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Edited version of your written advice
Authorisation Number: 1051201555496
Date of advice: 10 March 2017
Ruling
Subject: Private Ancillary Fund
Question 1
Does the loan made by the Foundation to an associate of the Foundation (the Trust), under the stated terms, effect the Foundation’s entitlement to endorsement as a deductible gift recipient described in item 2 of the table in section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997).
Answer
No
This ruling applies for the following periods:
1 July 2016 to 30 June 2020
The scheme commences on:
1 July 2016
Relevant facts and circumstances
1. The Foundation is a private ancillary fund endorsed as a deductible gift recipient described in item 2 of the table in section 30-15 of the ITAA 1997.
2. The Foundation is seeking suitable investments.
3. The Foundation has an investment strategy.
4. The Foundation has provided a secured loan facility to a Trust.
5. The interest, under the terms of the loan facility, are above market rates.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 30-15
Income Tax Assessment Act 1997 section 30-125
Tax Administration Act 1953 section 426-110 of Schedule 1
Reasons for decision
1. Under section 30-125 of the ITAA 1997 the Foundation is entitled to be endorsed as a deductible gift recipient (DGR) if:
a) it has an Australian Business Number (ABN),
b) it is a fund described in item 1, 2 or 4 of the table in section 30-15 of ITAA 1997 and meets the 'special conditions’ relevant to the item of that table in which it is described, and
c) its constituent document has suitable winding up and revocation clauses, and
d) as an ancillary fund it complies with the Private Ancillary Fund Guidelines 2009 and all of the trustees of the fund comply with those guidelines.
2. The Foundation has an ABN.
3. The Foundation is currently endorsed as an item 2 DGR, in the table in section 30-15 of the ITAA 1997.
4. The Foundation has suitable winding up and revocations clauses.
5. The Private Ancillary Fund Guidelines 2009 (the Guidelines) are made under section 426-110 of the Schedule 1 of the Tax Administration Act 1953 (TAA 1953). The Guidelines set out rules that a private ancillary fund and their trustees must comply with if the fund is to be endorsed, and remain endorsed, as a DGR.
6. Relevantly Guideline 36 states:
The fund must not acquire an asset (except by way of gift) from, and must not make a loan or provide any other kind of financial assistance to, a founder of the fund, a donor of the fund, the trustee, a director, officer, agent, *member or employee of the trustee, or an * associate of any of these entities except:
● by way of arms’ length commercial transaction; or
● on terms more favourable to the fund than would otherwise be expected under an arms’ length transaction.
6. The Loan Agreement, executed between trustees of the Foundation and the trustee of the Trust, sets out the terms and conditions for the loan facility.
7. The terms of the Loan Agreement are on terms more favourable that the market and therefore will not breach of Guideline 36 of the Private Ancillary Fund Guidelines.
8. Provided that all the terms of the Loan Agreement are met, and any defaults to the terms are enforced promptly by the Foundation, the Loan Agreement between the Foundation and the Trust will continue not breach of Guideline 36 of the Private Ancillary Fund Guidelines.
9. The loan made by the Foundation to the Trust, under the stated terms, will not effect a change to the Foundation’s entitlement to endorsement as a deductible gift recipient described in item 2 of the table in section 30-15 of the ITAA 1997.
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