High Court decision provides an opportunity for
subsidiaries of charities to conduct commercial activities without
losing their charitable status.
The Australian Taxation Office ("ATO") will need to
re-write Taxation Ruling 2005/22 ("TR 2005/22") as a
result of the High Court's decision last week to uphold the
Full Federal Court's decision in Commissioner of Taxation v
Word Investments Ltd. The decision confirms that an entity
conducting a business to raise funds for a charity may also have a
charitable purpose and is contrary to the ATO's view in TR
2005/22. It will bring relief to charities, churches, welfare
organisations and educational institutions who may have been
concerned that fundraising activities would impact their tax-exempt
By way of background, the structure of the organisation was as
Wycliffe Bible, a missionary organisation seeking to spread the
Christian religion through literacy and translation work, set up
Word Investments Ltd as a means of financial and fund-raising
support to Wycliffe Bible. In 2002, World Investments Ltd invested
in Bethel Funerals, with the profits derived distributed to two
main ministry organisations, one of which was Wycliffe Bible.
Whilst the ATO's view in TR 2005/22 is that a charitable
institution could only conduct commercial activities that were
ancillary and incidental to the entity's charitable activities,
the majority judgment of the Court said that "Word endeavoured
to make a profit, but only in aid of its charitable purposes. To
point to the goal of profit and isolate it as the relevant purpose
is to create a false dichotomy between characterisation of an
institution as commercial and characterisation of it as
This decision provides a precedent for treating all subsidiary
entities of charities that are set up to raise funds for the
charity through trading a commercial business to be treated as a
It will be interesting to see:
the ATO's and the Governments response. Will they look to
amend the law to ensure that the ATO's view in TR 2005/22 is
retained?; and / or
whether all subsidiaries of charities will apply for
endorsement as tax exempt charities or whether changes in the
constitution of the subsidiary entity will be required to obtain
tax exempt status.
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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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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