Central Bayside General Practice Association Ltd v Commissioner of State Revenue

• Jurisdiction: Australia Federal only
• Court: High Court
• Judge: Gleeson CJ,Heydon,Crennan JJ,Kirby J,Callinan J
• Judgment Date: 31 August 2006
• Neutral Citation: [2006] HCA 43,2006-0831 HCA A
• Docket Number: M3/2006
• Date: 31 August 2006

[2006] HCA 43

HIGH COURT OF AUSTRALIA

Gleeson CJ, Kirby, Callinan, Heydon and Crennan JJ

M3/2006

Central Bayside General Practice Association Limited Formerly Known As Central Bayside Division of General Practice Limited

Appellant

and

Commissioner of State Revenue

Respondent

Representation

B J Shaw QC with J J Batrouney SC and L G De Ferrari for the appellant (instructed by Health Legal)

I J Hardingham QC with S G O'Bryan SC and R J Orr for the respondent (instructed by Solicitor to the Commissioner of State Revenue)

M M Gordon SC with P R D Gray on behalf of the Commonwealth of Australia heard as amicus curiae (instructed by Clayton Utz)

Pay-roll Tax Act 1971 (Vic), s 10(1)(bb).

Central Bayside General Practice Association Limited v Commissioner of State Revenue

Taxation — Charities — Pay-roll tax exemption — Meaning of ‘charitable body’ — Whether privately-established non-profit organisation is a ‘charitable body’ for purposes of pay-roll tax exemption — Whether organisation precluded from being characterised as ‘charitable body’ because of its relationship with Commonwealth Government — Whether involvement in implementation of government policy precludes organisation from being characterised as ‘charitable body’.

Words and phrases — ‘charitable body’.

ORDER

1. Appeal allowed.

2. The respondent to pay the costs of the appellant in this Court.

3. Set aside the orders of the Court of Appeal, Supreme Court of Victoria, made on 1 July 2005 and, in their place, order:

• (a) Appeal allowed.

• (b) Set aside the orders of the Supreme Court of Victoria made on 15 August 2003.

• (c) The appellant's appeal from the decision of the Victorian Civil and Administrative Tribunal made on 22 November 2002 be allowed.

• (d) The Notice of Determination issued by the respondent dated 16 July 2002 to disallow the appellant's Notice of Objection dated 29 January 2002 be set aside.

• (e) The appellant's Notice of Objection dated 29 January 2002 against the respondent's decision dated 14 December 2001 be allowed.

• (f) The respondent pay the costs of the proceedings in the Court of Appeal of the Supreme Court of Victoria, and in the Supreme Court of Victoria.

1 Gleeson CJ, Heydon and Crennan JJ. The question is whether the wages paid in the period 1 July 2001 to 30 June 2002 by the appellant, Central Bayside General Practice Association Limited, are exempt from pay-roll tax under the Pay-roll Tax Act 1971 (Vic), s 10(1)(bb). That question in turn depends on whether the appellant was in that period a ‘charitable body’ 1.

2 On 14 December 2001 the State Revenue Office determined that these questions should be answered in the negative, and refused to grant the appellant an exemption from pay-roll tax. The appellant objected to that decision on 29 January 2002, but a delegate of the Commissioner of State Revenue disallowed the objection on 16 July 2002. On 10 September 2002 the appellant requested the Commissioner to refer the matter to the Victorian Civil and Administrative Tribunal. The Taxation Division of the Tribunal agreed that the questions should be answered in the negative. So did the Commercial and Equity Division of the Supreme Court of Victoria (Nettle J) 2 and the Court of Appeal of the Supreme Court of Victoria (Chernov JA and Osborn AJA; Byrne AJA dissenting) 3.

3 At the commencement of argument in the appellant's appeal to this Court, the Commonwealth of Australia was given leave to be heard as amicus curiae. It argued in support of the appellant. For the reasons given below the appeal should be allowed.

The constitution and activities of the appellant

4 In order to understand the course of the proceedings below and the arguments advanced in this Court, it is necessary to examine the constitution and activities of the appellant.

5 Appellant's object. The appellant was registered as a company limited by guarantee in Victoria on or around 7 February 1994 under the provisions of the Corporations Law (Vic). In the course of the relevant tax year, on 13 November 2001, the appellant adopted a new constitution. This was similar to its initial memorandum and articles of association, and no point was made of any differences. Clause 5.2 provided:

‘The company must not distribute any of its profit, income or assets directly or indirectly to its members.’

