This insight concerns a decision by the Australian Charities and Not for Profit Commission (ACNC) in September 2020 to refuse an application by Angel Loop Ltd (the Applicant) to be registered as a charity pursuant to section 25-5(5) of the Australian Charities and Not for profits Commission Act 2012 (the Act).

Why was Angel Loop’s charity application refused?

The ACNC refused the application on the basis that not all of the Applicant’s purposes were charitable purposes for the public benefit, as it determined that, “the Applicant had an independent, non-charitable purpose of facilitating private business relationships for the primary benefit of entrepreneurs and angel investors.” Section 5 of the Charities Act 2013 requires that all purposes must be charitable purposes for the public benefit, or incidental or ancillary thereto.

Angel Loop’s appeal to the Tribunal

The Applicant appealed to the Tribunal seeking a review of this decision.

The Applicant facilitates an environment for prospective inventors to connect with entrepreneurs – the entrepreneurs are given the opportunity to assess the inventor’s idea and provide capital to take it through to commercialisation if they see potential in the invention (think Shark Tank). During this process, the Applicant brings the investor and inventor together, screens the proposals, offers education sessions for both parties and assists the Angel group or groups to gather the necessary finance to fund the proposal.

The Tribunal distinguished the present matter from the precedent set by Taxation v Triton Foundation (2005) FCR 1319 (Triton), where the Federal Court accepted that the promotion of a culture of innovation and entrepreneurship is capable of being a charitable purpose as an aspect of the promotion of industry or commerce. In Triton, it was established that there was a focus on providing assistance to the inventor (only), however in the present case, help is not only given to the inventor, but also to the investor who has the potential to gain immensely from the commercial deal.

The Tribunal’s decision of the Angel Loop case

The Tribunal affirmed the ACNC’s decision that the application was not entitled to registration of a charity pursuant to section 25-5(5) of the Act and stated as follows:

[28] While it is true that the activities of the Applicant in this matter would be likely to increase entrepreneurial business activity in a positive way and provide encouragement for innovation and entrepreneurship, the evidence does not show that that is the sole or predominant purpose of the Applicant. The Applicant goes further than encouragement. Part of its essential activities is obviously to bring about an arrangement between an inventor and an entrepreneur(s). Its core function is not simply to educate and encourage or assist. A core function is to bring about a commercial deal between investor and inventor. That cannot be said to be ancillary to the charitable purpose. It is a purpose, if not the main purpose, of the Applicant. It is a non-charitable purpose even though it is doubtless a worthy purpose.

What can other charities learn from the Angel Loop case?

Prior to making an application to the ACNC, charities should carefully review their purposes and activities. This is to ensure that the charity can prove that all of its purposes are charitable and for the public benefit and that the purposes are incidental or ancillary to and in furtherance of, or in aid of those purposes.

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