Charity Loses Federal Court Tax Fight

An Australian organisation that claimed to be a charity and spent more than $1 million on luxury cars for its members has lost a Federal Court appeal to keep receiving charitable tax concessions.

The Study and Prevention of Psychological Diseases Foundation (SPED) took the Australian Taxation Office to court over the revocation of endorsements for its charity tax concessions and deductible gift recipient (DGR) status.

The Federal Court ruled in favour of the ATO and the Administrative Appeals Tribunal (AAT), which had previously found that SPED was “neither a charitable institution nor a health promotion charity”.

Court documents revealed that SPED was founded by James Salerno Snr and that the organisation claimed its principal activities were research carried out by members 24 hours per day, seven days a week.

SPED claimed to be researching poverty, opulence, crowded living, living alone, in cities and in remote areas of Australia, and the effects these living conditions had on people.

The organisation had spent over $1 million on three luxury cars to be used by the members for “research”.

“As part of what was called Project Inebriation, SPED investigated aspects of human behaviour as it relates to luxury motor vehicle use,” documents from the AAT said.

“This research was undertaken using motor vehicles purchased by SPED. They included a Hummer, for which it paid about $100,000, a Ferrari purchased for about $300,000, and a Rolls Royce at about $695,000.

“Other projects included Project India (undertaken when SPED members visited India to attend a wedding), and ‘Project Gambling: Understanding thought processes and addictive behaviour from engagement in games of chance’.”

The AAT said there was no evidence of any of SPED’s research or findings being published in the traditional sense.

“Nothing has made its way into, or even been submitted to, any medical or other journal,” it said.

“The members are described as both the researchers and the ‘guinea pigs’. They are not required to have any qualifications in psychology or social science.”

Salerno Snr was not listed as a member of SPED, instead being identified as an advisor, but 11 of the 21 members of SPED shared his surname.

“SPED acknowledges that the members are bound by blood ties, marriage or friendship,” the AAT said.

SPED also claimed to be researching the “Ideal Human Environment” (IHE), with a group of around 40 people becoming known as the “Ideal Human Environment Social Research Team”.

“The IHE is a place where all people regardless of race, colour, creed or religion can be emotionally and physically safe from and with each other,” SPED explained in court documents.

Members of SPED gave their entire income to the organisation, therefore paying no income tax.

Consistent with its view that every activity of its members amounted to research, SPED claimed every outlay, including but not limited to its members’ ordinary living expenses, as a research expense.

SPED also covered at least some of James Salerno Snr’s expenses even though he was not a member.

A spokesperson for the ATO welcomed the Federal Court’s upholding of its and the AAT’s rulings.

“The decision helps protect the integrity of the Not for Profit sector by ensuring charity tax concessions are accessed only by those entitled to do so,” the spokesperson said.