Edited version of your written advice

Authorisation Number: 1051202453897

Ruling

Subject: Charity tax concessions

Question 1 - Income tax exemption

Summary

The Entity continues to be entitled to be endorsed as income tax exempt pursuant to section 50-105 of the ITAA 1997 if the proposed scheme is undertaken.

Detailed reasoning

Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the income of certain types of organisations is exempt from income tax.

Exemption from income tax as a Registered Charity under item 1.1 of section 50-5 of the ITAA 1997 is subject to the special conditions contained in sections 50-50 and 50-52 of the ITAA 1997.

A Registered Charity is endorsed as such by the Australian Charities and Not-for-profits Commission (ACNC) and for the purposes of income tax, is defined in section 995-1 of the ITAA 1997:

registered charity means an entity that is registered under the Australian Charities and Not-for-profits Commission Act 2012 as the type of entity mentioned in column 1 of item 1 of the table in subsection 25-5(5) of that Act.

Section 50-50 of the ITAA 1997 provides that a Registered Charity is not exempt from income tax unless it has a physical presence in Australia, and to that extent incurs its expenditure principally in Australia.

Section 50-52 of the ITAA 1997 stipulates that a Registered Charity is not exempt unless it is endorsed.

An entity is entitled to be endorsed pursuant to section 50-110 of the ITAA 1997 if it has an ABN and meets the special conditions described in sections 50-50 and 50-52 of the ITAA 1997.

The Entity is currently exempt from income tax as it is a Registered Charity, has an ABN, is located in and incurs its expenditure in Australia and is endorsed.

As the status of whether an entity is a Registered Charity or not is determined by the ACNC, this ruling can only address whether the proposed scheme outlined in this ruling will affect whether The Entity has a physical presence in and incurs its expenditure principally in Australia.

The changes proposed by The Entity will not affect it meeting the special conditions in section 50-50 or 50-52 of the ITAA 1997. Therefore, provided it remains a Registered Charity, it will continue to be exempt from income tax.

Question 2

Summary

The Entity continues to be entitled to be endorsed as a deductible gift recipient (DGR) pursuant to section 30-125 of the ITAA 1997 if the proposed changes occur.

Detailed reasoning

Subsection 30-125(1) of the ITAA1997 provides that an entity is entitled to be endorsed as a DGR if it:

● has an ABN.

● is a fund, authority or institution as described in the relevant provisions (which meets any relevant special conditions); and

● has suitable rules in relation to the transfer of gifts, contributions and other money received because of such gifts or contributions.

The Entity is currently endorsed as a deductible gift recipient on the basis it is an entity described in item 4.1.1 of the table in subsection 30-45(1) of the ITAA 1997, as a registered PBI. Subsection 30-45(1) does not provide for any special conditions, although registration as a PBI is essential.

The objects in The Entity's constitution remain unchanged. Therefore, the objectives of The Entity are identical to those objects previously assessed as being in keeping with that of a PBI.

The existing constitution requires The Entity to apply all income solely towards the promotion of the objects. The existing constitution provides that no portion of the income or property may be paid directly or indirectly in any way to the members of the Company.

In accordance with subsections 30-125(6) and (7) of the ITAA 1997, item 105.1 also requires that if, upon the winding up of the Entity any property remains, it must be transferred to a PBI with similar objectives to the Entity. Similarly, the existing constitution provides that if the gift fund is wound up, or the Entity's endorsement as a DGR is revoked, any surplus assets must be transferred to a DGR.

Under the proposed scheme, the activities the Entity undertakes will not change.

As there is no change to the Entity's constitution, nor will the activities undertaken by the Entity change, the proposed merger will not affect the Entity's endorsement as a DGR- PBI, provided it remains a registered PBI as outlined in the answer to question 1.

Question 3

Summary

Benefits provided in respect of the employment of employees by the Entity continue to be exempt benefits pursuant to section 57A (1) of the FBTAA 1986 if the proposed changes occur.

