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Ruling

Subject: Confirmation of taxation endorsements

Issue 1

Question 1

Would the establishment of a new fund for the entity affect the tax concession charity (TCC) endorsement of the entity as a charitable fund under Subdivision 50-B of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

This ruling applies for the following period<s>:

1 July 2011 to 30 June 2012

The scheme commences on:

1 July 2011

Issue 2

Question 1

Would the establishment of a new fund for the entity affect the entity operating the three deductible gift recipient (DGR) endorsed funds under item 2 of the table in section 30-15 of the ITAA 1997?

Answer

No

This ruling applies for the following period<s>:

1 July 2011 to 30 June 2012

The scheme commences on:

1 July 2011

Issue 3

Question 1

Would the new fund for the entity be exempt from income tax by virtue of the entity being endorsed as a TCC charitable fund under Subdivision 50-B of the ITAA 1997?

Answer

Yes

This ruling applies for the following period<s>:

1 July 2011 to 30 June 2012

The scheme commences on:

1 July 2011

Issue 4

Question 1

Would the winding up of a charitable fund provided in the entity's trust deed affect the taxation endorsements of the entity?

Answer

No

This ruling applies for the following period<s>:

1 July 2011 to 30 June 2012

The scheme commences on:

1 July 2011

Issue 5

Question 1

Would using a particular winding up clause for the new fund for the entity affect tax endorsements of the entity or affect the income tax exempt status of the new fund?

Answer

No

This ruling applies for the following period<s>:

1 July 2011 to 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts

The entity is endorsed as a tax concession charity

The entity sought advice on whether the winding up of charitable fund established in its Trust Deed would affect its taxation endorsements.

The entity sought advice on whether the establishment of a new charitable fund would affect its taxation endorsements.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 50-5

Income Tax Assessment Act 1997 Section 5-110

Reasons for decision

Question 1

The entity has income tax exemption pursuant to section 50-110 of the Income Tax Assessment Act 1997 (ITAA 1997) and is covered by item 1.5B of the table under section 50-5 of the ITAA 1997.

The entity intends to implement a restructure of a fund which will subsequently result in the establishment of a new fund. Once the new fund is established, part of the corpus of the previous fund will be applied to the new fund.

The new fund will have identical terms to the dissolved fund including an identical winding up clause. This means that the purposes and objects of the new fund are identical to the purposes and objects of the dissolved fund.

The ATO endorsed the entity as a tax concession charity (TCC) as it was accepted that it had a sole charitable purpose of distributing funds to charitable deductible gift recipients and to also establish a charitable fund.

The purposes and objects of the entity have not changed since it received TCC endorsement. The clause provides that the Trustee must hold the Trust Fund on trust solely for charitable purposes and is applicable to any charitable fund established for the entity.

Like the purposes and objects of the entity, it must be solely charitable in nature. The establishment of the new fund will therefore not have any affect on the TCC endorsement of the entity.

Question 2

The entity operates three DGR endorsed charitable funds. All of these funds have deductible gift recipient (DGR) endorsement.

The restructure and subsequent establishment of the new fund will have no affect on the deductible gift recipient endorsement status of the three charitable funds. The purpose of each charitable fund remains the same since they received DGR endorsement from the ATO.

Question 3

The entity is entitled to income tax exemption pursuant to section 50-110 of the Income Tax Assessment Act 1997 (ITAA 1997) and is covered by item 1.5B of the table under section 50-5 of the ITAA 1997.

The new fund will have identical terms to the dissolved fund including an identical winding up clause. This means that the purposes and objects of the new fund are identical to the purposes and objects of the dissolved fund.

The ATO endorsed the entity as a tax concession charity (TCC) as a whole since it was accepted that it had a sole charitable purpose of distributing funds to charitable deductible gift recipients and to also establish a charitable fund. Therefore as the new fund is a fund established and operated by the entity any income will be exempt from income tax.

Question 4

The trust deed provides that the entity is established to have a sole charitable purpose. These objects have not changed since it received TCC endorsement from the ATO.

The winding up of the dissolved fund does not in itself affect the taxation endorsements of the entity. The entity can still have a sole charitable purpose even if the dissolved fund is wound up so long as it continues to pursue objects which are charitable in nature.

Question 5

The winding up clause of the dissolved fund is used for the new fund.

The ATO publication, Income tax guide for non-profit organisations (NAT 7967-03.2007), provides an acceptable dissolution clause on page 6:

Dissolution clause

In the event of the organisation being dissolved, the amount that remains after such dissolution and the satisfaction of all debts and liabilities shall be transferred to another organisation with similar purposes which is not carried on for the profit or gain of its individual members.

The winding up clause in clause 1.5 in Schedule 3 ensures that any surplus funds or property will not be transferred to owners, members or other private persons. Therefore the use of this clause for the new fund will not affect the tax endorsements of the entity nor will it affect the income tax exemption of the new fund.