Edited version of private ruling

Authorisation Number: 1011717989799

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Ruling

Subject: Endorsement

Question 1

Is the Association a public benevolent institution (PBI) as described in section 30-45 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Is the Association a charitable institution as described in item 1.1 in the table in section 50-5 of the ITAA 1997?

Answer

Yes.

Relevant facts and circumstances

The Association was established as an incorporated association and is governed by a constitution and managed by a board of directors.

The Association is endorsed as a tax concession charity and deductible gift recipient on the basis that it is a public benevolent institution.

The Constitution contains the following non-profit clauses:

8 (f) The income, property and funds of the Association shall be used solely towards the promotion of the objects of the Association and shall not be paid or transferred to any members or relations of members provided that nothing herein shall prevent any payment in good faith to any person in return for services actually rendered or to any person in furtherance of the objects of the Association and without undue preference.

16. If upon winding up or dissolution of the Association there remains after the satisfaction of all debts and liabilities any property whatsoever, the Association shall by resolution determine to transfer such property to any other body whether corporate or non-corporate formed for promoting objects similar to its own and which have been approved under the provision of Section 30.45, item 4.1.1 of the Income Tax Assessment act 1997.

The original objects of the Association as stated in the constitution are as follows:

a. promote and encourage the welfare, advancement, proper care and guidance of young people who are temporarily without housing.

b. provide assessment, programs, counselling and information for young people and their families as appropriate.

c. Actively support young people under twenty-five (25) years of age to encourage youth governance in the association.

d. do all things as are incidental or conducive to the attainment of all or any of the above objectives.

e. hold the property and income of the Association from whatever source derived to be applied only towards the promotion of the objects of the Association.

The above objects were amended and adopted by Special Resolution on to remove object (b) and amend object (c) as follows:

(b) Actively support young people to encourage youth governance and community participation.

The Association runs a number of projects and services for homeless and disadvantaged youth. The major departments are:

§ Outreach housing - Providing public and outreach housing and assisting clients to find suitable private rental properties where such housing is unavailable.

§ Shelter - temporary accommodation and life skills assistance provided to youth 14 to 18 years old.

§ Case management - all clients who have a housing assessment and who meet the criteria for assistance are allocated a case manager to work on the barriers resulting in or contributing to homelessness.

§ Youth programs - current programs provide support/group activities to develop social skills, parenting skills, leadership skills, employment and training and self esteem.

During the 2009/10 financial year the Association expanded their youth program services to include the operation and management of a youth venue (the project).

The project operates using the Association's ABN.

The project was devised in response to a lack of drug and alcohol free venues available to youth. The lack of drug and alcohol free youth related facilities is considered to be the main cause of youth related crime in the area stemming from both drinking and boredom.

The initial objectives of the project as stated in the proposal are as follows:

a. Providing a venue designed specifically for young people by young people;

b. To create a viable business that will become sustainable and allow for funding to continue to run relevant projects relating to youth;

c. Providing young people with an opportunity to partake in workshops and trainings offered at the project as well as gain information on services available to them.

The expected outcomes are stated in the proposal document as:

a. Youth ownership of the project, by allowing young people to play the major role in the decision making processes.

b. Creating a space that relates to young people, making the project more successful.

c. The creation of a safe place for young people that is drug and alcohol free.

d. Better information dissemination, leading to more young people accessing services to assist them.

e. Increased employment opportunities and training for young people.

f. Early intervention and prevention strategies in relation to crime, drug and alcohol use and abuse.

Additionally, the aims of the project are:

a. to provide a safe, drug and alcohol free venue for young people to use

b. provide entertainment and events with a youth focus

c. provide a community service by enabling the venue to continue to operate to the benefit of the local community

d. provide training and employment opportunities for disadvantaged youth in the area and surrounding area to improve their employment prospects

e. enable young people to be engaged in community events /activities and to contribute at a local community level

f. enable young people to be responsible for operating their own venue with guidance from the Association and other business mentors

g. enable other community and sporting groups to hire the venue and facilities for fundraising events.

The project is run voluntarily by members and other young people from the community.

Some clients of the Association who often come from socially, educationally or financially disadvantaged backgrounds were also hired to work in the project to build on their employment and social skills. The aim is for them to move onto other employment, reduce their dependence on welfare, become a more active community participant and gain independence and a successful career.

