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Federal Court expands definition of Public Benevolent Institution
The Hunger Project Australia ("HPA") is a not-for-profit organisation which is part of a global network of entities that operate under the name "The Hunger Project". The principal objective of the Hunger Project is the relief of global hunger. The activities of HPA are mainly directed at raising funds which are then disseminated to Hunger Project members in the developing world. Those entities directly perform charitable acts to relieve hunger.
HPA applied to the Australian Taxation Office for endorsement as a public benevolent institution ("PBI") in November 2010. A PBI is a type of charitable institution whose main purpose is to relieve poverty or distress. PBIs are entitled to a wide range of tax concessions and importantly are entitled to deductible gift recipient status, meaning that individuals can claim tax deductions for gifts made to them. The ATO refused HPA's application on the basis that, whilst its principal aim was to provide relief from hunger, it was not involved in the direct provision of relief as it only engaged in fundraising.
HPA appealed the ATO's decision in the Federal Court. A single judge of the Federal Court initially found in favour of HPA, rejecting the ATO's contention that an entity that merely engages in fund raising activities and does not materially perform charitable works directly for the benefit of the public is not a PBI. The ATO then appealed to the Full Federal Court.
The Full Federal Court upheld the single judge’s finding and acknowledged that the definition of a PBI has expanded over time with the development of “global aid networks comprising separate fundraising entities”. The Full Federal Court approved of the single judge’s reliance on Word Investments, a recent High Court case. That case was concerned with whether Word Investments was a “charitable institution” for the purposes of the Income Tax Assessment Act 1997. Word Investments ran a for-profit funeral business. It directed its profits from that commercial activity to an associated charitable organisation which used them in conducting charitable activities overseas. In that case, the High Court found Word Investments to be a charitable institution by drawing analogies to a company that organised itself into two divisions; one concerned with making a profit and the other spending that profit on charitable activities. In the same way, HPA could be considered to be providing relief of poverty and distress in the context of the global network of which it was part.
It is important to note that HPA was fundraising for its associated entities in the Hunger Project global network, as opposed to fundraising for other organisations completely independent from it. The particular purposes of entities applying for endorsement as a PBI and their relevant factual circumstances will need to be carefully considered on a case by case basis.
The ACNC has released a Commissioner's Interpretation Statement in respect of this case. The ACNC acknowledges that the case establishes that a PBI is no longer required to provide direct relief. It must however have concrete objects of benevolent relief, clear mechanisms for delivering the benevolent relief and a relationship of collaboration and a common public benevolent purpose with other entities if it is fundraising for them.
The ATO has announced that it will not be appealing to the High Court. This means that this case is now the authority on this issue. In light of this, organisations that were once refused PBI status on the grounds of not providing direct relief or which may be interested in establishing a PBI which indirectly provides relief by way of fundraising may now wish to consider whether they should seek to establish a PBI.
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