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Edited version of your private ruling
Authorisation Number: 1012529640860
Ruling
Subject: Income tax exemption
Question 1
Does the proposed investment affect the existing endorsement of the entity as an income tax exempt entity pursuant to Division 50 of the Income Tax Assessment Act 1997?
Answer
No
This ruling applies for the following periods:
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
Year ended 30 June 2018
Relevant facts and circumstances
The Entity is an Australian incorporated company limited by guarantee.
The Entity was established to advance education.
The Entity is non profit.
The Entity is a Registered Charity.
The Entity is endorsed as a tax concession charity and is exempt from income tax.
The Entity is also endorsed for GST and FBT concessions.
Proposed Investment
The Entity has an opportunity to invest in an educational facility located overseas.
The Entity will use gifts and grants it receives to invest in the Proposed Investment.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 50-50
Income Tax Assessment Act 1997 section 50-52
Income Tax Assessment Act 1997 section 50-75
Income Tax Assessment Act 1997 section 50-110
Income Tax Assessment Act 1997 section 995-1
ATO view documents
Taxation Ruling TR 2000/11 Income tax: endorsement of income tax exempt charities
Reasons for decision
1. Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the income of certain types of organisations is exempt from income tax.
2. Exemption from income tax as a Registered Charity under item 1.1 of section 50-5 of the ITAA 1997 is subject to the special conditions contained in sections 50-50 and 50-52 of the ITAA 1997.
3. A Registered Charity is registered as such by the Australian Charities and Not-for-profits Commission (ACNC) and for the purposes of income tax, is defined in section 995-1 of the ITAA 1997:
registered charity means an entity that is registered under the Australian Charities and Not-for-profits Commission Act 2012 as the type of entity mentioned in column 1 of item 1 of the table in subsection 25-5(5) of that Act.
4. Section 50-50 of the ITAA 1997 provides that a Registered Charity is not exempt from income tax unless it has a physical presence in Australia, and to that extent incurs its expenditure principally in Australia.
5. Section 50-52 of the ITAA 1997 stipulates that a Registered Charity is not exempt unless it is endorsed.
6. An entity is entitled to be endorsed pursuant to section 50-110 of the ITAA 1997 if it has an ABN and meets the special conditions described in sections 50-50 and 50-52 of the ITAA 1997.
7. The Entity is presently exempt from income tax as it is a Registered Charity, has an ABN, is located in and incurs its expenditure in Australia and is endorsed.
8. As the status of whether an entity is a Registered Charity is determined by the ACNC, this ruling can only address whether the Proposed Investment will affect whether the Entity meets the special conditions specified in sections 50-50 and 50-52 of the ITAA 1997.
Section 50-50 of the ITAA 1997
9. Paragraph 50-50(1) (a) of the ITAA 1997 requires that an entity:
(a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia;
10. The Entity has a physical presence in Australia however as the Proposed Scheme will occur outside of Australia, the Entity will not incur its expenditure nor pursue its purposes principally in Australia as required by paragraph 50-50(1) (a) of the ITAA 1997.
11. However, the Entity can still undertake the Proposed Scheme and meet the requirements of section 50-50 of the ITAA 1997 by virtue of section 50-75 of the ITAA 1997.
Disregarded amounts - Section 50-75 of the ITAA 1997
12. The Entity can satisfy the requirements of section 50-50 of the ITAA 1997 by way of the disregarded amounts concept described in section 50-75 of the ITAA 1997. Its states in part:
50-75(1)
In determining for the purposes of this Subdivision whether an institution, fund or other body incurs its expenditure or pursues its objectives principally in Australia, distributions of any amount received by the institution, fund or other body as a gift (whether of money or other property) or by way of government grant are to be disregarded.
13. As discussed in Taxation Ruling TR 2000/11 Income tax: endorsement of income tax exempt charities, section 50-75 of the ITAA 1997 operates to disregard any gifts or governments grants when considering whether an entity meets section 50-50 of the ITAA 1997. Paragraph 16 of TR 2000/11 describes further:
Distributions of gifts or government grants that an entity has received in its own right or for a gift deductible fund, authority or institution it operates, are disregarded when determining whether it incurs its expenditure or pursues its purposes or objectives in Australia: section 50-75. The gifts do not need to be tax deductible. For the purposes of this provision the word 'gifts' is taken broadly to include receipts from fund raising by means of raffles, dinners, auctions, jumble sales and the like. However, receipts from commercial activities or under contract for services are not 'gifts'.
14. Therefore an entity can undertake activities and incur expenditure overseas and still meet the requirements of section 50-50 of the ITAA 1997, as it is assumed that any distributions are from non-deductible gifts or government grants.
Conclusion
15. Whilst the Entity will pursue its purposes and incurs its expenditure overseas by way of the Proposed Investment, the disregarded amounts concept specified in section 50-75 of the ITAA 1997 will operate to allow the Entity to continue to meet the special conditions in sections 50-50 and 50-52 of the ITAA 1997.
16. Therefore, provided the Entity remains a Registered Charity, its endorsement as a tax concession charity will be unaffected by undertaking the Proposed Investment.
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