Edited version of private advice

Authorisation Number: 1051845923834

Date of advice: 28 June 2021

Ruling

Subject: Eligibility for tax concessions

Question 1

Will the winding up of the gift fund impact on the entity's eligibility for Tax Concessions?

Answer

No, provided the entity is registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC) and has DGR status.

Question 2

Will the transfer of the gift fund's assets to the new entity as part of the gift fund being wound up be in compliance with section 30-125(6) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes, provided the new entity is registered as a charity with the ACNC and has DGR status.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commences on:

Date Month 20XX

Relevant facts and circumstances

The entity is a not-for profit company limited by guarantee that provides relief to people in need.

The entity is undertaking a restructure and wants confirmation that the proposed steps in the restructure will not affect its eligibility for tax concessions.

The new entity has applied to the ACNC for registration as a charity, subtype public benevolent institution (PBI). This ruling will have no effect unless the registration is approved by the ACNC and proceeds on the basis that the new entity will be registered as a charity (PBI) and endorsed as a Deductible Gift Recipient (DGR).

Following approval by the ACNC, the entity proposes to wind up its gift fund and transfer that fund's assets to the new entity.

The constitution adopted by the entity has a not-for-profit clauses and appropriate gift fund clauses.

Relevant legislative provisions

Division 30 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 50-110 Income Tax Assessment Act 1997

Reasons for decision

Section 50-1 of the ITAA 1997 provides that the income of certain types of organisations is exempt from income tax.

A Registered Charity is endorsed as such by the ACNC.

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.

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.

Therefore, the new entity will be entitled to be endorsed as an income tax exempt charity 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.

Under section 176-1 of A New Tax System (Goods and Services Tax) Act 1999 if the new entity is registered by the ACNC as a charity and has an ABN, it will be entitled to endorsed for the GST concession.

Under section 123C of the Fringe Benefits Tax Assessment Act 1986, if the new entity is registered by the ACNC as a charity (PBI) and has an ABN and is not an employer in relation to which step 2 of the method statement in subsection 5B(1E) applies, it will be eligible for the FBT exemption.

Section 30-125 of the ITAA 1997 sets out the requirements that must be satisfied for an entity to be entitled to be endorsed as a DGR. An entity will be entitled to be endorsed as a DGR public benevolent institution where it:

•         is registered by the ACNC as a registered public benevolent institution

•         has an ABN

•         is 'in Australia'

•         has acceptable rules for transferring surplus gifts and deductible contributions on winding up or revocation of endorsement.

Where an entity meets the conditions in section 30-125 of the ITAA 1997 and is endorsed as a DGR under section 30-120 of the ITAA 1997, the entity will continue to be endorsed as a DGR for as long as they meet the conditions in section 30-125.

As such, if the new entity is endorsed as a DGR, it will continue to be entitled to the endorsement provided it remains registered as a public benevolent institution with the ACNC and satisfies the other requirements in section 30-125.

The new entity has applied to the ACNC to be registered as a charity as a public benevolent institution sub-type.

In relation to subsections 30-120(6) and (7) of the ITAA 1997, if the currently endorsed entity is wound up under the proposed restructure and its winding up clause allows surplus assets of the gift fund to be transferred to an Eligible Charity under Division 30 of the ITAA 1997, its access to tax concessions and deductible gift status will not be affected. This is provided that the new entity is an ACNC registered charity and a DGR.