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Grain Growers Limited v Chief Commissioner of State Revenue [2015] NSWSC 925

Date of judgement 14 July 2015 Proceeding No. 2014/305291
Judge(s) Black J
Court or Tribunal Supreme Court of New South Wales
Legislation cited A New Tax System (Goods and Services Tax) Act 1999 (Cth)

Fringe Benefits Tax Assessment Act 1986 (Cth)

Income Tax Act 1918 (UK) (rep) s 37(1)

Income Tax Assessment Act 1997 (Cth) subdiv 50-B; s 50.5

Payroll Tax Act (NT) s 9(a)

Pay-roll Tax Act 1971 (rep) s 10(2)

Payroll Tax Act 2007 ss 48, 48(1), 48(2)

State Revenue Legislation Amendment Act 2008

Statute of Charitable Uses 1601 (Imp)

Supreme Court Act 1970 s 19(2)

Taxation Administration Act 1996 ss 97, 97(4), 101, 100(3)
Catchwords CHARITIES – charitable purposes – other purposes beneficial to public – where company provided services to the agricultural industry – where company’s purpose includes promotion of the interests of Australian grain growers – whether company has as its sole or dominant purpose a charitable purpose.

TAXATION – payroll tax – exemptions – where taxpayer a non-profit organisation – whether taxpayer exempt from payroll tax on wages paid to its employees under s 48 of the Payroll Tax Act 2007 (NSW) - where taxpayer was involved in the promotion of the agriculture industry – where taxpayer acquired two companies engaged in commercial purposes related to the agriculture industry – whether employees of taxpayer in relation to those businesses undertake work ‘of a kind ordinarily performed’ in connection with the charitable purpose of the taxpayer under s 48(2) of the Payroll Tax Act 2007 (NSW).
Cases cited Commissioner of Taxation (Cth) v Word Investments Ltd [2008] HCA 55; (2008) 236 CLR 204

Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531

Background

The proceedings concerned:

  1. whether Grain Growers Limited (“the Taxpayer”) was entitled to an exemption from payroll tax under s.48 Payroll Tax Act 2007 (NSW) (“PTA”) on the basis that it has charitable purposes; and

  2. whether wages paid or payable to its employees are for work of a kind ordinarily performed in connection with that purpose and to persons engaged exclusively in that kind of work.

The Taxpayer had applied for an exemption from payroll tax under s.48 PTA and for a refund of payroll tax paid in the five years prior to its application, being for the financial years 2009 to 2013. The application was refused by the Chief Commissioner, and the subject proceedings were commenced in due course.

The Taxpayer contended that it is a non-profit organisation working on behalf of all Australian grain producers to promote the development of a more efficient, sustainable and profitable grains industry, benefitting not only its members but also the public at large. It submitted that the promotion of Australian agriculture was vital to the community’s welfare.

In its Appeal Statement, the Taxpayer identified its activities as including first, policy and advocacy-related activities directed towards advancing the interests of the agricultural (and especially grains) industry in Australia; second, developing and distributing products, services and projects directed towards benefitting the Australian agricultural (and especially grains) industry; third, producing publications, information and resources, including research in scientific testing results; fourth, arranging educational, training and professional development activities. The Taxpayer submitted that none of the products, services or activities it provides are exclusively for its members, and all services are provided to members and non-members alike without pricing differentials: see [44] – [45].

The Taxpayer had acquired two commercial companies, BRI and Agrecon, on 31 December 2008 and on 31 July 2009, respectively; and from 1 July 2011 all the assets, liabilities and staff of BRI and Agrecon were also transferred to it. The principal activity of BRI was an independent scientific research company earning revenue from the Australian grains industry and providing laboratory services, technical advisory services, consultancy and training courses to companies in the food industry: [55]. The principal activity of Agrecon was providing satellite images products, advisory and consultancy services within the agricultural sector: [59].

The Taxpayer submitted that, having regard to the objects in its Constitution and its activities, its dominant purpose was and is to promote the development of Australian agricultural resources and in particular the grains industry.

The Statutory Framework

Section 48 of the PTA relevantly provides:

  1. Subject to subsection (2), wages are exempt wages if they are paid or payable by any of the following:

    ...

    1. a non-profit organisation having as its sole or dominant purpose a charitable, benevolent, philanthropic or patriotic purpose (but not including a school, an educational institution, an educational company or an instrumentality of the State).

  2. The wages must be paid or payable:

    1. for work of a kind ordinarily performed in connection with the religious, charitable, benevolent, philanthropic or patriotic purposes of the institution or body, and

    2. to a person engaged exclusively in that kind of work.

The term “charitable purpose” in s.48 is to be interpreted by reference to the spirit and intendment of the preamble to the Statute of Charitable Uses 1601 (Imp) and as falling within the fourth category of charitable trusts as observed by Lord Macnaghten in Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531 (“Pemsel’s case”), namely, a trust for other purposes beneficial to the community.

Decision

Non-profit organisation

The Chief Commissioner put the Taxpayer to proof on the preliminary question of whether it is a non-profit organisation. His Honour determined that it was on the basis that the Taxpayer’s constitution required that its income and property be applied solely towards the attainment of its objects and prohibited the distribution of its property to its members in any way, or on a winding up or dissolution of the Taxpayer. Further, the annual and financial reports of the Taxpayer did not disclose any dividend paid to members at any time: [15].

