Fiscal and Trusts Law Privileges

'It has been contended on a number of recent occasions that the linking of fiscal and trusts law privileges to the same definition of "charitable" produces unsatisfactory results: in other words, that the decision in Pemsel's case should be reversed. To break this link by confining the fiscal privileges to a narrower range of purposes than those which attract the trusts law privileges would, it is alleged, be advantageous in two respects. First, fiscal privileges would cease to be available to a range of organisations (such as animal charities, or obscure religious sects) which are on the periphery of "charity" and do not really deserve them.

Secondly, purpose trusts of a public nature which presently fall foul of the rules as to certainty of objects because fiscal pressures have excluded them from the definition of "charitable" would no longer be thus deprived of the right to exist. According to one version of this argument there Would be accordingly be "charitable trust", privileged under both tax and trusts law, and "public purpose trusts", privileged only under trusts provided that they could show at least a modicum of "public benefit". ' Whither Charity Law: M. R. Chesterman: Charities, Trusts and Social Welfare, pp. 397-409

Cited in Hayton D. J. (2001) "Hayton & Marshall Commentary and Cases on the Law of Trusts and Equitable Remedies (11th Ed) London: Sweet & Maxwell at p. 513. Question: Explain and evaluate the views expressed considering especially whether or not such a notion would disarm critics of present charity law England has a long tradition of philanthropy through the law of trusts which is the legal from must associated with the institutional philanthropy recognized as charity. The English dictionary has defined charity as that disposition of heart which inclines men to think favourable of their fellow men1.

In its legal sense charity is a highly technical term in that it encompasses basic elements stipulating that (a) purposes in question to be charitable must be shown to be for public benefit or the community as a whole (b) It must be exclusively charitable2. However, Our definition of Charity remains rooted in the wording of the preamble to an Elizabeth Statute3 which has been described as the 17th century definition of charity at common law and lives on to be well known as the starting point of modern judicial interpretations of charitable by Lord Macnaughten in the case of Commissioners of Income Tax v Pemsel4.

In his speech, he adopted the classification of charitable trusts which had been suggested by Sir Samuel Romilly in Morice v Durham5 and divided them into four principal divisions; trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community which does not fall under the first three divisions.

In recent cases, these Lord Mcnaughten categories while emphasizing the, requirements for purposes to be beneficial to community necessary to qualify as a charitable trust have shown how difficult it is to apply in particular circumstances6. In Re Hummeltenberg it was held that the question whether or not a trust is for a purpose beneficial to the community does not depend on the testator or settler but is a question of fact to be decided by the court in evidence.

This view was finally established In the National Anti- Vivisection Society v Inland Revenue Commissioners8 case in which it had to be decided whether the promotion of kindness to animals was in itself a charitable purpose, Majority of the House of Lords while deciding, based their judgment from an extract from Lord Parker's speech in Bowman v Secular Society Ltd9 and took refuge behind the proposition that "the law cannot stultify itself by holding that it is for the public benefit that the law itself shall changed"10 .

Thus in Gilmour v Coats11 the House of Lords held that trusts for a contemplative community, though undoubtedly for the advancement of religion are not legally charitable and accordingly accepting the view that there is no case for an alteration of the content of the legal meaning of charity. Our legal witnesses have called attention to one point on which it appeared to them the need for some legislative action to be taken.

As already established within the Lord Macnaughten four divisions the trust must demonstrate public benefit, to decide whether or not the common characteristic which is shared by a number of persons is or is not such as to make them a section of the public is obviously a difficult matter. In Re Compton12, Lord Greene MR in whose judgment the others concurred, laid down the principle that a trust for persons related to a named individual could never be a charitable trust, since in such a case their claim to be objects of the trust depended on a purely personal element i.

e. the personal nexus test. This principle was applied by the Court of Appeal in Re Hobourn Aero Components Ltd13and was approved by majority of the House of Lords in Oppenheim v Tobacco Securities Trust Co Ltd14. Though Lord MacDermott considered that the fact that this test ought not to be regarded as decisive, he came to the conclusion that it would be a mistake to alter the law by providing that the element of public benefit is not to be excluded by reason only of the nexus of common employment.

Though this concept of public benefit lies at the heart of charity law it is not sufficient to decide what a charitable purpose is, as it must also be beneficial in way the law regards as charitable. How then does one decide what is charitable in the eyes of the law? The Traditional answer which has been justified in Williams' Trustees v IRC15 is "By looking at the at the preamble of the Statute of Elizabeth and then asking yourself whether the trust in question is within the spirit or intendment or the purpose analogous to the purposes therein set out".

