The Word Investments decision is important due to the
implications for Income Tax Exempt Charities. These are now known
as "Tax Concession Charities".
Wycliffe Bible Translators (International), a missionary
organisation seeking to spread the Christian religion through
literacy and translation work, set up Word Investments Ltd
("Word") as a means of financial and fund-raising support
to it. In 2002, Word invested in Bethel Funerals, with the profits
derived distributed to two main ministry organisations, one of
which was Wycliffe Bible Translators (International).
The ATO refused to endorse Word as an income tax exempt charity
because it considered that Word was a commercial enterprise. The
fact that Word gave its income to charitable institutions was
irrelevant to the ATO. The ATO's argument was that because
Word's profit generating activity went beyond what was
incidental or ancillary to the exempt purposes, Word was deprived
of its charitable character.
High Court ruling
On 3 December 2008, the High Court of Australia ruled in favour
of Word and held that its profits from its business enterprises
were exempt from tax. In doing so, the High Court upheld a Full
Federal Court ruling that business activities did not disqualify a
charity from income exemption status. The majority said that the
principal issue in deciding whether an institution was charitable
was its purposes and not just its income raising activities.
Issues discussed by the High Court
First issue: whether Word was prevented from being a
"charitable institution" by reason of the fact that its
objects were not confined to charitable purposes.
The majority found that Word's company constitutional
objectives were still charitable, being that of advancing religious
charitable purposes. Both the intention at the time Word was formed
and its activities since indicated that it was charitable. The
Court noted that this test had to be applied and assessed for each
income tax year.
Second issue: can an institution be charitable where it does
not engage in charitable activities beyond making profits which are
directed to charitable institutions which do engage in charitable
The court endorsed the decision in Inland Revenue
Commissioners –v– Helen Slater Charitable Trust
Ltd . In that case, Mr Andrew Park QC for the successful
taxpayer submitted that it would be "revolutionary, unworkable
and unacceptable in practice" for money subject to charitable
trusts not to be "applied for charitable purposes" unless
actually expended in the field.
The majority specifically stated in the Word decision that the
position in Australia would be likely to be similar.
Third issue: whether Word was prevented from being a
"charitable institution" by reason of the fact that the
institutions to which it gave its profits "were not confined
as to the use to which they may put the funds distributed to
The majority decided that the evidence did not support this
conclusion. Just because the body to which Word gave its money,
Wycliffe, was at liberty to select, this was not sufficient to
imperil its income exempt status.
Fourth issue: did Word Investments have a physical presence
in Australia and pursue its objectives in Australia?
Section 50-50(a) of the Income Tax Assessment Act 1997
(Cth) required Word to have both a physical presence in
Australia and incur its expenditure and pursue its objectives in
Australia. The argument by the ATO was that compliance with s
50-50(a) was necessary otherwise the ATO would face great
difficulty in monitoring the use of funds where those funds are
paid to organisations that pursued their objectives outside of
The majority concluded that Word was compliant with section
50-50 as it did have a physical presence in Australia and to that
extent incurred its expenditure and pursued its objectives
principally in Australia. The decisions by Word to pay were made in
Australia, the payments were made in Australia, the payments were
made to Australian organisations, and the objects of Word included
giving financial assistance to those organisations.
Implications of the case
The decision is significant for the whole charitable sector
including private Christian schools. It should eliminate concerns
that Christian schools may have that fund raising activities if
considered to be of a commercial nature would no longer be exempt
from income tax.
The case also has implications for other bodies such as the
Salvation Army running furniture businesses, the YMCA running
swimming pools and fitness centres, Hillsong selling CDs and the
Diabetes Foundation selling used clothing.
The case also calls for careful attention to be given to the
"Objects" clause of a charitable institution's
constitution in that this clause should appropriately establish the
institution's charitable purpose.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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