Edited version of private advice

Authorisation Number: 1052397960991

NOTICE

This is an edited version of a revised private ruling. It replaces the edited version of the private ruling with the authorisation number 1052341009049.

Date of advice: 19 May 2025

Ruling

Subject: Not-for-profit company - eligibility for tax concessions after restructure

Issue 1 - Income tax

Question 1

Following the winding up of the Overseas Branch, will the Company continue to be entitled to be endorsed as an income tax exempt charity under section 50-110 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

Yes.

Issue 2 - Fringe Benefits Tax

Question 2

Following the winding up of the Overseas Branch, will the Company continue to be entitled to be endorsed as a public benevolent institution under section 123C of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer 2

Yes.

Issue 3 - Goods and Services Tax

Question 3

Following the winding up of the Overseas Branch, will the Company continue to be entitled to be endorsed as a charity under section 176-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 3

Yes.

Issue 4 - Deductible gift recipient

Question 4

Following the winding up of the Overseas Branch, will the Company continue to be entitled to be endorsed as a deductible gift recipient (DGR) under section 30-125 of the ITAA 1997?

Answer 4

Yes.

Issue 5 - winding up - transfer of assets

Question 5

Will the transfer of the Overseas Branch's assets to the Company as part of the overseas branch being wound up be in compliance with subsection 30-125(6) of the ITAA 1997?

Answer 5

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The entity is a not-for profit Company limited by guarantee that provides relief to people in need. The Board of the Company consists of Australian resident individuals who meet in Australia in person or virtually, and the decisions are made in Australia.

The entity is undertaking a restructure, by winding up the Overseas Branch, and wants confirmation that the proposed steps in the restructure will not affect its eligibility for tax concessions.

The entity is registered as a charity, subtype public benevolent institution (PBI). It is also endorsed as a Deductible Gift Recipient (DGR).

The new constitution proposed by the entity has a not-for-profit clauses and appropriate gift fund clauses.

Assumptions

It is assumed that the Company will continue to be registered by the ACNC as a charity with the subtype public benevolent institution (PBI), and so will continue to be a 'registered public benevolent institution' for the purposes of section 123C(2)(a) of the FBTAA.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 30

Income Tax Assessment Act 1997 section 30-15

Income Tax Assessment Act 1997 section 30-20

Income Tax Assessment Act 1997 section 30-120

Income Tax Assessment Act 1997 section 30-125

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 section 50-5

Income Tax Assessment Act 1997 section 50-10

Income Tax Assessment Act 1997 section 50-47

Income Tax Assessment Act 1997 section 50-50

Income Tax Assessment Act 1997 section 50-52

Income Tax Assessment Act 1997 section 50-110

Taxation Administration Act 1953 Division 426 in Schedule 1

Fringe Benefits Tax Assessment Act 1986 subsection 5B(1E)

Fringe Benefits Tax Assessment Act 1986 subsection 57A(1)

Fringe Benefits Tax Assessment Act 1986 section 123C

Fringe Benefits Tax Assessment Act 1986 section 136

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

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

Issue 1 - Income tax

Question 1

Following the winding up of the Overseas Branch, will the Company continue to be entitled to be endorsed as an income tax exempt charity under section 50-110 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

The winding up of the Overseas Branch does not impact the Company from satisfying the requirements to be endorsed as exempt from income tax under section 50-110 of the ITAA 1997.

Detailed reasoning

Endorsement as an income tax exempt charity

An entity is entitled to be endorsed pursuant to section 50-110 of the ITAA 1997 as an income tax exempt charity if it:

•                     has an ABN

•                     is covered by item 1.1 of the table in section 50-5 of the ITAA 1997

•                     satisfies section 50-47, and

•                     satisfies the special conditions in sections 50-50 and 50-52 of the ITAA 1997.

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. In some cases, the exemption is subject to special conditions.

(* as defined in subsection 995-1(1) of the ITAA 1997)

The tables referred to in section 50-1 of the ITAA 1997 are contained in sections 50-5 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. The registered charity must meet the special conditions in sections 50-50, 50-52, and 50-47 of the ITAA 1997.

The Company has an ABN. As the Company is currently registered as a charity with the ACNC it is covered by the item 1.1 'registered charity' in the table under section 50-5 of the ITAA 1997.

Special conditions for registered charity

Section 50-47 of the ITAA 1997

Section 50-47 of the ITAA 1997 provides a special condition for all entities covered by section 50-1 of the ITAA 1997, it states:

An entity that:

(a)           is covered by any item; and

(b)           is an ACNC type of entity;

is not exempt from income tax unless the entity is registered under the Australian Charities and Not-for profits Commission Act 2012 (ACNC Act).