The project has been able to engage young people in the planning, renovation, staffing and operation of the venue. It has provided employment and training opportunities and by the amount of involvement required from volunteers, has built social and community involvement for a lot of youth who were disengaged from society in some way.

All clients of the Association, many who are disengaged from school and community involvement are encouraged to join and attend events held at the venue. All events conducted at the venue have a dual purpose; to benefit young people with training and event and entertainment activities and to provide entertainment to the broader community as a whole.

The project represents one department out of four operated by the Association. It roughly represents one third or less of overall activities of the Association.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 30-45

Income Tax Assessment Act 1997 Section 50-5

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

Summary

It is considered that the project is consistent with the overall benevolent purposes of the Association and will not disqualify it from being a PBI. Any non-benevolent aspects of the project are viewed as incidental or minor in extent and merely a means of achieving the benevolent purposes of the Association.

The Association is considered a PBI.

Detailed reasoning

Public benevolent institution

Item 4.1.1 of section 30-45 of the ITAA 1997 describes an entity that is a PBI.

Although the phrase 'public benevolent institution' is not defined by the ITAA its meaning has been determined by the Courts. The characteristics of a PBI are outlined in Taxation Ruling TR 2003/5 Income tax and fringe benefits tax: public benevolent institutions. Namely, a PBI is an institution which:

I. is non-profit

II. is an institution

III. is set up for needs that require benevolent relief

IV. it relieves those needs by directly providing services to people suffering from them

V. is carried on for the public benefit; and

VI. its dominant purpose is providing benevolent relief.

i) Non-profit

An institution will be accepted as being non-profit where, by its constituent documents it is prevented from distributing its profits or assets among members while its is operating and on its winding-up.

The Constitution contains non-profit and dissolution clauses. The Association is accepted as being a non-profit organisation.

ii) Institution

According to Taxation Ruling TR 2003/5 no particular structure is prescribed for a PBI but it must be capable of being separately identified. Whether a particular entity is an institution is indicated by a range of factors including its activities, size, permanence and recognition.

The Association is an incorporated association governed by a defined set of rules in the form of a constitution and managed by a board of directors. The activities of Association are dictated by its stated objects. The Association is considered an institution.

iii) Needs requiring benevolent relief

The meaning of 'public benevolent institution' was considered in Perpetual Trustee Co Ltd v. FC of T (1931) 45 CLR 224 (Perpetual Trustee case). The judgments of the High Court in that case explained the scope of the expression:

In the context in which the expression is found, and in ordinary English usage, a "public benevolent institution" means, in my opinion, an institution organized for the relief of poverty, sickness, destitution, or helplessness. [per Starke J at 45 CLR 232]

Such bodies vary greatly in scope and character. But they have one thing in common: they give relief freely to those who are in need of it and who are unable to care for themselves. Those who receive aid or comfort in this way are the poor, the sick, the aged, and the young. Their disability or distress arouses pity, and the institutions are designed to give them protection. [per Evatt J at 45 CLR 235-236]

Therefore, not all needs will be those requiring benevolent relief. Paragraph 32 of TR 2005/3 comments as follows:

32. To be a public benevolent institution, the condition or misfortune that is relieved must be such as to arouse pity or compassion in the community. Not all degrees of what might be described as distress, suffering or poverty would necessarily have such an effect. In Cairnmillar Institute McGarvie J said (at 90 ATC 4761; 21 ATR 675):

"The descriptions of persons as poor, sick, suffering, helpless, in distress, or subject to misfortune or disability are relative descriptions: a person may be moderately or severely so. I consider that the test for whether relief to such persons amounts to benevolence is whether their disability or condition is of such seriousness as will arouse community compassion and thus engender the provision of relief."

Needs that are to be met by education, training or the promotion of cultural or social objectives will not normally arouse community compassion and call forth the giving of benevolent relief. However, they might do so where the needs arise from poverty or helplessness. Paragraph 34 of TR 2005/3 states:

34. Needs that are to be met by education or training will not normally be such as to arouse compassion. This includes vocational training and apprenticeship schemes. However, there will be circumstances where education or training may be among the services provided to alleviate the effects of poverty or misfortune. For example some organisations will be public benevolent institutions where they exist to assist long-term unemployed young people cope with the problems caused by not being able to obtain employment. Such organisations encourage them to take on community service and casual employment and also offer a range of activities and training aimed at developing employment and related skills. In contrast, a training or skills organisation that does not specifically target its assistance for those suffering poverty or misfortune…would be unlikely to be a public benevolent institution.

