Edited version of private ruling

Authorisation Number: 1011899516272

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 fact 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: Exemption from Income Tax - Endorsement as a Deductible Gift Recipient

Issue 1 Question 1

Will the entity satisfy the requirements to be exempt from income tax under item 1.1 of section 50-5 of the ITAA 1997 as a charitable institution should it participate in the development of a particular facility?

Answer

No

Issue 1 Question 2

Will the entity satisfy the requirements to be exempt from income tax under item a particular section of the ITAA 1997 should it participate in the development of a particular facility?

Answer

No

Issue 2 Question 1

Will the entity satisfy the requirements to be endorsed as a DGR under the ITAA 1997 should it participate in the development of a particular facility?

Answer

No

Issue 3 Question 1

Will the entity satisfy the requirements to be endorsed for concessions under the GST Act should it participate in the development of a particular facility?

Answer

No

This ruling applies for the following period

Income year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

The entity is in the process of being incorporated.

The entity has one member, being Entity 2 and is controlled by Entity 2.

Entity 2 has been endorsed as a charitable institution and a deductible gift recipient by the Commissioner.

The entity does not have an ABN.

The entity has its own constitution.

The entity's constitution contains acceptable non-profit, dissolution and wind-up/revocation clauses.

The entity's constitution states that the principal object for which it is established is to carry on and be responsible for the operations of particular facilities and services.

The entity's activities are in support of its objects.

The entity has been created to enter into legally binding contracts with a third party on behalf of Entity 2, to build and operate a particular facility.

The building of the particular facility will be subcontracted out to a building company. The operation and maintenance of the particular facility will be subcontracted out to Entity 2.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 30-20

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 50-30

Income Tax Assessment Act 1997 Section 50-52

Income Tax Assessment Act 1997 Section 50-110

Fringe Benefits Tax Assessment Act 1986 Section 57A

Fringe Benefits Tax Assessment Act 1986 Section 65J

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 38-G

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

Issue 1 Question 1

Summary

The entity will not be entitled to exemption from income tax as a charitable institution under item 1.1 of section 50-5 of the ITAA 1997 as it does not have an ABN.

Should the entity obtain an ABN it will be entitled to exemption from income tax as a charitable institution under item 1.1 of section 50-5 of the ITAA 1997.

Detailed reasoning

Section 50-1 of the ITAA 1997 provides that the ordinary and statutory income of entities covered by the tables listed in Subdivision 50A of the ITAA 1997 is exempt from income tax.

Item 1.1 in the table in section 50-5 of Subdivision 50A of the ITAA 1997 provides that an entity is an exempt entity if it is a 'charitable institution' and it satisfies the special conditions of sections 50-50 and section 50-52 of the ITAA 1997.

Section 50-52 of the ITAA 1997 provides that an entity covered by item 1.1 is not exempt from income tax unless the entity is endorsed as exempt from income tax under Subdivision 50-B of the ITAA 1997.

Under section 50-110 of Subdivision 50-B of the ITAA 1997 an entity is entitled to be endorsed as exempt from income tax if the entity meets all of the following requirements:

· it has an ABN

· it is a charitable fund or institution covered by section 50-5 of the ITAA 1997; and

· it satisfies the special conditions of sections 50-5 of the ITAA 1997.

ABN

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

The entity does not currently have an ABN.

The entity therefore does not satisfy this requirement of section 50-110 of the ITAA 1997.

A charitable institution covered by section 50-5 of the ITAA 1997

Although the word 'charitable' is not defined by the ITAA 1997, it has an established legal meaning through case law. Based on common law the characteristics of a charity are:

· Its purposes are charitable within the legal sense of that term;

· It is an entity that is also a trust fund or an institution;

· It exists for the public benefit or the relief of poverty;

· It is non-profit; and

· Its sole or dominant purpose is charitable.

Charitable purpose

Paragraph 10 of Draft Taxation Ruling TR 2011/D2 Income tax and fringe benefits tax: charities (TR 2011/D2) states that for a purpose to fall within the technical legal term of 'charitable' it must be beneficial to the community and within the spirit and intendment of the Statute of Elizabeth.

Paragraph 102 of TR 2011/D2 provides that purposes in the Preamble to the Statute of Elizabeth include the relief of aged, impotent and poor people.

As per paragraphs 12 and 103 of TR 2011/D2, charitable purposes are commonly grouped under the four heads of charity being:

· the relief of poverty;

· the advancement of education;

· the advancement of religion; and

· other purposes beneficial to the community.