Broadly, an entity that can be registered as a charity with the Australian Charities and Not-for profits Commission (ACNC) is an 'ACNC type of entity'. The Charities Act 2013 (CA) sets out the requirements to be a charity. Section 12 of the CA provides purposes that are a 'charitable purpose', and includes purposes such as advancing education and advancing health.

Application to these circumstances

The Company's objects indicate that it has charitable purposes. It is registered under the ACNC Act, it is an ACNC type of entity.

Section 50-47 of the ITAA 1997 applies to the Company. The Company satisfies the special condition in section 50-47 of the ITAA 1997.

A registered charity in section 50-5 of the ITAA 1997 must also comply with the special conditions in sections 50-50 and 50-52 of the ITAA 1997. The condition in section 50-52 of the ITAA 1997 is not a relevant condition (subsection 50-110(6) of the ITAA 1997).

Sections 50-50 and 50-52 of the ITAA 1997

Has a physical presence in Australia and, to that extent it pursues its objectives and incurs its expenditure principally in Australia

Subsection 50-50(1) of the ITAA 1997 will be met by the Company if it has a physical presence in Australia, and to that extent incurs its expenditure and pursues its objects principally in Australia, or is a Deductible Gift Recipient (DGR) under item 1 in the table in section 30-15 of the ITAA 1997.

Taxation Ruling TR 2019/6 Income tax: the 'in Australia' requirement for certain deductible gift recipients and income tax exempt entities summarises the explanatory memorandums and explains the Commissioner's view on how the physical presence requirement applies to entities seeking exempt entity status under Division 50 of the ITAA 1997.

The DGR in Australia condition is concerned with the location of the fund, authority or institution as an entity or organisation, rather than the physical presence of particular assets or transactions' (paragraph 6 of TR 2019/6).

TR 2019/6 also says that:

•                     'an entity has a physical presence in a place where it employs assets or people to conduct physical operations' (paragraph 53)

•                     'where an entity has a physical presence in Australia only, it must incur its expenditure, and pursue its objectives, principally in Australia' (paragraph 56)

•                     'where an entity has a physical presence in Australia and also overseas, only the expenditures incurred and objectives pursued which are attributable to that entity's physical presence in Australia are examined' (paragraph 57).

'Incur its expenditure' means that 'the required connection will ordinarily exist where the decision to pay is made in Australia, and payment is to occur from an Australian source' (paragraph 62 of TR 2019/6).

The Company carries on its activities in Australia and in overseas locations. The Company is a resident of, has assets in, and is located in, Australia. The Board of the Company consists of Australian resident individuals who meet in Australia in person or virtually, and the decisions are made in Australia. It pursues its objectives and incurs its expenditure in Australia and satisfies this requirement.

The Company is currently endorsed as an item 1 DGR, in the table under section 30-15, as a charity for charitable purposes under subsection 30-20(1) in Subdivision 30-B. The Company meets the special condition in subsection 50-50(1) by virtue of being a DGR.

Complies with substantive requirements in its governing rules and applies its income and assets for its purpose

Subsection 50-50(2) of the ITAA 1997 provides that the Company must:

•                     comply with all the substantive requirements in its governing rules; and

•                     apply its income and assets solely for the purpose for which the entity is established.

Taxation Ruling TR 2015/1 Income tax: special conditions for various entities whose ordinary and statutory income is exempt provides guidance in respect of the conditions in subsection 50-70(2) of the ITAA 1997. Paragraph 9 of TR 2015/1 provides that an entity's 'governing rules' are those rules that authorise the policy, actions and affairs of the entity. Paragraphs 18 and 19 of TR 2015/1 explain that the substantive requirements in an entity's governing rules are those rules that define the rights and duties of the entity and include rules such as those that:

•                     give effect to the object or purpose of the entity

•                     relate to the non-profit status of the entity

•                     set out the powers and duties of directors and officers of the entity

•                     require financial statements to be prepared and retained

•                     set out the criteria for admission as a member of an entity

•                     require an entity to maintain a register of members, and

•                     relate to the winding-up of the entity.

Paragraph 33 of TR 2015/1 states that:

The income and assets condition requires an entity to apply its income and assets 'solely' for the purpose for which the entity is established. This means that the entity must exclusively or only apply its income and assets for that purpose.

