Federal Court ruling – tax exemption for churches & charities

A critical ruling was made this month by the Full Bench of the Federal Court for charities and churches around Australia, and published in the West Australian Newspaper and the Melbourne Age, allowing businesses run by charities and churches to be tax exempt.

This is a positive and welcomed advancement for aged and community care organisations that operate within the definition of churches and charities, on the basis it will substantially benefit the sector.

The case was ruled on this month by the Federal Court and involved a small Melbourne funeral business operated by Wycliffe Bible Translations where profits from the business were used to translate the Bible into native languages in other countries.

The Tax Commissioner appealed a previous ruling by the Administrative Appeals Tribunal to the Federal Court granting tax exemption to Wycliffe. The appeal by the Tax Commissioner was subsequently dismissed this month by all three Federal Court judges.

The Tax Commissioner has until 12 December 2007 to lodge an appeal against the Federal Court ruling. That means there is a period of uncertainty (until December 12) while the Tax Commissioner considers the implications of the Courts ruling.

Actual content of Federal Court’s ruling

The following is a summary of the main points of the ruling:
……”that where an organisation raises funds exclusively for a charitable purpose, the fact that it does so through a commercial enterprise, does not exclude it from being a charity”
Note: for more details on the ruling go to www.ato.gov.au, and click on Non Profit Organisations then go to the Non Profit News Service, item No 0187

According to the West Australian newspaper “the ruling means that charities may seek millions of dollars from The Australian Tax Office and may venture into new businesses, according to tax experts.”

According to the Melbourne Age: “The Federal Court said it’s not the nature of the activity that counts, but the purpose for doing it. This clarifies a matter that was inhibiting charities and their fund raising because of their tax exemption.”