Trust me…I’m an institution

Background

In Queensland, a charitable organisation (including a charity that is registered with the Australian Charities and Not-for-profits Commission) will be liable for State taxes unless the charity is registered as a ‘charitable institution’ under the Taxation Administration Act 2001 (Qld) (Act) for the purposes of the Queensland duties and tax legislation.

Registration as a charitable institution means a charity may apply for exemptions from transfer duty, payroll tax and land tax. The financial consequences to charities of obtaining registration can be significant.

To be eligible for registration, a charity must be:

• charitable; and
• an ‘institution’;

within the meaning of the legislation.  A charity must apply to the Queensland Revenue Office (QRO) for registration by the Commissioner of State Revenue (Commissioner).  Eligibility for registration with the QRO is impacted by ACNC registration.

Earlier this year, the question of whether a charity was an institution in the required sense came before the Queensland Civil and Administrative Tribunal (Tribunal).

Issue

Montessori Children’s Foundation (MCF) as trustee for the Masterman Montessori Indigenous Children’s Trust (Trust), objected to the Commissioner’s assessment that the Trust was not an ‘institution’ that met the criteria for registration as a charitable institution under the Act but rather a ‘mere trust’.

The question put to the Tribunal was whether the Trust was an institution within the meaning of the legislation and, therefore entitled to be registered as a charitable institution.

Facts

The Trust is a charitable trust with MCF, a company limited by guarantee, as its corporate trustee. The Trust originated from a bequest left by the will of the late Mr Leslie Charles Masterman, who died in 1991.  Mr Masterman left much of his estate (about $4m) upon trust to “fall into and form part of property of the Aboriginal Montessori Education Trust, a charitable trust established to further the education through the Montessori method of Aboriginal children in the Wipa area of Cape York Peninsula to be held and applied pursuant to the terms of the Deed establishing such a trust.”

However, no such Deed existed at the time of Mr Masterman’s death. Following an application to the Supreme Court of Queensland, in 2005 MCF was incorporated and the Trust established pursuant to a Deed. The Deed provides that:

• the purpose of the Trust is to further the education of Indigenous children in the Cape York area through the application of the Montessori educational philosophy and method;
• the Trust must pursue charitable purposes only and apply its income and property towards its charitable purpose.

Since its establishment in 2005, the Trust undertook a number of activities, including:

• between 2005 and 2009, the Trust undertook a under of activities in the Torres Strait, including establishing Montessori early childhood classrooms and curriculum and training local facilitators;
• for approximately 3 years from 2013, the Trust funded the training of a Montessori teacher to deliver Montessori teachings in the Cape York area; and
• between 2005 and 2013, the Trust engaged facilitators for the delivery of Montessori style education program throughout the Cape York on an as needed basis

More recently, since 2020, the Trust began to increase its direct activities in addition to providing funding to other organisations to carry out activities in furtherance of its charitable purpose. The Trust developed and implemented a program (including a curriculum) called “Raising Kids Right”, which is now known as “Raising Happy Kids”.

The issue of the Trust’s registration arose as a result of the Trust entering into contracts to purchase commercial property from which it would operate. It was the incurrence of transfer duty on these transactions that led to the Trust seeking to be registered to enable it to seek an exemption from transfer duty.

The Commissioner refused to register the Trust as a charitable institution because it that was not an institution but a ‘mere trust’ that was not eligible for registration under the Act.

Legal question

The term ‘institution’ is not defined in the Act. Over the years, there has been much judicial discussion in both Australian and UK courts of the meaning of ‘institution’ in the process of interpreting revenue legislation.  This includes Australian courts interpreting the meaning of public benevolent institution for the purposes of the Income Tax Assessment Act 1997 (Cth), earlier income tax acts, State payroll tax legislation etc.

Australian case law distinguishes between a ‘mere trust’ (being an entity which does nothing but hold assets and perhaps, pay funds) and an ‘institution’ (being an entity which actively conducts activities in pursuit of its purpose).

The Tribunal cited a decision of the English House of Lords from 1896, which involved the consideration of an exemption from income tax. In that case, Lord McNaughten famously said:

“It is a little difficult to define the meaning of the term “institution” in the modern acceptation of the word. It means, I suppose, an undertaking formed to promote some defined purpose having in view generally the instruction of education of the public.  It is the body (so as to speak) called into existence to translate the purpose so conceived in the mind of the founders into a living and active principle.“

The Tribunal then cited Justice Gibbs of the High Court of Australia, considering this (and other) British interpretations. Gibbs J concluded that an institution is:

“[a]n establishment, organisation or association instituted for the promotion of some objective, especially one of public utility.”

The Tribunal noted the level and nature of activity undertaken by the Trust, particularly in recent times, and found that it was more than simply a ‘mere trust’ and did indeed meet the threshold for being considered an ‘institution’ in the sense required under the Act.

The Tribunal found that the Trust was entitled to registration under the Act as at 24 November 2020 and that the Commissioner was wrong to refuse the application.

Implications

The decision provides much needed clarity to the sector and legal practitioners regarding the proper interpretation and application of the Act.

However, as QCAT is a tribunal and not a court, its decisions are not binding precedent (unlike decisions of courts such as the District Court of Supreme Court).

So, whilst it is hoped that the Commissioner will accept the view and interpretation of the Tribunal and alter its regulatory approach, this is not wholly certain.

Article by:

Nicole Shenfield
Director
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