Public Benevolent Institution definition confirmed by the Federal Court
A recent case, The Hunger Project Australia v FC of T [2013] FCA 693, decided in the Australian Federal Court on 19 July 2013 has provided another loss to the Commissioner in the charity space, this time the loss relates to the definition of a Public Benevolent Institution (PBI). The case removed the requirement of 'direct relief' which has been the foundation for substantial denials of PBI endorsement from the ATO.
The case involved The Hunger Project Australia ("the Project") - a participant in a global collaboration of organisations whose principal aim is the relief of hunger. The Project's predominant activity is fundraising. Funds raised are paid to other organisations who undertake the direct hunger relief activities across the globe. The Project does not itself participate directly in any charitable activities of substance. The organisation applied for endorsement as a PBI from the Commissioner of Taxation ("Commissioner"). The Commissioner rejected this application on the basis that the Project was not involved directly in benevolent relief. The organisation appealed this decision.
In its decision, the Federal Court expanded a previous decision made in Commissioner of Taxation v Word Investments (2008) 236 CLR 204 ("Word Investments"). In Word Investments it was held that an organisation was not prevented from being a charity merely because it directed funds to other charitable entities rather than carrying out its own charitable activities. In the Project's case His Honour found that the principles in Word Investments should be expanded to PBIs and not purely to charities. His Honour stated that where an organisation has a benevolent objective that is clear and not merely abstract in nature, and the organisation engages in fund raising activities to support this objective, it can qualify as a PBI. There is therefore no need for direct relief to be provided.
Whilst this case may be subject to an appeal, if you have been knocked back from an endorsement as a PBI, do not despair! Cases are not falling in the Commissioner's favour and a reapplication for endorsement may prove successful in light of the decision in the Project's case.
With the need for direct relief having been removed by the Federal Court there is now an encouraging pathway for PBI's that currently have, or intend to develop, either a fundraising division of their institution or a connection with charitable activities to still be endorsed as PBIs for the purposes of the FBT exemption.
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