the public: see Oldham TEC at 250; Commissioners of Inland Revenue v Yorkshire Agricultural Society [1928] 1 KB 611 ("Yorkshire Agricultural Society") at 622-623 per Lord Hanworth MR, 629-630 per Atkin LJ and 637 per Lawrence LJ; Crystal Palace Trustees v Minister of Town and Country Planning [1951] Ch 132 ("Crystal Palace") per Danckwerts J; Commissioners of Inland Revenue v White (1980) 55 TC 651 ("White") and Royal Australasian College of Surgeons v Federal Commissioner of Taxation (1943) 68 CLR 436 at 447 per Rich J, 450 per McTiernan, 454 per Williams J; and contrast Hadaway v Hadaway [1955] 1 WLR 16 and New Zealand Society of Accountants v Commissioner of Inland Revenue (1986) 8 NZTC 5205 at 5208 per Somers J, 5212-5214 per Richardson J, Casey J agreeing with Somers and Richardson JJ. 23 In Royal Australasian College of Surgeons, the High Court held that the "main or real object of the College [was] the promotion and advancement of surgery", which entitled the College to an exemption pursuant to s 23(e) of the Income Tax Assessment Act 1936-1941 (Cth) and the fact that "some of these subsidiary or ancillary functions and purposes [of the College] may indirectly and incidentally be of benefit to the members of the profession" did not detract from this status: see 447 per Rich J. In Yorkshire Agricultural Society, the English Court of Appeal held that the Society, which was formed for the purpose of promoting the general improvement of agriculture, as opposed to a society for the conferral of benefits on its particular members, was charitable within Lord Macnaghten's fourth class in Pemsel's Case. Similarly, in Crystal Palace, Danckwerts J held, at 858, that the promotion of industry and commerce in general by holding public exhibitions, as opposed to the furtherance of the interests of individuals engaged in trade or industry, was a public purpose of a charitable nature. In White, Fox J held that the object of preserving and improving craftsmanship was charitable, though the means required to achieve this end included the provision to craftsmen of particular benefits, including the provision of premises at affordable rent. The fact that individual craftsmen might obtain benefits from the association's activities did not, in this case, operate to deprive the association of charitable status: see White at 656, 659-661. Mackenzie J adopted the same reasoning in Barclay v Treasurer of Queensland (1995) 95 ATC 4496 ("Barclay"). In considering the status of the Queensland Construction Training Fund, his Honour held that the object of fostering and developing the knowledge, skills, training and education of persons employed in the Queensland construction industry was a charitable object, and any benefit to any particular individual in the industry was an incidental object of the Fund: see Barclay at 4,500. In Tasmanian Electronic, at [56], Heerey J held that, in assisting Tasmanian businesses to adopt electronic commerce, the Tasmanian Electronic Commerce Centre was pursuing a charitable purpose within Lord Macnaghten's fourth category. 24 The question whether the purpose is to benefit a section of the public as opposed to individual members of the community does not always admit of a ready answer. In Dingle v Turner [1972] AC 601, this consideration led Lord Cross of Chelsea to say, at 624: "In truth the question whether or not the potential beneficiaries of a trust can fairly be said to constitute a section of the public is a question of degree and cannot be by itself decisive of the question whether the trust is a charity. Much must depend on the purpose of the trust. It may well be that, on the one hand, a trust to promote some purpose, prima facie charitable, will constitute a charity even though the class of potential beneficiaries might fairly be called a private class and that, on the other hand, a trust to promote another purpose, also prima facie charitable, will not constitute a charity even though the class of potential beneficiaries might seem to some people fairly describable as a section of the public." Although this may not be the law in Australia, these comments highlight the essential matter of dispute in this case. At the hearing the Commissioner submitted that the real question in this case was whether Triton's fundamental or overall purpose of achieving the object of promoting a culture of innovation was achieved in a way that was of general benefit to the community. 25 In relation to Lord Macnaghten's fourth class of charitable purpose, the Commissioner's submissions were as follows.

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