| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012713598780
Ruling
Subject: Income tax exemption
Question 1
Will receiving money from an overseas donor affect the income tax exempt status of an organisation under division 50?
Answer
No
Question 2
Will using the donation made by an overseas donor to fund an overseas project affect the income tax exempt status of an organisation under division 50?
Answer
No
This ruling applies for the following period:
01 July 2014 - 30 June 2015
The scheme commences on:
01 July 2014
Relevant facts and circumstances
• The organisation is a charity endorsed by the Australian Charities and Non Profit Commission. (ACNC). It is exempt from income tax under section 50-B of the Income Tax Assessment Act 1997(ITAA1997).
• The organisation has both income tax and Goods and Services Tax (GST) concessions.
• The endorsement commenced on a date.
• The organisation is commencing a development project overseas.
• A donor will donate a large sum of money for this project.
• The donor is based overseas.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 50-1
Income Tax Assessment Act 1997 section 50-5
Income Tax Assessment Act 1997 section 50-45
Income Tax Assessment Act 1997 section 50-75
Reasons for decision
Question 1
Will receiving money from an overseas donor affect the income tax exempt status of the organisation under division 50?
Detailed reasoning
Section 50-1 of the ITAA 1997 states:
The total ordinary income and statutory income of the entities covered by the following tables is exempt from income tax.
The tables referred to in section 50-1 of the ITAA 1997 are contained in sections 50 to 50-45 of the ITAA 1997. A registered charity is listed at item 1.1 in the table in section 50-5 of the ITAA 1997. Consequently, the income of the registered charity is exempt from income tax in accordance with section 50-1 of the ITAA 1997.
The donation from overseas will be included in the income of the organisation therefore as the organisation is exempt from income tax under Division 50 of the ITAA 1997 the donation will also be exempt.
Question 2
Will using the donation made by an overseas donor to fund an overseas project affect the income tax exempt status of the organisation under division 50?
Detailed Reasoning
A charitable institution has a physical presence in Australia if it is wholly in Australia, or it has a division, branch or sub-division in Australia. If a charitable institution has a physical presence in Australia only, it must pursue its objectives and incur its expenditure principally in Australia.
A charitable institution which does not principally pursue its purposes and incur its expenditure in Australia can still pass the physical presence in Australia test provided the distributions it makes outside Australia do not exceed its disregarded amounts.
Discussing disregarded amounts, Income Tax Guide for Non-Profit Organisations NAT 7967 states on page 52 that:
Disregarded amounts are gifts (for which the donor does not receive a material benefit) and government grants. Disregarded amounts are:
• Gifts, including testamentary gifts (that is, gifts made under a will)
• Proceeds from raffles, dinners, charity auctions, jumble sales and similar fundraising activities, or
• Government grants
The Tax Office assumes any offshore distributions are made first from any disregarded amounts that are able to be distributed offshore.
The assumption does not apply if a disregarded amount cannot be distributed offshore. For example, government grants made only for use in Australia and gifts of land physically in Australia are not assumed to be distributed offshore.
The effect of this assumption is that offshore distributions can be made, up to the total of these [disregarded] amounts, without jeopardising entitlement to endorsement.
Paragraph 55 of TR 2000/11 endorsement of income tax exempt charities, provides further clarification, it states that:
The term 'gifts' in section 50-75 [of the Income Tax Assessment Act 1997, which contains the disregarded amounts rule] has a wide meaning:
'... receipts from fund raising by means of raffles, dinners, auctions, jumble sales and the like by non-commercial or non-business organisations will be treated as amounts "in the nature of gifts". However, where a donor is likely to obtain a tax deduction (eg, for advertising) the material advantage obtained would disqualify the donation as a gift in the hands of the recipient.
Conclusion
As the organisation is a registered charity it is income tax exempt, under division 50-B of the ITAA 1997, therefore the donation from the overseas donor is exempt from income tax.
Distributions of gifts or donations that an entity has received in its own right are disregarded amounts and, as explained above, if a disregarded amount is applied to an overseas project it does not affect the income tax exempt status of the organisation.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
