2015 saw some changes to State and Territory legislation in Australia to narrow State and Territory tax concessions for charities.
Following the 2008 High Court decision in Word Investments, the common law concept of “charity” has been expanding as the scope of entities seeking (often successfully) to claim charitable status for the purposes of state tax concessions has widened.
The States and Territories in Australia have not enacted or amended legislation to mirror the imposition of the definition of “charity” in the Commonwealth Charities Act 2013 but rather relies on the common law meaning of “charity”.
Western Australia, the Northern Territory and the Australian Capital Territory have all enacted recent amending legislation which removes some “charities” from being able to obtain State tax concessions largely in response to the common law extending state concession too generously.
A summary is provided below with application to [stamp] duty exemptions.
On 9 March 2015, Western Australia enacted the Taxation Legislation Amendment Act (No 2) 2015 (WA). It amends the respective Duties Act, Land Tax Act, Payroll Tax Act and Taxation Administration Act of Western Australia to remove exemptions for some classes of charities.
For example, section 95 of the Duties Act 2008 (WA) provides a general exemption from transfer duty on a dutiable transaction that has been entered into or occurred for charitable or similar public purposes provided that [the 2015 amendments]:
- the body is not a “relevant body”; or
- if a “relevant body”, the body has been brought back ‘into the fold’ by being declared a “beneficial body” by determination by the Finance Minister with the concurrence of the Treasurer.
2012 saw a judicial decision in WA that went against the state revenue. The Chamber of Commerce and Industry of Western Australia case found that the Chamber of Commerce was a charity and so entitled to payroll tax exemption. This was a ‘bridge too far’ for the WA government which lead to 2015 amendments to exemption regime in WA to exclude “relevant bodies” (assuming they were not specifically let back in by being declared a “beneficial body”).
“Relevant body” is defined in the 2015 amendments to mean:
- a political party;
- an industrial association;
- a professional association;
- a body, other than a body referred to in paragraph (a), (b), (c), or (e) that promotes trade, industry or commerce, unless the main purposes of the body are charitable purposes that fall within the first 3 categories (being relief of poverty; advancement of education and advancement of religion) identified by Lord Macnaghten in Commissioners for Special Purposes of Income Tax v Pemsel  AC 531 as developed by the common law of Australia from time to time;
- a body that is a member of a class of bodies prescribed for the purposes of this paragraph; and
- a body that [is a member of a pay-roll tax group, related body corporate, or that has a sole or dominant purpose of conferring a benefit on another relevant body].
We know of no determination of “beneficial body”.
The introduction of the WA legislation paved the way for other States.
The Northern Territory was next, enacting the Revenue and Other Legislation Amendment Act 2015 (NT).
For example, schedule 2 of the Stamp Duty Act (NT) states that exemptions from transfer duty are available for exempt entities (entity condition), if the property is to be used solely by the entity for an exempt use (use condition).
The term “exempt use” is defined very broadly in section 4F(2), being a use for purposes other than the carrying on of a commercial activity by or on behalf of the entity [2015 amendments].
Australian Capital Territory
Shortly after this, the ACT enacted similar reforms.
For duty purposes the 2015 amendments followed the WA lead which for the purposes of transfer duty exemptions has little practical effect given how narrow the exemptions already were. Schools and hospitals (or trustees for schools or hospitals) are subject to a concessional rate of transfer duty, being the small amount of $20.00.
They followed, however their restrictions were much narrower, limited to prohibiting commercial activities for conveyance duty concessions.
The Stamp Duties Act 1923 (SA) section 71(5)(j) effectively provides that a transfer of property:
- to a body established wholly for charitable or religious purposes [entity condition]; and
- [use condition] where the Commissioner is satisfied that the property will not be used (wholly or predominantly) for commercial or business purposes (including on the basis that this paragraph will not apply even if any revenue, income or other benefit arising from the use of the property for commercial or business purposes will be applied towards the charitable or religious purposes of the body),
shall be deemed not to be a disposition of property which attracts transfer duty.
Paragraph b above is the result of recent 2015 amendment, as response to narrowing the exemptions available for charities. This amendment expressly excludes the Word Investments “use condition” argument.
Ø Charities will need to keep an eye on potential further statutory narrowing, particularly in the States that have not yet acted to amend their legislation.
Ø “Pushing of the envelope”, about whether an entity is a charity may mean some refunds of back taxes but may then lead to legislative tightening.
Ø Even if the States move to adopt the Commonwealth statutory definition of “charity”, some ‘carve outs’ may remain.
For more information regarding tax concessions for charities
  HCA S5
 I am indebted to a recent paper by Assistant Professor the Ian Murray, “The taming of the charitable shrew: State roll back of charity tax concessions” (2016) 27 PLR 60.
 This case is discussed in the Common law developments section of this paper.
 Stamp Duty Act (NT) Schedule 2, item 14 for dutiable property, item 18 for transfer for leases.
 Revenue (Charitable Organisations) Legislation Amendment Act 2015 (ACT).
 Duties Act 1999 (ACT) section 64.
 Statutes Amendment and Repeal (Budget 2015) Act 2015 (SA)