Detailed reasoning

Subsection 57A (1) of the FBTAA 1986 provides where the employer of an employee is a registered PBI and is endorsed under section 123C of the FBTAA 1986, benefits provided in respect of the employment are exempt benefits.

Subsection 123C(2) of the FBTAA 1986 provides that an entity is entitled to be endorsed as a PBI for the purposes of the FBTAA if it:

(a) is a registered public benevolent institution; and

(b) has an ABN; and

(c) is not an employer in relation to which step 2 of the method statement in subsection 5B(1E) applies.

It has been assumed that after the implementation of the proposed changes, the Entity will continue to be eligible for registration as a PBI with the ACNC. The Entity has an ABN. The Entity is not an employer to which step 2 of the method statement in subsection 5B(1E) applies (i.e. hospital or government body with employees performing duties for a hospital).Therefore, the Entity will continue to be entitled to be endorsed as a PBI for the purposes of the FBTAA 1986.

As such, the Entity will continue to meet the requirements of subsection 57A (1) of the FBTAA 1986 and be entitled to provide exempt benefits to employees. It should be noted that section 5B of the FBTAA 1986 operates to limit the exemption and that an FBT liability will arise if the value of certain benefits provided to an individual employee exceeds the relevant amount.

Question 4

Summary

The Entity will continue to be entitled to be endorsed for GST concessions pursuant to section 176-1 of the GST Act if the proposed scheme is undertaken.

Detailed reasoning

In accordance with section 176-1 of the GST Act the Commissioner must endorse an entity as a charity if:

(a) the entity is entitled to be endorsed as a charity; and

(b) the entity has applied for that endorsement in accordance with Division 426 in Schedule 1 to the Taxation Administration Act 1953.

Further, an entity is entitled to be endorsed as a charity if the entity:

(a) (a) is an ACNC-registered charity; and

(b) (b) has an ABN

Once the scheme is undertaken the Entity will continue to be an ACNC- registered charity. It has previously applied and been granted the GST concessions and continues to have an ABN.

Therefore, the proposed scheme will not affect the Entity's endorsement for GST concessions, provided it remains a registered PBI as outlined in the answer to question 1.

The Entity is a company limited by guarantee. It has an Australian business number (ABN).

The Entity is listed with the Australian Charities and Not-for-profits Commission (ACNC) as a registered charity. It is endorsed as Public Benevolent Institution (PBI).

The Entity has the following tax concessions:

● Endorsed as exempt from income tax as a Registered Charity as described in item 1.1 of the table in section 50-5 of the Income tax Assessment Act 1997 (ITAA 1997);

● Endorsed as a deductible gift recipient (DGR) - as a PBI entity as described in item 4.1.1 of section 30-45 of the ITAA 1997;

● Endorsed for GST concessions pursuant to section 176-1 of A New Tax System (Goods and Services Tax) Act 1999; and

● Employment benefits provided to employees by the Entity are exempt benefits pursuant to section 123C of the FBTAA 1986.

The Entity proposes to merge with another entity.

There are no plans to alter the objects contained in the Entity's constitution.

The Entity will continue to undertake the same activities.

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 Section 50-105

Income tax Assessment Act 1997 Section 50-110

Income tax Assessment Act 1997 Section 30-45

Income tax Assessment Act 1997 Subsection 30-45 (1)

Income tax Assessment Act 1997 Section 30-125

Income tax Assessment Act 1997 Subsection 30-125(1)

Income tax Assessment Act 1997 Section 995-1

Fringe Benefits Assessment Act 1986 Subsection 57A (1)

Fringe Benefits Assessment Act 1986 Subsection 123C(1)

Fringe Benefits Assessment Act 1986 Subsection 123C(2)

Fringe Benefits Assessment Act 1986 Section 5B

A New Tax System (Goods and Services Tax) Act 1999 Section 176-1