A Federal Court decision handed down by Perram J in Wentworth
District Capital Ltd v Commissioner of Taxation  FCA
862 ruled that a company supporting a community bank was
established for 'community service purposes' and was
therefore exempt from income tax.
The decision could be regarded as counter-intuitive however the
Court drew a distinction between the actual provision of the
community banking services, which would not have been a community
service and the facilitation of such services by Wentworth District
Capital Limited through an arrangement it entered into with Bendigo
We note that this position may change, as the Australian
Taxation Office have appealed the decision to the Full Federal
The banking services were set up following the closure of the
previous Westpac Bank (the only bank in Wentworth) in 1996 leaving
the town without any banking services to the Wentworth community
(population of 1,400). Wentworth District Capital Limited (WDCL)
subsequently entered into franchise arrangements with Bendigo Bank
Limited (BBL) that enabled BBL to provide banking services using
WDCL's premises, staff and equipment. Under WDCL's
constitution it did not distribute any profits to its members and
included as one of its formal objects the promotion of community
What is an exempt entity?
An exempt entity is an entity whose income (irrespective of
type) is exempt from income tax. An example of an exempt entity is
one that has been "established for community service
purposes", and the meaning of this phrase was the key issue of
The meaning of 'community service purposes'
Section 50-10 of the Income Tax Assessment Act 1997
(ITAA97), defines a 'community service' as a "society,
association or club established for community service purposes
(except political or lobbying purposes)." In applying previous
case law, Perram J summarised the following considerations when
applying the community service exemption:
The kind of community service referred to in section 50-10 is a
practical or tangible help, benefit or advantage conferred on the
community or an identifiable section of it.
A service provided for reward is not a community service at
least where there is no element of subsidisation i.e. where the
service is provided at normal market value.
Community service purposes include the purpose of providing a
community service but the purposes contemplated are not limited
solely to the act of provision.
The entity claiming the exemption must be 'established'
for community service purposes.
The purpose must be the entity's main or dominant
The Court ruled that WDCL's main or dominant purpose was to
facilitate the face-to-face banking services in Wentworth.
According to Perram J,
In a town with no face-to-face banking services, the
facilitation of such services provided a substantial benefit to the
community. That benefit was both real and tangible. It consisted of
the fact that local banking then became available, increasing in a
concrete way the amenity of the town.
Implications for entities seeking tax exempt status
Entities seeking income tax exemption as community service
providers must provide an actual, tangible benefit to a particular
According to case law, the provision of the benefit does not
have to be provided directly by the entity concerned and can be
facilitated by way of fundraising or promotion i.e. the
facilitation of community banking services rather than the
provision of community banking services.
However, as previously noted this position may change, as the
Australian Taxation Office have appealed the decision to the Full
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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