The Victorian Supreme Court has dismissed a taxpayer’s appeal effectively upholding a Victorian Civil and Administrative Tribunal decision:  VCAT 1257, that the taxpayer could not be characterised as a body established for charitable purposes.
45 Charities and friendly societies
No duty is chargeable … in respect of a transfer of dutiable property to … —
(a) …; or
(b) a corporation or body of persons established for a religious, charitable or educational purpose; or
Tribunal affirmed the liability of the taxpayer to pay stamp duty in respect of its purchase of an office suite, finding that as the taxpayer could not be characterised as a body established for charitable purposes of the s45 exemption, from land transfer duty, for corporations established for a ‘charitable’ purpose and had to pay duty on .within the meaning of s 45 of the Duties Act 2000, it was not entitled to the exemption from stamp duty available to such bodies under that section. As a result, the Taxpayer had to pay stamp duty in respect of its purchase of an office suite.
The Applicant taxpayer was the Melbourne branch of Rotary International, an organisation dedicated to the ideal of service. The Taxpayer undertook a number of projects both in Australia and overseas through which it assisted a variety of disadvantaged people. The Tribunal found that almost all of the objects and activities of the Applicant were charitable, with the present appeal relating to the charitable status of one purpose which is the subject of some controversy. [para 3 of the Court’s reasons] This was the purpose of promoting “High ethical standards in business and professions” in Rotarians, through its various activities. This was important to the issue of whether the Taxpayer could be said to be “established for a … charitable … purpose” overall, if it was ‘significant’ and ‘independent’, per the High Court’s decision in Word Investments  HCA 55.
The Tribunal found [at 10]: “… a significant and independent object of [the Applicant] is the moral improvement of its members as they conduct themselves in their own personal, business and community lives, divorced from the activities of [the Applicant]. The moral improvement of members, while ‘admirable and, indeed, praiseworthy’, is ‘beyond the purposes accepted by the law as charitable’.” [Emphasis added]
The Court confirmed that the word “charitable” should be given its technical legal meaning, that is, as set out by Lord Macnaghten in Commissioners for Special Purposes of the Income Tax v Pemsel  UKHL 1;  AC 531 by reference to the 4 heads of charity and the spirit and intendment of the preamble of the Statute of Charitable Uses Act 1601 (Eng) 43 Eliz 1, c 4 (“the Preamble”).
The Supreme Court considered that the promotion of high ethical standards in business and professions “cannot be characterised as a means to a charitable end; rather it is an end in, and of, itself”. The Court said the immediate focus of the taxpayer is upon the moral improvement of its members, and only indirectly with the moral improvement of others. The question for determination in the taxpayer’s appeal, the Court said, “may only be understood as enquiring whether “the moral improvement of members of the Applicant as they conduct themselves in their own personal, business and community lives” (“the Purpose”) is a charitable purpose”. While the Court was satisfied that the community does benefit from the taxpayer’s pursuit of its purpose, it found that the benefit to the community was incidental to the benefit to members.
In the Court’s view, the promotion of ethical standards in business and the professions to members of the taxpayer “cannot fall within the spirit and intendment of the Preamble”. Whatever the consequential benefits to the community may be, the Court said it was clear that the Purpose is focussed upon members of the taxpayer and in this way it does not share the public nature of the spirit and intendment of the Preamble.
In passing, Croft J noted that “this case epitomises the problems inherent in the reliance by the taxation law of this State [Vic] on ancient notions of charity”.
(Rotary Club of Melbourne Inc v Comr of State Revenue  VSC 699, Vic Supreme Court, Croft J, 29 November 2018.)
[LTN 233, 3/12/18; Tax Month – December 2018]
CPD (comprehension) questions
- Was the issue whether the Taxpayer had to pay normal transfer duty on its purchase of an office suite, or was exempt as a transfer to a ‘corporation established for … charitable … purposes’ under s45 of the Duties Act?
- Was the transfer ultimately exempt?
- Where did the Court say the definition of charitable could be taken from?
- Were some of the purposes of Rotary charitable.
- Was there an issue with one of the purposes?
- What was it?
- Why did it matter?
- What was the conclusion?