Navigating the politics of charity: reflections on Aid/Watch Inc v Federal Commissioner of Taxation.

• Jurisdiction: Australia
• Author: Chia, Joyce
• Date: 01 August 2011

[This article analyses the decision of the High Court in Aid/Watch Inc v Federal Commissioner of Taxation, in which a majority of the Court ruled that an organisation was not necessarily excluded from charitable status because it had a main or dominant political purpose. The article reflects upon the benefits of the decision, especially its infusion of public law principles into charity law, before discussing the uncertainties generated by the decision. It is argued that, ultimately, the decision exposes a hole in the heart of charity law--the absence of a coherent conception of charity. The article concludes with suggestions as to what a coherent conception of charity might look like, and how it might help solve perennial puzzles in charity law.]

CONTENTS I Introduction II The Legal Context A The Significance and Meaning of Charity B The Political Purposes Doctrine C The Treatment of Advocacy Overseas III The Case against the Political Purposes Doctrine A A Specious Doctrine B Competing Rights and Values C The Political Process D The Function of Charity IV Aid/Watch in the Courts A The Factual Context B The Facts and Issues C The AAT Decision D Aid/Watch in the Full Federal Court E Aid/Watch in the High Court F The High Court Decision V Reflection 1: Celebration A Freedom of Expression B Public Law VI Reflection 2: Deflation VII Reflection 3: The Hole in the Heart A The 'Demarcation' Debate B The 'Popular versus Legal' Debate C The 'Public Benefit' Debate D The Ideological Debate VIII Conclusion IX Postscript I INTRODUCTION

On 1 December 2010, a majority of the High Court held in Aid/Watch Inc v Federal Commissioner of Taxation ('Aid/Watch') (1) that an organisation was not necessarily excluded from charitable status (or its resulting tax concessions) because it had a main or dominant political purpose. This decision has two obvious effects: advocacy organisations are now eligible for charitable status, including for tax purposes; and charities can engage more openly and actively in advocacy. The Aid/Watch decision has therefore, and rightly, been celebrated by the charitable sector. (2) The decision should also be celebrated for another reason: its infusion of public law principles into charity law.

Yet the decision seems to raise more questions than it answers, and ultimately, it exposes the hole in the heart of charity law--the absence of a coherent and contemporary conception of the purpose and role of charity. This article concludes by examining some of the puzzles of the legal concept of charity, and by suggesting how a coherent conception, and the infusion of public law principles, might assist in the development of charity law post-Aid/Watch.

The article begins by explaining the legal context, focusing on the political purposes doctrine that Aid/Watch rejected and the debate concerning that doctrine. It then analyses the different decisions in the Aid/Watch litigation, before providing three different reflections on Aid/Watch: celebration, deflation, and speculation on the future evolution of charity law.

II THE LEGAL CONTEXT

A The Significance and Meaning of Charity

Whether an organisation is a 'charity' at law (that is, has charitable status) is principally important for two reasons. (3) First, 'charitable' trusts are valid while other trusts for purposes are generally not, (4) and there are other privileges that facilitate the validity of charitable trusts. (5) Second, and practically more important today, charitable status grants access to a range of tax concessions, such as exemptions from income tax; concessions in relation to goods and services tax ('GST'); and rebates in respect of fringe benefits tax ('FBT'). (6) The organisation must, however, be 'endorsed' by the Australian Taxation Office ('ATO'). (7) Income tax deductions for donors and exemptions from FBT are also relevant to charities, but in general these charities must be 'public benevolent institutions' or otherwise specified in the legislation. (8)

'Charity' has a technical meaning in the common law, developed over centuries of case law. Importantly, this common law meaning has long been held to govern references to 'charity' in taxation legislation, (9) despite the inherent tension between the policies of trusts law and taxation law. (10) The common law meaning of 'charity' has long been criticised as unduly complex and anachronistic, (11) and in 2001 the ad hoc Inquiry into the Definition of Charities and Related Organisations ('Sheppard Inquiry') proposed replacing it with an expanded statutory definition. (12) While this proposal was not ultimately adopted in Australia, (13) it proved influential overseas, with the various jurisdictions of the United Kingdom ('UK') as well as Ireland eventually adopting similar statutory definitions. (14) The Australian government has recently revived the proposal for a statutory definition of 'charity'. (15)

