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Edited version of private advice
Authorisation Number: 1051587288743
Date of advice: 27 September 2019
Ruling
Subject: Income tax exemption
Question 1
Will the Entity continue to maintain its tax exempt status under item 1.1 of section 50-5 of the Income Tax Assessment Act 1997 (ITAA 1997), provided it remains a registered charity with the ACNC?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The Entity is a company limited by guarantee. The Entity is an entity listed with the Australian Charities and Not-for-profits Commission (ACNC) as a registered charity and a Public Benevolent Institution (PBI) since 2005.
The Entity is endorsed as an income tax exempt entity under Subdivision 50-B of the ITAA 1997.
The Entity is located in Australia and principally carries on its activities in Australia.
The Entity's sole member is another entity which is registered as a charity with the ACNC as PBI.
The Entity intends to transfer part of its operations, all relevant titles and assets (i.e. equipment, land and buildings) to its sole member.
The Entity's governing rules are contained in its Constitution which includes objects, a non-profit clause and a winding up clause.
Assumptions
The Entity remains a Registered Charity with the ACNC.
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(1)
Income tax Assessment Act 1997 Section 50-50(2)
Income tax Assessment Act 1997 Section 50-52
Income tax Assessment Act 1997 Subdivision 50-B
Reasons for decision
Section 50-1 of the ITAA 1997 provides that the income of certain types of organisations is exempt from income tax.
An entity will be exempt from income tax under item 1.1 of the table in section 50-5 of the ITAA 1997 provided it is a Registered Charity and it meets the special conditions in section 50-50 and 50-52 of the ITAA 1997.
As the status of whether an entity is a Registered Charity or not is determined by the ACNC, this ruling is based on charity status being maintained.
Subsection 50-50(1) of the ITAA 1997 states the special condition for item 1.1 as:
An entity covered by item 1.1 is not exempt from income tax unless the entity:
(a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or
(b) is an institution that meets the description and requirements in item 1 of the table in section 30-15; or
(c) is a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident; or
(d) is a prescribed institution that has a physical presence in Australia but which incurs its expenditure and pursues its objectives principally outside Australia;
(e) and the entity satisfies the conditions in subsection (2).
The Entity satisfies the condition outlined in paragraph 50-50(1)(a) of the ITAA 1997 outlined above, as it is located in Australia and principally carries on its activities in Australia.
Subsection 50-50(2) of the ITAA 1997 states:
The entity must:
(a) comply with all substantiative requirements in its governing rules; and
(b) apply its income and assets solely for the purpose for which the entity is established.
Subsection 50-50(2) of the ITAA 1997 requires the Entity to comply with all substantiative requirements in its governing rules.
Subsection 50-50(2) of the ITAA 1997 also requires the Entity to apply its income and assets solely for the purpose for which the entity was established.
There is nothing to indicate that the Entity does not comply with all substantive requirements of its governing rules and apply its income and assets solely for the purposes for which it was established. Therefore, these special conditions are met.
The special condition for item 1.1 in section 50-52 of the ITAA 1997 requires the entity to be endorsed as exempt from income tax under Subdivision 50-B of the ITAA 1997. As the Entity is endorsed as being exempt from income tax it meets this requirement.
Conclusion
The Entity meets the special conditions outlined in sections 50-50 and 50-52 of the ITAA 1997 it is entitled to be exempt from income tax under item 1.1 of section 50-5 of the ITAA 1997.
The transaction proposed by the Entity will not affect it meeting the special conditions in section 50-50 and 50-52 of the ITAA 1997. Therefore, provided it remains a Registered Charity, it will continue to be exempt from income tax.