The decision of the full Federal Court of Australia in Commissioner of Taxation v Aid/Watch Incorporated [2009] (Aid/Watch) highlights the need for Churches to be mindful of the purpose of entities they establish if those entities are to retain their tax concessions and endorsements.
The outcome in this case narrows the definition of a charitable organisation for income tax purposes.
According to common law, a charitable purpose is one that concerns:
- the relief of poverty;
- the advancement of education;
- the advancement of religion; or
- other purposes beneficial to the community.
In this case, Aid/Watch, a small charity that monitored Australia’s international aid programs, had its charitable status revoked on the basis its main purpose was not charitable. Despite having an explicit purpose to alleviate poverty, the Court ruled the wording in the entity’s constitution indicated its main purpose was to take a view on the government’s aid program and to influence its decision making, being a political agenda. Aid/Watch has lodged an application for special leave to appeal to the High Court.
This decision indicates that while a charity is permitted to have multiple purposes (including some of which are non-charitable), any non-charitable purposes should be secondary to the main purpose, which must be charitable. In light of this decision, Churches should review the governing documents of their charitable organisations to ensure their main purposes are charitable, as the tax concessions associated with their tax-exempt and/or deductible gift recipient (DGR) status could be at risk.