The entity is the legal entity that will be established to contract directly a third party to build and maintain a particular facility for a charitable purpose.

Taxation Ruling TR 2005/22 Income tax: companies controlled by exempt entities (TR 2005/22) concerns the income tax exemption of companies which are not carried on for the profit or gain of their individual members, and which are controlled by an entity or entities that are exempt from income tax.

Paragraph 18 of TR 2005/22 states:

19. Accordingly, the following features, on their own, will not be sufficient to show a company is covered by the tables in Division 50:

· control of the company by an exempt entity or entities;

· common membership of the board of both the company and the exempt entity;

· use of the company's surplus funds for exempt entities or their purposes;

· the commitments of members of the company being related to those of an exempt entity or entities;

· common motives inspiring the company and associated exempt entities;

· the providing of free services to associated exempt entities; and

· the holding of property by the company on trust for exempt entities.

Paragraphs 67 to 69 of TR 2005/22 provide the following guidance on infrastructure services:

67. An exempt entity might set up and control a non-profit company solely to

provide services to it in the carrying out of its purposes. Depending on the type and degree of integration in the pursuing of purposes, this may be a pointer towards the company's purpose or character.

Example 1

70. A non-profit corporation is set up and controlled by a religious group to insure each of its twenty charitable entities against loss due to fire, etc to their assets. The twenty charitable entities in the group carry out educational, religious and medical purposes, owning schools, clinics, offices, churches and halls. The corporation's sole function is to provide insurance to the charitable entities in respect of such assets, in a cost-neutral way.

71. The corporation is a charitable institution in terms of item 1.1 in section 50-5. It does not merely possess characteristics as outlined at paragraph 18. Also, while it does not perform educational, religious and medical services, and while the providing of insurance cover in itself is not a charitable purpose, the corporation's circumstances indicate it is solely carrying out charitable purposes and it has no other purpose. Its purposes, in their own right, are wholly charitable. This is no private benefit provided. [emphasis added]

The entity is an entity set up and controlled by a non-profit company to provide services to it in the carrying out of its purposes. The sole purpose of the entity is to enter into contracts with a third party and be responsible for all aspects of the particular facility.

The entity exists solely for the purpose of entering into contracts for the purpose of building and operating a particular facility. It has no other purpose. As per its constitution, there is no private benefit provided to members.

With reference to paragraphs 68 and 69 of TR 2005/22 it is considered that the entity is similar to the entity referred to in that example and therefore should also be accepted as a charitable institution due to the following reasons:

· The entity is a non-profit corporation set up and controlled by an exempt entity.

· The entity's sole function is to provide a service to a charitable entity.

· Whilst it may be argued that providing a service of contract negotiation and/or legal representation is not a charitable purpose, the entity has no other purpose. In this way, it is similar to the entity described in paragraph 69 of TR 2005/22 which performed a non-charitable purpose of providing insurance cover, and had no other purpose. Both the entity referred to in the ruling and this entity provide services to charitable entities only.

· There is no private benefit provided by the entity.

In Commissioner for ACT Revenue Collections v. Council of the Dominican Sisters of Australia 91 ATC 4602 (1991) 22 ATR 213 the entity was a company limited by guarantee that conducted a teachers' training college knows as Signadou College in the Australian Capital Territory. The Council of Generalate was responsible for the administration of Signadou College. The membership of the Council of Generalate and the Council of the Dominican Sisters of Australia was identical.

The entity objected to assessments of pay-roll tax on the basis that it was a religious institution and the objections were disallowed. The entity then applied to the Administrative Appeals Tribunal (AAT) for a review of the decision. The AAT held that the Council of the Dominican Sisters of Australia was a religious institution. The Commission for ACT Revenue Collections appealed to the Full Federal Court for a review of the AAT decision.

At 91 ATC 4604 a representative of the Council of the Dominican Sisters of Australia stated that the entity 'was drawn up simply for the purpose of having a legal entity to hold property and it has no other function than that. Whoever were members, the elected members of the Generalate Council were by reason of their office also members of [the respondent].' [emphasis added]

It was stated that the Council of the Dominican Sisters of Australia holds the Crown lease of the land on which Signadou College is situated and by the rules of the Order individual sisters were not entitled to hold property themselves. It was for this reason that the Council of the Dominican Sisters of Australia was brought into existence.

