A so-called charity that spent more than $1 million on luxury cars, overseas jaunts and gambling in the name of research has failed to regain its tax-free charitable status.

The Federal Court did not uphold the appeal from The Study and Prevention of Psychological Diseases Foundation (SPED), which was fighting the Australian Tax Office over the loss of its charity tax concessions and deductible gift recipient status for its work to study the "ideal human environment".

James Salerno, photographed in 1999 as he prepared to live in a remote part of Western Australia for three months as part of an experiment on the "ideal human environment". Credit:Bryan Charlton

It referred the case back to the Administrative Appeals Tribunal to reconsider the dates from which the foundation should lose its charity status.

The Brisbane-based foundation purchased a Rolls-Royce for about $695,000, a $100,000 Hummer, and a $300,000 Ferrari for what it claimed was research.