Taxation Ruling TR 2011/4 Income tax and fringe benefits tax: charities sets out the Commissioner's view on the meaning of 'charitable' and 'charitable institution'. The following paragraphs state, in relation to benefits for members:

49.          An institution set up to advance the interests of its members in their capacity as members cannot be charitable as it cannot satisfy the public benefit requirement. The members of such institutions do not, as members, constitute a section of the public in the relevant sense, and the benefits derived by the members are, as a result, private in nature.

50.          However, an institution that benefits its members can still be charitable if:

•                     the member benefits are simply incidental or ancillary to the purpose of benefiting the community; or

•                     the institution is an open and non-discriminatory self-help group that is deemed to have a purpose that is for the public benefit under the Extension of Charitable Purpose Act 2004.

Based on the supporting evidence, and the above analysis, the Company applies and will comply with the substantive requirements of its governing rules and apply its income and assets solely for the purpose for which it was established.

Section 50-52 of the ITAA 1997 states that an entity covered by item 1.1 in section 50-5 of the ITAA 1997 is not exempt from income tax unless it is endorsed as exempt under Subdivision 50-B (a charity). As the company is currently registered as a charity with the ACNC it satisfies section 50-52 of the ITAA 1997.

Application to these circumstances

On the facts provided, the Company will continue to be endorsed as an income tax exempt entity pursuant to section 50-110 of the ITAA 1997 provided it maintains the charity registration with the ACNC, keeps an ABN, and continues to meet the requirements of sections 50-47, 50-50, and 50-52 of the ITAA 1997.

Issue 2 - Fringe Benefits Tax

Question 2

Following the winding up of the Overseas Branch, will the Company continue to be entitled to be endorsed as a public benevolent institution under section 123C of the FBTAA?

Summary

Following the winding up of the Overseas Fund, the Company will continue to be entitled to be endorsed as a public benevolent institution under 123C of FBTAA, on the basis it remains registered with the ACNC under the public benevolent institution charitable subtype.

Detailed reasoning

Entitlement to exemption from fringe benefit as a public benevolent institution

Section 123C of the FBTAA deals with the endorsement of a PBI, which states that:

123C(1)

The Commissioner must endorse an entity as a public benevolent institution if:

(a)           the entity is entitled to be endorsed as a public benevolent institution (see subsection (2)); and

(b)           the entity has applied for that endorsement in accordance with Division 426 in Schedule 1 to the Taxation Administration Act 1953.

123C(2)

An entity is entitled to be endorsed as a public benevolent institution if the entity:

(a)           is a registered public benevolent institution; and

(b)           has an ABN; and

(c)           is not an employer in relation to which step 2 of the method statement in subsection 5B(1E) applies.

(a)           Registered public benevolent institution

The Company is registered with ACNC as a charity with a subtype of public benevolent institution (PBI) and deductible gift recipient (DGR). It is an assumption that the Company is entitled to remain registered with the ACNC under the public benevolent institution charitable subtype.

Registered public benevolent institution is defined in section 136 of the FBTAA to mean an entity that is:

(a)           a registered charity; and

(b)           registered under the Australian Charities and Not-for-profits Commission Act 2012 as the subtype of entity mentioned in column 2 of item 14 of the table in subsection25-5(5) of that Act.

(b)           Has an ABN

The Company is registered with an ABN.

(c)           Is not an employer in relation to which Step 2 of the method statement in subsection 5B(1E) applies

Step 2 of the method statement in subsection 5B(1E) of the FBTAA includes the following employers:

(b)           the employer is a government body and the duties of the employment of one or more employees are as described in paragraph 57A(2)(b) (which is about duties of employment being exclusively performed in or in connection with certain hospitals); or

(c)           the employer is a public hospital; or

(d)           (ca) the employer provides public ambulance services or services that support those services and the employee is predominantly involved in connection with the provision of those services; or

(e)           the employer is a hospital described in subsection 57A(4) (which is about hospitals carried on by certain societies and associations that are exempt from income tax);...

The Company is not an employer in relation to which Step 2 of the method statement in subsection 5B(1E) of the FBTAA applies.

In this case the Company is a registered PBI with the ACNC and accordingly not a rebatable employer for the purposes of paragraph (d) of Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA.

The Company has applied for endorsement in accordance with Division 426 in Schedule 1 to the Taxation Administration Act 1953 (TAA).

Therefore as per the facts, the Company remains entitled to be endorsed as a public benevolent institution under 123C of FBTAA.

Issue 3 - Goods and Services Tax

Question 3

Following the winding up of the Overseas Branch, will the Company continue to be entitled to be endorsed as a charity under section 176-1 of the GST Act?

