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Edited version of your written advice
Authorisation Number: 1051510620620
Date of advice: 02 May 2019
Ruling
Subject: Income tax and deductible gift recipient endorsement
Question 1
Will the association continue to be entitled to be endorsed as income tax exempt entity on winding up pursuant to section 50-105 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
Question 2
Will the association continue to be endorsed as a deductible gift recipient (DGR) on winding up pursuant to section 30-120 of the ITAA 1997?
Answer
Yes
This ruling applies for the following periods:
01 July 2018 to 30 June 2019
01 July 2019 to 30 June 2020
The scheme commences on:
01 July 2018
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
The association is an Australian incorporated association
It is a registered charity with the Australian Charities and Not-for-profits Commission (ACNC) currently endorsed as a Deductible Gift Recipient (DGR) as a ‘registered public benevolent institution’ under item 4.1.1 of subsection 30-45(1) of the ITAA 1997.
The association is currently endorsed as income tax exempt as a ‘registered charity’ under item 1.1 of section 50-5 of the ITAA 1997.
The association is in the process of liquidating its assets with a view to winding up.
The association intends to distribute all surplus assets to entities as income tax exempt pursuant to section 50-105 and endorsed as a deductible gift recipient (DGR) on pursuant to section 30-120 of the ITAA 1997.
The association has sought advice from the Australian Charities and Not-for-Profits Commission that proposed recipients of any surplus assets meet its obligations as a registered charity on winding up.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 30-15,
Income Tax Assessment Act 1997 subsection 30-45(1),
Income Tax Assessment Act 1997 section 30-120,
Income Tax Assessment Act 1997 section 30-125
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 and
Income Tax Assessment Act 1997 section 50-105.
Reasons for decision
Question 1
Unless otherwise stated, all legislative references are to the Income Tax Assessment Act 1997.
Summary
The association is entitled to be endorsed as an income tax exempt entity pursuant to section 50-105 provided it continues to be registered as a charity with the ACNC and has DGR status.
Detailed reasoning
An entity is exempt from income tax under section 50-1 if it is covered by the tables in Subdivision 50-A.
As the association is registered as a charity with the Australian Charities and Not-for Profits Commission (ACNC) it is therefore covered by the item 1.1 ‘registered charity’ in the table in section 50-5.
A registered charity in section 50-5 must also comply with the special conditions in sections 50-50 and 50-52.
Subsection 50-50(1) will be met by the association if it has a physical presence in Australia, and to that extent incurs its expenditure and pursues its objects principally in Australia, or is a Deductible Gift Recipient (DGR) under item 1 in the table in section 30-15.
The association is currently endorsed as an item 1 DGR, in the table in section 30-15, by meeting the description of a ‘registered public benevolent institution’ under subsection 30-45(1) in Subdivision 30-B. Therefore the association meets the special condition in subsection 50-50(1) by virtue of being a DGR.
Subsection 50-50(2) requires that an entity must comply with all the substantive requirements in its governing documents and apply all of its income and assets solely for the purposes for which the entity is established. The association’s constitution states that:
‘The income and property of the Association, however derived, shall be applied solely towards the promotion of the objects and purposes of the Association and no portion thereof shall be paid or transferred, directly or indirectly, by dividend, bonus, or otherwise, to any member of the Association. …’
On the facts, considering the activities that the association undertakes, including the proposed beneficiaries of surplus assets on winding up there is nothing to indicate that the association does not meet the special conditions under subsection 50-50(2).
Notably, section 50-52 states that an entity covered by item 1.1 in section 50-5 is not exempt from income tax unless it is endorsed as exempt under Subdivision 50-B. To be entitled to be endorsed as exempt under Subdivision 50-B the association must:
● be a charity registered with the ACNC,
● have an ABN, and
● meet the special conditions under sections 50-50 and 50-52.
The association currently meets all these requirements to be entitled to be endorsed.
On the facts, the association is entitled to be endorsed as an income tax exempt entity pursuant to section 50-105 provided it continues to be registered as a charity with the ACNC and has DGR status.
Question 2
Summary
The association will continue to be endorsed as a deductible gift recipient (DGR) pursuant to section 30-120 provided it continues to be a registered charity with the ACNC and a public benevolent institution within subsection 30-45(1).
Detailed reasoning
Under section 30-125 the association is entitled to be endorsed as a DGR if:
a) it has an Australian Business Number (ABN),
b) it is an institution described in item 1, 2 or 4 of the table in section 30-15, and
c) meets the ‘special conditions’ relevant to the item of that table in which it is described.
The association has an ABN and is currently endorsed as an item 1 DGR, in the table in section 30-15, by meeting the description of a ‘registered public benevolent institution’ under subsection 30-45(1) in Subdivision 30-B.
The only special condition relevant to item 1 DGR, in the table in section 30-15, is that the association must be ‘in Australia’. Since the association was established and is operated in Australia this requirement is met.
The association is currently registered with the ACNC as a ‘charity’ with a sub-entity type of ‘public benevolent institution’.
On the facts, the association is entitled to be endorsed as a DGR provided that it continues to be registered charity with the ACNC, a registered public benevolent institution within subsection 30-45(1) and in the event of distributing surplus assets on winding up meets the requirement of its winding up clause in its constitution.