Edited version of private advice

Authorisation Number: 1051894648335

Date of advice: 8 September 2021

Ruling

Subject: Deductible gift recipient

Question 1

Does the Rulee 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)?

Answer

Yes

Question 2

On the basis that the Rulee continues to satisfy the "in Australia" requirement, will the Rulee continue to be entitled to its Current Endorsements under subsection 30-45(1) of the ITAA1997, section 50-105 of the ITAA 1997, section 123C of the Fringe Benefits Tax Assessment Act 1986 and section 176 of A New Tax System (Goods and Services Tax) Act 1999?

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 Rulee is an Australian public company and a registered charity with the Australian Charities and Non-for-profits Commission (ACNC) with the subtype Public Benevolent Institution (PBI).

The Rulee currently holds the following endorsements:

a)  Deductible Gift Recipient (DGR) under item 4.1.1 of the table in subsection 30-45(1) of ITAA1997;

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

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

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

The Rulee's primary objects are set out in its Constitution and include a number of charitable purposes within and outside Australia.

The Rulee is governed by a board of directors, including a Chief Executive Officer (CEO), who reports to the board. All the directors reside in Australia.

The Rulee currently employs a number of employees in its Australian office and has a network of volunteers in Australia. It manages a large number of shift locations across Australia.

The Rulee has activities overseas in several countries and may expand to other countries in the future. All entities have or will have charitable objects and undertake activities similar to those of the Rulee.

Relevant legislative provisions

Income Tax Assessment Act 1997

Item 1 of the table in section 30-15

Item 4.1.1 of the table in subsection 30-45(1)

Section 30-120

Section 30-125

Section 50-105

Section 50-110

Section 123C of the Fringe Benefits Tax Assessment Act 1986

Section 176-1 of A New Tax System (Goods and Services Tax) Act 1999

Reasons for decision

Question 1

Summary

The Rulee is established and legally recognised in Australia. It makes operational and strategic decisions mainly in Australia. Therefore, the Rulee 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 Deductible Gift Recipient (DGR) to "be in Australia".

Taxation Ruling TR 2019/6 Income tax: the 'in Australia' requirement for certain deductible gift recipients and income tax exempt entities (TR 2019/6) provides further explanation of this special condition. At paragraph 4 the ruling states:

The DGR in Australia condition requires a fund, authority or institution to be 'in Australia'. The phrase 'in Australia' is not defined, and so carries its ordinary meaning.

Fund, authority or institution

TR 2019/6 provides the following guidance on the terms 'fund', 'authority' and 'institution' for the purposes of the DGR in Australia condition:

9. ... a 'fund' is an arrangement where a stock of money or pecuniary resources is held or managed in accordance with a trust deed or similar instrument such as a set of fund rules...

25. ... an 'authority' is an agency or instrument of government, established to exercise control or execute a government function in the public interest...

32. ... an 'institution' is an establishment, organisation or association instituted for the promotion of some object, especially one of public or general utility. Such a body is called into existence to translate a defined purpose into a living and active principle

The Rulee is not an agency or instrument of government, therefore it is not an authority.

The distinction between an institution and a fund is explored in the Taxation Ruling TR 2011/4 Income tax and fringe benefits tax: charities (TR 2011/4).

According to TR 2011/4, the characterisation of a charity as an institution or a fund is a question of fact. Relevant factors include an entity's activities, size, permanence and recognition. An institution must possess a quality or function which can justify it being categorised as an institution as opposed to a 'mere trust'. For example, a trust that simply provides money for charitable services or activities to be carried out by others is not an institution.

The Rulee does not merely hold money or property for distribution to other entities or persons.

The Rulee is an entity which promotes an object of public utility. The Rulee's activities, size and permanence are the ones of an institution.

Paragraph 33 of TR 2019/6 provides:

An institution will be 'in Australia' where it:

•         is established or legally recognised in Australia, and

•         makes its operational or strategic decisions mainly in Australia.

Established or legally recognised

Being either established or legally recognised in Australia is sufficient. As per paragraph 34 of TR 2019/6, an institution could be established or legally recognised in Australia in a number of ways, including:

•         registration under the Corporations Act 2001

•         incorporation under State or Territory legislation

•         registration as a charity under the ACNC Act

•         registration under the ABN Act.

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

Operational or strategic decisions mainly in Australia

According to paragraph 35 of TR 2016/9, the location of decision making is determined based on where the institution's decision-making powers are mainly exercised. Where decision makers are ordinarily located in more than one place, their decisions would be in Australia where the balance of decision-making power usually lies in Australia.

TR 2016/9 provides examples 4 and 5 of an institution being 'in Australia'. Example 4 involves an Australian institution where the majority of directors are not in Australia, but day-to-day management occurs in Australia. Although its strategic decisions are made mainly overseas, the operational decisions being made in Australia means the balance of decision-making power usually lies in Australia.

At example 5, TR 2016/9 considers the situation where an institution that makes strategic decisions in Australia is 'in Australia', even though its operational decisions are made offshore.

The Rulee has an office in Australia. All the directors of the Rulee ordinarily reside in Australia, therefore the decision-making power regarding strategic activities lies in Australia and the strategic decisions are made in Australia.

The Rulee's activities require active day-to-day management. As all the directors of the Rulee reside in Australia, the decision-making power regarding operational matters is also exercised in Australia. Therefore its operational decisions are made in Australia.

The Rulee makes both its strategic and operational decisions in Australia.

In conclusion, the Rulee satisfies the "in Australia" condition in section 30-15 of ITAA 1997 as it is established and legally recognised in Australia, and the balance of its decision-making powers both in operational and strategic matters lies in Australia.

Question 2

Summary:

Provided the Rulee satisfies the requirements in section 30-125 of the ITAA 1997, it will continue to be entitled to endorsement as a DGR.

The requirements for an entity to be entitled to endorsement for tax concessions are detailed in the provisions relating to each specific concession. Provided the Rulee satisfies these requirements, it will continue to be entitled to endorsement for the tax concessions.

Detailed Reasoning:

DGR

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 where it:

• meets the description of a DGR item (the Rulee meets the description of item 4.1.1; 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 above 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.

Provided the Rulee satisfies the requirements in section 30-125 of the ITAA 1997, it will continue to be entitled to endorsement as a DGR.

Tax concessions

The following provisions set out the requirements that must be satisfied for an entity to be entitled to endorsement for tax concessions (that is, income tax exemption, GST concessions and FBT exemption as a Public Benevolent Institution):

• income tax exemption; section 50-110 of the ITAA 1997
• GST concessions; section 176-1 of the A New Tax System (Goods and Services Tax) Act 1997
• FBT exemption as a PBI; section 123C of the Fringe Benefits Tax Assessment Act 1986
• The provisions require an entity to satisfy various requirements to be endorsed, including that it has an ABN and is registered with the ACNC.

The provisions require an entity to satisfy various requirements to be endorsed, including that it has an ABN and is registered with the ACNC.

Provided the Rulee satisfies the requirements in the above provisions it will continue to be entitled to endorsement for the tax concessions.