1051387107734 | Legal database

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This edited version has been archived due to the length of time since original publication.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.

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Edited version of your written advice

Authorisation Number: 1051387107734

Date of advice: 2 July 2018

Ruling

Subject: The requirement of public contributions to a Public Ancillary Fund (PuAF) under guideline 45 of the Public Ancillary Fund Guidelines 2011

Question

Will the PuAF formed by The Directors be in breach of paragraph 30-125(1)(d) of the Income Tax Assessment Act 1997 (ITAA 1997) when The Company makes a donation to the PuAF, either in cash or in specie?

Answer

No, provided the public is invited to contribute to the fund.

This administratively binding advice applies for the following period

1 July 2018 to 30 June 2019

The arrangement commences on

1 July 2018

Relevant facts and circumstances

Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.

1. The Company is an unlisted public company limited by guarantee.

2. The Company intends to amend its objects under its Articles of Association to remove restrictions on who The Company can donate to.

3. The Company will then establish a PuAF.

4. A new company will be formed as corporate trustee (Trustee Company) of the PuAF.

5. The PuAF will seek and obtain registration with the Australian Charities and Not-for-profits Commission (ACNC).

6. The PuAF will seek and obtain endorsement as a Deductible Gift Recipient (DGR) under Section 30-120 of the Income Tax Assessment Act 1997.

7. The Company will donate money to the PuAF.

8. The Company may donate property including real property to the PuAF.

9. The Company directors will be the directors of the Trustee Company of the PuAF.

10. The objective behind establishing the PuAF is to enable The Company to donate to a more contemporary and diverse range of charities that are approved DGRs and to attract new members and directors.

11. The PuAF will operate under the Public Ancillary Fund Guidelines 2011.

12. Majority of the PuAF directors will be ‘responsible persons’ within the definition of the Public Ancillary Fund Guidelines 2011, paragraph 14.

13. The PuAF will operate as a not-for-profit entity.

14. The PuAF will adopt the model trust deed.

15. The PuAF will apply for the necessary licences to enable fundraising under State law.

16. Members of the public will be invited to contribute to the PuAF.

Relevant legislative provisions

Section 426–103 of the Income Taxation Administration Act 1953

Section 30-125 of the Income Tax Assessment Act 1997

Section 426-102 of the Taxation Administration Act 1953

Subsection 426-120(1) of the Taxation Administration Act 1953

Reasons for decision

Summary

Section 30-125 of the ITAA 1997 states when an entity is entitled to be endorsed as a deductible gift recipient. Under paragraph 130-125(1)(d) of the ITAA 1997, a public ancillary fund must comply with the rules in the Public Ancillary Fund Guidelines (the Guidelines) formulated under section 426-103 of the Taxation Administration Act 1953 (TAA 1953). Guideline 45 of the Guidelines requires the public to be invited to contribute to, and participate in, the administration of a PuAF. By adhering to the Guidelines in managing the PuAF, the Trustee Company will not be in breach of section 30-125 of the ITAA 1997.

Detailed reasoning

Section 30-125 of the ITAA 1997 provides the rules for entitlement to endorsement as a Deductible Gift Recipient:

30-125(1)(d) An entity is entitled to be endorsed as a *deductible gift recipient if:

(d) in the case of an *ancillary fund:

(i) the fund complies with the rules in the *public ancillary fund guidelines or *private ancillary fund guidelines (whichever are applicable); and

(ii) all the trustees of the fund comply with those rules.

A Public Ancillary Fund is defined in section 426-102 of the TAA 1953 as follows:

426-102(1) A trust is a public ancillary fund if:

a) at least one of the following subparagraphs applies:

i. each trustee of the trust is a *constitutional corporation;

ii. the only trustee of the trust is the Public Trustee of a State or Territory, or each trustee of the trust is prescribed by the regulations for the purposes of this subparagraph; and

b) each trustee of the trust has agreed, in the *approved form given to the Commissioner, to comply with the rules in the *public ancillary fund guidelines, as in force from time to time; and

c) none of the trustees has revoked that agreement in accordance with subsection (2).

Section 426–103 of the TAA 1953 at (1) states:

The Minister must, by legislative instrument, formulate guidelines (the public ancillary fund guidelines) setting out:

a) rules that *public ancillary funds and their trustees must comply with if the funds are to be, or are to remain, endorsed as *deductible gift recipients; and

b) the amount of the administrative penalty, or how to work out the amount of the administrative penalty, under subsection 426-120(1) in relation to public ancillary funds.

As outlined in the application for administratively binding advice, the PuAF intends to adopt the model trust deed and operate according to the Guidelines formulated under section 426-103 of the TAA 1953. It will also apply for ACNC registration and DGR endorsement. A majority of the PuAF directors will be ‘responsible persons’ as required by guideline 14 of the Guidelines.

Guideline 45 sets out the rules regarding the public contributing to the PuAF and states:

The public must be invited to contribute to the fund.

Note 1: The features of a public ancillary fund can be contrasted with those of a private ancillary fund, because these funds can collect donations from the public.

Note 2: A public ancillary fund may establish sub-funds in relation to contributions from particular donors. However, the fund must be under no obligation to comply with any requests from a donor.

The Company intends to donate funds and property to the PuAF. When the PuAF is formed, it will also seek donations through public fundraising. Notwithstanding the donations made by The Company, the requirements of guideline 45 will be met, provided that donations are actively sought from the public in a manner that makes it likely for the public to contribute. Additionally, the required adherence to the Guidelines by PuAFs generally will ensure the proposed PuAF will not be in breach of paragraph 30-125(1)(d) of the ITAA 1997.

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