Edited version of private ruling

Authorisation Number: 1011790894546

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fac sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject : Deductible gift recipient - endorsement and income tax exemption

Question 1:

Is the Rulee entitled to be endorsed as a deductible gift recipient (DGR) under section 30-125 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is a health promotion charity as set out in item 1.1.6 of the table in section 30-20 of the ITAA 1997?

Question 2:

Is the Rulee entitled to income tax exemption under section 50-105 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is a charitable institution as per item 1.1 of the table in section 50-5 of the ITAA 1997?

Question 3:

Is the Rulee entitled to endorsement for GST concessions under section 176-1 of the A New Tax System (Goods and Services Tax) Act 1999 on the basis that it is a charitable institution?

Question 4:

Is the Rulee entitled to endorsement for FBT exemptions under section 123D of the Fringe Benefits Tax Assessment Act 1986 on the basis that it is a health promotion charity?

Answer 1:

Yes

Answer 2:

Yes

Answer 3:

Yes

Answer 4:

Yes

This ruling applies for the following periods:

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commences on:

1 July 2011

Assumptions

The Rulee currently has no intention to commence the scheme yet, as they are waiting for the outcome of this private ruling. Therefore, it is assumed that the scheme will commence in the next financial year from 1 July 2011.

Relevant facts and circumstances

Current Activities of the Rulee

The Rulee supports hospital services.

Proposed Activities of the Rulee

The Rulee is considering a proposal to accept the transfer of the Entity being acquired. Under the proposal, The Entity being acquired would be transferred from the Old Entity to the Rulee and the Rulee would operate the Entity being acquired. Apart from this, there will be no change to the scope of the activities conducted by the Rulee

Reasons for decision

Question 1 - Deductible Gift Recipient

Summary of decision

The Rulee is entitled to be endorsed as a deductible gift recipient (DGR) on the basis that it is a health promotion charity (HPC) as set out in item 1.1.6 of the table in section 30-20 of the ITAA 1997.

Detailed reasoning

Under subsection 30-125(1) of the ITAA 1997, an entity is entitled to be endorsed as a DGR HPC if the entity:

· has an ABN;

· is a fund, authority or institution that is described in a DGR category set out in item 1.1.6 of the table in section 30-15 of the ITAA 1997;

· is not listed by name in Subdivision 30-B of the ITAA 1997;

· satisfies any special conditions for the category in which it is described - is 'in Australia';

· has suitable rules in relation to the transfer of gifts, contributions and other money received because of such gifts or contributions

The Rulee satisfies all of the above requirements (as explained below) and is entitled to be endorsed as a DGR HPC. Therefore the current endorsement as a DGR HPC will remain.

Requirement a) - Australian Business Number

To be endorsed as a tax exempt charity, the entity must have an ABN.

The Rulee has an ABN. This requirement is satisfied.

Requirement b) - Health Promotion Charity

Taxation Ruling TR 2004/8 Income tax and fringe benefits tax: health promotion charities lists the characteristics of a health promotion charity (HPC):

Its principle activity is promoting the prevention or the control of diseases in human beings, and

It is a charity that is a charitable institution.

Principle Activity

Disease

The term 'diseases' include any physical or mental ailment, disorder, defect or morbid condition, whether of sudden onset or gradual development, and whether of genetic or other origin. The disease must be one affecting humans.

The Rulee supports hospital services. It is considered that The Rulee is concerned with disease that is affecting humans.

Prevention or control

The activities of the organisation must be directed towards promoting prevention or control of the disease. Examples of prevention or control include:

· Providing broad-based education to individuals suffering from a disease

· Providing broad-based education to carers and service providers

· Engaging in medical research into the causes, prevention and treatment of a disease, and

· Engaging in activities to raise community awareness of a disease and other similar diseases

While a broad view is taken, they do not extend to activities that are merely for the non-medical benefit of the sufferers of disease or their carers

TR 2004/8 provides an example where the activities are considered to be promoting and controlling of the diseases - an institution's activities are supporting child sufferers of a particular disease, running public awareness campaigns on the disease, participating in research on its treatment, disseminating the research findings to health professionals and carers, and liaising with their teachers and schools about their health needs.

The activities to be undertaken by The Rulee are sufficiently connected to the purpose of promoting and prevention or control of disease in human beings.

Charitable Institution

Although the word charitable is not defined by the ITAA 1997, it has an established legal meaning through case law. The Commissioner's view of what characterises a charity is outlined in the Income Tax Guide for non-profit organisation (The Guide).

An entity will be considered a charity if:

It is an entity that is also an institution,

It exists for the public benefit or the relief of poverty,

Its sole purpose is charitable within the legal sense of the term, and

It is non-profit.

Institution

Whether an entity has the character of an institution will depend on a range of features including its activities, size, permanence, purposes and recognition. Incorporation is not enough, on its own, to show and entity is an institution. A charitable institution would not usually include an entity that is established, controlled and operated by family members and friends.

The Rulee is governed by the Rules and administered by a committee of management. The Rulee has specific objectives and conducts extensive activities in line with those objectives.

The Rulee is considered to be an institution.

