Summary - The High Court handed down its
decision in Commissioner of Taxation v Bargwanna on 29
March 2012 ruling that trust funds in a charitable trust must be
applied for the purpose of the charitable trust, and not just
"substantially" or "on the whole".
Mr and Mrs Bargwanna were the trustees of the "Kalos
Metron Charitable Trust". Between 2003 and 2007, the
trustees distributed a total of $293,914.55 to numerous charitable
In 2004, Mr and Mrs Bargwanna applied for tax concession charity
endorsement for the trust on the basis that it was a charitable
fund. The Commissioner refused their application and disallowed
their subsequent objection and the matter was litigated both in the
Federal Court and the High Court.
The Commissioner contended that the fund was not entitled to
endorsement as the fund was not applied for charitable purposes but
was actually applied for the benefit of the trustees in several
respects. The trust was also applied for the benefit of the
trust's authorised administrator.
Trust monies were paid into the administrator's trust
account where it was mixed with money held by him on behalf of
others. Interest on this account was credited to a separate bank
account and used to defray the costs of maintaining the
administrator's trust account. Additionally, in 2004, Mr
and Mrs Bargwanna transferred trust money into their personal home
loan offset account thereby achieving a benefit by way of interest
reduction on their personal home loan.
The Court considered that the relevant provisions of the Act
require that the funds be "applied" for those charitable
purposes disclosed in the trust deed and do not require that the
fund only be applied for those purposes "substantially"
or "on the whole".
The joint judgment of French CJ, Gummow, Hyne and Krennen JJ,
"The terms of section 50-60 of the Act require that
this fund be "applied" for those purposes ... not all
breaches of trust will deny the conclusion that the fund
nevertheless has been applied for the relevant "public
charitable purposes". But, on the other hand, and contrary to
the reasoning of the Full Court, upon which the respondents relied,
the term "applied" is not to be understood as if section
50-60 used such an expression as "substantially applied"
or "on the whole, applied". The tax payer seeks to gain a
valuable benefit through establishment of exempt
The High Court noted in the majority judgment that there were
acts of maladministration and that "none of these acts of
maladministration were referable to the carrying out of the
charitable purposes for which the Deed provided".
This is a salutary lesson that trustees of charitable funds must
ensure that the trust's funds are applied for the purposes
for which the trust was established. Otherwise, endorsement as a
tax concession charity will be at risk.
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