No ATO Appeal on PBI Status

The Australian Tax Office has decided not to appeal a Federal Court decision giving national Not for Profit, the Hunger Project, Public Benevolent Institution status – paving the way for more charities to access the fundraising status.

In June the Full Court of the Federal Court handed down its decision in the case of The Hunger Project Australia v Commissioner of Taxation, which rejected the Commissioner of Taxation’s interpretation of what constitutes direct relief for purposes of being a public benevolent institution (PBI).

The ATO had 28 days to decide whether to seek leave to appeal the decision to the High Court.  

Pro bono lawyers for the Hunger Project, law firm Clayton Utz welcomed the ATO’s decision not to appeal saying it was informed by the Tax Office on Friday of its decision.

Clayton Utz Partner Mark Freizer said the Full Federal Court had clearly acknowledged the complex practical realities faced by modern-day charitable organisations in seeking to achieve global outcomes.

“The decision recognises the legitimacy of contemporary methods of delivering aid in a globalised world,” he said.

“With this decision, more charitable entities that primarily fundraise for the relief of poverty, sickness, destitution and helplessness may be entitled to obtain endorsement as a Deductible Gift Recipient, or gain access to an exemption from fringe benefits tax.

"The decision provides flexibility for charities to do their job and not be constrained by the tax laws."

Hunger Project Australia CEO Cathy Burke said the decision not to appeal was big news for the sector, with implications for many organisations.  

“The decision is a real modernising of what is means to be a change maker for international development.  

“Organisations which promote the relief of poverty can look to this case as a precedent.  The ability to include the FBT exemption as a tool for attracting and retaining talent to our sector is key, especially as we work to minimise overhead and administrative costs,” she said.

Myles McGregor-Lowndes, Director of The Australian Centre for Philanthropy and Nonprofit Studies at QUT, said  the Federal Court decision was set to change the outcomes for many charities previously denied Public Benevolent Institution status.

“The significance of this case should not be underestimated. With four judges all agreeing that the ATO misinterpreted the law, many charities previously denied PBI status and its concomitant FBT exemptions should now be able to gain it,” he said.  

“Complaints about the ATO directness test for PBI status have been consistently made over the past 20 years by the sector, practitioners, academics all amply evidenced in all the major sector inquiries.

“Should the decision stand, the government will be faced with the prospect of increased taxation expenditure for the two main tax expenditures generated by PBIs may seek to legislate to restrict PBI status.”

The Hunger Project was founded in 1977 in the US and has its global headquarters in New York. In Australia, HPA is a company limited by guarantee and a member of a global network of collaborating organisations all operating under the name ‘The Hunger Project’ whose principal aim is the relief of hunger. However the organisation says it also conducts education, advocacy and program support in addition to fundraising.

The ACNC said the decision in this case was binding and must be followed by the ACNC unless the law changes in the future.

“In our view this case does not change the definition of ‘institution’ [para 112]. In other words, ‘a fund, without more cannot be an institution’. It still needs structure and permanence and activities (it cannot be a mere trust or fund). In this case, there were significant activities carried out by HPA, and Perram J goes into a great deal of detail about them and the structure and permanence of HPA,” the ACNC said.

“However, the case does establish that fundraising – being the principal activity of HPA – is sufficient to constitute ‘activity’ within the meaning of ‘institution’. Active fundraising is still distinct from merely administering a trust or a fund.”

According to the ACPNS, in 2013-14, gift deductibility costs $1,150 million and FBT exemption $1,340 million – both in the top 30 tax expenditures for the whole of the Commonwealth Government.

A spokesman for the ATO said the deadline for lodging an application for special leave to appeal to the High Court in the case was Friday, July 11.

“No application was lodged by the Australian Taxation Office. A publicly available decision impact statement will be released in due course,” he said.

An ACPNS summary of the case, click here.