Introduction

The recent NSW Supreme Court decision in The Salvation Army (New South Wales) Property Trust v Chief Commissioner of State Revenue [2018] NSWSC 128 highlights the importance of identifying the relevant body for the purposes of the duty exemption for charitable or benevolent bodies. It also clarifies the meaning of the word "institution" in the context of the exemption regime.

The Court held that the 'Charitable and Benevolent Bodies' exemption was available to the plaintiff under sections 275(1) and 275(3)(a) of the Duties Act 1997 (NSW) (Duties Act). The Court confirmed that the exemption operates as a full exemption, applies generally to transactions entered into by the exempt body, is not limited to the purpose of the transaction and does not operate as only a partial exemption if the dutiable property the subject of the transaction is to be used partly for a non-exempt purpose.

Implications From the Court's Decision

The decision expands the application of sections 275(1) and 275(3)(a) (being the full exemption that applies generally to transactions entered into by an exempt body for the relief of poverty or promotion of education). Taxpayers may have previously applied the section 275(3)(a) criteria only to the legal person to whom the property was transferred. In focussing only on that entity's resources, the section 275(3)(a) requirements may not be met. Taxpayers would then have to seek the 'transaction specific' exemption (under section 275(3)(b)) or the partial exemption (under section 275A).

Whilst heavily fact-dependant, this decision suggests that taxpayers extend their enquiry to the activities conducted by the broader institution or organisation within which the legal person (and specific trust) operates.

Under this broader enquiry, the more favourable 'entity specific' exemption may be available which has the following benefits over the other two exemptions:

• it is a full (and not partial) exemption;
• it applies to all relevant transactions entered into by the exempt body for a period of time (often 3 years); and
• it is not determined on a transaction-by-transaction basis.

This provides taxpayers with certainty of the stamp duty position on transactions and reduces administrative and professional costs associated with multiple exemption applications.

Background

The plaintiff was a body corporate established by The Salvation Army (New South Wales) Property Trust Act 1929 (NSW). All real and personal property vested in the plaintiff upon two trusts: the 'General Work Trust' (whose activities were not confined to social work but also included activities having religious purposes) and the 'Social Work Trust' whose purposes were devoted exclusively to the social work of The Salvation Army). The two trusts were separate and distinct purpose trusts.

In Australia, the Salvation Army movement is divided into two Territories: the Australian Eastern Territory (AET, comprising NSW, the ACT and Queensland) and the Australian Southern Territory (AST, comprising Victoria, South Australia, Tasmania, Western Australia and the Northern Territory).

On 13 June 2014, the plaintiff entered into two contracts to acquire the 'Property' in its capacity as trustee of the General Work Trust. The purpose of the acquisition was to use the premises as the new territorial headquarters (the THQ) for The Salvation Army AET. The acquisition of the Property was made in the plaintiff’s capacity as trustee of the General Work Trust because the THQ accommodates staff that carry out activities in pursuance of both The Salvation Army’s religious objectives and its charitable objectives.

At the time the plaintiff acquired the Property, part of the Property was (and currently remains) subject to two commercial leases. The leased area comprises approximately 35% of the total area of the Property.

Legislative Context

Section 275 of the Duties Act provides that duty is not chargeable on certain transactions relating to charitable or benevolent bodies. The exemption applies differently to two types of exempt charitable or benevolent bodies. The relevant parts of section 275 are set out below:

1. Duty under this Act is not chargeable on the following:

a transfer, or an agreement for the sale or transfer, of dutiable property to an exempt charitable or benevolent body,

2. In this section:

exempt charitable or benevolent body means:

a. any body corporate, society, institution or other organisation for the time being approved by the Chief Commissioner for the purposes of this paragraph whose resources are, in accordance with its rules or objects, used wholly or predominantly for:

i. the relief of poverty in Australia, or

ii. the promotion of education in Australia, or

b. any body corporate, society, institution or other organisation that, in the opinion of the Chief Commissioner, is of a charitable or benevolent nature, or has as its primary object the promotion of the interests of Aborigines and if:

i.... the dutiable transaction or instrument is for such purposes as the Chief Commissioner may approve in accordance with guidelines approved by the Treasurer, or

c. any person acting in the person’s capacity as trustee for a body corporate, society, institution or other organisation referred to in paragraph (a) or (b).

The section 275(3)(a) exemption ('entity specific') applies generally to transactions entered into by societies or institutions for the relief of poverty or promotion of education. It applies to a society or organisation for the time being approved by the Chief Commissioner (ie not limited to a single transaction). This exemption is determined by the nature of the society or institution, and not by reference to the purposes for which that body enters into a particular transaction.

The section 275(3)(b) exemption ('transaction specific') applies to a broader range of charitable or benevolent bodies, but is limited by reference to the purposes of the transaction or instrument or the use of the property. Even where the society or institution is of a charitable or benevolent nature, the transaction, instrument or use of the property must be for approved charitable or benevolent purposes.