At the AAT the Deputy President stated that 'the Corporate Council is the legal face of the Generalate Council. It is the legal entity which acts on behalf of the Generalate Council and was created to hold legal title to property on its behalf'.

In his reasons for concluding that the Council of the Dominican Sisters of Australia was a religious institution, the Deputy President stated:

"In this case, the Corporate Council owns no other property other than the leasehold on which Signadou College is situated, and it has no involvement in any other commercial activity. Its membership corresponds directly with that of the Generalate Council, so much so in fact that, as evidenced by the confusion in Sister Grace's evidence, it is difficult to differentiate between the acts of either when they are not categorised as strictly legal acts. Clearly then the Corporate Council was during the period in question the legal arm of the Generalate Council and for the purposes of the exemption, inseparable from it. The Corporate Council merely represented the legal means by which the Generalate Council gave effect to the underlying principles of the Order. It became clothed with the fundamental character of the Generalate Council which was that of a religious institution."

In reviewing the AAT decision, the Full Federal Court Judges stated at 91 ATC 4607:

We do not think that the Deputy President sought to determine what was the respondent's primary and dominant object. Rather he concentrated upon what he described as "the Order's goal of the advancement of religion through education." To say, as the Deputy President said, that the respondent merely represented the legal means by which the Order gave effect to its underlying principles and that the respondent became clothed with the fundamental character of the Order was not to answer the critical question, which was whether the promotion or advancement of religion was the primary and dominant object of the respondent. That question could only have been answered after an examination of the objects and activities of the respondent to determine whether its primary and dominant object was the promotion of religion or, as the applicant submitted, the advancement of education. We do not think the Deputy President undertook such an examination.

It was also submitted on behalf of the applicant that it was not reasonably open to the Deputy President on the material before him to find that the respondent was a religious institution and that accordingly, we should not remit the matter for determination by the Tribunal but determine that the respondent was not entitled to the exemption claimed. It was submitted that the respondent's objects, especially as amended, were mainly or predominantly educational rather than religious in character and that its principal activities were the retention of the legal title to the land upon which the College was located and the employment of teachers…." [emphasis added].

In the reasoning provided by both the AAT and the Full Federal Court, it is evident that even though it was acknowledged that the Council of Dominican Sisters of Australia was merely a legal vehicle to hold land, both the tribunal and the Court looked past that limitation to determine whether the entity's principal activities were the advancement of religion or the advancement of education.

In the case of the AAT, the Deputy President found that the entity was a religious institution. In the Full Federal Court case the Commissioner for ACT Revenue Collections submitted that the entity's objects were mainly or predominantly educational rather than religious in character.

The Full Federal Court allowed the appeal of the Commissioner for ACT Revenue Collections and set aside the AAT decision. The matter was remitted for redetermination by the AAT.

Therefore even though the AAT and the Full Federal Court had differing views on the exact charitable purpose of the Council of Dominican Sisters of Australia, both looked at the entity's overarching objectives and purposes and did not simply dismiss it as a special entity vehicle established only for the legal purpose of holding land.

The relationship between the Council of Dominican Sisters of Australia and the Generalate Council has strong similarities to the characteristics of the relationship between the entity and Entity 2. The entity is the legal vehicle used by Entity 2 to enter into contracts on behalf of Entity 2. As per its constitution, the entity is established a charitable purpose.

In the case of Federal Commissioner of Taxation v. Word Investments Limited (2008) 236 CLR 204 the High Court concluded that the company carried out its business activities to further its charitable purpose, rather than as an end in itself.

Paragraph 254 of TR 2011/D2 provides that an institution undertaking commercial or business-like activities can still be charitable if the sole purpose of the institution is charitable and the commercial operations are merely incidental to the carrying out of the charitable purpose.

The participation by the entity in the project is a business-like operation that is incidental to its charitable purpose.

It is therefore accepted that the entity has met the charitable purpose requirement

A trust fund or 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.

Paragraph 23 of TR 2011/D2 states:

An institution is an establishment, organisation or association, instituted for the promotion of some object, especially one of public or general utility. It connotes a body called into existence to translate a defined purpose into a living and active principle. It may be constituted in different ways including as a corporation, unincorporated association or trust. However it involves more than mere incorporation, and does not include a structure controlled and operated by family members and friends.

The entity is to be incorporated as a company limited by guarantee. It will be a controlled entity of Entity 2 with Entity 2 being the sole member and having the right to appoint the entity's board. The entity has its own constitution.