Public charitable purpose

The purposes of a charity must be charitable and it is only charitable if it is within the 'spirit and intendment' of the Statute of Charitable Uses 1601 (the so-called 'Statue of Elizabeth'. This means that the purpose must be the same as or analogous to:

· purposes set out in the preamble to that Statute; or

· purposes that the courts have found to satisfy the technical legal meaning of charitable.

As stated in paragraph 39 of Taxation Ruling TR 2005/21, there are five main groupings of benefit or value that the courts have recognised as capable of being charitable. They are purposes for the relief of poverty; the relief of the needs of the aged; the relief of sickness or distress; the advancement of religion and the advancement of education. There are also so many other charitable purposes, commonly referred to as other purposes beneficial to the community. Sporting, recreational, social or entertainment purposes are not charitable purposes.

For a purpose to fall within the technical legal meaning of charitable, it must also be beneficial to the community or deemed to be for the public benefit by legislation, except for the relief of poverty. The benefit need not be for the whole community, but it must be at least for an appreciable section of the public. Charities may limit their activities to a particular segment of the community if those limits enable it to better carry out its charitable purposes. Such groups include residents of a particular geographic area, people who practice a particular religion or sufferers of a particular condition. However, it must not be to provide merely private benefits.

As described in paragraph 162 of TR 2005/21, finding an entities purpose involves:

an objective weighing of all its features. These include its constitutive or governing documents (memorandum and articles of association, trust deed, constitution, and so on), its activities, policies and plans, administration, finances, history and control, and any legislation governing its operation.

When the Rulee purposes and activities are considered as a whole, it is considered that The Rulee has a sole purpose which is charitable.

The Rulee has a sole purpose which is considered charitable.

Non-profit

The Tax Office accepts an organisation as non-profit where its constituent documents contain acceptable non-profit and dissolution clauses. Generally, it is accepted that an organisation is non-profit where if, by operation of the law or by its constituent documents, it is prevented from distributing its profits and assets among members while it is operating and on winding up.

The Rulee Rules contain appropriate non-profit and dissolutions clauses

This requirement is satisfied.

Requirement c) - Not Listed by Name

The Rulee is not listed by name, this requirement is satisfied.

Requirement d) - Special Conditions

In order to satisfy the 'in Australia' requirement specified in section 30-15 of the ITAA 1997, the organisation must be established and operated in Australia.

The Rulee operates in Australia and satisfies this requirement.

Requirement e) - Transfer of gifts and contributions

Page 56 of the GiftPack states that endorsed DGRs are required to transfer all remaining gifts, deductible contributions and money received in relation to such gifts and contributions to another deductible fund, authority or institution at the earlier of winding up or on revocation of its endorsement.

The Rulee meets this requirement.

Question 2 - Income Tax Exemption

Summary of decision:

The Rulee is entitled to income tax exemption under section 50-105 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is a charitable institution as per item 1.1 of the table in section 50-5 of the ITAA 1997.

Detailed reasoning:

The income of charitable institutions is exempt from income tax if they meet the relevant requirements set out in Division 50 of the ITAA 1997.

Charitable institutions need to be endorsed by the Tax Office to be exempt from income tax. Under section 50-105 of the ITAA 1997, the Commissioner may endorse an entity as exempt from income tax where the entity has applied for and is entitled to endorsement.

Under section 50-110 of the ITAA 1997, an entity is entitled to endorsement if it meets the following requirements:

· It has an ABN,

· It is a charitable institution described by item 1.1 of section 50-5 of the ITAA 1997, and

· It satisfies the special conditions of section 50-50 of the ITAA 1997.

An entity will satisfy section 50-50 of the ITAA 1997 if it has a physical presence in Australian and to that extent incurs its expenditure and pursues its objectives principally in Australia.

It has already been established that the Rulee satisfies these requirements, therefore, it is entitled to income tax exemption. Therefore its current endorsement of the Rulee as a tax concession charity - charitable institution will remain.

Question 3 - GST concessions

Summary of decision:

The Rulee is entitled to endorsement for GST concessions under section 176-1 of the A New Tax System (Goods and Services Tax) Act 1999 on the basis that it is a charitable institution.

Detailed reasoning:

Section 176-1 of the A New Tax System (Good and Service Tax) Act 1999 provides than an entity can be endorsed for GST concessions as a charitable institution if the entity:

· Is a charitable institution

· Has an ABN

· It has already been established that The Rulee satisfies these requirements and is therefore entitled to GST endorsement. Therefore the current GST concessions of the Rulee will remain.

Question 4 - FBT exemptions

Summary of decision:

The Rulee is entitled to endorsement for FBT exemptions under subsection 123D (2) of the Fringe Benefits Tax Assessment Act 1986 on the basis that it is a health promotion charity.

Detailed reasoning:

Subsection 123D (2) of the Fringe Benefits Tax Assessment Act 1986 provides that an entity can be endorsed for FBT exemption if:

· is a heath promotion charity; and

· has an ABN; and

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

It has already been established that the Rulee meets the requirements as a health promotion charity and has an ABN. In addition, the Rulee is not an employer in relation to which step 2 of the method statement in subsection 5B (1E) applies, therefore the Rulee it is entitled to be endorsed for FBT exemption and the current FBT exemption of the Rulee will remain.