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Edited version of your written advice
Authorisation Number: 1012930291837
Date of advice: 21 December 2015
Ruling
Subject: Endorsement as exempt from income tax and as a deductible gift recipient
Question 1
Will the company maintain its status as a deductible gift recipient (DGR) for the purposes of Division 30 of the Income Tax Assessment Act 1997 (ITAA 1997) if it acquires the business of another company and amends clause 1.4 of its constitution?
Answer
Yes
Question 2
Will the company maintain its status as a tax exempt entity under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) if it acquires the business of another company and amends clause 1.4 of its constitution?
Answer
Yes
This ruling applies for the following period:
1 July 2015 - 30 June 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
1. The company is limited by guarantee.
2. The principal objects and purposes of the company are to establish, manage and maintain psychosocial rehabilitation and support services to provide assistance to persons with serious mental illness and other disabilities. The benevolent activities are aimed at alleviating disadvantage, improving housing outcomes, addressing poverty and preventing hospitalisation or criminal activity, and managing the deterioration of health.
3. The services offered are principally designed to help people with mental illness and other psychosocial disabilities by developing their skills to overcome the disadvantages faced by them in society. This also involves working to change the communities around that person to ensure they are afforded reasonable opportunities to secure employment, obtain a stable home, and maintain relationships with family and other supporters.
4. The company is a registered charity and Public Benevolent Institution (PBI) with the Australian Charities and Not-for-profits Commission (ACNC).
5. At all time since its establishment the company has maintained its status as a DGR and has also been endorsed as a tax exempt entity.
6. At all times, the company will remain a registered charity with the ACNC and as a PBI subtype mentioned in column 2 of item 14 of the table in subsection 25-5(5) of the Australian Charities and Not-for profit Commission Act 2012 (ACNCA 2012).
7. The company has received confirmation from the ACNC that the amendment of their constitution would not affect there continuing eligibility for registration as a PBI.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Division 30
Income Tax Assessment Act 1997 - section 50-1
Income Tax Assessment Act 1997 - section 30-120
Income Tax Assessment Act 1997 - section 30-125
Income Tax Assessment Act 1997 - section 30-15
Income Tax Assessment Act 1997 - section 50-105
Income Tax Assessment Act 1997 - section 50-5
Reasons for decision
Question 1
Will the company maintain its status as a deductible gift recipient (DGR) for the purposes of Division 30 of the Income Tax Assessment Act 1997 (ITAA 1997) if it acquires a new business and amends clause 1.4 of its constitution?
Detailed reasoning
To be to be endorsed as a DGR under section 30-120 of the ITAA 1997, an entity must meet the requirements for endorsement in section 30-125 of the ITAA 1997. The entity must:
• have an ABN
• be a fund, authority or institution that is described in item 1,2 or 4 of the table in section 30-15 of the ITAA 1997, and meet the special conditions of the item of the table in which it is described. To be covered by item 4.1.1 an entity must be registered as a charity and a public benevolent institution under the ACNCA 2012. Item 4.1.1 has no special conditions.
• meet the requirements in subsection 30-125(6), which concern the transfer of surplus gifts and deductible contributions in circumstances where an entity is wound up or its endorsement as a DGR is revoked.
Application to your situation
The company has an ABN, it meets the requirements as specified in item 1 of the table in section 30-15 of the ITAA 1997, it will remain a registered charity with the ACNC, and its constitution contains a satisfactory windup clause.
Therefore the company meets the requirements for endorsement and will maintain its status as a DGR.
Question 2
Will the company maintain its status as a tax exempt entity under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) if it acquires the business of another company and amends clause 1.4 of its constitution?
Detailed reasoning
To be endorsed as exempt from income tax under section 50-105 of the ITAA 1997, an entity must meet the requirements of endorsement under section 50-110 of the ITAA 1997. The entity must:
• be an entity covered by item 1.1 of the table in section 50-5 of the ITAA 1997. That is, registered as a charity under the Australian Charities and Not-for-profits Commission Act 2012 (ACNCA 2012).
• have an ABN
• meet the 'special conditions' of item 1.1 of the table in section 50-5. The relevant special conditions are set out in section 50-50 of the ITAA 1997:
• the entity has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia, or
• the entity is a deductible gift recipient (DGR) covered by item 1 of the table in section 30-15 of the ITAA 1997, or
• the entity is a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident, or
• the entity is a prescribed institution that has a physical presence in Australia but which incurs its expenditure and pursues its objectives principally outside Australia, and
• the entity complies with all the substantive requirements in its governing rules, and applies its income and assets solely for the purposes for which the entity is established.
Application to your situation
The company has an ABN and it is registered as a charitable institution with the ACNC. The company has a physical presence in Australia and applies its income and assets solely for its purposes as stated in its constitution.
Therefore the company meets all the required conditions and will maintain its endorsement as exempt from income tax.
Conclusion
From the information provided we advise that if the ACNC continue to register the company as a charity and Public Benevolent Institution following the proposed change to its constitution and activities, and provided that the company continues to undertake activities that are concerned with the relief of sickness and distress, the company will satisfy the requirements to be endorsed as a DGR under section 30-120 of the ITAA 1997, and as exempt from income tax under section 50-110 of the ITAA 1997.
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