By John Vaughan-Williams, Lawyer

Tax concessions and exemptions for charitable organisations in Australia can be complex at the best of times. However, this complexity is made worse when comparing state and territory based exemptions across jurisdictions, or even between different legislation within one jurisdiction.

For example, each state and territory’s legislation for stamp duty includes an exemption for charities, but the definition of what is charitable varies across jurisdictions. In Victoria, the promotion of religion is recognised as a charitable purpose under the Duties Act 2000 (Vic), but in New South Wales, it is generally not under the Duties Act 1997 (NSW) (NSW Duties Act).

Added to this is the fact that there is often only very little, or outdated published law regarding state and territory tax exemptions for charities. For this reason, charities should pay close attention when new cases on state and territory exemptions arise, because they may involve a new interpretation, which could lead to a newly available exemption for the organisation.

This article will look at a recent Supreme Court of New South Wales case on the charitable exemption under the NSW Duties Act — The Salvation Army (NSW) Property Trust v Chief Commissioner of State Revenue [2018] NSWSC 128 (Salvation Army Case).

What is Stamp Duty?

Stamp duty is a tax on written instruments, such as contracts for the sale of land, transfers of motor vehicles, and transfer of some shares. Stamp duty varies greatly in each state and territory, and the differences range from the types of instruments taxed, to the exemptions and concessions available.

In New South Wales, stamp duty is payable on any transfer of ownership of “dutiable property”. Dutiable property is defined in New South Wales to include, among other things, a sale or transfer of land in New South Wales, and this was the relevant type of transaction in the
Salvation Army Case.

Exemptions and Concessions for Charities

In New South Wales, the charitable exemptions and concessions to duty on the transfer of dutiable property are found in section 275 of
the NSW Duties Act.

There are two different types of exemptions contained in section 275 for charities:

1. Subsection 275(3)(a) (Blanket Exemption) – a blanket exemption to an approved “exempt charitable or benevolent body”. That is,
   once an organisation is approved under this subsection, then any otherwise dutiable transaction it enters into is exempt from duty (without needing to separately apply each time a transaction is entered into); and
2. Subsection 275(3)(b) (Transaction Exemption) – a transaction-specific exemption to an organisation approved as
   being charitable or benevolent by the Chief Commissioner of State Revenue in New South Wales (Commissioner), so long as the transaction is also for a charitable or benevolent purpose (with it being necessary to separately apply each time a transaction is
   entered into).

The most significant benefit of obtaining the Blanket Exemption is that a transaction entered into by the exempt organisation does not need
to be directly for its charitable purposes in order to be exempt (for example, it could be for the purpose of purchasing land which is to be leased for profit, with those profits being directed back to the organisation).

However, the types of purposes which are accepted by the Commissioner as satisfying the Blanket Exemption are much narrower than those which are accepted under the Transaction Exemption. In order to satisfy the Blanket Exemption, an organisation’s resources must be, in accordance with its objects, used wholly or predominately for either the relief of poverty, or the advancement of education. Conversely, under the Transaction Exemption, further purposes are accepted as being charitable, including the relief of suffering and distress caused by old age, and the assistance of sections of the community with special needs.

Finally, as well as section 275, there is also an exemption under section 275A of the NSW Duties Act, which is similar to the Transaction Exemption, but can apply when a dutiable transaction for land is to be used only partially for a charitable purpose (Partial Exemption).
The Partial Exemption can lead to the amount of duty being proportionately reduced, according to how much of the land is used for a charitable purpose. For example, if half of a particular parcel of land is to be used for disability care, and the other half is to be used for commercial offices for an unrelated purpose, then only 50% of the usual amount of duty may be payable.

In the Salvation Army Case, all three types of exemption were discussed.

Facts – Salvation Army Case

The applicant for a duties exemption (the plaintiff in the case) was a body corporate known as “The Salvation Army (New South Wales) Property Trust”, incorporated under The Salvation Army (New South Wales) Property Trust Act 1929 (NSW) (Property Trust Act).

The plaintiff had acquired a property in Redfern in 2014, to be used as its headquarters (Property). The plaintiff had applied for the acquisition of the Property to be fully exempt from duty (under either the Blanket Exemption or the Transaction Exemption). However, both exemption applications were rejected by the Commissioner.

The Property was used as the plaintiff’s headquarters, but at the time of the acquisition, it was also subject to two leases, to unrelated third parties. The leased portion of the Property made up approximately 35%. On this basis, the Commissioner had assessed the plaintiff as only being entitled to a 65% duty exemption, under the Partial Exemption. This meant that approximately $885,000.00 would be payable on the acquisition in duty.

The plaintiff had contended that:

1. it was entitled to a Blanket Exemption (meaning that the transaction would automatically be exempt from duty, despite the purpose of the transaction);
2. in the alternative, if the Blanket Exemption was unavailable, it was entitled to a Transaction Exemption; and
3. in the alternative that neither the Blanket Exemption nor the Transaction Exemption were available, that the Commissioner had incorrectly apportioned the Partial Exemption in its submissions.

Blanket Exemption

The dispute regarding whether the plaintiff was entitled to a Blanket Exemption turned on a question of the entity which was entering into
the transaction, and what the purposes of that entity were. Uncertainty arose in this regard due to the plaintiff’s trustee role.

