Private ruling: Income tax - income tax exempt entity - withholding
Published: November 2013
Ruling period: Income year ended 30 June 2008 | Income year ended 30 June 2009 | Income year ended 30 June 2010 | Income year ended 30 June 2011
Date scheme commenced: 1 July 2007

Ruling: Q1: Are the payments to the Trustee of XYZ Trust under various agreements entered into with companies assessable for income tax given the trust's income tax exempt charity status? | A1: No Issue 2 Distributions to beneficiaries | Q2: Are the distributions to beneficiaries assessable in the hands of the beneficiaries? | A2: Decline to rule

Relevant facts and circumstances: The XYZ Trust was established in 200X with Company A as trustee (the Trustee). The XYZ Trust received an Endorsement Notification as a Charitable Institution for income tax emption. The Trustee has negotiated various agreements with companies under which amounts are to be paid.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-20(1) | Income Tax Assessment Act 1997 s ection 11-5 | Income Tax Assessment Act 1997 Subdivision 50-A | Income Tax Assessment Act 1997 section 50-1 | Income Tax Assessment Act 1997 section 50-5 | Income Tax Assessment Act 1997 section 50-50 | Income Tax Assessment Act 1997 section 50-52 | Income Tax Assessment Act 1997 subsection 995-1(1) | Taxation Administration Act 1953 section 359-20 | Taxation Administration Act 1953 section 359-30 Issue 1 | Tax exempt entity - assessable income | Question 1 | Are the payments to the Trustee of XYZ Trust under various agreements entered into with companies assessable for income tax given the trust's income tax exempt charity status?

Reasons for decision: Summary: Subsection 6-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that an amount of ordinary income and/or statutory income is exempt income if (relevantly) a provision of the Act makes it exempt. Section 11-5 of the ITAA 1997 lists specific classes of entities which are exempt regardless of the type of income it derives. Included in that list are charitable organisations. Section 50-1 of the ITAA 1997 provides that total ordinary and statutory income derived by the entities covered in the relevant tables in Subdivision 50-A of the ITAA 1997 is exempt provided special conditions are satisfied where they apply. A charitable institution is subject to special conditions contained in section 50-50 and section 50-52 of the ITAA 1997. Section 50-50 of the ITAA 1997 (relevantly) provides a charitable institution 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) … The XYZ Trust has a physical presence in Australia and incurs its expenditure and pursues its objectives principally in Australia. Section 50-52 of the ITAA 1997 states that a charitable institution is not exempt from income tax unless it is endorsed as exempt under Subdivision 50-B of the ITAA 1997. The XYZ Trust has an Endorsement Notification as a Charitable Institution for income tax exemption. As the special conditions under sections 50-50 and 50-52 of the ITAA 1997 have been satisfied, the XYZ Trust is an income tax exempt entity under section 50-5 of the ITAA 1997. Any amounts received (or to be received) under the various agreements entered into with companies, be they ordinary income or statutory income will therefore be exempt income of the XYZ Trust. | Detailed Reasoning - Issue 2: Distributions to beneficiaries | Detailed Reasoning - Question 1: Are the distributions to beneficiaries assessable in the hands of the beneficiaries? | Detailed Reasoning - Reasons for decision: Section 359-20 of Schedule of the TAA states that private rulings must identify the entity to whom it applies; specify the scheme and the relevant provision which it relates to. The current ruling application identifies the trustee of the XYZ Trust as the relevant entity to which the scheme and relevant provisions apply. Section 359-30 of Schedule 1 of the TAA (relevantly) states: A private ruling given to or for the trustee of a trust and relating to the affairs of the trust also applies to: (a) if the ruling is not an indirect tax or excise ruling - the beneficiaries of the trust; and (b) … The current ruling application includes a question concerning whether any distributions made by the XYZ Trust to beneficiaries would be assessable to the beneficiaries. We are unable to rule on this question in this private ruling as: · the beneficiaries are not the relevant entity for the purposes of this private ruling; and · while section 359-30 of Schedule 1 of the TAA states beneficiaries can rely on a private ruling issued to a trustee of a trust, the beneficiaries are seeking a ruling of their own rather than seeking to rely on the ruling issued to the trustee of the XYZ Trust. Should a ruling on this question still be required, a separate private ruling application should be lodged for each beneficiary receiving distributions from the XYZ Trust.