When Activities Look Mixed: Why Role-Separation Matters in Charity and Business Structures

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Published: 19 November 2025 | Reviewed: 19 November 2025
(3-minute read)

Case Summary - what the High Court clarified

In Commissioner of Taxation of the Commonwealth of Australia v Word Investments Ltd [2008] HCA 55, the High Court considered whether a company that ran a commercial funeral business could still qualify as a charitable institution for income-tax exemption.

Word Investments raised funds commercially, but applied all profits to support missionary organisations whose charitable status was undisputed.

The Commissioner argued that Word’s activities were too commercial to reflect a “charitable institution.”
The Court rejected that view, emphasising that:

“One must distinguish between the objects or purposes of a company and the activities by which those objects or purposes are achieved.”

And:

Word’s commercial activities were “merely the means” for carrying out its charitable purposes.

The key reasoning:

• Purpose is determined by objects, constitutional powers and distribution rules.

• Activities may look commercial, but do not change purpose if they are only operational pathways.

• All of Word’s profits were structurally directed to charitable beneficiaries.

The Court held Word was indeed a charitable institution under s 50-50(a) of the Income Tax Assessment Act 1997.

Why It Still Matters -
transparency in mixed-activity organisations

Modern organisations commonly operate across multiple “streams”:
commercial revenue, community impact, grant-making, or advocacy.

This case highlights a persistent transparency problem:

When activities mix, outsiders can misinterpret purpose.

Regulators, partners, donors or counterparties may assume:

• Commercial income = commercial purpose

• High-revenue business units = private benefit

• Mission work + trading activity = dual purpose

But Word Investments shows that mixed activity does not automatically create mixed purpose.
The real question is whether the organisation maintains clear, visible, traceable separation between:

• purpose (the “why”),

• activities (the “how”), and

• distribution or application of funds (the “where it ends up”).

Without that clarity, decision-makers often fill gaps with assumptions, exactly the risk the Commissioner advanced.

This is why structural transparency is essential: when functions and financial flows are not clearly distinguished, organisations become vulnerable to misinterpretation, even when acting in good faith.

How to Avoid the Same Trap -
role-separation as a governance feature

The tension in Word Investments arose because the organisation’s activities looked commercial, while its purpose was charitable.
That mismatch made its intentions easy to misread.

Clean Law’s closest structural protection against this kind of ambiguity is role-separation combined with transparent controls.

1. Clear functional boundaries

In Word Investments, the Court relied heavily on the fact that:

• the purpose function (supporting charity)

• was distinct from the activity function (running funeral services).

Similarly, Clean Law’s two-lawyer model keeps purpose and activity separate: the courtroom lawyer handles advocacy, while the client-side lawyer manages settlement and governance analysis. This separation is designed to reduce role confusion, not guarantee outcomes.

2. Transparent financial pathways

Word’s profits could be traced directly to charitable beneficiaries.
That transparency was decisive.

Clean Law applies a parallel structure through escrow-based fund control, clients authorise each stage, creating visible, auditable pathways that prevent unnecessary blending of roles or incentives.
(Described in the Two-Lawyer Model.)

3. No referral fees or shared profits

A key risk in mixed-activity structures is unseen incentives.
The Court noted that Word’s distribution rules kept motives clean.
Likewise, Clean Law’s prohibition on referral fees and profit-sharing with courtroom lawyers (see our Referral Policy) acts as a governance feature to maintain transparency in professional boundaries.

4. ACNC-style independence mechanisms

Word’s constitution, not its day-to-day activities, anchored its charitable purpose.
Modern organisations benefit from a similar approach:

structural independence mechanisms that show publicly how decisions are made, funds are applied, and responsibilities are divided.

These features don’t promise outcomes, they make intentions and roles visible, which is what regulators look for when evaluating purpose.

Reflection

The lesson of Word Investments is not simply that charities can run businesses.
It is that role-separation and transparent flow of purpose, activity and funds allow outsiders to correctly interpret what an organisation stands for.

Where functions blur, purpose is vulnerable to challenge.
Where boundaries are visible, the law is far more willing to accept that commercial methods can faithfully serve non-commercial ends.

If this case raises questions about how your own organisation’s roles and funding pathways are perceived, our role-separation framework explains how structural features provide clarity without promising outcomes.

Learn more about transparent role-separation →

A private discussion can help untangle whether your organisation’s activities and stated purposes are aligned in a way that regulators will recognise.
Our consultation process operates under audit-visible trust-account controls and independent governance.

Book a confidential consultation

By Nicky Wang
Principal Solicitor
Legal Liaison Ltd (trading as Clean Law)
Prepared in accordance with public-interest governance,
annual Law Society trust-account audits, and ACNC-reported standards.

Disclaimer: This page is intended to provide general information only and is not legal advice. The contents may not reflect the most current legal developments and do not take into account your individual circumstances. You should not act or refrain from acting on the basis of this information without obtaining legal advice tailored to your situation.