The Salvation Army is split into two geographical arms in Australia — the Salvation Army Australian Eastern Territory (which comprises NSW, the ACT and Queensland) (Salvation Army AET), and the Salvation Army Australian Southern Territory (which comprises Victoria, South Australia, Tasmania, Western Australia and the Northern Territory).

The two arms are administratively separate, including preparing separate audited accounts, and have separate ABNs.

Under the Property Trust Act, which established the plaintiff, the plaintiff was the trustee of two separate trusts — one called the general work trust, and one called the social work trust. The Commissioner had determined that it was the general work trust which had acquired the Property. The relevant distinction between the two trusts was that the purposes of the general work trust included the promotion of religion, which, in the Commissioner’s view, would preclude a Blanket Exemption.

Identifying Purchaser

Under the NSW Duties Act, in determining whether a Blanket Exemption applies, the relevant entity is:

1. the body corporate, society, institution or other organisation approved for the exemption; or
2. any person acting as a trustee for the body corporate, society, institution or other organisation approved for the exemption
   (Trustee Category).

The Supreme Court held that it was the Trustee Category which was relevant in this case. That is, the question for the Supreme Court to determine was for which “institution or other organisation” the plaintiff was acting as a trustee. This would determine the charitable objects which would be assessed in determining the Blanket Exemption application.

On these facts, due to the complex structure of the Salvation Army, and the fact that the plaintiff was created by statute, working out the entity on behalf of which it was acting was not a straightforward exercise.

The plaintiff contented that it was acting as the trustee for the Salvation Army AET in acquiring the Property, whereas the Commissioner
contended that the plaintiff was acting as the trustee for the general work trust (both of which had different objects).

Institution

The Court held that in order to determine for whom the plaintiff was acting as a trustee, a relevant question was which trust could be deemed to be an “institution or organisation”. If the trust could not be held as an institution or organisation then it would not fall under the Trustee Category in the NSW Duties Act.

Not all trusts will be considered an institution or an organisation, which means that acquisitions by charitable trusts (which do not also have a trustee which is charitable) may not always be exempt under the NSW Duties Act.

There has been much law over the years surrounding the meaning of the term “institution”, with respect to several different statutes. Generally, in order to be an institution, an entity cannot be a mere fund.

For the purposes of the NSW Duties Act, one of the main considerations in determining whether a trust is an institution or an organisation is whether it is for a specific charitable object, which can be referenced back to a defined group, as opposed to being for more general charitable purposes. An example of a trust which may be considered an institution or an organisation is a trust for a specific school, as opposed to for the more general advancement of education.

The Court held in this case that the general work trust could not be appropriately described as an institution — rather, it facilitated a general class of charitable work, as opposed to identifiable charitable beneficiaries.

For this reason, the Court held that the Salvation Army AET is ultimately the institution for which the plaintiff acts as a trustee. The Court held that even in fulfilling the charitable objects of the general work trust, the plaintiff was, in reality, acting for the benefit or the  purposes of the Salvation Army AET, which it held was an identifiable entity.

Charitable or Benevolent Body

Once the Court had determined that the Salvation Army AET was the relevant entity for the purposes of the acquisition of the Property, the relevant question was then whether the Salvation Army AET was an “exempt charitable or benevolent body”, meaning that its resources are used, in accordance with its objects, wholly or predominately either for the relief of poverty, or the advancement of education.

The Court held that it was clear that the Salvation Army AET’s objects included the relief of poverty, and that approximately 75% of the Salvation Army AET’s resources were used towards the relief of poverty. The Court held that, in order to satisfy the word “predominately” in the NSW Duties Act, the relevant question was simply whether more than 50% of its resources were used for the purpose in question. This is significant, as the Court did not pay attention to how the remainder of the resources were used, nor whether they were ancillary or incidental to the approved purposes. In other areas of charity law (for example, for the purposes of certain Commonwealth tax concessions), non-charitable purposes may preclude charitable status, even if more than 50% of an organisation’s resources are applied towards charitable objects.

“For the Time Being Approved”

Finally, the Court considered whether the words “for the time being approved” in the NSW Duties Act meant that the Blanket Exemption could not be applied to acquisition of the Property after the acquisition had occurred.

The Court held that the relevant time to consider was not when the liability for duty arises, but the time when the eligibility for the exemption is assessed. Therefore, the Blanket Exemption could be applied to the acquisition of the Property, despite the liability for the duty
having already arisen.

Alternative Submissions

Since the plaintiff was successful in its primary submission (i.e. its submission regarding the Blanket Exemption), the Court was not  required to consider the alternative submissions (relating to either the Transaction Exemption or the Partial Exemption).

Take-away Points

There are two main points to take away from this case, in considering whether an organisation may be eligible for a duties exemption in New South Wales.

Firstly, if land is acquired in the capacity of a trustee of a charitable trust, then the purchaser should carefully consider for whom the trustee
is acting, and whether that beneficiary can be considered an “institution”. As was shown in this case, this is not straightforward, and  purchasers may need to consider applying for a private ruling before entering into a transaction.

Secondly, it was significant that the Court did not pay attention to whether the plaintiff’s noncharitable purposes were ancillary or incidental to its charitable purposes. This may broaden the classes of organisation which are eligible for Blanket Exemptions — it means that so long as more than 50% of an organisation’s resources are put towards objects which are considered charitable under the NSW Duties Act, it may be eligible for a Blanket Exemption, no matter how the other resources are applied.