The High Court, in Commissioner of Taxation of the Commonwealth
of Australia v Word Investments Limited  HCA 55, has upheld a
decision of the Full Court of the Federal Court of Australia that
found a charitable organisation can conduct non-inherently
charitable activities so long as the clear and exclusive purpose is
to raise funds to deploy in ways that are charitable.
On 13 December 2007, the Full Court of the Federal Court of
Australia affirmed that a charity raising money through a business
venture can still be considered a charity for tax purposes, as long
as the only purpose for making a profit is a charitable purpose.
Please refer to our
December 2007 Alert for more details.
The Commissioner of Taxation subsequently applied to the High
Court for special leave to appeal the decision and leave was
granted. The High Court handed down its decision on the appeal on 3
The High Court's decision
The High Court dismissed the appeal. In doing so, the majority
of the Court rejected the arguments of the Commissioner of Taxation
that the Commissioner had relied on to deny the respondent of the
income tax exemption available to charitable institutions under
Subdivision 50-B of Division 50 of Part 2-15 of the Income Tax
Assessment Act 1997 (Cth).
Implications for charitable institutions carrying on business
The Court's decision has important ramifications for
charities. The majority concluded that the fact that an
organisation makes a profit does not necessarily preclude it from
being classified as a charitable institution. Although the
organisation in this case made a profit through engaging in
investment and commercial activities, this did not detract from the
fact that its sole objectives were charitable and that the
organisation's activities were carried out for charitable
purposes. As such, the Court affirmed that the organisation should
be classified as a charitable institution for income tax
For a charity to be so classified, it is important that the
objects as stated in the institution's constitution are truly
and solely for advancing charitable purposes. This can be the case
even where some objects, when read in isolation, do not on their
face reveal a charitable character. If the objects, when read as a
whole, reveal a solely charitable purpose, and the purpose of
raising profit is for these objectives, the institution can conduct
business operations and still be classified as a charitable
institution. It would not however be sufficient for the stated
purpose of the organisation to be charitable if in fact the
institution ceased carrying out that purpose.
The majority also affirmed that an institution can still be
classified as charitable in circumstances where the institution
itself does not engage in charitable activities beyond making
profits. As was the situation in this case, it is permissible for
an institution to make profits that are directed to other
charitable institutions which engage directly in charitable
activities if that is the stated purpose of the giving
As a result of this decision, charitable organisations can seek
to expand their fundraising activities beyond traditional methods.
Importantly, this case demonstrates that charitable institutions
can maintain beneficial tax treatment whilst engaging in profitable
business activities, provided such profits are directed towards
solely charitable purposes. This opportunity presents exciting new
possibilities to charities exploring innovative fundraising
DLA Phillips Fox acts for more than 100 charities every year. In
anticipation of the High Court's judgment, DLA Phillips Fox has
been assisting a number of entrepreneurial charities to establish
commercial initiatives to raise funds for charitable purposes.
Phillips Fox has changed its name to DLA Phillips Fox
because the firm entered into an exclusive alliance with DLA Piper,
one of the largest legal services organisations in the world. We
will retain our offices in every major commercial centre in
Australia and New Zealand, with no operational change to your
relationship with the firm. DLA Phillips Fox can now take your
business one step further − by connecting you to a global
network of legal experience, talent and knowledge.
This publication is intended as a first point of reference
and should not be relied on as a substitute for professional
advice. Specialist legal advice should always be sought in relation
to any particular circumstances and no liability will be accepted
for any losses incurred by those relying solely on this
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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