Edited version of private advice

Authorisation Number: 1052235262287

Date of advice: 22 March 2024

Ruling

Subject: Registered charity - transfer of assets

Question

Will any income or gain made by Entity A from the proposed transfer of its assets to Entity B be exempt from income tax as Entity A's ordinary income and statutory income is exempt under section 50-1 of the Income Tax Assessment Act 1997?

Answer

Yes.

This ruling applies for the following periods:

Income year ending 30 June 20XX

Income year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Entity A is a company limited by guarantee.

Entity A has been a registered charity under the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act).

Entity A has been endorsed by the Australian Taxation Office (ATO) to have access to income tax exemption, goods and services tax charity concessions and fringe benefits tax rebate.

The main clauses of Entity A's Constitution states:

•        Entity A's objects for which it was established;

•        the assets and income of Entity A shall be applied solely in furtherance of its objects and no portion shall be distributed directly or indirectly to any member;

•        in the event if Entity A winds up, the amount that remains after such dissolution and the satisfaction of all debts and liabilities shall be transferred to another organisation with similar purposes which is not carried on for the profit or gain of its individual members;

Entity B, an Australian incorporated association and operates on a not-for-profit basis.

Entity A will transfer its assets to Entity B after Entity B becomes a registered charity with the ACNC and endorsed by the ATO to have access to income tax exemption.

Entity B will use the transferred assets solely for the purpose of advancing the objects that are the same or similar to the objects of Entity A.

Entity A maintains its registration as a charity with the ACNC when it transfers its assets to Entity B.

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 subsection 995-1

Reasons for decision

Unless otherwise stated, all legislative references are to the Income Tax Assessment Act 1997.

Sections 50-1 and 50-5 provide that the ordinary and statutory income of a 'registered charity' (item 1.1 of section 50-5) is exempt from income tax if it satisfies the applicable special conditions. The special conditions are contained in sections 50-50 and 50-52.

A registered charity is defined in subsection 995-1(1) as:an entity that is registered under the Australian Charities and Not-for-profits Commission Act 2012 as a type of entity mentioned in column 1 of item 1 of the table in subsection 25-5(5) of that Act.

Entity A meets this definition as it has been a registered charity under the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act). Therefore, it falls under item 1.1 of the table in section 50-5.

Section 50-50 states the special conditions for item 1.1 as follows:50-50(1)

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;

and the entity satisfies the conditions in subsection (2).50-50(2)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.

Section 50-52 provides that an entity covered by item 1.1 is not exempt from income tax unless the entity is endorsed as exempt from income tax under Subdivision 50-B.

Entity A has been endorsed by the ATO to have access to income tax exemption as it satisfies all of the special conditions outlined above.

Entity A continues to meet the not-for-profit requirements under the ACNC Act and maintains its registration as a charity with the ACNC when it transfers its assets to Entity B, Entity A is considered to meet all applicable special conditions under sections 50-50 and 50-52 and its ordinary income and statutory income is exempt under section 50-1. Accordingly, any income or gain made by Entity A from the proposed transfer of its assets to Entity B will be exempt from income tax.