Charities and commercial activities

The full bench of the Federal Court recently ruled that businesses run by charities for the purpose of raising funds for those charities need not pay tax. The original decision, handed down by Justice Sundberg in the Federal Court, had been appealed by the ATO.

The case involved a company, Word Investments Ltd., that was initially set up to raise funds for Wycliffe Bible Translators, a charitable institution providing funds for overseas missionary and bible translating activities.

Raising funds

The Tax Office claimed that by operating a funeral parlour (Bethel Funerals), the company was carrying on a commercial activity and therefore not entitled to endorsement as a charity. However, the full bench has upheld the original decision confirming that where an organisation raises funds exclusively for a charitable purpose, the fact that it does so through a commercial enterprise does not preclude it from being a charity.

This ruling will have significant implications for Australian charities at a time of diminishing government funding and “donor fatigue”.

The ATO has until 12 December 2007 to lodge an appeal in the High Court.

Published : 21 November 2007