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Sports - why are they not charitable?

Sports - why are they not charitable?

By Jennifer Batrouney QC and Angela Lee

Health Wellbeing 


There are calls for the inclusion of advancing amateur sports as a charitable purpose to reflect contemporary society. Snapshot Participation in amateur sports brings many health benefits, which in turn benefits the community, including by reducing the burden on Australia’s healthcare system. Yet, the purpose of advancing amateur sports is not charitable of itself under common law (for state law purposes) or statute (for federal law purposes). Charity law should move with the times. There is now good reason for the promotion of amateur sports to be accepted as a charitable purpose. The word “charity” has a popular meaning and a technical meaning. Its popular meaning is often associated with “the relief of . . . necessity, destitution, or helplessness”. 1 Its technical meaning is far broader – it stems from the Elizabethan Statute of Charitable Uses 16012 and has been distilled into four “heads” of charity, namely: 1. the relief of poverty 2. the advancement of education 3. the advancement of religion 4. other purposes beneficial to the community.3 In respect of all four heads, there must be the “intention of contributing to the public welfare”.4This requirement may be assumed in respect of the first three heads of charity until the contrary is shown, but must be established in respect of the fourth head. The fourth head can be wide-reaching and has been held to include: a gift to establish a home to care for homeless, stray and unwanted animals5 the preservation of ancient cottages so that “the whole of the people of this country . . . should have an opportunity of seeing beautiful and picturesque buildings and cottages of this kind”6 an entity formed to promote “a culture of innovation and entrepreneurship in Australia”.7 Organisations that fall within the technical meaning of “charity” can access various revenue concessions/exemptions, as well as other registrations and transfer concessions/exemptions. The rationale is often that the works of the charities represent savings on public funds – if the works were not carried out by charities, the government may have to bear that burden, with the works funded out of the public purse.8 We will consider the above framework in respect of an organisation that promotes amateur sports, in the context of Australia’s obesity problem. Australia’s obesity problem According to a 2017 report from the Australian government’s Australian Institute of Health and Welfare (AIHW):9 “Overweight and obesity is a major public health issue, with nearly 2 in 3 adults and 1 in 4 children in Australia considered overweight or obese. The Australian Burden of Disease Study 2011 modelled the impact of overweight and obesity and showed it is one of the leading risk factors for ill health and death”.10 In respect of adults, “[c]hronic diseases associated with overweight and obesity include many of the leading causes of morbidity, mortality and burden of disease in Australia. These include cancer, cardiovascular disease, diabetes and musculoskeletal conditions”.11 In respect of children, “[o]verweight and obesity in childhood is associated with poor mental and social health outcomes, and linked to comorbid chronic conditions such as Type 2 diabetes, asthma, sleep apnoea, some orthopaedic and gastrointestinal problems, and non-alcoholic fatty liver disease”.12 AIHW also reports that “[r]ates of overweight and obesity are continuing to rise in Australia”.13 A main factor “influencing overweight and obesity . . . [is] inadequate physical activity”.14 The Victorian government has published an article titled “The dangers of sitting: why sitting is the new smoking”.15 The article warns that a “sedentary lifestyle can affect your physical health, increasing the risks of some diseases (such as heart disease, some cancers and diabetes) . . . Too much sitting can also be bad for your mental health”.16 Special reference was made to children and daily “screen time” (such as television, computers or game consoles), including such time spent in their bedrooms.17 There is a substantial financial cost in respect of the “prevalence and severity of obesity in Australia”.18 The costs of obesity in 2011-12 for adults was $8.6 billion, including $6.06 billion to the federal government and $390 million to state governments.19 In addition, “[i]f no further action is taken to curb the growth in obesity . . . [it is projected] that there will be a total of $87.7 billion in additional direct and indirect costs to Australia accumulated across [2015] to 2025”.20 To combat the health issues arising from a sedentary lifestyle, the Victorian government encourages people to become more active.21 This is because physical activities “can prevent, remediate and control diseases, including those associated with obesity”.22 The promotion of amateur sports Consider an organisation that promotes amateur sports – perhaps a local amateur youth soccer club (hypothetical club). Its stated objectives might be:23 to fund and develop activities and programs to promote, organise and carry on the sport of amateur youth soccer to fund, promote and develop local amateur youth soccer programs and coaching appropriate to different age groups and different levels of ability to increase participation in the sport of soccer to raise funds for facilities and equipment necessary to achieve the foregoing objects in ways the law regards as charitable.24 For the club’s purposes, “amateur soccer” might be defined as “soccer that is played for the purpose of deriving the physical, mental and social benefits that organised sport has to offer other than present or future commercial gain”.25 The club’s key