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Edited version of your written advice
Authorisation Number: 1051491308718
Date of advice: 7 March 2019
Ruling
Subject: Income tax and capital gains
Question
Will section 11-5 of the Income Tax Assessment Act 1997 (ITAA 1997) operate so as to disregard any capital gain or capital loss made on the sale of the property located at XXX?
Answer
Yes.
This ruling applies for the following period:
1 July 2018 to 30 June 2020
The scheme commences on:
1 July 2018
Relevant facts and circumstances
1. The Society is a Not for Profit Incorporated group.
2. The Society has been granted income tax exemption by the ATO as a charity since 2000 and has been registered by the Australian Charities and Not-for-profits Commission (ACNC) as a registered charity since 2012.
3. The Society has a property which it uses for its operations.
4. The Society is considering selling the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 11-5
Income Tax Assessment Act 1997 section 50-1
Income Tax Assessment Act 1997 section 50-1
Income Tax Assessment Act 1997 subsection 104-10(1)
Income Tax Assessment Act 1997 section 108-5
Reasons for decision
Summary
Although a capital gain will arise on the sale of the property, the Society will not be liable to income tax on the sale, as all of the Society’s income is exempt.
Detailed reasoning
Section 11-5 of the ITAA 1997 lists entities that are exempt, no matter what kind of ordinary or statutory income they have. Section 50-1 provides that the total ordinary and statutory income of certain listed entities is exempt from income tax, this includes registered charities endorsed by the Commissioner, as described in item 1.1 of section 50-5 of the ITAA 1997.
CGT event A1 happens if a taxpayer disposes of a CGT asset (subsection 104-10(1) of the ITAA 1997). A ‘CGT asset’ is defined in section 108-5 of the ITAA 1997 and includes any kind of property. Therefore, any capital gain made on the sale of the property would be statutory income of the Society.
However, although a capital gain may arise, as all of the Society’s ordinary and statutory income is exempt by virtue of section 11-5 of the ITAA 1997, there will be no income tax liability on the gain.