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16 Aug 10 Company supporting community bank exempt from tax - Wentworth District Capital Ltd

The Federal Court (Perram J) has held that a company limited by guarantee (WDCL) that provided the premises, staff and equipment to an entity owned by Bendigo Bank for the conduct of its banking business in the New South Wales town of Wentworth  was entitled to an exemption from tax under item 2.1 in the table in s 50-10 ITAA 1997, being a society, association or club established for community service purposes.

WDCL entered into the arrangement with Bendigo Bank after Westpac closed the only bank branch in Wentworth (apart from agencies) and the town went into economic decline. The Bendigo Bank was a great success, and the economic fortunes of the town and the lives of its citizens (particularly the elderly) improved significantly. With the bank's success, WDCL earned surpluses which the Commissioner sought to tax.

The Commissioner submitted that the provision of banking services to customers of Bendigo Bank could not be the provision of a community service. His Honour agreed, but considered this irrelevant, "for the provision of banking services was not the service provided by WDCL. The service it provided was the creation of the circumstances which would make it possible for a bank to operate in the town." (para 62)

His Honour concluded, at paras 63-64:

"63 Was it a service to the Wentworth community to bring about circumstances apt to lead to the re-introduction of banking in the town? It is not to be thought that the facilitation of the commercial supply of services which would otherwise not be provided is always a community service. Had WDCL been incorporated to facilitate the provision of a toy shop in Wentworth it might be doubted that the community was much thereby served. The question in each case is whether the facilitation of the service in question provides a real or tangible benefit to the community. If it does, then a community service is established. Naturally, questions of degree are involved. There may be a difference between facilitating the bringing of a doctor to an outlying district and the bringing of a florist. Other examples may lie closer to the line. Further, where the service already exists in the location in question the tangible benefit may be more difficult to discern.

64 In this case, those issues are susceptible to a straightforward answer. It a town with no face-to-face banking services the facilitation of such services provided a substantial benefit to the community. That benefit was both real and tangible. It consisted of the fact that local banking then became available, increasing in a concrete way the amenity of the town. It follows that in 2006 and 2007 WDCL was established for community services purposes. The income of WDCL was, therefore, exempt under s 50-1 of the 1997 Act."

Wentworth District Capital Ltd v FCT [2010] FCA 862 (Federal Court, Perram J, 13 August 2010).

 


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