Hunger Project Case Note and implications for PBIs

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The Hunger Project Australia v Commissioner of Taxation [2013] FCA 693 – Case Summary and its Implications for Public Benevolent Institutions

The Hunger Project Australia is a member of a global network of organisations operating under the name of “The Hunger Project”. The principal aim of this network is the relief of hunger.

The Hunger Project Australia’s objects, pursuant to its constitution, are charitable. Its exclusive object is:

“The relief of poverty, sickness, suffering, distress, destitution and helplessness with a particular emphasis on directly aiding and developing those suffering from chronic and persistent hunger in certified developing countries as approved by the Australian Minister for Foreign Affairs from time to time.

The Hunger Project Australia will work towards the sustainable end of hunger by identifying what is missing in achieving he [sic] goal of ending hunger and creating strategic initiatives to provide it.”

The most substantial of activities carried out by The Hunger Project Australia is fundraising.

The Commissioner of Taxation took issue with whether an entity should be entitled to Public Benevolent Institution (“PBI”) status, where its principal activity was fundraising, in absence of direct provision of relief to the poor, sick, suffering, distressed, destitute and helpless. This issue was addressed in the  recent Federal Court Decision The Hunger Project Australia v Commissioner of Taxation [2013] FCA 693.

The Court held that it is not a requirement that a PBI engage directly in the activities described in its constitution as its benevolent object. In reaching this conclusion, the landmark decision of Commissioner of Taxation v Word Investments (2008) 236 CLR 204 (Word Investments”) was applied.

A Summary of Word Investments

In 2008, the High Court decision of Word Investments widened the scope for the entitlement of entities endorsed as Tax Concession Charities (please refer to our Word Investments case note for further information).

In Word Investments, Word Investments Ltd was founded by Wycliffe Bible Translators Australia. Wycliffe Bible Translators Australia is a Christian Missionary Organisation engaged in various religious activities. It has Tax Concession Charity status.

Word Investments Ltd conducted commercial activities, in the form of various business ventures such as an investment scheme and funeral home. Word Investments Ltd in and of itself did not carry out the religious activities of Wycliffe Bible Translators Australia.

However, in spite of its commercial activities, the Court ultimately held that Word Investments Ltd should be entitled to Tax Concession Charity Status. The High Court summarised Word Investments Ltd activities as to “raise money from commercial activities and hand it over to other bodies so that they could proclaim the Christian religion”.

This decision has been applied to assist charities in obtaining concessions for commercial activities, where income derived from the activities have been applied to charitable purposes of Tax Concession Charities. For example, Corney & Lind have been successful in applications for Transfer Duty refunds on purchases of residential properties by Charities, which have been leased out with its rental proceeds applied to the charitable purposes of the Charity.

Application of Word Investments to PBIs

The Commissioner argued that the decision of Word Investments should not apply to PBIs. The Commissioner’s reasoning was firstly that Word Investments was concerned with the law of charities, and the issue with The Hunger Project Australia was whether it fitted within the definition of a Public Benevolent Institution, separate from the law of charities.

Secondly, the difference in statutory history of the law of charities and the law of Public Benevolent Institutions makes any analogy between the law of charities and the law of Public Benevolent Institutions difficult to be drawn.

However, the Federal Court rejected both of the Commissioner’s reasons described above, and held that there is no relevant difference for the decision of Word Investments to not apply to PBIs. The main outcome of this decision is that a PBI does not need to engage directly in activities that form its objects of benevolence, and The Hunger Project Australia was entitled to be a PBI, despite being almost purely a fundraising entity.

Outcome of The Hunger Project Decision

Applicants for PBI status whose applications have been rejected may wish to take specific legal advice as to whether The Hunger Project decision will assist them in obtaining PBI status if the Applicants were to apply for a review of their application.

However, while The Hunger Project decision does make it clear that there is no requirement for direct engagement of activities of benevolence, there are some considerations which were not completely dealt with in the judgment.

In coming to his decision, Perram J, who presided over The Hunger Project decision, considered that the requirement for the objects of the entity’s benevolence (i.e. the beneficiaries) had to be concrete. This was from application of the judgment of Priestly JA in Australian Council of Social Services Inc v Commissioner of Pay-roll Tax (1985) 1 NSWLR 567 (ACSSI”).

In ACSSI, Priestly JA “eschewed the notion that general, but undirected or abstract, benevolence would suffice”. As The Hunger Project Australia was a part of a network of organisations that in fact relieve hunger, Perram J held that it did satisfy this test. However, it does beg the question of whether an entity that predominantly conducts fundraising activities but is not a part of a network of organisations would be eligible for PBI status.

The Australian Charities and Not-for-profits Commission’s opinion in regards to the application of the above question is that the relationship of collaboration and common public purpose “may be shown by the organisations coordinating their participation in this relationship through their structure (common purpose, shared planning and processes) as is in the case, but the form is not determinative”. Careful consideration should therefore be given when Applicants for PBI status respond to the ACNC’s requests for further and better particulars in regard to the activities the Applicant wishes to conduct.

Further considerations that were not covered by The Hunger Project Decision also include the upcoming ACNC regulations (External Conduct Standards). In particular regulations which will regulate the transfer of funds from charities within Australia to International Entities.

Lastly, The Hunger Project Australia decision is subject to any appeal that the Commissioner may lodge.

This article was written by James Tan, Senior Lawyer