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04 Dec 08 Organisation's trading/investment activities were charitable - Word

The High Court has held, by majority (Gummow, Hayne, Heydon and Crennan JJ, Kirby J dissenting) that a company (Word) that conducted commercial businesses and earned funds from investment to provide funds for a missionary organisation (Wycliffe) was entitled to the status of a tax-exempt charity. The following is extracted from the Court's media release.

The Court held that Word’s purposes were charitable, that it was a charitable institution, and that that character was not lost by the fact that it did not advance charitable purposes directly but gave its profits to Wycliffe which did. It held that Word’s objects in its memorandum of association were for advancing religious charitable purposes and the powers set out in the memorandum did not authorise conduct which did not further those purposes. The goal of making a profit was not an end in itself but was incidental to its charitable purposes. Its commercial activities were not intrinsically charitable but were charitable in character. Wycliffe was not at liberty to spend the money it received from Word on non-charitable objects and there was no evidence that it did. The Court held that Word had a physical presence exclusively in Australia and advanced its money to Wycliffe in Australia. Wycliffe was not required under the ITAA 1997 to spend the money within Australia. The Act only required that Word incur its expenditure and pursue its objectives principally in Australia.

The majority said, at para 37, as follows:

"It is implicit in the Commissioner's argument that there is a distinction between two cases. One case would arise where a company limited by guarantee which had religious charitable objects organised itself into two divisions, one of which employed the company's assets to make profits, the other of which spent the profits on those objects. A second case would exist where a company limited by guarantee had the same objects and made the same profits, but gave them to other organisations which spent them on those objects. On the Commissioner's argument, the first company is a charitable institution, but the second is not. It would not reflect credit on the law if the distinction implicit in the Commissioner's argument were sound."

FCT v Word Investments Limited [2008] HCA 55 (High Court; Gummow, Kirby, Hayne, Heydon and Crennan JJ; 3 December 2008).

For a copy of the decision, go here.

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