Edited version of your written advice

Authorisation Number: 1012744314101

Ruling

Subject: Amendment to winding up clause and impacts on DGR endorsement and eligibility for tax concessions

Question 1

Does the new clause, if passed by special resolution and included in the Constitution of the Association, negatively impact on its Deductible Gift Recipient (DGR) endorsement?

Answer

No

Question 2

Does the new clause, if passed by special resolution and included in the Constitution of the Association, negatively impact on its tax concessions, including exemption from income tax, good and services tax, and fringe benefits tax?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

The scheme commences on:

The scheme has commenced

Relevant facts and circumstances

Background

The Association was endorsed by the Australian Taxation Office (ATO):

• as a tax concession charity (public benevolent institution) from 1 July 2000 with exemption from income tax and concessions for goods and services tax and fringe benefits tax.

• as a deductible gift recipient (DGR) from 1 July 2000 as a public benevolent institution.

The Association was registered as a registered charity with the Australian Charities and Not-for-profits Commission (ACNC), effective from 3 December 2012.

Registrar of Community Housing Queensland requires winding up clause amendments

The applicant requested the ATO on behalf of the Association to rule about the requirement by the Registrar for Community Housing in Queensland (CH) to amend the winding up clause in constitution.

A letter from CH to the Association required it to amend its constitution to specifically state that 'community housing assets' will be transferred on winding up in accordance with the Housing Act 2003.

The proposed new clause in the Constitution of the Association follows:

Income and Property that is Community Housing Assets if Company Wound Up

1. This clause does not affect any other clause relating to the winding up or dissolution of the Association and relates only to the Community Housing Assets of the Association.

Any remaining assets of the Association on winding up or dissolution that are Community Housing Assets must be transferred under this clause and not clause 30.

2.In this clause 'Community Housing Asset'', 'Corresponding Law', 'Housing Agency', 'Participating Jurisdiction' and 'Registered Provider' have the same meanings as in the Housing Act 2003 (Qld).

3. Each Community Housing Asset remaining after satisfaction of the Association's liabilities must be transferred as follows:

a) each remaining Community Housing Asset of the Association in Queensland must be transferred under s 37H(2)(a) of the Housing Act 2003 (Qld); and

b) each remaining Community Housing Asset of the Association located in a Participating Jurisdiction must be transferred under the Corresponding Law of that Participating Jurisdiction to:

c) the Housing Agency in the Participating Jurisdiction;

d) another Registered Provider in the Participating Jurisdiction; or

e) another entity as prescribed under the Corresponding Law.

The ACNC wrote non-binding advice to Association in 20XX that if the proposed wording in the new clause (as written above) is included the Association's constitution, the constitution would be appropriate for ACNC purposes as a registered charity (public benevolent institution sub-type).

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 30-45

Income Tax Assessment Act 1997 Section 30-125

Fringe Benefits Tax Assessment Act 1986 Subsection 57A(2)

A New Tax System (Goods and Services Tax) Act 1999 Section 176-1

Reasons for decision

Question 1

Does the new clause, if passed by special resolution and included in the Constitution of the Association, negatively impact on its Deductible Gift Recipient (DGR) endorsement?

Detailed reasoning

Section 30-125 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the conditions that an entity must satisfy in order to endorsed as a deductible gift recipient (DGR).

In accordance with section 30-125 of the ITAA 1997, an entity that is seeking to be endorsed as a DGR is entitled to endorsement if the following conditions are satisfied: 

(a) the entity has an ABN;

(b) the entity is described in a category set out in item 1, 2 or 4 of the table in section 30-15 of the ITAA 1997;

(c) the entity is not listed by name in Subdivision 30-B of the ITAA 1997;

(d) the entity satisfies any special conditions for the category in which it is described; and

(e) the entity satisfies the windup requirements.

The Association continues to meet the requirements in paragraphs (a), (b), (c) and (d) of section 30-125 ITAA 1997.

Requirement (e) - the entity satisfies the dissolution/revocation requirements

Section 30-125(6) of the ITAA 1997 requires that an entity must 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.

The clause in the Association Inc.'s Constitution (Distribution of Surplus Assets) is in accordance with the requirements of the ATO publication GfitPack QC 16414.

The inclusion of the proposed additional clause in the constitution, as required by CH, will not negatively impact on the Association's DGR endorsement because it only applies to CH assets. Any other surplus assets will continue to be transferred in accordance with clause 30 of the Constitution.

Conclusion - Deductible gift recipient (DGR) - Public benevolent institution (PBI)

The Association is entitled to maintain its endorsement as a deductible gift recipient pursuant to Section 30-125 of the ITAA 1997 on the basis that it continues to have a suitable winding up/revocation clause as required under condition (e).

Question 2

Does the new clause, if passed by special resolution and included in the Constitution of the Association, negatively impact on its tax concessions, including exemption from income tax, good and services tax, and fringe benefits tax?

Detailed Reasoning

The ACNC wrote to the Association in 20XX that the proposed wording in the new clause to be included in the Association's constitution would be appropriate for ACNC purposes as a registered charity (public benevolent institution sub-type). As the entity's charity status is not affected, eligibility for tax concessions for income tax, goods and services tax and fringe benefits tax will continue to be maintained.

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