Case Note: Commissioner of Taxation v AID/WATCH Incorporated  FCAFC 128 (Federal Court of Australia, Full Court, Kenny, Stone and Perram JJ, 23 September 2009)
NOTE: On 1 December 2010 this decision was reversed following appeal to the High Court See AidWatch Incorporated v Commissioner of Taxation
AID/WATCH is an incorporated association which researches, monitors and campaigns about the delivery of overseas aid. It is an organisation concerned with promoting the effectiveness of Australian and multinational aid including investment programs, projects and policies. It does not deliver any aid directly to any person, but produces research reports about Australian aid effectiveness as well as other performing publicity events (such as sending derisory 60th birthday gifts to the World Bank suggesting it was time for the bank to retire). The court found some of its activities, for example, calls to action, somewhat aggressive.
AID/WATCH sought exemption from income tax as a charitable institution pursuant to s 50-5 Income Tax Assessment Act 1997. The objection of the Commissioner was that first it was an institution which did not itself distribute aid and thus was not charitable and second, it achieved its objects through campaigning which amounted to a political purpose.
The organisation sought review of the Commissioner's decision in the Administrative Appeals Tribunal (AAT) in the first instance. This case is an appeal from the AAT's decision.
The AAT decision
The AAT reviewed the Commissioner's decision (see casenote Aid/Watch Inc v Commissioner of Taxation) and found that the organisation was entitled to status as a charitable institution. It decided that the major objective of AID/WATCH was the relief of poverty, even though these words were not mentioned specifically in the constitutional documents, as aid was clearly for the relief of poverty and the organisation's purpose was centrally concerned with aid. The AAT also considered that there was an element of the advancement of education in the organisation's activity which was also charitable. The final part of the AAT decision was to consider whether the activities were political and thus unable to be charitable. As AID/WATCH did not have changes to the law as a main object, the AAT determined that it was not disqualified from charitable status. The AAT also remarked (para 49) that:
"It may be disqualified if its objects and activities, although not overtly political, still place undue emphasis on attempts to influence government, particularly with respect to priorities and methods. The argument against charitable status may be enhanced because of its activist approaches and confrontational methods."
The Commissioner appealed to the Federal Court
The Federal Court decision
On appeal, the Federal Court found that AID/WATCH's purposes were not charitable as relief of poverty and education were not its primary purpose. However, the Court did not accept the Commissioner's view that education involved "training or teaching through a system or syllabus in a structured manner, rather than simply a process of informing the public". It did find that research and publications produced by AID/WATCH did have the necessary educational element and set it apart from those such as journalists who merely disseminated general information. In addition the Court found that AID/WATCH's activities were directed towards purposes which would fall within relief from poverty, so that the purposes should be characterised as charitable in the legal sense unless disqualified because of their political nature.
Where the Appeal Court disagreed with the AAT was in respect of whether political purposes disqualified AID/WATCH from being a charity. It agreed between the Commissioner and AID/WATCH that AID/WATCH was not engaged in 'lobbying' or attempts to influence the government directly, but rather was 'campaign focused'. However, the Court of Appeal stated (para 37) that:
"Aid/Watch's attempt to persuade the government (however indirectly) to its point of view necessarily involves criticism of, and an attempt to bring about change in, government activity and, in some cases, government policy. There can be little doubt that this is political activity and that behind this activity is a political purpose. Moreover the activity is Aid/Watch's main activity and the political purpose is its main purpose. Recognising Aid/Watch's ultimate concern to relieve poverty does diminish its political purpose."
Therefore political purposes were its main purpose, rather than ancillary to a charitable purpose which would not have affected its status in the ordinary course.
The argument that AID/WATCH's objectives were not contrary to government policy but "to influence government policy as to the nature and extent and means of delivery of overseas aid"(para 39) were not accepted. This was because "the 'natural and probable consequence' of Aid/Watch's activities is an effect on public opinion and then on government opinion." (para 47) It was thus considered political.
The Appeal Court also addressed another reference by the AAT to some of AID/WATCH's activities being thought to be at the edges of appropriate conduct, but not 'so extreme that it loses its charitable quality'. The Appeal Court thought the Tribunal had been unclear as to its meaning but stated: "If it was merely intended to suggest that Aid/Watch might jeopardise its charitable status if it operated outside its stated objects, the comment is unobjectionable. Short of that, we do not accept that the charitable status of an institution can depend on the manner in which it implements its charitable purpose" (para 40).
The Court of Appeal unanimously found that AID/WATCH was not entitled to exemption from income tax as a charitable institution pursuant to s 50-5 Income Tax Assessment Act 1997.
The case may be viewed at http://www.austlii.edu.au/au/cases/cth/FCAFC/2009/128.html