activities might be “to administer and perform all the functions necessary to support local youth soccer in communities in [Victoria]”, such that it can “offer youths in the community the opportunity to develop and hone soccer skills through practice and competition”.26 Having regard to the foregoing, one could well believe that the hypothetical club would fall within the technical meaning of “charity”. However, this is unlikely to be the case under common law or statute. Treatment under common law The leading case regarding sports in the context of charity law is Re Nottage27 concerning the promotion of yacht-racing. The year was 1895. Automobiles were “just rearing their . . . heads and, for the most part, the people who needed to exercise on a regular basis in order to maintain health were the wealthy who could afford yachts. Those who could not afford yachts were, for the most part, persons who by the very nature of their way of life exercised on a regular basis daily either in their work or by walking”.28 That is, yachting and yacht ownership “were primarily restricted to the amusement of the wealthy”.29 In Re Nottage, a testator bequeathed a fund in trust to provide for a cup to be presented annually to the Yacht Racing Association of Great Britain’s most successful yacht of the season. The Yacht Racing Association “is a society of yacht-owners, the prizes are to be won by yacht-owners, and the testator tells us that his object in founding the prize is to encourage the sport of yacht-racing”.30 The Court of Appeal held that the gift was not a charitable gift. Lindley LJ held: “It is a prize for a mere game . . . Now I should say that every healthy sport is good for the nation – cricket, football, fencing, yachting, or any other healthy exercise and recreation; but if it had been the idea of lawyers that a gift for the encouragement of such exercises is therefore charitable, we should have heard of it before”.31 Having regard to the facts in Re Nottage and the time the decision was made, it is: “. . . perhaps unsurprising that the court would refuse charitable status, the court being disinclined to endorse, via the law of charity, ‘the vision of the owner of an ocean racing yacht holding a trophy aloft in triumph . . . as meriting all the fiscal advantages which go with charitable status’”.32 Re Nottage was approved in Royal National Agricultural and Industrial Association v Chester33 in which the High Court held that a bequest for the breeding of homing pigeons was not charitable. Chester has been “followed in Australia in a long line of cases”34 including the 2011 decision of the NSW Court of Appeal in Northern NSW Football. The appellant had 13 objects, which included “to govern Football throughout the State” and “to provide and promote Football as an undertaking which benefits communities within the State through enhancement of and improvement in, the health and general well-being of participants”.35 Its principal activities were the “promotion and management of the game of football throughout Northern NSW”.36 At first instance, the Administrative Decisions Tribunal of NSW held that the appellant was charitable. The decision was overturned by the Tribunal’s Appeal Panel and, on further appeal, the Court of Appeal affirmed the Appeal Panel’s decision. The Court held that the purpose of the appellant was the “promotion and management of football. The benefit to communities [(eg, the improvement of health and general wellbeing of participants) was] a result”.37 It follows that, prima facie, the hypothetical club would not be a charity under common law. This is not to say that an organisation that promotes sport could never be a charity – it can, but it must do so in tandem with another purpose, for example: the promotion of sports in the context of advancing education at schools or universities38 the provision of sporting grounds for public use39 the promotion of fitness, eg, the promotion of the use of bicycles, whether for transport or leisure, as part of a strategy to promote fitness and, by that means, prevent disease.40 Treatment under statute A statutory definition of “charity” was introduced in the Charities Act 2013 (Act) for the purposes of all Commonwealth legislation. There are 12 categories of “charitable purposes” under the Act.41 As the relevant Explanatory Memorandum (EM)42 explains, the definition “generally preserves the common law principles”.43 Having regard to the common law authorities discussed above, it is unsurprising that the promotion of amateur sports is not charitable under the Act. In fact, the EM specifies that “[a] purpose that is essentially . . . sporting is not charitable regardless of motivation or the benefits to the general public that can result”.44 However, as under common law, if “sporting activities . . . are incidental to a charitable purpose and further or aid that purpose, such as health or education, [they] do not necessarily prevent that purpose from being charitable”.45 The Australian Charities and Not-for-profits Commission (ACNC) recognises this. If a club provides sporting activities as part of achieving a recognised charitable purpose such as social or public welfare, it may be a charity. For example, a club whose purpose is to support participation by people living with disability in sport to improve their quality of life may be a charity.46 Similarly, the Australian Taxation Office (ATO) recognises this. A club that promotes sporting activity can still be charitable if the activity is simply a means by which a broader charitable purpose is achieved.47 ‘A moving subject’ As Lord Wilberforce famously held, the law of charity is a moving subject, which should evolve to accommodate new social needs.48 It seems that a widespread social need has arisen – that is, the modern day sedentary lifestyle is