Private ruling: Income tax status of the Entity
Date of advice: 17 March 2016
Published: May 2016
Ruling period: Year ending 30 June 2016.

Ruling: Q1: Is the Entity, which is registered with the Australian Charities and Not-for-profits Commission, entitled to its tax concessions, in particular exemption from its income tax liability, after it has ceased operations and is in liquidation? | A1: Yes. As the Entity's charitable purposes remain unchanged during the course of liquidation, the Sub-branch will retain its income tax exempt status | Q2: If the Entity's income is no longer exempt from income tax and disposes of its business property, will the cost base of the property for CGT purposes be equal to its market value at the time the exemption is lost? | A2: Not applicable. See response to Question 1.

Relevant facts and circumstances: The Entity was granted income tax exempt status in 20XX. The Entity provided volunteer welfare services. A copy of the Entity's constitution has been provided which sets out its charitable objects and its winding-up clauses. In 20XX, the Entity was registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC). According to the Australian Business Register this registration remains current. In 20XX liquidators were appointed to dispose of the Entity's assets. The Entity owned property, which was used for the volunteer welfare activities. In 20XX the Liquidators entered into a contract on the Entity's behalf for the sale of the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Section 6-10 | Division 50 | Section 50-1 | Section 50-5 | Section 50-47 | Section 50-50 | Subdivision 50-B | Section 50-105 | Section 50-110 | Division 102 | Section 102-5

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income and are also included in assessable income. Section 102-5 of the ITAA 1997 states, that a person's assessable income includes, any net capital gain for the income year. Section 50-1 of the ITAA 1997 exempts from income tax the ordinary and statutory income of entities covered by the tables in subdivision 50-A. Item 1.1 of section 50-5 of the ITAA 1997 lists a registered charity as an entity whose ordinary and statutory income is exempt. Subdivision 50-B of the ITAA 1997 sets out the rules about endorsement where entities will only be exempt from income tax if they are endorsed by the Commissioner. In addition, section 50-47 of the ITAA 1997 sets out a special condition that an entity is not exempt from income tax unless it is registered under the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act). The Entity is registered as a charity under the ACNC Act from dd/mm/yyyy. Accordingly, the ordinary and statutory income of the Entity has been treated as exempt income. Under the Corporations Act, a company will continue to exist as a legal entity even when a liquidator has been appointed to wind it up. Unlike bankruptcy, winding up does not have the effect of automatically transferring the company's property to the liquidator. The company's property continues to belong to it, but its powers to deal with it are restricted. A liquidator is regarded as an officer or agent of the company. Upon their appointment liquidators take control of all the assets of the company. The liquidator has full authority to sell any asset of the company or the complete business as a going concern (if it is viable to do so). Ultimately, the liquidator will dispose of the company's assets and look to distribute any surplus funds to creditors who have proven their claims. The Entity was entitled to be endorsed as an income tax exempt charity as it met all of the requirements set out in section 50-50 of the ITAA 1997. Even though liquidators have been appointed, the Entity still has the same charitable purposes as set out in its constitution. It is considered that the activities of the liquidators are incidental to the charitable activities that were carried on by the Entity. Therefore the Entity will be still entitled to be endorsed as a tax exempt charity until such time as it is wound up.