Charitable fund status – AAT to decide

The Full Federal Court has allowed a taxpayer's appeal and remitted the matter back to the AAT to decide if a Fund was being applied to a relevant charitable purpose.

In a June 2009 decision, the Federal Court set aside a 7 April 2008 decision of the AAT in which the Tribunal concluded that the Fund was entitled to be endorsed as exempt from income tax under Subdiv 50-B of the ITAA 1997 (FCT v Bargwanna [2009] FCA 620, reported at 2009 WTB 26 [1213]).

The Fund was established for public charitable purposes pursuant to its deed. The trustees of the Fund were husband and wife. In addition, the wife's father (the accountant) managed the Fund's accounting affairs and had provided advice to the trustees since the establishment of the Fund. The Fund's monies were held in 2 bank accounts, a cash management account and the accountant's trust account. In March 2004, the trustees obtained a housing loan, which included an interest offset account. The trustees applied the Fund's monies by payment into the offset account, under which no interest accrued to the Fund and the interest on their personal housing was reduced. Subsequent payments and withdrawals from the offset account resulted in the trustees exceeding the amount they had paid into the account and hence effectively withdrew the Fund's monies for their own purposes. In 2007, the Fund's accountant credited an amount representing a "shortfall" to the trust account and an amount as "compensation" into the cash management account. In the Federal Court's view, the trustees had benefitted from the Fund's monies, which was not within the ambit of the purposes for which the Fund was established. While it acknowledged the amounts paid back to the Fund by the accountant, its opinion was those amounts did not "cure" the misapplication of the Fund's monies. The Court concluded that the Tribunal had erred in determining the Fund was established for a charitable purpose and allowed the Commissioner's appeal.

The taxpayer appealed and the Full Federal Court allowed the appeal in a judgment of 8 October 2010. The taxpayers sought a variation of the Full Court's orders and on 17 February 2011, the Full Federal Court confirmed that the April 2008 decision of the AAT be set aside, and that the proceedings be remitted to the Tribunal to determine, in light of all the facts as found in the Tribunal’s April 2008 decision, and in light of any further facts which the Tribunal deemed necessary to find based upon the evidence already admitted, whether or not the Fund, as a whole, was being applied to the relevant charitable purpose during the 2000 to 2007 years – in accordance with the reasons of the Full Court.


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