| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1013026966297
Date of advice: 12 July 2016
Ruling
Subject: Taxation liability of proposed transfer from Australian charity to offshore parent charity
Question 1
Will the Australian charity be liable for taxation on the transfer of funds to its offshore parent charity?
Answer
No.
This ruling applies for the following periods:
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commences on:
N/A
Relevant facts and circumstances
The charity is a charity established and maintained in Australia.
The charity is a registered charity and public benevolent institution with the Australian Charities and Not-for-profits Commission (ACNC).
The charity has been granted the following endorsements:
• Income tax exemption
• Deductible gift recipient (DGR)
• Fringe benefits tax exemption
• GST concessions
• Charity status as a PBI
The parent charity, located offshore, has similar charitable objects.
In 2009, the overseas parent entity provided a grant to the Australian charity (the Retained Amount).
The Australian charity has recently transferred all assets and liabilities, other the Retained Amount (subject to interest and fluctuations in the exchange rate), to another Australian charity with similar charitable purposes. The Australian charity now proposes to transfer the Retained Amount to the overseas parent charity and subsequently, voluntarily deregister.
The overseas parent charity is bound by its Articles of Association which provide that it can only use income and property toward the promotion of its objects.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 30-15,
Income Tax Assessment Act 1997 section 30-45,
Income Tax Assessment Act 1997 section 30-125,
Income Tax Assessment Act 1997 section 50-5,
Income Tax Assessment Act 1997 section 50-50,
Income Tax Assessment Act 1997 section 50-52 and
Income Tax Assessment Act 1997 section 50-110.
Reasons for decision
Summary
The Australian charity will not be liable to taxation on the proposed transfer to the offshore parent charity as the transfer will not affect the Australian charity's entitlement to endorsement to income tax exemption.
Detailed reasoning
Deductible gift recipient endorsement
Section 30-125 of the ITAA 1997 provides that an entity is entitled to be endorsed as a DGR if it:
• Has an ABN;
• Is a fund, authority or institution described in item 1, 2 or 4 of the table in section 30-15 of the ITAA 1997 which satisfies any relevant special conditions; and
• Has suitable rules in relation to the transfer of gifts, contributions and other money received upon winding up and revocation of DGR endorsement.
The Australian charity has an ABN.
Item 1 of the table in section 30-15 includes a public benevolent institution (PBI) as described in item 4.1.1 of subsection 30-45(1) of the ITAA 1997. The Australian charity is currently registered with the ACNC as a PBI.
Item 1 of the table in section 30-15 requires that the fund, authority or institution 'must be in Australia.' The Australian charity was established in Australia, has continued to be maintained in Australia and is controlled by people in Australia. The transfer of the funds to an overseas entity carrying out functions and purposes substantially similar to those of the Australian charity will not impact on the finding that the Australian charity exists and is located within Australia and therefore meets the 'in Australia' condition of section 30-15.
Subsection 30-125(6) provides that the entity's governing document must contain a rule which provides that surplus assets of the gift fund, or if the entity is not required to maintain a gift fund, surplus gifts and contributions will be transferred to another DGR in the event that the fund, authority or institution is wound up or endorsement as a DGR is revoked. The clauses within the Australian charity's constitution meet these requirements.
The transfer of funds from the Australian charity to the offshore parent charity will not prevent the Australian charity from complying with section 30-125 of the ITAA 1997 and will therefore not affect endorsement as a DGR.
Income tax exemption endorsement
An entity is entitled to be endorsed pursuant to section 50-110 of the ITAA 1997 as an income tax exempt charity if:
• It has an ABN
• Is covered by item 1.1 of the table in section 50-5 of the ITAA 1997; and
• Satisfies the special condition in section 50-50 of the ITAA 1997.
The Australian charity has an ABN.
Item 1.1 of the table in section 50-5 requires the entity to be a registered charity. The Australian charity is registered with the ACNC.
The special condition in subsection 50-50(1) of the ITAA 1997 requires that:
• the entity has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or
• is a deductible gift recipient; or
• is a prescribed institution.
As discussed above, the Australian charity is endorsed as a DGR. The transfer of funds from the Australian charity to the offshore parent charity will not affect entitlement to endorsement as a DGR, thus the Australian charity will continue to meet the special condition in section 50-50.
The special condition in section 50-50(2) requires the entity to:
• comply with the governing rules condition; and
• comply with the income and assets condition.
The governing rules condition requires an entity to comply with all the substantive requirements in its governing rules. The transfer of funds to an entity with charitable objects substantially similar to the Australian charity is consistent with the substantive requirements of the Australian charity's governing rules.
The income and assets condition requires the entity to apply its income and assets solely for the purpose for which the entity was established.. The offshore parent charity has similar objects to the Australian charity. The offshore parent charity is bound by its Articles of Association to only use its income and property toward the promotion of its objects. Therefore any funds transferred to the offshore parent charity will be applied for the purpose for which Australian charity was established.
The Australian charity is currently endorsed as an income tax exempt charity as described in item 1.1 of the table in section 50-5 of the ITAA 1997. The proposed transfer of funds to the offshore parent charity will not affect Australian charity's entitlement to endorsement. Therefore, the Australian charity will not be liable for tax on the transfer.