Edited version of your written advice

Authorisation Number: 1012713598780

Ruling

Subject: Income tax exemption

Question 1

Will receiving money from an overseas donor affect the income tax exempt status of an organisation under division 50?

Answer

No

Question 2

Will using the donation made by an overseas donor to fund an overseas project affect the income tax exempt status of an organisation under division 50?

Answer

No

This ruling applies for the following period:

01 July 2014 - 30 June 2015

The scheme commences on:

01 July 2014

Relevant facts and circumstances

• The organisation is a charity endorsed by the Australian Charities and Non Profit Commission. (ACNC). It is exempt from income tax under section 50-B of the Income Tax Assessment Act 1997(ITAA1997).

• The organisation has both income tax and Goods and Services Tax (GST) concessions.

• The endorsement commenced on a date.

• The organisation is commencing a development project overseas.

• A donor will donate a large sum of money for this project.

• The donor is based overseas.

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 50-45

Income Tax Assessment Act 1997 section 50-75

Reasons for decision

Question 1

Will receiving money from an overseas donor affect the income tax exempt status of the organisation under division 50?

Detailed reasoning

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.

The tables referred to in section 50-1 of the ITAA 1997 are contained in sections 50 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. Consequently, the income of the registered charity is exempt from income tax in accordance with section 50-1 of the ITAA 1997.

The donation from overseas will be included in the income of the organisation therefore as the organisation is exempt from income tax under Division 50 of the ITAA 1997 the donation will also be exempt.

Question 2

Will using the donation made by an overseas donor to fund an overseas project affect the income tax exempt status of the organisation under division 50?

Detailed Reasoning

A charitable institution has a physical presence in Australia if it is wholly in Australia, or it has a division, branch or sub-division in Australia. If a charitable institution has a physical presence in Australia only, it must pursue its objectives and incur its expenditure principally in Australia.

A charitable institution which does not principally pursue its purposes and incur its expenditure in Australia can still pass the physical presence in Australia test provided the distributions it makes outside Australia do not exceed its disregarded amounts.

Discussing disregarded amounts, Income Tax Guide for Non-Profit Organisations NAT 7967 states on page 52 that:

Disregarded amounts are gifts (for which the donor does not receive a material benefit) and government grants. Disregarded amounts are:

• Gifts, including testamentary gifts (that is, gifts made under a will)

• Proceeds from raffles, dinners, charity auctions, jumble sales and similar fundraising activities, or

• Government grants

The Tax Office assumes any offshore distributions are made first from any disregarded amounts that are able to be distributed offshore.

The assumption does not apply if a disregarded amount cannot be distributed offshore. For example, government grants made only for use in Australia and gifts of land physically in Australia are not assumed to be distributed offshore.

The effect of this assumption is that offshore distributions can be made, up to the total of these [disregarded] amounts, without jeopardising entitlement to endorsement.

Paragraph 55 of TR 2000/11 endorsement of income tax exempt charities, provides further clarification, it states that:

The term 'gifts' in section 50-75 [of the Income Tax Assessment Act 1997, which contains the disregarded amounts rule] has a wide meaning:

'... receipts from fund raising by means of raffles, dinners, auctions, jumble sales and the like by non-commercial or non-business organisations will be treated as amounts "in the nature of gifts". However, where a donor is likely to obtain a tax deduction (eg, for advertising) the material advantage obtained would disqualify the donation as a gift in the hands of the recipient.

Conclusion

As the organisation is a registered charity it is income tax exempt, under division 50-B of the ITAA 1997, therefore the donation from the overseas donor is exempt from income tax.

Distributions of gifts or donations that an entity has received in its own right are disregarded amounts and, as explained above, if a disregarded amount is applied to an overseas project it does not affect the income tax exempt status of the organisation.