In SIM Australia (as trustee for SIMAID Trust) v. FC of T [2007] AATA 1443 the AAT considered whether SIMAID was entitled to endorsement as a public benevolent institution (PBI). SIMAID was established to provide relief for persons living in certain 'certified countries'. It was stated that the functions of the applicant included project initiation, design and implementation, fund-raising, monitoring quarterly reports, field visits and evaluation, correspondence with field project managers, administration and accounting.

SIMAID had previously had two full time employees however at the time of the hearing did not have any employees. The two previous full time employees still had the same responsibilities but their salaries were now being paid by SIM Australia.

It was stated that a project proposal to provide overseas assistance is formulated with extensive consultation between SIMAID staff and the project managers in the particular overseas country. That consultation process is necessary because SIMAID projects must comply with the SIMAID trust deed and relevant legislation for approved overseas aid and development projects. The SIMAID operating manual 'showed that SIMAID's work relates to compliance and is performed in pursuance of the terms of the trust…'

At 2007 ATC 2251 the applicant argued that the real issue in dispute was whether SIMAID can be properly characterised as an "institution". The Commissioner contended that SIMAID was not an institution because it does not carry on benevolent activities, but rather administers the trust by funding projects undertaken by other agencies…'

In his consideration at paragraphs 82 and 83 of 2007 ATC 2254 the Deputy President of the AAT noted the following in respect of SIMAID's structure:

· SIMAID has no employees of its own.

· All decisions made by the SIMAID management committee must be ratified by the full SIM National Council.

· SIMAID had no infrastructure of its own, but instead relies on SIM Australia for support within this country and on SIM International and local SIM agencies for support overseas. By so doing, the organisation commendably seeks to economise on administrative and overhead expense.

· For the same reason, those who work for the organisation "wear many hats" and tend to see themselves as part of one global organisation.

In comparison to SIMAID, the entity also has no employees of its own and is controlled by Entity 2. Those who work for Entity 2 'wear many hats' and are considered to be part of one larger organisation.

At paragraph 84 of 2007 ATC 2254 the Deputy President stated 'the points so far enumerated are not inconsistent with the proposition that the applicant is a PBI that carries on its own activities.' Therefore, it is considered that the points discussed so far do not preclude the entity from being an institution.

Ultimately, the Deputy President ruled that SIMAID had not established that it was an institution. In doing so, the Deputy President made the following considerations:

· 'It will be seen that SIMAID's function in relation to overseas projects are in the nature of evaluation, funding, monitoring and management support. Nothing in that description suggests that SIMAID personnel or volunteers will actually be implementing the projects…'

· 'The tasks that Ms Manahan lists as responsibilities of Mr Britton and herself (Exhibit A4, paras 20-21), are in the nature of fundraising, promotion, monitoring and liaison rather than the actual implementation of projects.'

· 'There is no evidence before the tribunal to show that any of them are subject to SIMAID control or direction or to confirm that they regard themselves as representing SIMAID.'

· 'If the SIMAID component is to be characterised as directly implementing projects in Africa or South America there needs to be some defined line of responsibility for day-to-day implementation traceable back to SIMAID itself, as opposed to SIM International or SIM Australia. The evidence before the tribunal does not reveal such a link and the applicant bears the onus of proving it.'

In comparison to SIMAID, the entity has notable differences in its operations including:

· it has its own constitution

· it is entering into legally binding contracts with a third party and is ultimately responsible for those deliverables.

· Whilst it will be sub-contracting the work to other entities, it is still responsible for the implementation and ongoing performance of the facility project.

· It will define the parameters and requirements of its subcontractors via written agreements and as such will retain overall responsibility for the control and direction of the project.

· If the entity is removed from the project, the particular facility would not proceed.

Furthermore it is noted in the case of Commissioner for ACT Revenue Collections v Council of the Dominican Sisters of Australia 91 ATC 4602 (1991) 22 ATR 213 as referred to above, that neither the AAT nor the Full Federal Court questioned whether the Council of Dominican Sisters of Australia was an 'institution'. This was an entity that was set up simply for the purpose of having a legal entity to hold property and it had no other function. In finding that it was a religious institution, the AAT effectively endorsed that it was an institution. The Full Federal Court did not dispute that it was an institution and instead looked at its charitable purpose.

It is considered that the entity's activities constitute an institution.

