Qld tax office's appeal to reverse ‘charitable institution’ status of pre-school trust fails

Leslie Masterman died in July 1991. In his will, he called for the establishment of a charitable trust to educate Aboriginal children in the Cape York Peninsula through the Montessori method.

In December 2005, the Masterman Montessori Indigenous Children’s Trust was established. Between 2005 and 2009, the Trustee established Montessori early childhood classrooms on a number of islands in the Torres Strait and trained local facilitators.

In mid-2020, the Trustee entered into contracts to purchase three properties in Cairns to generate income and conduct activities.

“The Trustee entered into contracts to purchase three properties in Cairns so as to conduct a share house business from them, with a view to providing the Trustee with real property assets that generated income and premises from which to conduct its activities and administration,” court documents read.

“Thereafter, the Trustee began delivering the program it had developed to the Indigenous community in the Cairns area, through a weekly playgroup that was free of charge to members of that community.”

On 2 November 2020, before the settlements of the property contracts, the trustee lodged an application to be registered as a charitable institution under the Administration Act.

It described its principal activities as “public benevolent activities, namely advancing the education of Indigenous children in the Cape area,” therefore making it eligible for registration as a “public benevolent institution.”

On 24 November 2020, the trustee signed transfers in respect of the properties, marking the ‘Relevant Date’ for registration of the Trustee as an “institution.”

In Queensland, “charitable institutions” can apply for exemptions from payroll tax, land tax and transfer duty, also known as stamp duty.

Because of this, the trust’s property transactions were exempt from stamp duty.

However, the Queensland Commissioner of Taxation (QCT) argued in the Supreme Court of Queensland that the trust had been falsely deemed an “institution” and therefore should have been liable for stamp duty.

It argued that the establishment of an institution “must involve more than the mere holding of property for charitable purposes and being a conduit for funding the activity of someone else.”

While the term ‘institution’ is not defined in the Taxation Administration Act 2001 (QLD), Australian case law distinguishes between a ‘mere trust’ and an ‘institution’ which actively conducts activities aligned with its purpose.

The court dismissed QCT’s appeal, finding that the trust was indeed an institution.

Firstly, it found that the respondent did not seek registration as a charitable institution in its personal capacity, but as a trustee with a “specific charitable trust with specific charitable objectives.”

It also found that the Trustee did “far more” than simply hold assets for charitable purposes, supporting a conclusion that it had used trust property to carry out charitable objectives.

“A consideration of the substantial activities undertaken by the Trustee, between 2019 and the application for registration as an institution, supports a conclusion that it used trust property in carrying out the charitable objects,” court documents read.

“The development of a specified curriculum for the program, which was directly provided by the respondent, was an activity consistent with the direct provision of services, by the Trustee, in accordance with its charitable purpose. The Trustee, by that stage, had moved from being a mere Trust, providing funding for others to provide services consistent with its charitable purposes.”