Overview of community service purposes

November, 2010


There is nothing particularly new about an organisation providing a community service and receiving taxation endorsements and concessions. The original 1936 income tax legislation provided for “community service purposes” in section 23(g)(v) and the 1997 Act similarly provides for it in section 50-10. This section of the 1997 Act provides that a “society, association or club established for community service purposes (except political or lobbying purposes)” is an exempt entity. What is not so clear from the statutes, however, is what constitutes a community service purpose. For this we need to turn to the case law.

There have been a number of cases that have considered the meaning of “community service purpose”, some of which were of high profile especially in the third sector. These include: Navy Health
Ltd v Federal Commissioner of Taxation (2007) 68 ATR 215; Victorian Women Lawyers’ Association Inc v Federal Commissioner of Taxation (2008) 70 ATR 138; Douglas v Federal Commissioner of Taxation (1997) 77 FCR 112; Re National Council of Women of Tasmania AAT Case 12,876 (1998) 38 ATR 1174; and Kennedy & Ors v Anti‑Discrimination Board of the Northern Territory & Ors (2006) 92 ALD 134. This year, on 13 August, another Federal Court judgment was handed down in which the question considered was what is a community service purpose for income tax purposes: Wentworth District Capital Ltd v Federal Commissioner of Taxation [2010] FCA 862 (Wentworth Case).

The Wentworth Case – background

Following the closure of the only bank in the small New South Wales country town of Wentworth in 1996, members of the Wentworth community incorporated a not-for-profit company (Wentworth District Capital Ltd) to enter into a franchise agreement with Bendigo Bank to enable the bank to provide banking services to Wentworth. Under the agreement, Wentworth District Capital Ltd (WDCL) provided the premises, staff and equipment for Bendigo Bank to provide their services. WDCL claimed it was providing a community service and was, therefore, entitled to be exempt from income tax; the Australian Taxation Office believed otherwise and disallowed WDCL’s claim. WDCL appealed to the Federal Court.

Community service purposes

The term “community service purposes” is not defined in the ITAA 1997. However, the Explanatory Memorandum to the Taxation Laws Amendment Bill No. 2 1990 states: “Subparagraph 23(g)(v) … will exempt from income tax the income of not‑for‑profit bodies established for community service purposes. They extend to a range of altruistic purposes. The words will extend to or of any members of the community who have particular need of those activities, facilities or projects by reason of their youth, age, infirmity, or disablement, poverty or social or economic circumstances.”

The essence of “community service” is that a service is provided to the community, or a section of the community.

The Court’s opinion in Victorian Women Lawyers’ Association Inc v Federal Commissioner of Taxation (VWLA) was that the concept of “community service” was intended to pick up a broader range of organisations than those covered by the concept of “charitable institution”, and in particular that class of charitable institution falling within the rubric “beneficial to the community”.

In the Wentworth Case, Justice Perram, confirming the views of the Court in VWLA, stated that the phrase “community service purposes” was intended by the Treasurer to have a broad meaning and that services included the “activities, facilities or projects” of an organisation which benefit a community who needed them. The “needs” of a particular community who require the “benefit” provided by the organisation can arise from social and economic circumstances. The term “community” refers not only to the community as a whole but also to any identifiable section of the community.

However, an organisation may be beneficial to the community without delivering a community service. In Navy Health, Justice Jessup interpreted “community services” by reference to the Oxford English Dictionary (2nd edition) and stated:
“Although a composite expression, I consider that the essence of “community service” is that a service is provided to the community, or a section of the community. Here the word “service” is used in the sense of “help, benefit or advantage”, particularly “the action of serving, helping or benefiting, conduct tending to the welfare or advantage of another”.”

In Navy Health the organisation was found not to be an association to which section 50-10 could apply (for various other reasons), however, in the Wentworth Case Perram J found otherwise. His Honour agreed with Jessup J that the notion of “service” had an element of “concreteness” about it but did not agree with Jessup J’s view that the service must be “bestowed or provided directly by the putative benefactor”. Perram J was unpersuaded by this notion, stating that it would mean that section 50-10 would not apply to “entities whose purposes were other than the direct supply of community services”. His Honour distilled the key principles (set out in the table above) deriving from section 50-10 and the earlier decided cases.


The Wentworth Case demonstrates that section 50-10 is not a static concept. There are doubtless hundreds of organisations around the country that are missing out on the income tax exemptions to which they are entitled merely because there is no cut and dry definition of what constitutes a “community service purpose”. It is worth noting that the ATO is appealing the decision in the Wentworth Case which will, regardless of the decision on appeal, add to the depth and fabric of what comprises a community service purpose. Perram J was unequivocal in his view that, in the relevant income tax years, WDCL was providing a community service: “In 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.

The Wentworth Case is not particularly ground-breaking of itself. It is, however, important in that it takes its place in a growing line of authority that recognises the relevance in our society of community organisations serving a community purpose.

It is advisable for any organisation that thinks it may be entitled to income tax exemption for community service purposes to seek legal advice whilst the law, as held in the Wentworth Case, remains as intact.



Privacy Policy | Terms of Use