Private ruling: Income tax exemption
Date of advice: 9 October 2017
Published: March 2018
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021 | Year ended 30 June 2022
Date scheme commenced: 1 July 2017

Ruling: Q1: Does the Entity 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? | A1: Yes. | Q2: Provided the Entity is registered with the Australian Charities and Not-for-profit Commission as a charity with the subtype of public benevolent institution (PBI) will the Commissioner endorse the Foundation: (a) Under Subdivision 50-B of the Income Tax Assessment Act 1997 as income tax exempt; and (b) Under Subdivision 30-BA of the Income Tax Assessment Act 1997 as a deductible gift recipient under item 4.1.1 of the table in section 30-45(1) of the Income Tax Assessment Act 1997? | A2: Yes.

Relevant facts and circumstances: 1. The Entity is a public company limited by guarantee. 2. The Entity is registered with ASIC and has an Australian Company Number (ACN). 3. The Entity is registered on the Australian Business Register (ABR) and has been issued an Australian Business Number (ABN). 4. The registered office of the Entity is in Australia. 5. The Entity wants to apply for registration as a charity with the subtype public benevolent institution (PBI) and to be endorsed for tax concessions and as a DGR. 6. The objects of the Entity are listed in the Constitution. 7. The winding up provisions provide that if the Entity is wound up or dissolved, the members have no right to participate in any distribution or payment of the assets or property of the Entity. 8. The distribution of assets upon winding up or revocation of DGR status is outlined in the Constitution. 9. The directors of the Entity live in Australia. 10. The Board of the Entity meet in Australia. 11. One of the directors undertakes the day to day management of the Entity from Australia, except when they travel overseas to work on a particular project in which the Foundation is involved. Assumption That the Entity will be registered as a charity with the subtype PBI by the Australian Charities and Not-for-profit Commission (ACNC) .

