What is a charitable institution?

In Commissioner of Taxation v Word Investments Limited [2007] FCAFC 171 the Full Court of the Federal Court of Australia dismissed an appeal by the Taxation Commissioner against the Federal Court's decision that Word Investments is a "charitable institution" within the meaning of item 1.1 of the table in s 50-5 of the Income Tax Assessment Act 1997 (Cth).

Whilst Word carried out charitable and religious objects overseas, it also carried out financial activities including financial services and a funeral business in Australia.

Judge Allsop said:

Here, on the proper understanding of the memorandum of association, the purpose of all activities was, and could only be, the religious (and charitable) purposes of Word.  The evidence of the subjective motives of the directors conformed with and bolstered those constitutive purposes.  On the basis of the authorities to which I have referred, the commercial nature of the activities did not necessarily destroy the capacity of Word to be characterised as a charitable institution.

The Commissioner intends to appeal to the High Court.

See TR 2005/22 for the current approach of the Tax Office.

UPDATE 11 December 2008: Commissioner's appeal dismissed by High Court here

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