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Ruling

Subject: Confirmation of deductible gift recipient (DGR) endorsement

Question 1

Would the establishment of a new entity affect the endorsement of the taxpayer as a deductible gift recipient pursuant to section 30-125 of the Income Tax Assessment Act 1997 (ITAA 1997) based on it being a public benevolent institution under item 4.1.1 in section 30-45 of the ITAA 1997?

Answer

No

Question 2

Would the establishment of a new entity affect the endorsement of the taxpayer as a charitable institution pursuant to item 1.1 of the table in section 50-5 of the ITAA 1997?

Answer

No

This ruling applies for the following periods:

1 July 2012 - 30 June 2013

1 July 2013 - 30 June 2014

1 July 2014 - 30 June 2015

1 July 2015 - 30 June 2016

Please note that if the law changes the protection of this advice ceases from the date of effect of the change. It is anticipated that new legislation affecting the endorsement of charities will be enacted with a commencement date of 1 October 2012. Therefore the protection of this advice will cease on 1 October 2012 if this legislation is enacted.

The scheme commences on:

1 July 2012

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 30-45

Income Tax Assessment Act 1997 Section 30-125

Income Tax Assessment Act 1997 Section 50-5

Relevant facts and circumstances

The taxpayer is a company limited by guarantee.

The taxpayer is a deductible gift recipient endorsed as a public benevolent institution (PBI) starting from 1 July 2000.

Its constituent document states that it is established for the public charitable object of providing relief against poverty, distress and helplessness in Australia.

The taxpayer proposes to establish a new entity that will contain similar objects in its constituent document to that of the taxpayer.

Reasons for Decision

Summary

The establishment of the new entity would not affect the endorsement of the taxpayer as a deductible gift recipient pursuant to section 30-125 of the Income Tax Assessment Act 1997 (ITAA 1997) based on it being a public benevolent institution under item 4.1.1 in section 30-45 of the ITAA 1997.

We accept that a public benevolent institution is also a charitable institution and thus the establishment of a new entity would also not affect the charitable endorsement status of the taxpayer.

Question 1 - Public Benevolent Institution

Detailed reasoning

The taxpayer is entitled to be endorsed as a deductible gift recipient (DGR) under section 30-125 of the ITAA 1997 if it: 

· has an Australian Business Number (ABN);

· is a public benevolent institution (PBI) as described in item 4.1.1 of the table in section 30-45 of the ITAA 1997; and

· has acceptable rules dealing with the transfer of surplus gifts and deductible contributions on winding up or revocation of endorsement (see paragraph 30-125(1)(c) and subsection 30-125(6)).

Requirement (a)

The taxpayer has an ABN. This requirement is satisfied.

Requirement (b)

The characteristics of a PBI according to Taxation Ruling TR 2003/5 Income tax and fringe benefits tax: public benevolent institutions are:

· it is set up for needs that requirement benevolent relief

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

· it is carried on for the public benefit

· it is non-profit

· it is an institution, and

· its dominant purpose is providing benevolent relief.

Set up for needs requiring benevolent relief

Paragraph 32 of TR 2003/5 states:

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 Perpetual Trustee (at 45 CLR 236) Evatt J referred to disability or distress which 'arouses pity'. 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.'

Paragraph 144 of TR 2003/5 states:

144. Housing schemes may be accepted as the provision of public benevolence where they are operated by non-profit organisations to provide low rental or subsidised accommodation to underprivileged persons affected by poverty, sickness, suffering, distress, misfortune, disability, destitution, or helplessness.

The objects in the taxpayer constituent document provide that it is established for providing relief against poverty, distress and helplessness in such localities within Australia.

Each applicant must satisfy the applicable criteria in order to receive aid from the taxpayer. Applicants are prioritised according to need. These needs include:

· persons needing relocation due to natural disaster

· persons at risk of domestic violence, sexual assault or child abuse

· persons with severe and permanent disabilities, or medical issues.

· persons who are homeless

· persons who are elderly (over 80 years of age)

The conditions and misfortunes mentioned in the eligibility criteria would be considered such as to arouse pity and compassion in the community; particularly due to the extremities eligible applicants suffer from.

It is considered that the taxpayer aims to relieve benevolent needs and the establishment of a new entity would not prevent it from satisfying this characteristic.

Directly providing services

Paragraph 17 of TR 2003/5 provides guidance on this characteristic:

17. A public benevolent institution provides its aid and services directly to people in need of benevolent relief. The provision of direct relief may be achieved through the work of the employees or volunteers of the organisation itself or through its agents. Also, having regard to Australian Council for Overseas Aid v. FC of T 80 ATC 4575; 11 ATR 343, an organisation that provides services and coordination for public benevolent institutions is itself a public benevolent institution where the circumstances are the same as in that case.

In Trustees of the Allport Bequest v. FC of T 88 ATC 4436 at 4441, Northrop J held that the applicants did not directly benefit members of the public but were making donations or gifts to institutions which were public benevolent institutions.