Relevant legislative provisions: Income Tax Assessment Act 1997 – Section 30-15 | Income Tax Assessment Act 1997 – Section 30-45, item 4.1.1 | Income Tax Assessment Act 1997 – Section 30-125 | Income Tax Assessment Act 1997 – Section 50-47 | Income Tax Assessment Act 1997 – Section 50-50 | Income Tax Assessment Act 1997 – Section 50-52 | Income Tax Assessment Act 1997 – Section 50-110 | Income Tax Assessment Act 1997 – Section 960-500 | Income Tax Assessment Act 1997 – Section 960-505 Question 1 | Summary | The Entity is ‘in Australia’ for the purposes of special condition (a) in item 1 of the table in section 30-15 of the Income Tax Assessment Act 1997 (ITAA) 1997. Detailed reasoning | Special condition (a) in item 1 of the table in section 30-15 of the ITAA 1997 requires a fund, authority or institution to ‘be in Australia’. This test must be met in order for the fund, authority or institution to be endorsed as a DGR under Division 30 of the ITAA 1997. The ‘in Australia’ requirement listed in special condition (a) in item 1 of the table in section 30-15 of the ITAA 1997 must also be satisfied in order for an institution that is a registered charity seeking income tax exemption to meet the test in paragraph 50-50(1)(b) of the ITAA 1997. | Special condition (a) in item 1 of the table in section 30-15 requires a fund, authority or institution to ‘be in Australia’. | The words ‘be in’ Australia are not defined in the ITAA 1997 and take their ordinary meaning. ‘Australia’ is defined in sections 960-500 and 960-505 of the ITAA 1997. A fund, authority or institution must exist within the Australian territorial and offshore boundaries to ‘be in Australia’. | Demonstrating that a PBI is in Australia has two elements. Firstly, the PBI must be established or legally recognised in Australia. A company limited by guarantee could be legally recognised in Australia under the Corporations Act 2001, the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act) and A New Tax System (Australian Business Number) Act 1999 (ABN Act). Secondly, the PBI must be operated ‘in Australia’. An institution is operated in Australia if it is managed on a day to day basis by a local committee of management or similar structure located in Australia. Importantly, a PBI does not need to have its purposes and beneficiaries in Australia in order to satisfy the ‘in Australia’ requirement. | The Entity was established in Australia and is registered with ASIC. It has been issued with an ABN and is on the ABR. The Entity is legally recognised in Australia. | The Board of the Entity meet in Australia and all the directors of the Entity live in Australia. One of the directors undertakes the day to day management of the Entity from Australia, except when they travel overseas to work on a particular project in which the Entity is involved. The Entity is therefore operated in Australia. | In summary, the Entity is ‘in Australia’ for the purposes of special condition (a) in item 1 of the table in section 30-15 of the ITAA 1997. | Question 2 | Summary | If the Entity is registered with the ACNC as a charity with the subtype PBI it will be eligible for endorsement as an income tax exempt entity and as a deductible gift recipient. | Detailed reasoning | Income Tax exemption | Charities, including PBIs, must be registered with the ACNC before the Commissioner can endorse them to access charity tax concessions. However, for the purposes of this ruling, the assumption has been made that the Foundation will be registered as a charity with a sub-type PBI by the ACNC. | An entity is entitled to be endorsed pursuant to section 50-110 of the ITAA 1997 as an income tax exempt charity if: | ● It has an ABN | ● Is covered by item 1.1 of the table in section 50-5 of the ITAA 1997; and | ● Satisfies the relevant special conditions in sections 50-50 and 50-47 of the ITAA 1997. | The entity has an ABN | The Entity has an ABN. This requirement is satisfied. | Is the Entity covered by item 1.1 of the table in section 50-5 of the ITAA 1997 | A registered charity is item 1.1 of the table in section 50-5 of the ITAA 1997. It is assumed that the Entity will be registered by the ACNC. When the Entity is registered, this requirement will be satisfied. | Meets the special conditions | In order to qualify for the income tax exemption, a registered charity must meet the special conditions in sections 50-50 and 50-47 of the ITAA 1997. | The special condition in section 50-50(1) states: | An entity covered by item 1.1 or 1.2 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. | The Entity must therefore satisfy one of the alternative tests set out in section 50-50(1). The test in in paragraphs 50-50(1)(a) requires that the entity has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia. | However, the alternate and less onerous test in paragraph 50-50(1)(b) is met when an institution meets the description and requirements in item 1 of the table in section 30-15 of the ITAA 1997. An institution will fall within item 1 of the table in section 30-15 of the ITAA 1997 if any of the tables in Subdivision 30-B apply and it meets the special conditions set out in column four of the table. | A registered PBI falls within subdivision 30-B of the ITAA 1997 as it is item 4.1.1 of the table contained in section 30-45(1) of the ITAA 1997. Special condition (a) in item 1 of the table in section 30-15 requires a fund, authority or institution to ‘be in Australia’. As decided in question 1 above, the Foundation is ‘in Australia’ for the purposes of in section 30-15 of the ITAA 1997. | The special condition in section 50-50(2) of the ITAA 1997 requires an entity to: | ● comply with the governing rules condition; and | ● comply with the income and assets condition. | Taxation Ruling TR 2015/1 Income tax: special conditions for various entities whose ordinary and statutory income is exempt (TR 2015/1) provides guidance in respect of the conditions in subsection 50-50(2). Paragraph 9 of TR 2015/1 provides that an entity’s ‘governing rules’ are those rules that authorise the policy, actions and affairs of the entity. Paragraphs 18 and 19 of TR 2015/1 explain that the substantive requirements in an entity’s governing rules are those rules that define the rights and duties of the entity and include rules such as those that: | ● give effect to the object or purpose of the entity | ● relate to the non-profit status of the entity | ● set out the powers and duties of directors and officers of the entity | ● require financial statements to be prepared and retained | ● set out the criteria for admission as a member of an entity | ● require an entity to maintain a register of members, and | ● relate to the winding-up of the entity. | Based on a review of the Entity’s Constitution, it is accepted that the Entity complies with the substantive requirements in its Constitution. | Paragraphs 33 to 35 of TR 2015/1 provide that an entity must solely apply its income and assets for the purpose for which the entity is established. However, where the misapplication or misapplications of part of the income or assets are immaterial in amount and are a one-off misapplication or occasional misapplications, the income and assets condition will still be satisfied. | A review of the activities which the Entity undertakes demonstrates that the Entity is complying with the main purposes for which it was established. Accordingly, it is accepted that the Entity applies its income and assets solely for the purpose for which it was established. | Accordingly, the Entity meets both the special conditions in section 50-50 of the ITAA 1997. | Section 50-47 of the ITAA 1997 requires entities that are charities to be registered with the ACNC before income tax exemptions can apply. | Provided that the Entity is registered with the ACNC as a charity with the subtype PBI, the Commissioner will endorse the Entity as income tax exempt under Subdivision 50-B of the ITAA 1997. | DGR status | Section 30-125 of the ITAA 1997 sets out the conditions that an entity must satisfy in order to be entitled to endorsement as a DGR. Those conditions are: | (a) The entity has an ABN; | (b) The entity is described in a category set out in item 1, 2, or 4 of the table in section 30-15 of the ITAA 1997; | (c) The entity is not listed by name in Subdivision 30-B of the ITAA 1997; | (d) The entity satisfies any special conditions for the category in which it is described; and | (e) the entity satisfies the winding up requirements. | The entity has an ABN | The Entity has an ABN. This requirement is satisfied. | The entity falls within a relevant category | An institution will fall within item 1 of the table in section 30-15 of the ITAA 1997 if any of the tables in Subdivision 30-B of the ITAA 1997 apply. The Entity will seek endorsement as a DGR on the basis that it is a PBI as set out in item 4.1.1 of the table in section 30-45 of the ITAA 1997. For the purposes of this ruling, an assumption has been made that the Foundation will be registered as a PBI by the ACNC. | It will therefore be an entity described in item 1of the table in section 30-15 of the ITAA 1997. | Not listed by name | The Entity is not listed by name in Subdivision 30-B of the ITAA 1997. | Satisfies the Special conditions | Special condition (a) in item 1 of the table in section 30-15 of eh ITAA 1997 requires a fund, authority or institution to ‘be in Australia’. As discussed in the answer to question 1 above, the Foundation satisfies the ‘in Australia’ requirement for the purposes of section 30-15 of the ITAA 1997. | Wind up clause | The Entity’s constitution satisfies the wind-up requirements. | Conclusion | If the Entity is registered as a charity with a subtype PBI by the ACNC it will satisfy the requirements of section 30-125 of the ITAA 1997 and will be entitled to be endorsed pursuant to subdivision 30-BA of the ITAA 1997.


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