Public benefit or the relief of poverty

Charities exist for the benefit of the community or the relief of poverty. Paragraph 15 of TR 2011/D2 states:

A purpose is beneficial to the community if:

· it offers a benefit that is real and of value, either tangible or intangible; and

· that benefit is for the public.

Paragraph 16 of TR 2011/D2 states:

The benefit of a charitable purpose need not be for the whole community; it is sufficient that it is for an appreciable section of the public.

The entity will be responsible for the construction and operation of a facility for public benefit. The entity meets the public benefit requirement.

Sole purpose

To be a charity, the sole purpose of the entity must be charitable.

Paragraph 25 of TR 2011/D2 states that a charitable institution cannot have an independent non-charitable purpose (regardless of how minor that independent non-charitable purpose may be).

Paragraph 26 of TR 2011/D2 states a purpose is the 'main or predominant or dominant' purpose of an institution if any other purpose the institution has is no more than incidental or ancillary to that purpose.

Paragraph 27 of TR 2011/D2 explains that a purpose is incidental or ancillary to a charitable purpose if it tends to assist, or goes naturally with, the achievement of the charitable purpose.

No non-charitable purposes have been identified in respect of the objects or activities of the entity.

The entity satisfies the sole purpose requirement as its purposes are charitable.

Non-profit

Page 6 of Income tax guide for non-profit organisations states:

The basic premise of a non-profit organisation is that it is not operating for the profit or gain of its individual members, whether these gains would have been direct or indirect. This applies both while the organisation is operating and when it winds up.

The Tax Office accepts an organisation as non-profit where its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people - both while it is operating and when it winds up.

These documents should contain acceptable clauses showing the organisation's non-profit character. The organisation's actions must be consistent with this requirement.

There are two requirements implicit in the statement of non-profit character above. First an entity's constituent document must display a non-profit character. Second, the entity's actions must be consistent with this non-profit character.

Clauses 4 and 9 of the entity's constitution prevent it from distributing its profits or assets amongst members while it is operating or on upon winding up.

It is accepted that the entity is a non-profit association.

As the entity meets the requirement of being a non-profit institution with a sole charitable purpose and exists for public benefit, it is accepted that the entity satisfies the charitable institution requirement of section 50-110 of the ITAA 1997.

It satisfies the special conditions of section 50-5 of the ITAA 1997.

A charitable institution is an exempt entity as per section 50-5 of the ITAA 1997 provided it satisfies the special conditions of sections 50-50 and 50-52 of the ITAA 1997.

Section 50-52 of the ITAA 1997 provides that a charitable institution under Item 1.1 will not be exempt from income tax unless the entity also meets other conditions described in section 50-50 and is endorsed as exempt from income tax.

Section 50-50 of the ITAA 1997 states:

An entity covered by item 1.1 or 1.2 is not exempt from income tax unless the entity:

(a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or

(b) is an institution that meets the description and requirements in item 1 of the table in section 30-15; or

(c) is a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident; or

(d) is a prescribed institution that has a physical presence in Australia but which incurs its expenditure and pursues its objectives principally outside Australia.

The entity has a physical presence in Australia. The entity conducts its activities and incurs its expenditure in Australia, meaning that it pursues its objectives principally in Australia. As such, the entity satisfies paragraph 50-50(a) of the ITAA 1997.

The entity has not applied for endorsement as a tax concession charity and therefore has not met the requirement of section 50-52 of the ITAA 1997. As such the entity has not satisfied the special conditions of section 50-5 of the ITAA 1997.

The entity will not be entitled to exemption from income tax under item 1.1 of section 50-5 of the ITAA 1997 as a charitable institution should it choose to participate in the described particular facility as it does not have an ABN and has not applied for endorsement by the Commissioner.

Issue 1 Question 2

Summary

The entity will be applying for an ABN once incorporated.

Once the entity obtains its ABN it will be entitled to endorsement as a charitable institution.

If the entity is endorsed as a charitable institution, it is not entitled to income tax exemption under a particular provision of the ITAA 1997.

Detailed reasoning

Section 50-52 of the ITAA 1997 sets out the special conditions that must be satisfied for an entity applying for income tax exemption as a charitable institution under item 1.1. Subsection 50-52(1) provides that an entity covered by item 1.1 is not exempt from income tax unless the entity is endorsed as exempt from income tax under Subdivision 50-B.

Subsection 50-52(3) states:

This section has effect despite all the other sections of this Subdivision.