Summary

The Company will continue to be entitled to be endorsed as a charity pursuant to section 176-1 of the GST Act if the proposed changes occur.

Detailed reasoning

Entitlement to GST concession as a charity

Under section 176-1 of the GST Act:

(1)           The Commissioner must endorse an entity as a charity if:

(a)           the entity is entitled to be endorsed as a charity (see subsection (2)); and

(b)           the entity has applied for endorsement in accordance with Division 426 in Schedule 1 to the Taxation Administration Act 1953.

(2)           An entity is entitled to be endorsed as a charity if the entity:

(a)           is an *ACNC-registered charity; and

(b)           has an *ABN.

Eligibility as an ACNC-registered charity is determined by the ACNC. For the purposes of GST, 'ACNC-registered charity' is defined in section 195-1 of the GST Act as:

ACNC-registered charity means an entity that is registered under the Australian Charities and Not-for-profits Commission Act 2012 as the type of entity mentioned in column 1 of item 1 of the table in subsection 25-5(5) of that Act.

Application to these circumstances

The Company is presently an ACNC-registered charity with an ABN. The Company has been endorsed as a charity with the Commissioner. As the status of whether an entity is a registered charity is determined by the ACNC, provided the Company continues to have an ABN and is an ACNC-registered charity, the transfer of the overseas branch will not affect the Company's GST endorsement, and it will continue to be entitled to be endorsed as a charity pursuant to section 176-1 of the GST Act following the winding up of the overseas branch.

Issue 4 - Deductible gift recipient

Question 4

Following the winding up of the Overseas Branch, will the Company continue to be entitled to be endorsed as a deductible gift recipient (DGR) under section 30-125 of the ITAA 1997?

Summary

The winding up of the Overseas Branch does not impact the Company from satisfying the requirements to be endorsed as a DGR under section 30-125 of the ITAA 1997.

Endorsement as a deductible gift recipient

Section 30-125 of the ITAA 1997 sets out the requirements that must be satisfied for an entity to be entitled to be endorsed as a DGR. An entity will be entitled to be endorsed as a DGR where it:

•                     meets the description of a DGR item

•                     has an ABN

•                     is 'in Australia'

•                     has acceptable rules for transferring surplus gifts and deductible contributions on winding up or revocation of endorsement.

Where an entity meets the above conditions in section 30-125 of the ITAA 1997 and is endorsed as a DGR under section 30-120 of the ITAA 1997, the entity will continue to be endorsed as a DGR for as long as they meet the conditions in section 30-125 of the ITAA 1997.

Special condition (a) in item 1 of the table in section 30-15 of ITAA 1997 requires a Deductible Gift Recipient (DGR) to be 'in Australia'.

Taxation Ruling TR 2019/6 Income tax: the 'in Australia' requirement for certain deductible gift recipients and income tax exempt entities provides further explanation of this special condition. At paragraph 4 the ruling states:

The DGR in Australia condition requires a fund, authority or institution to be 'in Australia'. The phrase 'in Australia' is not defined, and so carries its ordinary meaning.

Fund

TR 2019/6 provides the following guidance on the term 'fund' for the purposes of the DGR in Australia condition:

9.            ... a 'fund' is an arrangement where a stock of money or pecuniary resources is held or managed in accordance with a trust deed or similar instrument such as a set of fund rules...

32.          ... an 'institution' is an establishment, organisation or association instituted for the promotion of some object, especially one of public or general utility. Such a body is called into existence to translate a defined purpose into a living and active principle.

The distinction between an institution and a fund is explored in the Taxation Ruling TR 2011/4 Income tax and fringe benefits tax: charities. Paragraph 164 of TR 2011/4 says that the characterisation of a charity as an institution or a fund is a question of fact. Relevant factors include an entity's activities, size, permanence and recognition (paragraph 170 of TR 2011/4).

Paragraph 171 of TR 2011/4 states that:

.... An institution must possess a quality or function which can justify it being categorised as an institution as opposed to a 'mere trust'. For example, a trust that simply provides money for charitable services or activities to be carried out by others is not an institution.

The Company does not merely hold money or property for distribution to other entities or persons. It is a for-purpose organisation which provides free services to people experiencing homelessness in Australia and overseas. It has been operating for a few years. Accordingly, the Company is an entity which promotes an object of public utility. The Company's activities, size and permanence are the ones of an institution.

Paragraph 33 of TR 2019/6 provides:

An institution will be 'in Australia' where it:

•                     is established or legally recognised in Australia, and

•                     makes its operational or strategic decisions mainly in Australia.

