Aid/Watch Incorporated v Commissioner of Taxation  HCA 42 (1 December 2010)
A recent decision of the High Court dated 1 December 2010 potentially increases the number of charities eligible for tax exemptions. Charities with both charitable and political objects may no longer be excluded from tax exemptions by reason of their political objects.
Aid/Watch Incorporated (Aid/Watch) is an organisation concerned with promoting the effectiveness of Australian and multinational aid provided in foreign countries. For example, Aid/Watch reviews whether the aid provided is too little, whether or not it is delivered in the wrong areas, is of low quality or is not environmentally sustainable. Aid/Watch conducts research, identifies issues and then publicly releases reports resulting from its research. Aid/Watch also campaigns for changes to the way in which aid is delivered through media releases and public events, which are designed to influence the relevant agencies to alter the way aid programs are administered. In order to be eligible for exemption under the Income Tax Assessment Act 1997 (Cth), the Fringe Benefits Tax Assessment Act 1986 (Cth) and A New Tax System (Goods and Services Tax) Act 1999 (Cth) a charity must be a “charitable institution”. Aid/Watch was previously endorsed as a “charitable institution” with effect from 1 July 2005. However, its endorsement as a charitable institution was subsequently revoked with effect from 2 October 2006 by the Commissioner of Taxation. The decision to revoke Aid/Watch’s endorsement was later affirmed by the Full Court of the Federal Court (on appeal from the Administrative Appeals Tribunal) on the basis that the main objects of Aid/Watch were political, and as such it was not a charitable institution. Aid/Watch appealed the decision of the Federal Court to the High Court.
The ultimate question was – what is the definition and scope of the term “charitable institution” as used in the revenue legislation? This is a question of statutory construction. The Court found that a technical legal definition applied which was different to the everyday use of the word charity. This legal definition was determined by
reference to its use in general law. The High Court acknowledged that this technical legal definition would change as the general law developed in Australia from time to time.
In general, a charitable institution is one that has objects that are beneficial to the community. This was taken from the “modern” classification (as the majority called it) of charitable trusts as being for:
(1) the relief of poverty;
(2) the advancement of education;
(3) the advancement of religion; and
(4) other purposes beneficial to the community, as found in the English case Income Tax v Pemsel  UKHL 1;  AC 531.
The Federal Court found that the concern of Aid/Watch with the effectiveness of aid delivery was ultimately aimed at the relief of poverty, which is a charitable purpose. However, the Courts have traditionally refrained from classifying charities – whose main objects are political – as charitable institutions. Political objects include advocating or opposing change to the law or government policy. There are two reasons why the Court has excluded charities whose main objects are political from charitable institutions, being: (1) the court will not ordinarily have sufficient means of judging whether political purposes are for the public benefit; and (2) even if a change of law or policy might be desirable, the court must nonetheless accept that the law, as it stands, is right. The Federal Court found that Aid/Watch’s attempt to persuade the government, which necessarily included criticism of and an attempt to bring about change in government activity and policy, was political activity and had a political purpose. The Federal Court held that this political purpose was the main purpose of Aid/Watch, despite Aid/Watch’s ultimate concern to relieve poverty. As such, and following the existing lines of authority, the Federal Court found that Aid/Watch was not a charitable institution. The High Court held that there is no general doctrine in Australia which excludes from charitable purposes “political objects”. Without commenting on when a political object will exclude a charity from being a charitable institution, the High Court overruled previous lines of authority that a charity with political purposes will never be a charitable trust (or, by extension, a charitable institution) for the public 3 constitutional processes, such as “agitation” for legislative and political change, contributed to public welfare. In particular, the generation by lawful means of public debate about the efficiency of foreign aid directed toward the relief of poverty was a charitable purpose beneficial to the community. The High Court held that the activity of Aid/Watch was to generate public debate as to the best methods for the relief of poverty by the provision of foreign aid, that this was a charitable purpose and that Aid/Watch was a charitable institution. Note, however, that the High Court was silent as to whether the generation of public debate about government activities not relating to the relief of poverty, advancement of education or advancement of religion would be a charitable purpose.
– If your charity has been refused endorsement as a charitable institution on the basis that it has political objectives (or your charity has in fact never applied), you may wish to (re-)apply for this endorsement in view of this High Court case.
– We recommend, however, that you seek legal advice before applying to obtain advice on the strength of your application. This article is intended for educational purposes only and should not be relied upon as professional legal advice.