Whether Taxpayer’s dominant purpose is charitable

The Chief Commissioner submitted that even if the objects and activities of the Taxpayer are beneficial to the community in a general way, the Taxpayer’s purpose must be shown to be charitable by evidence that proves the public benefit is sufficiently tangible and clearly definable to bring it within the fourth head of charity, and having regard to the means by which the claimed public benefit is sought to be achieved.

The Taxpayer submitted that it was not required to prove that the promotion of agriculture is charitable, but only that its purpose is the promotion of agriculture which is to be established by reference to its objects and activities.

The Court considered that little turned on the debate as to whether the Taxpayer needed to prove public benefit where its objects fell within the fourth class of charity: [23]. After reviewing the authorities, Black J concluded that he could “...without specific proof, infer that…Australian agricultural activity benefits Australian society generally...”: [27]. His Honour also accepted that the promotion of industry or commerce can be a charitable purpose: [28].

The parties agreed, and the Court accepted, that in order to determine whether the Taxpayer’s purpose is charitable, it is necessary to examine its objects and the manner in which those objects are effected by its activities, and to determine whether its “main or predominant or dominant objects, as distinct from its concomitant or incidental or ancillary objects, are charitable” (citing Commissioner of Taxation (Cth) v Word Investments Ltd [2008] HCA 55; (2008) 236 CLR 204): [37].

His Honour found that the objects stated in the Taxpayer’s constitution indicate a dominant purpose of the promotion and development of Australian agricultural resources, albeit with particular reference to the grains industry in Australia: [43].

The Chief Commissioner submitted that:

  • the activities of BRI and Agrecon (and another entity with which it merged in the 2010 tax year) are not inherently charitable as they focus upon promoting individual business and any public benefit, in the absence of proof, is aspirational and too remote;

  • as BRI and Agrecon were not generating profit, they were not acquired to further the “industry good” functions of the Taxpayer; and

  • when BRI and Agrecon were separately owned, they were carried on by commercial entities, and therefore when those same activities are carried on by the Taxpayer, to that extent, they are not charitable.

His Honour rejected all those submissions which he considered gave insufficient weight to the purpose for which the relevant businesses were being conducted by the Taxpayer: [66] and [70]. His Honour, following the High Court in Word Investments, found that the evidence establishes that the Taxpayer’s “business services activities were conducted in order to advance its larger charitable purpose, and are not to be treated as non-charitable merely because they had a commercial character, or because an attempt to advance the level of information and technical services available to the grains industry generally also benefited individual growers”: [73].

Accordingly, Black J proceeded to hold at [75] that:

“…Grain Growers’ purpose in conducting its affairs, and the businesses of BRI and Agrecon in particular, is that of advancing at least the Australian grain industry, and the Australian agricultural industry so far as the grains industry forms a subset of that industry, and has a charitable character. The requirements of s.48(1)…are therefore satisfied…”

Whether wages are exempt under s.48(2)

The issue arising under s.48(2) was only relevant to the 2012 and 2013 tax years after employees who previously worked in the businesses of BRI and Agrecon were transferred to the Taxpayer in its Information Services, Technical Services and Analytical Services Divisions.

His Honour observed at [87] that the test established by s.48(2)(a) requires an assessment whether the work is of a kind “ordinarily performed” in connection with the relevant charitable purpose of the particular body. In other words, whether the particular activities of the relevant body are such that bodies with the same charitable purpose ordinarily, or in other words regularly, commonly or customarily, perform them. His Honour noted that merely because a body with a charitable purpose performs a particular activity, that alone does not satisfy s.48(2). In construing s.48(2)(a), his Honour rejected the Chief Commissioner’s submission that the words “ordinarily performed” should be limited to work that is “intrinsically charitable”: [88].

However, the Taxpayer had not adduced any evidence to establish that work of the kind performed by BRI and Agrecon, despite its commercial character, is ordinarily performed by bodies with a charitable purpose of advancing agriculture: [90].

Therefore, his Honour held at [90] that:

“It does not seem to me that, as a matter of inference and without a specific evidentiary basis, I could properly find that grains research or the provision of consulting services using satellite imaging are work of a kind “ordinarily performed” in connection with a charitable purpose of the advancement of agriculture.”

Furthermore, his Honour accepted the Chief Commissioner’s submission that to the extent that the Taxpayer’s executive and administrative staff are performing services in respect of its commercial activities, that work is not of a kind ordinarily performed in connection with a charitable object: [92].

Accordingly, the exemption from payroll tax was held not to be available to the wages of the Taxpayer’s employees engaged in any part of the activities of Information Services, Technical Services and Analytical Services Divisions: [91], nor to the wages of executive and administrative staff who are partly engaged with those activities and businesses (and not exclusively engaged in work of a kind ordinarily performed in connection with the Taxpayer’s charitable purposes): [92].

Orders

The Court directed the parties to make further submissions as to the form of orders necessary to give effect to the Taxpayer’s partial success, and as to any costs orders.

Link to decision

Grain Growers Limited v Chief Commissioner of State Revenue [2015] NSWSC 925

Last updated: 19 May 2016