Established or legally recognised

Being either established or legally recognised in Australia is sufficient. As per paragraph 34 of TR 2019/6, an institution could be established or legally recognised in Australia in a number of ways, including:

•                     registration under the Corporations Act 2001

•                     incorporation under State or Territory legislation

•                     registration as a charity under the ACNC Act

•                     registration under the ABN Act.

The Company is an Australian public company, has an ABN, and it is registered as a charity with ACNC. The Company is established and legally recognised in Australia.

Operational or strategic decisions mainly in Australia

According to paragraph 35 of TR 2016/9, the location of decision making is determined based on where the institution's decision-making powers are mainly exercised. Where decision makers are ordinarily located in more than one place, their decisions would be in Australia where the balance of decision-making power usually lies in Australia.

TR 2016/9 provides examples 4 and 5 of an institution being 'in Australia'. Example 4 involves an Australian institution where the majority of directors are not in Australia, but day-to-day management occurs in Australia. Although its strategic decisions are made mainly overseas, the operational decisions being made in Australia means the balance of decision-making power usually lies in Australia.

At example 5, TR 2016/9 considers the situation where an institution that makes strategic decisions in Australia is 'in Australia', even though its operational decisions are made offshore. In that case the institution is not 'in Australia'.

The Board of the Company, a committee established by the directors, consists of Australian resident individuals who meet in Australia in person or virtually. The decision-making power regarding strategic activities lies in Australia and the strategic decisions are made in Australia.

The Company's activities require active day-to-day management. As all of the Board of the Company reside in Australia, the decision-making power regarding its operational matters is also exercised in Australia. Its operational decisions are made in Australia. The Company makes both its strategic and operational decisions in Australia.

The winding up of the overseas branch does not impact this, as long as the majority of the Company's Board remain in Australia. In such a case the balance of the decision-making power will still lie in Australia, because the decisions regarding both strategic and operational matters will be made in Australia.

The Constitution of the Company does not limit its activities to Australia. The Company has projects located in overseas countries undertaking overseas work and associated fundraising activities. These projects are done in conjunction with the Department of Foreign Affairs and Trade. This does not prevent the Company from satisfying the 'in Australia' condition in section 30-15 of ITAA 1997, as its operational and strategic decisions are still be made in Australia.

In conclusion, the Company satisfies the 'in Australia' condition in section 30-15 of ITAA 1997 as it is established and legally recognised in Australia, and the balance of its decision-making powers, both in operational and strategic matters, lies in Australia.

Section 30-125 of the ITAA 1997 sets out the requirements that must be satisfied for an entity to be entitled to be endorsed as a DGR. An entity will be entitled to be endorsed as a DGR where it:

•                     meets the description of a DGR item

•                     has an ABN

•                     is 'in Australia'

•                     has acceptable rules for transferring surplus gifts and deductible contributions on winding up or revocation of endorsement.

Application to these circumstances

The Company will still satisfy the requirements to be endorsed as a DGR under section 30-125 of the ITAA 1997, as it meets the description of a DGR item, the 'in' Australia requirement, has an ABN, and has rules that transfer surplus gifts and deductible contributions on winding up.

Issue 5 - winding up - transfer of assets

Question 5

Will the transfer of the Overseas Branch's assets to the Company as part of the Overseas Branch being wound up be in compliance with subsection 30-125(6) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

The transfer of the Overseas Branch's assets to the Company as part of the Overseas Branch being wound up will be in compliance with section 30-125(6) of the ITAA 1997.

Detailed reasoning

Subsection 30-125(6) of the ITAA 1997 requires that an entity's constituent document or governing rules must require the entity at the first occurrence of either winding up the entity, or revocation of the entity's DGR endorsement, to transfer any surplus gifts, property or contributions to another DGR entity.

Application to your situation

The appropriate clause of the Constitution is in accordance with the requirements of the subsection 30-125(6) of the ITAA 1997. It is proposed that the funds from the Overseas Branch that will be wound up will be rolled into the Company.

In respect to the proposed amendments to the Constitution provided, provided it still maintains the adherence to the requirements, it will not negatively impact on the Company's DGR endorsement. Any other surplus assets will continue to be transferred in accordance with the new relevant clause of the Constitution, which is identical to the previous clause.

Based on the supporting evidence, the documentation provided, the above analysis which includes the proposed amendments to the Constitution upon winding up of the Overseas Branch and transfer of its assets to the Company, does not identify non-adherence to the requirement that would negatively impact their DGR endorsement or any mischief.

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