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Edited version of your written advice
Authorisation Number: 1051192045063
Date of advice: 21 February 2017
Ruling
Subject: Income Tax Exemption
Question 1
Under the Scheme proposed will there be a taxable capital gain under section 102-5 of the Income Tax Assessment Act 1997?
Answer
No
Detailed reasoning
Section 102-5 Income Tax Assessment Act 1997 states that assessable income includes capital gains.
However, under section 11-5 of the Income Tax Assessment Act 1997 income is exempt if derived from certain entities such as registered charities.
Trust A is registered with the Australian Charities and Not-for-Profits Commission (ACNC) as a charity and is endorsed by the Taxation Commissioner as exempt from income tax under Division 50 of the Income Tax Assessment Act 1997 therefore any capital gains are also exempt.
Question 2
Under the proposed scheme will the income derived by the Trust be exempt from income tax under section 11-5 of the Income Tax Assessment Act 1997?
Answer
Yes
Detailed reasoning
Under the proposed scheme the income derived from the Trust will be exempt from income tax if the Trust is registered with the ACNC as a charity and endorsed by the Taxation Commissioner as satisfying the special conditions under Section 50-50 of the Income Tax Assessment Act 1997.
Relevant facts and circumstances
1. The trustees have decided to petition the Supreme Court to amalgamate the holdings
of the two trusts.
2. Both trusts are currently registered as charities with the Australian Charities and Not-for-Profits Commission and are endorsed by the Commissioner of Taxation as charities that are exempt from income tax under Division 50 of the Income Tax Assessment Act 1997.
Assumptions
1. The court will make a decision in respect of the scheme that the Trust as varied will continue
2. The court order will not result in the Trust ceasing to be registered with the Australian Charities and Not-for-Profit Commission (ACNC).
3. The Trust satisfies the special condition in paragraph 50-70(2)(a) of the Income Tax Assessment Act 1997, specifically that the Trust will comply with all the substantive requirements in its governing rules.
Relevant legislative provisions
Income Tax Assessment Act 1997, section 102-5
Income Tax Assessment Act 1997, section 11-5