The end of increased funds to charity does not justify the means

The Administrative Appeal Tribunal has upheld the decision of the ACNC not to allow the registration of charities because of the underlying reasons for their registration.

Cancer & Bowel Research Australia Ltd, Breast Cancer Australia Ltd, and Kids Cancer Research Australia Ltd (entities) were all incorporated in May 2017 as companies limited by guarantee. They were under the control of Mr Thompson and each sought registration as a charity from the Commissioner of the Australian Charities and Not-for-profits Commission (ACNC).

Mr Thompson had a history of fundraising for charities since 1983 and was CEO of the Cancer and Bowel Research Association Inc (CBRA Inc) which acts as a trustee for three charitable trusts involved in raising funds in respect of different types of cancer.

CBRA Inc has been heavily involved in fundraising by telemarketers, doorknocking campaigns and at supermarkets malls. Before Mr Thompson’s appointment as CEO in 2012, CBRA Inc had a significant debt ($146,000 plus interest and penalties) to the Australian Taxation Office (ATO) for employee superannuation guarantee amounts.

The entities were to duplicate and take over the fundraising activities presently being undertaken by CBRA Inc. It was planned for CBRA Inc to be wound up, with those employees owed compulsory superannuation contributions being paid by the federal government scheme which provides for the superannuation owed to employees of insolvent companies.

Mr Thompson argued that funds donated by the public should not be applied to the reduction of the debt to the ATO, but devoted solely to charitable purposes (after deduction of reasonable and proper administration expenses).

Registration had been refused by the ACNC on the basis that the entities had a purpose, amongst others, of providing private benefits to those involved in their operation.

The Tribunal noted that (at [16]):

“[I]t is not, generally speaking, a proper purpose for the incorporation of a company or corporation that it be used to take over the functions and property of another entity without also assuming the liabilities of that entity or making arrangements for the liabilities to be met.  It may or may not be, in any individual’s view, a morally justified action to take; but the law is quite clear, in my opinion, that the avoidance of the due repayment of a debt, whether the debt is owed to a private individual or to the Federal Government, is not a proper purpose for the incorporation of a company or corporation“.

The Tribunal referred to the majority in the High Court decision of Commissioner of Taxation v Word Investments Ltd [2008] HCA 55 that among other things in determining charitable purpose, that it was relevant to take into account the circumstances in which the institution had been explicitly established to pursue objects as expressed in its memorandum of association.

The Tribunal found that the avoidance of the payment of a taxation liability so that the substantive charitable work of CBRA Inc might continue without the debt was a purpose of each applicant, which the ACNC ought to have regard to in any review.

Consequently, the entities did not have solely charitable purposes (or ancillary purposes) as required by the definition of charity. Further,  it may well be a “disqualifying purpose” as it include activities that are contrary to public policy.

The Tribunal refused registration on these grounds and so it did not need to consider the ACNC refusal reason that a purpose of registration was to secure a benefit to a person or persons associated with the entities.

Cancer & Bowel Research Australia Ltd and Breast Cancer Australia Ltd [2021] AATA 3875

Article by:

Myles McGregor-Lowndes
Consultant
Email Myles