Case: Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531
Outcome: cited
The concept of charitable purposes was elaborated in a passage, which has literally acquired statutory status, from the judgment of Lord Macnaghten in Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531 at 583. That case concerned the Income Tax Act 1842 (UK) 5 and 6 Vict. c 35 which provided for special allowances in relation to income tax on rents and profits of lands vested in trustees for charitable purposes so far as they were applied to charitable purposes. Lord Macnaghten said (at 583): "Charity" in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community, not falling under any of the preceding heads. The trusts last referred to are not the less charitable in the eye of the law, because incidentally they benefit the rich as well as the poor, as indeed, every charity that deserves the name must do either directly or indirectly. It is accepted that purposes which are "beneficial to the community" must also be "within the spirit and intendment of the preamble to the Statute of Elizabeth". 126 The High Court recently reaffirmed the application of the technical meaning to the word "charity" and its derivatives used in statutes unless a contrary intention is evident. In Central Bayside General Practice Association Ltd v Commissioner of State Revenue [2006] HCA 43 ; (2006) 229 ALR 1 , Gleeson CJ, Heydon and Crennan JJ referred, in a footnote, to the technical legal sense of "charitable" as that defined by Lord Macnaghten in Pemsel [1891] AC 531 "by reference to the spirit and intendment of the preamble to the Statute of Charitable Uses Act 1601 (UK)". Their Honours referred also to "... the general rule that, the word "charitable" being a word that has a technical legal meaning, when it is used in a statute it should be understood in its legal sense unless a contrary intention appears". They noted that the general rule has been accepted as the law of Australia at least since the decision of the Privy Council in Chesterman v Federal Commissioner of Taxation [1925] UKPCHCA 2 ; (1925) 37 CLR 317. They further said (at [18] fn 6): The word is commonly used in statutes. It is reasonable to assume that parliamentary counsel, taxpayers, revenue authorities, settlors, testators and others have acted on the faith of an understanding that the general rule applies. The Full Court of the Federal Court in Commissioner of Taxation v Word Investments Ltd (2007) 164 FCR 194 at [8] accepted, and there was no dispute before it, that the word "charitable" in the relevant provisions of the ITAA 1997 bears its technical legal meaning. It relied upon Bayside [2006] HCA 43 ; 229 ALR 1 for that purpose. 133 For an association to be characterised as a charitable institution it must exist for a public benefit as distinct from the creation of private benefits. The fourth class of charitable trust in Pemsel [1891] AC 531 brings in the public benefit requirement through the words "beneficial to the community". As Kenny J said in The Triton Foundation 147 FCR at [22]: The public may, however, include a section of the public. An association may have a public benefit purpose although some of its subsidiary or ancillary functions may benefit particular persons such as members of a profession: Royal Australian College of Surgeons v Federal Commissioner of Taxation [1943] HCA 34 ; (1943) 68 CLR 436 at 447 and other authorities cited in The Triton Foundation 147 FCR at [23]. 142 The Commissioner contended that VWL was not a charitable institution. He argued that not all purposes which are beneficial to the public are in fact charitable. A trust of the fourth class in Pemsel [1891] AC 531 must be of direct and general benefit to the public. The mere fact that it is for purposes which may tend to be of general public utility would not be sufficient. He cited Taylor v Taylor [1910] HCA 4 ; (1910) 10 CLR 218 at 237 and Barby v Perpetual Trustee Co Ltd [1937] HCA 64 ; (1937) 58 CLR 316 at 324. He did not dispute that a trust for the promotion of the mental or moral improvement of the community could sometimes fall within the fourth class. The requirement of benefit to the public was said to commonly exclude from the status of charitable institutions organisations such as professional bodies established to help those persons who furnish the organisation's funds. These would usually be members or persons eligible for membership but could also be contributors or sponsors. If the main objects of an institution were the protection and advancement of persons practicing in a particular profession, the institution would not be regarded as charitable because the element of direct public benefit was lacking.