Edited version of your written advice

Authorisation Number: 1051435141928

Date of advice: 2 October 2018

Ruling

Subject: Income tax – deductible gift recipient – in Australia requirement

Question 1

Does the charitable institution satisfy, and will it continue to satisfy, the “in Australia” requirement in column 4 of item 1 of the table in section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997), notwithstanding the establishment of the Overseas Operations?

Answer

Yes

Question 2

On the basis that charitable institution will continue to satisfy the “in Australia” requirement, will it continue to be entitled to its Current Endorsements?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 20xx

Year ending 30 June 20xx

Year ending 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

The charitable institution is registered with the Australian Charities and Non-for-profits Commission (ACNC) with the subtype Public Benevolent Institution (PBI) and advancing social or public welfare.

The charitable institution currently holds the following endorsements:

● DGR under item 1.1.1 of the table in section 30-45(1) of ITAA1997;

● Income tax exemption under section 50-105 of the ITAA 1997;

● Fringe benefits tax exemption under section 123C of the Fringe Benefits Tax Assessment Act 1986 (FBTAA1986);

● GST concessions under section 176 of A New Tax System (Goods and Services Tax) Act 1999.

The charitable institution’s primary objects are set out in its Constitution, and include the following:

● to positively connect disadvantaged people to the community;

● to provide free services to disadvantaged people…

● to provide training, volunteering, employment and other community reconnection opportunities for disadvantaged people;

● to engage with and pursue opportunities for developing and maintaining relationships and collaborating with, others having an interest in or objects similar to the objects listed above

The charitable institution is governed by a board of directors, including a Chief Executive Officer (CEO), who reports to the board.

The charitable institution currently employs a number of people and has a network of volunteers in Australia.

The charitable institution intends to expand its activities to some overseas jurisdictions (Overseas Operations).

In summary, the Overseas Operations will be structured as follows:

● Each entity will have charitable objects and will undertake activities similar to those of the charitable institution in Australia.

● Each entity will be governed by a local board of directors, primarily comprised of individuals who are also directors of the charitable institution in Australia. Two secondments to each of the Overseas Operations will be arranged, lasting approximately one to two years each.

● The charitable institution in Australia will require monthly financial and operational reports to be prepared and submitted by the CEO of each of the Overseas Operations. Financial results will be subject to an annual audit.

● One of the Overseas Operations will be a company limited by shares. The charitable institution in Australia will be its sole initial shareholder. Any additional shareholders must be charitable organisations, and must be approved by the charitable institution in Australia.

● The Overseas Operations will operate with initial funding secured locally through donations and sponsorship. Operations will not commence until a minimum amount of philanthropic funding is raised. Other initial funding, as necessary, will be provided by the charitable institution in Australia by way of loan on the arm’s length terms.

● The Overseas Operations will utilise a matrix of support services charged to them on an arm’s length basis. These include marketing, equipment construction, human resources, technology, financial management, fundraising management and risk, health, safety and environmental management.

Relevant legislative provisions

Column 4 of item 1 of the table in section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997)

Section 50-105 of the ITAA 1997

Section 123C of the Fringe Benefits Tax Assessment Act 1986 (FBTAA1986)

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

Reasons for decision

Question 1

Summary

The charitable institution is established and legally recognised in Australia. The day-to-day management of its operations is in Australia. Therefore, the charitable institution satisfies condition (a) in item 1 of the table in section 30-15 of ITAA 1997 for the entity to be “in Australia”

Detailed reasoning

Special condition (a) in item 1 of the table in section 30-15 of ITAA 1997 requires a DGR to “be in Australia”.

TR2018/D1 Income tax: the 'in Australia' requirement for certain deductible gift recipients and income tax exempt entities (TR2018/D1) applies the ordinary meaning of the phrase “be in Australia”:

● it is established or legally recognised in Australia, and

● it operates in Australia at that time.

Being either established or legally recognised is sufficient. Legal recognition means being given status by the Australian legal system. It could include, for example, registration under the Australian Charities and Not-for-Profits Commission Act 2012 (ACNC Act), Corporations Act 2001, A New Tax System (Australian Business Number) Act 1999 (ABN Act) or as an incorporated association under an Act of Parliament of a State or Territory.

The charitable institution was established in Australia. It is an Australian Public Company, and it is registered as a charity with ACNC. Therefore, the charitable institution is established and legally recognised in Australia.

The constitution of the charitable institution limits it to conducting its activities in Australia. However, after the proposed amendment, the “in Australia” condition will be removed from the constitution in order for the charitable institution to be able to pursue its purposes overseas.

Example 1 of TR 2018/D1 deals with a non-for-profit organisation in Australia registered as a charity with ACNC. This organisation conducts charitable activities overseas, while its funds are held by a trustee that makes operational decisions concerning the fund in Australia. The organisation meets the “in Australia” condition.

Example 2 of TR 2018/D1 considers an Australian entity which has been set up by a global non-for-profit organisation founded in Japan. The funds raised by the organisation from the Australian public are controlled by an executive committee which is made up made up partly from members in Australia and partly from members in Japan. The executive committee meets regularly in Japan, and all operational decisions concerning the fund are made in Japan. The fund does not meet the “in Australia” condition because the managerial and operational decisions concerning the fund are not made in Australia.

Example 6 of TR 2018/D1 describes a situation where a charitable institution, being part of a global network with headquarters in the USA, is registered as a PBI with ACNC. The institution has an office in Sydney and a board of directors in Australia responsible for the day-to-day management of its operations. The global head entity in the USA acts on behalf of all the other worldwide entities to distribute funds in the most effective way. The distribution of funds occurs in partnership with local organisations. The institution in this example meets the DGR in Australia condition because it is established and legally recognised in Australia, and because the day-to-day management of its operations is in Australia.

The charitable institution has an office in Australia. Its board meets in Australia and carries out the day-to day management while in Australia. All of its directors reside and work in Australia.

While some directors will spend time overseas, they frequently return to Australia, and work on the charitable institution’s affairs while they are in Australia.

Therefore, the day-to-day operational and managerial decisions are made in Australia. The proposed secondments and visits to the Overseas Operations, should not change this position, as the directors and employees visiting the Overseas Operations will be conducting the day-to-day management of those entities. These individuals stationed outside of Australia will not displace the (board’s) conduct of the day-to-day management of the entity’s operations from within Australia.

The charitable institution satisfies the DGR “in Australia” requirement as it is established and legally recognised in Australia, and its day-to-day management is in Australia. It is not a requirement for DGR endorsement of the charitable institution that it has its purposes and beneficiaries in Australia.

Question 2

Following from the answer to Question 1, the charitable institution satisfies the “in Australia” condition and may retain its registration as a charity with a PBI subtype with the ACNC. Therefore, the charitable institution should continue to be entitled to its current endorsements as defined in the Relevant Facts and Circumstances.

We recommend that entities regularly review their DGR to ensure that they continue to operate for the purposes for which they were granted status as a DGR. More detailed guidance may be found at our website ato.gov.au, by searching the quick code QC 46218