The activities of the taxpayer provide assistance to persons in need of benevolent relief.

It is submitted that the new entity would not prevent it from meeting this characteristic.

Public benefit

Paragraphs 73 and 75 of TR 2003/5 state:

73. The main criterion, but not the only criterion, of 'public' within the compound phrase public benevolent institution is 'the extensiveness of the class it is the object of the institution to benefit': Maughan at 66 CLR 397 per Williams J. Thus if the purpose of an institution 'is to confer benevolence upon an appreciable needy class in the community' it will have complied with the most important test of what is a public institution: Lemm at 66 CLR 411 per Williams J.

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.

The objects as stated in its constituent document indicate that the taxpayer is established to assist people in need.

It is determined that the taxpayer would benefit an appreciable section of the community and there is no mention that benefits are provided on a discriminatory basis. Furthermore, the constituent document provides that distribution of profits to members is prohibited. This indicates that the taxpayer is not carried on for the benefit of its members and therefore does not contradict the public benefit element. The establishment of the new entity would not prevent the taxpayer from satisfying this characteristic.

Non-profit

Paragraph 78 of TR 2003/5 states:

78. We will accept an organisation as being non-profit where, by its constituent document or by operation of law (for example, a statute governing the organisation), it is prevented from distributing its profits or assets among members while it is operating and on its winding-up. The organisation's actions must, of course, be consistent with the prohibition...

The constituent document of the taxpayer provides a suitable non-profit clause. It is considered that the taxpayer meets this characteristic.

Institution

Paragraph 91 of TR 2003/5 states:

91. No particular structure is prescribed for public benevolent institutions. An institution has been described as 'the body (so to speak) called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle' (Mayor of Manchester v. McAdam (1896) 3 TC 491 at 497; [1896] AC 500 at 511 per Lord Macnaghten). Some institutions take the form of corporations limited by guarantee, unincorporated associations or charitable trusts. Incorporation is not sufficient on its own: Trustees of the Allport Bequest. An institution may be created by will: Lemm at 66 CLR 409-410 per Williams J. Whether a particular entity is an institution is indicated by a range of factors including activities, size, permanence and recognition. All relevant factors need to be considered and whether an institution exists will depend on its particular facts. Institutions accepted by the High Court in this and related contexts have included a Boys' Brigade, a home for aged women, a university and a university college, a publisher of law reports, a YMCA, and an association of surgeons. The word institution has a meaning 'greater than a structure controlled and operated by family members and friends': Pamas Foundation (Inc) v. DFC of T 92 ATC 4161 at 4168; (1992) 23 ATR 189 at 197.

The taxpayer is a company limited by guarantee. It has the object of providing to those in need. It employs a number of staff to carry out activities to meet its purpose. The scale of its activities is considered to be significant and it provides its services to a significant number of individuals in Australia. The establishment of the new entity would not prevent the taxpayer from satisfying this characteristic.

Dominant purpose is providing benevolent relief

Paragraphs 95 and 96 of TR 2003/5 state:

95. To be a public benevolent institution an organisation must be at least predominantly for the direct relief of poverty, sickness, destitution or helplessness. Other purposes or activities must be incidental to the main purpose or minor in extent and importance.

96. In contrast, the benevolent services provided by some organisations are only part of broader purposes or operations which cannot be described as public benevolence. Such broader purposes include propagating religion, providing social services or promoting ethnic community. These organisations are not public benevolent institutions.

Paragraph 100 of TR 2003/5 provides that predominant purpose is a question of fact and degree:

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).

The objects and activities of the taxpayer are to provide relief against poverty, distress and helplessness in Australia. It is accepted that the dominant purpose of the taxpayer is providing benevolent relief.

Requirement (c)

Subsection 30-125(6) of the ITAA 1997 provides that endorsed DGRs are required to transfer all remaining gifts, deductible contributions and money received in relation to such gifts and contributions to another deductible fund, authority or institution on winding up or on revocation of endorsement.

An organisation must be required by law, its constituent documents or governing rules, to transfer the following surplus assets to another DGR, on the earlier of winding up or revocation of endorsement:

· Gifts and deductible contributions made to the organisation for its principal purpose, and

· Money received by the entity because of such gifts and contributions

The taxpayer's constituent document provides an appropriate winding up and revocation clause.

Conclusion - PBI

The establishment of a new entity would not affect the endorsement of the taxpayer as a deductible gift recipient pursuant to section 30-125 of the Income Tax Assessment Act 1997 (ITAA 1997) based on it being a public benevolent institution under item 4.1.1 in section 30-45 of the ITAA 1997.

Question 2 - Charitable institution

TR 2003/5 states at paragraph 127:

"We accept that entities which are public benevolent institutions are also charitable institutions."

As the taxpayer continues to satisfy the requirement of a PBI, consequently, it will also continue to be entitled to tax concession charity (TCC) endorsement.

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