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Edited version of your private ruling
Authorisation Number: 1012604123704
Ruling
Subject: Income Tax: Exempt entities - not for profit and mutual organisations
Question 1
Are you, a registered charity who is exempt from income tax, required to depreciate a car purchased over a number of years under taxation law?
Answer
No
This ruling applies for the following periods:
Year ending 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
1. You are a registered charity with the Australian Charity and Not-for-Profit Commission (ACNC). You have been registered since dd/mm/yyyy.
2. You are a Charitable Institution endorsed to access the following tax concessions:
• GST Concession since 1 July 2005
• FBT Rebate since 1 July 2005
• Income Tax Exemption since 1 July 2000
3. You are endorsed as a Deductible Gift Recipient (DGR) from 1 July 2000.
4. You purchased a car outright.
5. When completing the yearly accounts the car (asset) was expensed out in the same year so that depreciation is not paid over a period of years.
6. The auditor of the organisation stated that it is not possible to expense the car in the same year and it should be depreciated for tax purposes.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 50-1
Income Tax Assessment Act 1997 Section 50-5
Income Tax Assessment Act 1997 Section 50-50
Income Tax Assessment Act 1997 Section 50-52
Income Tax Assessment Act 1997 Subdivision 50B
Income Tax Assessment Act 1997 Section 8-1(2)
Reasons for decision
Summary
You are exempt from income tax, therefore, the method chosen by the organisation to account for the purchase of a car is not a taxation matter that concerns the Commissioner of Taxation. You are not required to depreciate a car over several years for taxation purposes.
Detailed reasoning
Section 50-1 of the Income Tax Assessment Act 1997 (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.
Item 1.1 in the following table of Section 50-5 of the ITAA 1997 provides that a registered charity is an exempt entity and that special conditions in sections 50-50 and 50-52 apply.
Section 50-50 of the ITAA 1997 states that an entity is only exempt from income tax if one or more of the following apply:
a) The entity has a physical presence in Australia and incurs its expenditure and pursues its objectives principally in Australia; or
b) The entity is a fund, authority or institution as specified in Subdivision 30-B as an eligible deductible gift recipient; or
c) The entity is a prescribed institution which is located outside of Australia and is exempt from income tax in the country in which it is resident: or
d) The entity is a prescribed institution that has a physical presence is Australia but which incurs its expenditure and pursues its objectives principally outside Australia.
Section 50-52 of the ITAA 1997 states that an entity is not exempt from income tax unless it is endorsed as exempt from income tax under Subdivision 50-B.
Section 8-1(2) of the ITAA 1997 provides that you cannot deduct a loss or outgoing to the extent that it is incurred in relation to gaining or producing your exempt income.
In your situation, you are registered as a charity by the ACNC. Therefore, you fall under item 1.1 in Section 50-5 of the ITAA 1997. The special conditions in Sections 50-50 and 50-52 of the ITAA 1997 have been satisfied and you have been endorsed by the Commissioner as an entity which is exempt from income tax since 1 July 2000. According to Section 50-1 of the ITAA 1997 this exemption applies to the total ordinary and statutory income.
Section 8-1(2) states that you cannot deduct an outgoing in relation to producing exempt income. Therefore, the outgoing in relation to the car asset purchased by you cannot be deducted for tax purposes.
In summary, you are exempt from income tax, therefore, the method chosen to account for the purchased car is not a taxation matter that concerns the Commissioner of Taxation.