In order to qualify as a charity under the common law definition, an organisation must fall within one of four 'heads' of charity, commonly known as the 'Pemsel heads' after the case where the classification was first adopted. (16) These are: the relief of the poor, aged or impotent; the advancement of education; the advancement of religion; and the fourth 'head', a residual category, of 'other purposes beneficial to the community'. To determine which 'head' a charity might fall into, courts typically examine the objects and powers of the organisation in its rules or constitution (and, if necessary, its activities) (17) as a whole in order to 'characterise' its purposes.

If an organisation falls into the first three heads, it is traditionally presumed to be 'of public benefit' (that is, it is beneficial and it benefits a sufficient section of the public). (18) However, if the organisation potentially falls into the fourth 'head', public benefit must be proved and, further, its purpose must be either listed or analogous to one of the 10 specific purposes in the preamble to the Statute of Charitable Uses 1601, 43 Eliz 1, c 4 ('Statute of Charitable Uses'). (19)

B The Political Purposes Doctrine

These basic rules are supplemented by rules refining the parameters of charity, such as the rule that a purpose that is illegal or against public policy cannot be charitable. (20) Most relevantly, one of these rules traditionally disqualified from charitable status any organisation with a main or dominant political purpose (the 'political purposes doctrine'). The doctrine originated in Lord Parker's statement in Bowman v Secular Society Ltd ('Bowman') in 1917:

a trust for the attainment of political objects has always been held invalid, not because it is illegal, for every one is at liberty to advocate or promote by any lawful means a change in the law, but because the Court has no means of judging whether a proposed change in the law will or will not be for the public benefit, and therefore cannot say that a gift to secure the change is a charitable gift. (21) The doctrine was fully established in National Anti-Vivisection Society v Inland Revenue Commissioners ('National Anti-Vivisection Society'), (22) which held that the purpose of changing the law--in this case, abolishing the practice of vivisection--was a political purpose that disqualified the organisation from charitable status. The scope of the doctrine was expanded in the later case of McGovern v Attorney-General, which defined political purposes broadly to include: furthering the interests of a particular political party; procuring changes in the laws of a country; and procuring a reversal of government policy or governmental decisions in a country. (23) Case law even supports the extension of the doctrine to the purpose of supporting the maintenance of the present law, (24) although this aspect of the doctrine is more controversial. (25)

In Australia, judges have accepted that the doctrine applies, albeit somewhat reluctantly. (26) In 1938, the High Court held in Royal North Shore Hospital of Sydney v Attorney-General (NSW) ('Royal North Shore') (27) that it was not a political object to provide a prize for the best essay promoting the extension of technical education in state schools. The Court unanimously held that applying the doctrine to these facts would stretch the meaning of 'political' too far (28)--it would lead to the 'absurd conclusion' (29) that 'political activity' extended to anything that might be associated with political activity (30) or that might affect or concern the state. (31)

However, Latham CJ and Dixon J arguably supported a narrow version of the doctrine, albeit on differing bases. (32) Latham CJ suggested it was not 'difficult to suggest reasons of public policy which would prevent recognition ... of a trust for the promotion of a particular political object as such, or for the maintenance and advocacy ... of the principles of a political party', because such trusts 'might become a public danger'. (33) This remark suggests Latham CJ supported only a narrow conception of 'political purpose', and viewed the doctrine as an aspect of the public policy rule.

More widely cited is Dixon J's approach which treated the doctrine as part of the 'public benefit' test:

A coherent system of law can scarcely admit that objects which are inconsistent with its own provisions are for the public welfare. Thus, when the main purpose of a trust is agitation for legislative or political changes, it is difficult for the law to find the necessary tendency to the public welfare ... (34) Dixon J's remarks also suggest a relatively narrow scope for the doctrine. He referred expressly to funding a political party, (35) 'influencing or taking part in the government of the country' (36) and 'establish[ing] a means of affecting or interfering with government administration' (37) as disqualifying political activity, and distinguished these activities from merely 'seeking to mould opinion ... [by] propagat[ing] general views for...