Decision Date: December 12, 2012
Link: Case Summary Document
Citation: Court of Appeal of New South Wales, McColl, Hoeben JJA, Tobias AJA
Acknowledgement:The Pemsel Case Foundation thanks The Australian Centre for Philanthropy and Nonprofit Studies for its contribution in the drafting of this Case Note.


This was an appeal on the issue of whether the appellant was a public charity, and hence whether it was liable for the payment of local government rates. The appellant owns 28 properties in the Eurobodalla local government area (the properties), 27 of which are used or occupied as residences for persons of Aboriginal descent. Twenty-four are tenanted by persons dependent on government pensions, and three are tenanted by persons who earn a low income. One of the 28 properties is used by the appellant for administrative and general purposes. The 28 properties were acquired between 1979 and 1992 with funding from the Aboriginal Development Commission or the Aboriginal and Torres Strait Islander Commission.

The appellant paid council rates on the properties up to and including the rating year commencing 1 January 2004, but not for any subsequent rating year commencing 1 January 2005. In 2006 the appellant applied to the Eurobodalla Shire Council (the Council) for exemption of the properties from the payment of rates pursuant to section 556(1)(h) of the Local Government Act 1993 (NSW) (the Act).

That section exempts land from all rates, other than water supply special rates and sewerage special rates, where that land belongs to a public benevolent institution or public charity, and is used or occupied by the institution or charity for the purposes of the institution or charity.

At first instance, the primary judge rejected the contention that the appellant was a public benevolent institution and this finding was not appealed. The primary judge also rejected the contention that the appellant was a public charity within the meaning of section 556(1)(h) of the Act.

The appellant was incorporated as a company limited by guarantee. The Council agreed that four of the company’s objects were charitable, but said that others were not. The non-charitable objects related to business undertakings of the appellant. The appellant accepted that prima facie their objects comprised both charitable and non-charitable objects which meant that it did not qualify as a ‘public charity’ for the purposes of section 556(1)(h).

The appellant sought to avoid that consequence in two ways. First, it acknowledged that there was a distinction drawn in the cases between non-charitable objects and powers which are independent or collateral, even if subsidiary, which have a disqualifying effect, and those which are merely ancillary, incidental, dependant or concomitant to charitable objects or powers which do not. The appellant sought to argue that, looked at as a whole, the impugned objects were in fact ancillary, incidental, dependant or concomitant to the four charitable objects and therefore did not have a disqualifying effect. Secondly, the appellant relied upon the provisions of section 23 of the Charitable Trusts Act 1993 (NSW).

The appellant’s submissions with respect to the application of section 23 of the Charitable Trusts Act were:

(a)    Notwithstanding that the appellant was a company limited by guarantee it was able to be a trustee;

(b)   As owner of the properties, it held them in trust for the charitable purpose of providing housing for persons of Aboriginal descent;

(c)    As the appellant’s objects were both charitable and non-charitable, section 23 applied to excise the non-charitable and invalid objects from the valid charitable objects;

(d)   The objects of the appellant included four identified non-charitable objects. It was appropriate to apply section 23 to ‘blue pencil’ those objects thus leaving the valid charitable objects with the result that the appellant was a ‘public charity’ in that its objects were, by virtue of section 23(2), confined to those that were charitable.

The Court rejected these propositions. Section 23 of the Charitable Trusts Act could not apply to the appellant’s position. The appellant was a company and not a trust (although a company limited by guarantee could be a trustee in appropriate circumstances). Moreover, the purpose of section 23 of the Charitable Trusts Act 1993 was to preserve the validity of testamentary or inter vivos gifts for purposes which are both charitable and non-charitable. It had no other purpose.

On the issue of ancillary objects which are not charitable, the appellant submitted that:

(a)    It was permissible to look at the nature and circumstances of the formation of the appellant for the purpose of determining its status as a public charity. The High Court took that course in Federal Commissioner of Taxation v Word Investments Ltd [2008] HCA 55; (2008) 236 CLR 204 at [25];

(b)    There were a number of textual indicators which pointed to an over-arching objective of providing housing to persons of Aboriginal descent, being the name of the appellant and the order in which the objectives set out in clause 2 of the Memorandum were listed;

(c)     The appellant’s actual activities were relevant in characterising the impugned objectives as incidental and ancillary. Although it was accepted that it is the purposes of an association that determine its charitable status, so that an activity, taken in the abstract, can rarely be deemed charitable or non-charitable, extrinsic evidence of those activities may be relevant to determining its charitable status in three circumstances: first, where the constitution of an association expressly identifies an object as its main (or subsidiary) object in circumstances where that is not conclusive and there is, therefore, doubt as to the association’s main objects; second, where the constitution of an association may not indicate with clarity its main object(s) in which case the expressed objects are assessed in tandem with the association’s activities; and third, where an association lacks a written constitution, its status may be determined by reference to its nature which will be a function of its activities.

The Court of Appeal dealt very shortly with these submissions saying only (at [51]) that:

…the primary judge was correct in holding that the impugned objects were independent and not ancillary or incidental to any other object including that in clause 2(a) of the Memorandum [to provide housing to persons of Aboriginal descent]. In this respect, I cannot improve on his Honour’s reasoning…. The appellant has not demonstrated any error in that reasoning which would justify appellate intervention.

The primary judge had said in this respect (at [53]–[54] of the primary judgement):

These objects, neither by express words nor by implication from the nature of the activities described in the objects, can be viewed as ancillary or incidental to the object in clause 2(a) of providing housing for persons of Aboriginal descent. Clause 2(l), (m), (s) and (t) do not expressly state that the diverse businesses, trades or industries described therein are only to be undertaken by the plaintiff for achieving any other object and, in particular, the object in clause 2(a) of providing housing for persons of Aboriginal descent. By no means can undertaking the diverse businesses, trades and industries listed in clause 2(l), (m), (s) or (t), which are of a wholly different and unrelated nature to the provision of housing for persons of Aboriginal descent, be described as a variety of ways to achieve the provision of housing for persons of Aboriginal descent or even as powers to carry out such an object.

Therefore, the appellant failed to show on either of the grounds it advanced that it was a public charity, and thus exempt from land rates. The appeal was dismissed with costs.

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Implications of this case

The appellant company had four charitable objects:

(a)    To provide housing for persons of aboriginal descent;

(b)   To render such assistance to members as the members see fit, subject to clause 3 [of the Memorandum];

(c)    To carry out services for the social, intellectual and cultural advancement of members;

(d)   To strengthen, build up and contribute to the identity, sense of purpose and culture of persons of Aboriginal and Island descent.

However, these objects were only four of numerous objects many of which dealt with business ventures which the company was to undertake or become involved in. The ‘business’ objects were neither charitable nor incidental/ancillary to the charitable objects. Therefore, the company was not a public charity. As it was not a public charity, it was not exempt from paying rates on the 28 properties it owned.

Where an organisation has mixed charitable and non-charitable purposes, the non-charitable purposes must be ancillary to the charitable purposes – merely supporting or facilitating the main charitable purposes.