Clause 5.1 provided:

‘The company may only use its income, assets and profit for its object.’

Clause 4.2 provided:

‘The company may only exercise its powers for its object.’

Clause 3 described the object of the appellant as being ‘to improve patient care and health, primarily in the Central Bayside area of Melbourne’ by the following nine methods:

‘(a) improving communication between general practitioners and other areas of the health care system;

(b) more effectively integrating general practice with other elements of the health care system;

(c) enabling general practitioners to contribute to health planning;

(d) providing better access to available and appropriate general practitioner services for patients, and reducing inappropriate duplication of services;

(e) meeting the special (and localised) health needs of groups (such as Aboriginal and Torres Strait Islanders and those with non-English speaking backgrounds) and people with chronic conditions, particularly where these needs are not adequately addressed by the current health care system;

(f) advancing general practice, and the health and well-being of general practitioners;

(g) enhancing educational and professional development opportunities for general practitioners and undergraduates;

(h) increasing general practitioner focus on illness prevention and health promotion; and

(i) improving the effectiveness and efficiency of health services at the local level.’

6 Appellant's activities. The Central Bayside area covers 92 square kilometres of suburban Melbourne. The activities actually carried out in the relevant year included improving the health information systems used in general practices; extending immunisation coverage within the Central Bayside area; assisting in the professional development of members; assisting and encouraging general practitioners within the Central Bayside area to upgrade their accreditation; implementing a model of care programme in general practice based on decision support software; engaging in collaborative projects with the Pharmacy Guild of Australia to facilitate cooperation between general practitioners and pharmacists in managing patient health and developing a community-based model of falls and falls injury prevention for frail and aged persons.

7 Appellant's members. The appellant has two categories of members — primary and associate. Any general practitioner of medicine who practises in the Central Bayside area and supports the object of the appellant is eligible for primary membership: cl 7.1. Any person who supports the object of the appellant is eligible to be an associate member: cl 7.2. There is no provision for government representation among the members. In November 2002 all of the appellant's members were general practitioners: 180 general practitioners in practice in the Central Bayside area were primary members and 70 general practitioners who were not in practice in that area were associate members. By cll 12.1 and 12.2 the liability of members was limited to a duty to contribute up to $10 each on winding up.

8 Appellant's directors. The board of directors is responsible for the management of the appellant: cl 42.1. There are nine directors elected at the annual general meeting, with power for the board to co-opt an additional director: cll 29.1, 30.2 and 31.1. There are no government appointees on the board.

9 Distribution of assets on winding up. Clause 62 provided:

‘62.1 If the company is wound up, its remaining assets must not be distributed to any member.

62.2 Instead the remaining assets must be given to a body, trust or fund that:

• (a) has a similar object to the company; and

• (b) also prohibits the distribution of profit, income and assets to its members to at least as great an extent as this constitution.’

10 Finally, cl 53 provided:

‘The funds of the company may be derived from grants, fund-raising activities, subscriptions, interest and any other sources approved by the Board.’

11 Commonwealth grants to the appellant. The total revenue of the appellant in the relevant year was $1,048,979. Of that, $1,006,997 came from Commonwealth grants. Approximately 45 percent of that figure came from a Commonwealth grant called an ‘Outcomes Based Funding’ grant (‘OBF grant’). The other grants were predominantly project based. The distinction is that the latter kind of grant funds a particular activity, whatever the outcome, and the former type of grant funds activities directed to the achievement of specified outcomes.

12 OBF Agreement. OBF grants were supplied to the appellant under an OBF Agreement made in 1999 between the Commonwealth ‘as represented by’ the Department of Health and Ageing (‘the Department’). For reasons discussed below 4, in that agreement the appellant was described as ‘the Division’. Recital A of the agreement stated that the Department provided funding to bodies like the appellant ‘to enable general practitioners to conduct activities to improve integration with other elements of the health system and to address identified local health needs’. Clause 2.1 compelled the appellant to conduct ‘Programs of Activity’ as described in Sched 1 in accordance with the requirements set out in Sched 1. Clause 2.3 provided:

‘The Division will comply with the requirements regarding identified Outcomes for Outcomes-Based Funding as specified in Schedule 2.’

Schedule 1, cll 1–8 provided:

‘1. The Division shall conduct the Programs of Activity as described in the following documents:

• • The...