This answer has been regarded by many unsatisfactory , as the purposes referred to in the Preamble has been described as a rather odd collection which composes a number of the more important charitable purposes at that time when the Act was passed, and in this way it has been regarded by the courts, for many of the purposes held good in recent times under Lord Mcnaughten's fourth head to be remotely associated with the objects in the statute16,such as relief from taxes as being 'within the equity of the Act'.

This also means the courts would reject any other type of trust which purposes fell out of the statute. i. e. (public purpose trusts) thereby confining charitable purposes as are expressed in the Act or to purposes having analogy to those. This principle was enunciated in Houston v Burns17 where it was held that objects of the trust were invalid as the words used are wide enough to constitute non-charitable purposes , there is, therefore no question of perpetuity involved.

Consequently making this process of definition completely circular in operation. This has led the legal commentators to believe that most of these decisions from the courts in which they have shown to limit the scope of charity have been heavily influenced by the recognition that charitable status conferred potentially significant fiscal advantages18.

Brunyate19 in wanting to eliminate at least some of the anomalies preserved by the law considered that the determination of charitable purpose is based on analogy which is an unprincipled method of extending law in that 'a decision benevolent to one doubtful charity has too often been the basis of a subsequent decision still more benevolent in favour of another', thereby being archaic and unsuited to meet modern conditions.

Warburton considered that for simplicity, the tax system requires a single definition of charity20. In Dingle v Turner21, Lord Cross was of the opinion that the best hope of bringing some order into the law of charity lies in separating the question whether a trust should be regarded as a charitable trust for the purpose of general law of trusts from the question whether it should enjoy any special fiscal privileges.

The logical solution to separate them was proposed by the Radcliffe Commission22where they recognised that though they were two quite different questions; as the law stands today an answer to one automatically answers the other. This is indeed curious, because if the definition is so similar to that already defined in law, why confine them to seperate definitions?

In the law of Trusts, public purpose trusts are held invalid23 because of its uncertainty in objects and in such circumstances the trust will fail, consequently, the organisation and its activities may continue to exist, but without the benefits of charitable status, now if one looks beyond the economic balance, the advantages which charitable trusts receive under the law of trusts that is; exception to the rule against perpetuities and uncertainty, which are predicated on the theory that charities provide important public services i. e. they are "public trust" and confer an appreciable benefit of some sort on the public and all that is required of a trust to make a charitable trust was that it was a public trust and it confers an appreciable benefit of some sort on the public, there is no reason why the rules relating to public purpose trusts should not enjoy a more liberal approach and accordingly be construed as a gift for charitable purposes .

As regards their charitable status, if circumstances later change such that the original purpose of the trust is no longer charitable the funds would be held by the charity for the charitable purposes for which they were given and those funds should continue to be applied to those charitable purposes, via doctrine of cypres if necessary. Though this approach seems moderate it still poses the question as to which type of charitable purposes should attract fiscal privileges.

While it seems axiomatic that charitable trust serves public purposes to an extent, it is hardly possible especially in the view of the inconsistencies in decisions on charitable status to maintain that all trusts for charitable purposes deserve tax exemption of some sort. In an attempt to solving this problem, the Charity Law Reform Committee24 proposed that fiscal privileges associated with charity should be granted to all genuinely non-profit distributing organisations .

This recommendation is concerned with bringing the law's concept of charity in line with institutional philanthropy25 by insisting that only genuinely altruistic are categorized as charitable. A radical approach to this recommendation is that an organisation can still provide public good without being altruistic e. g. People might support a cancer research facility as insurance against the day when they themselves might be diagnosed with cancer.

The Irish Law Reform Committee report also suggestive of such a scheme was of the opinion that 'The option of tiered tax relief depending on the type of charitable purpose being undertaken should be given further consideration particularly as it might allow for the possibility of according voluntary organisations with tax exemptions while reserving the full gamut of relief the those organisations qualifying as charities'

.Micheal Chesterman while writing on 'A Model for Tax Form26 disagreed that charitable gifts should be available to public educational institutions or to any one of a large number of individual listed charities for example marriage guidance councils and the RSPCA, private hospitals. Ben Whitaker in the Goodman Report27 held that such institutions by virtue of charging high fees or the express terms of their governing instruments are wholly or substantially confined to benefiting richer members of the community and should be excluded.