Federal Court Affirms Charity 'Business' Tax Status

The full court of the Federal Court of Australia has upheld a decision made last November that a charity could raise money through business without paying company tax, as long as the charitable purpose is its only motive for making profit.

According to tax experts quoted in The Age newspaper the ruling means that charities may seek millions of dollars back from the Australian Taxation Office and may venture into new businesses.

Tax lawyer Duncan Baxter told The Age that the outcome was doubly helpful for charities, because they won the case and because it clearly showed what they could do while staying tax-exempt.

Baxter, the practice head-tax at the law firm, Blake Dawson is reported as saying charities would be well-advised to have a close look at their activities and see whether some can be extended.

The Federal Court ruling relates to the case of a Melbourne funeral business called Bethel Funerals, which is run to raise money for the Not for Profit organisation Wycliffe Bible Translators to translate the Bible into hundreds of different languages.

The business was set up under the name of Word Investment Limited.

Wycliffe’s solicitor, Murray Baird of Moores Legal Services told The Age newspaper that the drying up of government funding for charities, combined with donor fatigue, meant that charities had to become more entrepreneurial to survive.

The Tax Office took the view that they had crossed the line, that churches and charities must not be too entrepreneurial.

But the Tax Office had been over-ruled in the Administrative Appeals Tribunal and the Federal Court, and now the full bench of the Federal Court had confirmed that businesses were not taxable as long as the profits were entirely used for the charity and to advance religion.

The ATO says it is currently considering the implications of the decision and whether it will appeal the decision.