Section 275(3)(c) extends the duty exemption to any person acting in the person’s capacity as trustee for a body corporate, society, institution or other organisation referred to in section 275(3)(a) and (b). Where the section 275(3) exemptions do not apply, the section 275A exemption is a partial exemption for transactions relating to land used partly for exempt purposes.

Issues for the Supreme Court

Sections 275(3) (a) and (c):

• to identify the relevant “body corporate, society, institution or other organisation” for the purposes of applying the definition of “exempt charitable or benevolent body”;
• to determine how to proceed where the plaintiff can potentially fall both within section 275(3)(c) (as a trustee) and within section 275(3)(a) (as a body corporate itself, as every corporate trustee is);
• to determine whether the resources of the relevant body were, in accordance with its rules or objects, used wholly or predominantly for the relief of poverty in Australia; and
• to determine whether the body is one that is “for the time being approved” by the Chief Commissioner for the purposes of s 275(3)(a).

Section 275A:

to determine, if the entity specific or transaction specific exemptions under section 275(3)(a)-(c) were not available, whether the partial exemption under section 275A applied (and if so, the extent of the exemption).

Findings – Issue one: Identification of the Relevant Body

The plaintiff submitted that the relevant “institution or other organisation” was “The Salvation Army AET” (or The Salvation Army in Australia). The Court agreed - the exempt charitable or benevolent body was the plaintiff acting as a trustee of, or for the purposes or benefit of, an institution or other organisation being The Salvation Army AET (and not the plaintiff in its capacity as trustee of the General Work Trust). This was because, in furthering the purposes of the General Work Trust, the plaintiff in its capacity as trustee was acting in reality “for” the benefit or the purposes of The Salvation Army AET.

The plaintiff argued that a charitable trust is not, per se, an institution because a mere trust is not an institution, and that something more is required. The Court agreed – "institution" did not include trusts, and to describe a purpose trust as an “institution” would give it a separate persona to the collection of rights and obligations imposed on a trustee of a purpose trust. The "institution" was the Salvation Army movement in Australia (the AET) " … just as a school (and not just the building itself in which the school operates) can be understood to be an “institution”." The Court also noted that while the plaintiff had misdescribed its administrative organisations (being the two trusts) as “institutions” in not-for-profit registration documents and in financial reports, this was not determinative of the issue.

The Court found that section 275(3)(c) does not only apply to cases where a person holds property as bare trustee (as had been submitted by the Chief Commissioner). Instead it extends the exemption to persons acting in the capacity “as a trustee for a charity” so that the plaintiff acting in its capacity as trustee for an institution (The Salvation Army AET) is an exempt charitable or benevolent body within the meaning of section 275(3)(c) read together with section 275(3)(a).

Findings – Issue two: Resources Used Wholly or Predominantly for Specified Purpose

The plaintiff argued that the “resources” of The Salvation Army AET comprise the assets of the General Work Trust and the Social Work Trust, as well as its people (employees and volunteers of The Salvation Army movement) and that these were predominantly used for a required purpose (being the relief of poverty). In particular, approximately three-quarters of the financial and personnel resources were used to conduct the social work, which has the objective of relieving poverty.

The Court agreed. The phrase “wholly or predominantly” means that the resources of the organisation need not be entirely used for one of the two specified purposes. “Predominantly” means the specified purpose must be the most dominant of the purposes of the institution or organisation. Further, “resources” encompasses not simply financial resources but also the personnel, intellectual property, and "know-how" of the institution or organisation.

Findings – Issue three: "For the Time Being Approved"

The Court rejected the Chief Commissioner's argument that approval can only be granted prospectively. The expression “for the time being approved” is different from “which has been approved”. As the legislative requirement is not phrased in the latter (which would indicate that the status of having been approved is one that must have existed prior to any exemption arising), the approval may be granted retrospectively.

Other Findings

As the Court found that section 275(3)(a) and (c) exemptions applied, it was not strictly necessary to determine the plaintiff’s secondary case and tertiary cases concerning sections 275(3)(b) and 275A.

Conclusion

Taxpayers are reminded that the concept of an “exempt charitable or benevolent body” for section 275 purposes is narrower than the common law definition of “charitable”. Further, registered charities or organisations approved under other legislation (eg income charitable exemptions and concessions for income tax purposes) are not automatically eligible for the section 275 exemption.

However, the decision in this case appears to broaden the application of the exemption provided by sections 275(1) and 275(3)(a). In particular, taxpayers need not necessarily apply the statutory criteria in section 275(3)(a) directly to the trustee (and specific trust) to whom dutiable property is transferred, but instead with reference to the institution which effects the purposes by which the legal person, as trustee, is bound. As seen in this case the property was vested in the trustees “but the whole of their powers were designed to be exercised for the single purpose of furthering the aims and objects of the Army”. As such, the trustee was acting for an institution, being the Salvation Army AET (and not just the two specific trusts in respect of which it was trustee).