Note: This means that an entity covered both by an item other than 1.1, 1.5, 1.5A, 1.5B or 4.1 and by one of those items is not exempt from income tax unless the entity is endorsed under Subdivision 50-B as exempt from income tax and the entity meets the requirements of whichever of sections 50-50, 50-57, 50-60 and 50-72 is relevant [emphasis added].

Once it has its ABN, the entity will be an entity covered by both item 1.1 of section 50-5 and another item of the ITAA 1997.

Where an entity is covered by the latter item only, it can self-assess its entitlement to income tax exemption. However as per subsection 50-52(3) where an entity is covered by both item 1.1 of section 50-5 and the aforementioned item, the entity must apply to the Commissioner for endorsement.

As the entity will be accepted by the Commissioner as satisfying the requirements for endorsement as a charitable institution under item 1.1, it is not entitled to endorsement under another particular item.

Issue 2 Question 1

Summary

The entity will not satisfy the requirements for endorsement as a DGR in accordance with a particular item in the ITAA 1997 as it does not have an ABN.

Detailed reasoning

Section 30-120 of the ITAA 1997 provides that the Commissioner must endorse an entity as a DGR if it applies for endorsement and is entitled to be endorsed as a DGR.

Section 30-125 of the ITAA 1997 sets out the conditions that an entity must satisfy in order to be endorsed as a DGR.

In accordance with subsection 30-125(1) of the ITAA 1997, an entity that is seeking to be endorsed as a DGR is entitled to endorsement if the following conditions are satisfied:

(a) the entity has an ABN;

(b) the entity is a fund, authority or institution that

o is described in a category set out in item 1, 2 or 4 of the table in section 30-15 of the ITAA 1997;

o is not described by name in Subdivision 30-B of the ITAA 1997;

o satisfies any special conditions for the category in which it is described; and

(c) the entity satisfies the winding up and revocation of endorsement requirements of subsection 30-125(6).

Item 1 of section 30-15 of the ITAA 1997 refers to a fund, authority or institution that is covered by an item in any of the tables in Subdivision 30-B. Item 1 has a special condition that the fund, authority or institution must be in Australia.

It is accepted that the entity meets the requirements of paragraph subparagraphs 30-125(b)(i) and (iii).

The entity is not described by name in Subdivision 30-B of the ITAA 1997. Therefore the requirement of subparagraph 30-125(b)(ii) is also met.

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.

The entity's constitution meets the requirements of subsection 30-125(6) of the ITAA 1997, and therefore satisfies paragraph 30-125(1)(c) of the ITAA 1997.

However as the entity does not have an ABN it does not meet the requirements of paragraph 30-125(1)(a).

As the entity does not have an ABN and has not applied for endorsement, it does not meet all of the requirements of subsection 30-125(1) of the ITAA 1997 and therefore is not entitled to be endorsed as a DGR.

Issue 3 Question 1

Summary

The entity will be not entitled to GST concessions under subdivision 38-G of the GST Act as a charitable institution as it does not have an ABN and has not applied for endorsement as a charitable institution.

Detailed reasoning

Subdivision 38-G of the GST Act provides GST concessions to a supplier that is an endorsed charitable institution.

Subsection 176-1(1) of the GST Act requires the Commissioner to endorse an entity as a charitable institution if it is entitled to be endorsed as a charitable institution and has applied for endorsement.

Subsection 176-1(2) of the GST Act provides that an entity is entitled to be endorsed as a charitable institution if it:

(a) is a charitable institution; and

(b) has an ABN.

The entity has not applied for endorsement as a charitable institution and does not have an ABN.

As such the entity does not meet the requirements under subdivision 38-G of the GST Act.

ATO view documents

Draft Taxation Ruling TR 2011/D2 Income tax and fringe benefits tax: charities

Taxation Ruling TR 2005/22 Income tax: companies controlled by exempt entities

Taxation Ruling TR 2000/11 Income tax: endorsement of income tax exempt charities

Income tax guide for non-profit organisations (NAT 7967-03.2007)

Giftpack (NAT 3132-04.2011)

Other references (non ATO view, such as court cases)

Commissioner of Taxation v. Word Investments Limited (2008) 236 CLR 204

Commissioner for ACT Revenue Collections v. Council of the Dominican Sisters of Australia 91 ATC 4602 (1991) 22 ATR 213

SIM Australia (as trustee for SIMAID Trust) v. FC of T [2007] AATA 1443