As indicated by the stated objects and supported by its activities, the Association was initially set up to address the needs of homeless and disadvantaged youth in the community. The project was initiated as part of the Association's youth programs with similar aims.

The project was devised in response to a need for drug and alcohol free venues available to youth. The lack of drug and alcohol free youth related facilities in the area is considered to be the main cause of youth related crime, stemming from both drinking and boredom.

Additionally, homeless and disadvantaged youth have difficulty finding employment and developing skills for long term employment, resulting in continued poverty. This creates a need for training and employment opportunities to assist them to find future employment.

Such needs of the poor and of youth are consistent with the definition of a PBI. It is accepted that homeless and/or disadvantaged youth face difficulties and problems as a result of misfortune, poverty or other social issues causing them a degree of suffering that would arouse compassion in the community and warrant the provision of benevolent relief.

As indicated by the objects and activities of the Association it has been set up to address these needs and the project is another means of doing so.

iv) Direct provision of services

An organisation will only be a PBI if it provides its services directly to persons in need of benevolent relief, and it actually relieves those needs. The following paragraphs of TR 2003/5 are relevant in this case:

35. The type of misfortune or distress need not be susceptible to relief by way of material things…the effects of poverty might be addressed in terms of social and cultural conditions.

36. In Maughan, the Boys' Brigade was held to be a public benevolent institution. It operated in slum areas to provide 'intelligent occupation' during the boys' leisure hours and contributed 'to their physical, mental and moral well-being and improvement' through facilities such as 'their more fortunate brothers obtain in their own homes' (at 66 CLR 397 per Williams J). McTiernan J described the charity of the Brigade as 'excited by social conditions arising from poverty' (at 66 CLR 395).

37. We consider that promoting social and cultural objectives will only be benevolent in the required sense where the needs flow from poverty or helplessness.

159. Youth clubs will be accepted as public benevolent institutions where the circumstances are similar to Maughan v. FC of T (see paragraph 36). That is, they must be predominantly for youths from poor and disadvantaged backgrounds and provide services primarily directed to relieving their condition. Youth clubs which are principally for religious purposes are not public benevolent institutions.

The Association provides direct relief to youth in need by means of outreach housing, temporary accommodation, case management support and youth programs.

As part of the youth programs of the Association, the project provides a number of services:

§ The venue provides a safe entertainment venue where young people can spend their time in an alcohol and drug free environment.

§ It hosts a number of youth focussed events and fundraising events for the community.

§ It provides entertainment to the broader community in general.

§ Young people also have access to a wide range of social services available from the Association by means of the venue.

§ The business is run voluntarily by members and other young people from the community. It provides training and employment opportunities for disadvantaged youth to improve their employment and social skills to assist them in their transition into other employment.

The project has been able to engage young people in the planning, renovation, staffing and operation of the venue. Some clients of the Association who often come from socially, educationally or financially disadvantaged backgrounds were hired to work in the project to build on their employment and social skills with the aim of moving onto other employment, reducing their dependence on welfare, becoming a more active community participant and gaining independence and a successful career.

All clients of the Association, many who are disengaged from school and community involvement are encouraged to join and attend events held at the venue.

On the surface the venue appears to be like any other. It is a sustainable business providing a venue for the community in general. Use of the venue is not limited to youth but open to the public. However, the development of the project was to achieve specific aims directed at relieving the needs of a target group in the community, namely disadvantaged youth.

It is acknowledge that the project serves a dual purpose, one of benevolence and the other not. Though the community in general benefits from its existence and such a benefit is not considered benevolent relief, the real purpose of the project is to provide benefits to the target group. Such benefits directly relieve needs of disadvantaged youth by providing training for employment, a safe venue to spend their leisure time, reengagement with community and access to other social services offered by the Association.

In light of these factors, it is considered that the project is predominantly for youth from poor and disadvantaged backgrounds and its existence is primarily directed to relieving their condition. The Association provides direct relief to youth in need via various services and the project is considered just another way this relief is provided.

v) Public benefit

A PBI is organised to confer relief on an appreciable needy class in the community. An organisation will not be public where it provides benefits on the basis of personal or employment relationships, or a discriminatory basis rather than primarily because of need. The following paragraphs of TR 2003/5 are relevant:

75. Organisations will not be 'public' in the required sense, because they are not for the public or a section of it, where:

§ they are carried on for the profit or gain of particular persons including the organisation's individual members;

§ benefits are not provided for the public or a section of it, but rather on the grounds of, for example, personal relations, membership of a voluntary association, or employment; or

§ benefits are provided on a discriminatory basis and not primarily because of need.