contributing to a high incidence of obesity, which in turn is causing significant health issues and imposing substantial “direct, indirect and health and wellbeing costs to individuals, families and Australians in general”.49 As the Victorian government has identified,50 a (seemingly straightforward) way to address the problem is to encourage individuals to be more active. Amateur sporting clubs seem well-placed to contribute in this regard. Social needs in respect of sport and physical activity have changed substantially since the time Re Nottage was decided. The time is ripe for the promotion of amateur sports to be treated as a charitable purpose under both common law and statute. To achieve this under common law, the High Court would need to overrule the line of authority that stems from Re Nottage. In Commissioner of Taxation v Word Investments Ltd51 the High Court held: “. . . the charitable purposes of a company can be found in a purpose of bringing about the natural and probable consequence of its immediate and expressed purposes, and its charitable activities can be found in the natural and probable consequence of its immediate activities”.52 In respect of the hypothetical club, it seems that: the natural and probable consequence of its immediate and expressed purpose of promoting amateur youth soccer is the promotion of fitness the natural and probable consequence of its immediate activities of providing youths in the community the opportunity to develop and hone soccer skills through practice and competition, but not for present or future commercial gain, is the promotion of fitness. Given the strong (and seemingly uncontroversial) link between increasing physical activities and improving health, the Court may accept the “natural and probable consequence” argument. In addition, having regard to the substantial costs to the government at both the federal and state levels, advancing amateur sport can help relieve the public purse, which is charitable under common law.53 As for the definition under the Act, statutory amendment may be required – a move that would bring Australia’s statutory position closer to that of England, Scotland and New Zealand.54 Jennifer Batrouney QC is the immediate past president of the Victorian Bar. She practises in taxation, commercial, administrative, equity, superannuation and charity law. Ms Batrouney is chair of the Law Council of Australia’s Charities and Not-for-profit Law Committee and is a director of the Charity Law Association of Australia and New Zealand. Angela Lee is a barrister at the Victorian Bar, practising predominantly in taxation, charity and administrative law. She is a member of the Law Council of Australia’s Business Law Section Committee, the Tax Institute’s Dispute Resolution Technical Committee and the Victorian Bar’s Tax Bar Association Committee. 1. The Commissioners for the Special Purposes of Income Tax v Pemsel AC 531 [1891], at 572. 2. 43 Eliz I, c 4. 3. Note 1 above, at 583. 4. Royal North Shore Hospital of Sydney v AG (1938) 60 CLR 396 at 426. 5. Attorney-General v Bray (1964) 111 CLR 402. 6. Re Cranstoun [1932] 1 Ch 537 at 545. 7. Federal Commissioner of Taxation v Triton Foundation (2005) 147 FCR 362. 8. Strathalbyn Show Jumping Club Inc v Mayes (2001) 79 SASR 54, at [115]. 9. AIHW’s “Impact of overweight and obesity as a risk factor for chronic conditions”, April 2017, www.aihw.gov.au/reports/burden-of-disease/impact-of-overweight-and-obesity-as-a-risk-factor-for-chronic-conditions. 10. Note 9 above, pvi (references omitted). 11. Note 9 above, p1. 12. Note 9 above, p1. 13. AIHW webpage, “Overweight & obesity” www.aihw.gov.au/reports-statistics/behaviours-risk-factors/overweight-obesity/about. 14. Note 13 above. 15. Better Health Channel webpage, www.betterhealth.vic.gov.au/health/healthyliving/the-dangers-of-sitting. 16. Note 15 above. 17. Note 15 above. 18. PwC Report, “Weighing the cost of obesity: A case for action”, October 2015, www.pwc.com.au/pdf/weighing-the-cost-of-obesity-final.pdf, at piii. 19. Note 18 above, at p10 (table 2.1.3). 20. Note 18 above, at piii. 21. Note 15 above. 22. Bicycle Victoria Inc v Commissioner of Taxation (2011) 81 ATR 924, at [181], in the context of cycling. 23. Facts are modelled on those in AYSA Amateur Youth Soccer Association v Canada (Revenue Agency) [2007] 3 SCR 217. 24. Note 23 above, at [2]. 25. Note 23 above, at [3]. 26. Note 23 above, at [3]. 27. [1895] 2 Ch 649. 28. Re Laidlaw Foundation (1984) 13 DLR (4th) 491 (HCJ(Ont)) at p20 (of pdf). 29. Note 28 above, at p15 (of pdf). 30. Note 27 above, at 656. 31. Note 27 above, at 655, see also at 656 per Lopes LJ. 32. G Dal Pont, 2017, Law of Charity, 2nd edn, LexisNexis Butterworths, Australia at [12.2], citing P Smith, “Charity and A Question of Sport” (1998) 5 CLPR 135 at 135. 33. (1974) 3 ALR 486. 34. Northern NSW Football v Chief Commissioner of State Revenue (2011) 83 ATR 603, at [36]. 35. Note 34 above, at [5]. 36. Note 34 above, at [21]. 37. Note 34 above, at [24]. 38. See Re Mariette [1915] 2 Ch 284 and Kearins v Kearins [1957] SR (NSW) 286 respectively. 39. Note 8 above. 40. Note 22 above, at [193]–[194]. 41. Section 12(1). 42. The Explanatory Memorandum to the Charities Bill 2013. 43. Note 42 above, p3. 44. Note 42 above, at [1.146]. 45. Note 42 above, at [1.147]. 46. ACNC Fact Sheet: Sporting clubs and associations and the ACNC: www.acnc.gov.au/ACNC/FTS/Fact_Type_Sporting.aspx. 47. ATO Ruling TR 2011/4: Income tax and fringe benefits tax: charities, at [266]. 48. Scottish Burial Reform and Cremation Society v Glasgow Corporation [1968] AC 138 at 154. 49. Note 18 above, at piii. 50. Note 15 above. 51. (2008) 236 CLR 204. 52. Note 15 above, at [38]. 53. Note 8 above, at [115]. 54. Note 32 above, at [12.9], footnote 46, and [19.16].

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