Commissioner of Taxation v Aid/Watch Incorporated

On 23 September 2009, the Full Federal Court found in favour of an Australian Tax Office (ATO) decision to revoke the endorsed charitable status of Aid/Watch Incorporated, an incorporated association involved with researching, monitoring and campaigning on the way in which Australia delivers overseas aid.

The Federal Court was asked to consider whether Aid/Watch should continue to receive an exemption from income tax as a charitable institution pursuant to section 50-5 of the Income Tax Assessment Act 1997.

In considering the constitution of Aid/Watch, the Federal Court agreed that the organisation has charitable objectives given its ultimate goal is to promote the efficient and effective use of aid funds which in turn assists in the relief of poverty. However, while the general objectives of Aid/Watch were seen as charitable, the Court looked at Aid/Watch’s specific goal of influencing government policy, and determined that the main purpose of Aid/Watch is political. Consequently, the Court held that Aid/Watch could no longer be endorsed as a charity for tax purposes.

In determining that the main purpose of Aid/Watch is political, the Federal Court looked at the governing documents of the organisation which listed its goals as conducting ‘monitoring’, ‘researching’, ‘campaigning’ and ‘other activities’ on Australia’s aid programs. On this point, the Court observed:

"It is the ‘campaigning’ (as well as ‘other activities’) that materially enables Aid/Watch to exercise influence over public opinion and ultimately over delivery of Australian aid."

The Court held the view that this fundamental goal of influencing government policy through targeted campaigning was too political to allow the organisation to be classified as a charity, stating:

"Aid/Watch’s attempt to persuade the government (however indirectly) to its point of view necessarily involves criticism of, and an attempt to bring about change in, government activity and, in some cases, government policy. There can be little doubt that this is political activity and that behind this activity is a political purpose. Moreover, the activity is Aid/Watch’s main activity and the political purpose is its main purpose."

The Court determined that despite Aid/Watch’s ultimate concern of relieving poverty, its main purpose is political and therefore it could not be considered a charitable institution, or eligible for continued endorsement as a tax concession charity.

Key points for endorsed charities arising from the Aid/Watch decision

  • The Aid/Watch decision confirms that a political purpose may disqualify an otherwise charitable organisation where it is seen as the ‘main or dominant’ purpose of that group. If a political objective is ‘merely ancillary or incidental’ to an established charitable object, that institution will still be classified as a charity for tax purposes.
  • Endorsed charities that undertake in political lobbying should consider reviewing their entitlement to endorsement.  The law does not require any particular intervals between self-reviews, however the ATO recommends that this be conducted annually. There should also be a review when there is a major change in your organisation’s structure or operations.

Aid/Watch was granted special leave to appeal to the High Court on 12 March 2010.  PilchConnect will continue to monitor the progress of this case.

You can read the Federal Court's full decision at - Web Link Icon Commission of Taxation v Aid/Watch Incorporated.