76. Such organisations are not public benevolent institutions even where they purport to provide benevolent relief or where beneficial consequences can flow from their activities.

The Association is a non-profit organisation that is not carried on for the profit or gain of its members. The project is overseen by the Association and is operated as a part of the Association's activities and thus subject to the Rules of its Constitution. All profits from the project are reinvested into the project or other Youth Programs of the Association.

The project is targeted towards disadvantaged youth in the community. Limits placed on who can be involved in the project are confined to clients of the Association or volunteers and staff associated with the Association. Such limits are consistent with providing direct benevolent relief to the target group. The venue is open to all in the community. No limits are placed on who can use the venue, other than admission fees.

The project does not prevent the Association from meeting this requirement of a PBI as it is obviously carried on for the benefit of the public and not merely providing private benefits.

vi) Predominantly for benevolent relief

A PBI is a non-profit institution organised predominantly for the direct relief of such poverty, sickness, suffering, distress, misfortune, disability, destitution, or helplessness as arouses compassion in the community. Other purposes or activities must be incidental to the main purpose or minor in extent and importance.

In determining the predominant purpose of an organisation TR 2003/5 paragraph 100 states the following:

100. Deciding whether an organisation is predominantly for the provision of benevolent relief is a matter of fact and degree. It is an objective question which will involve the weighing of all relevant factors. Both the organisation's constitution and activities are relevant. As it is the character and purpose of the organisation that must be ascertained, a solely quantitative measurement would be inadequate (cf Cairnmillar Institute at 92 ATC 4312-4313; 23 ATR 321 per Tadgell J).

101. If there are changes in an organisation's constitution and operations, its status may change. This means an organisation's character upon foundation will not be determinative. However, the foundation, history and proposed future directions may all be relevant.

The Association was initially set up to assist homeless and disadvantaged youth as per the objects stated in its constitution. The Association has four main branches of activity including outreach housing, temporary accommodation, case management and youth programs.

The project is conducted under the youth programs branch and roughly accounts for a third of the overall activities of the Association.

The project achieves the following outcomes:

§ Providing a drug and alcohol free venue for local youth to frequent to address crime and social problems in the area due to youth 'boredom.'

§ Providing training and employment experience for disadvantaged youth to help them gain future employment.

§ Providing a venue to the community.

§ Running a sustainable business, with all profits being reinvested into the project or channelled back into the Association.

§ Hosting youth, other community and fundraising events.

It is clear that the project involves a number of activities and aspects that are not benevolent. Some activities carried out as part of the project, when considered in isolation, will not be considered benevolent relief. These include, running a business - namely a venue for the community; conducting fundraising activities; and hosting youth and community events. However, these activities must be considered in the context of the purposes and activities of the Association as a whole.

The overall purpose of the Association is to provide direct assistance to homeless youth suffering from social, educational or financial disadvantage. Three of the four branches of activity of the Association involve directly providing housing or temporary shelter and other assistance to individual youth. The youth programs, including the project are an additional means to provide assistance to these individuals. The aims of the project are consistent with the overall objectives of the Association.

The business and social aspects of the project are merely incidental to the benevolent purpose. It is difficult to provide business skills training and employment experience in the absence of a real business. When seen in the light of the aims of the project and overall purpose of the Association it is clear that the project business is operating as a means to provide such opportunities and not merely for commercial or social reasons.

Additionally, it is noted that the project is also a means to raise funds and awareness for the Association, which is also considered incidental and ancillary to achieving its benevolent purposes.

Conclusion

For the above reasons, it is considered that the project is consistent with the overall benevolent purposes of the Association and will not disqualify it from being a PBI. Any non-benevolent aspects of the project are viewed as incidental or minor in extent and merely a means of achieving the benevolent purposes of the Association.

The Association is considered a PBI.

Question 2

Charitable Institution

A charitable institution is described in item 1.1 in the table in section 50-5 of the ITAA 1997.

According to TR 2003/5 paragraph 127 it is accepted that entities which are public benevolent institutions are also charitable institutions.

It has already been established that the Association is a public benevolent institution. As such the Association is a charitable institution.

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