Private ruling: Income tax exemption, Deductible Gift Recipient (DGR) status and eligibility for exempt fringe benefits
Date of advice: 24 November 2016
Published: April 2017
Ruling period: 01 July 2014 to 30 June 2015 | 01 July 2015 to 30 June 2016 | 01 July 2016 to 30 June 2017 | 01 July 2017 to 30 June 2018 | 01 July 2018 to 30 June 2019 | 01 July 2019 to 30 June 2020 | 01 July 2020 to 30 June 2021 | 01 July 2021 to 30 June 2022 | 01 July 2022 to 30 June 2023 | 01 July 2023 to 30 June 2024
Date scheme commenced: 01 July 2014

Ruling: Q1: Will the entity continue to be entitled to be endorsed as income tax exempt entity pursuant to section 50-105 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes | Q2: Will the entity continue to be endorsed as a deductible gift recipient (DGR) pursuant to section 30-120 of the ITAA 1997? | A2: Yes | Q3: Will the benefits provided in respect to the employment of employees by the entity continue to be exempt benefits pursuant to section 57A(3) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) (noting that section 5B of the FBTAA operates to limit the exemption and also noting the cap for salary sacrificed meal entertainment and entertainment facility leasing expenses)? | A3: Yes

Relevant facts and circumstances: 1. The entity is an Australian private company limited by shares. 2. The entity is a registered charity with the Australian Charities and Not-for-profits Commission (ACNC) 3. The entity is currently endorsed as a Deductible Gift Recipient (DGR) as a 'public facility' under item 1.1.1 of section 30-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997). 4. The entity is currently endorsed as income tax exempt as a 'registered charity' under item 1.1 of section 50-5 of the ITAA 1997. 5. The entity has since its establishment managed and controlled a facility and is the employer of the staff at the facility. 6. All relevant staff employed by the facility are employed exclusively in the kind of work ordinarily performed in relation to the operation of a facility. The facility also engages a significant number of specialist practitioners as accredited practitioners of the Facility. 7. The entity's constitution contains objects which allow for the entity to control, run and manage the facility as well as providing education for students and staff. 8. The entity's constitution also state that no distributions can be made unless remuneration for specific services. 9. The entity's constitution has the appropriate wind up clause and DGR status clause.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 5B , | Fringe Benefits Tax Assessment Act 1986 section 57A(3) , | Income Tax Assessment Act 1997 section 30-15, | Income Tax Assessment Act 1997 section 30-20(1), | Income Tax Assessment Act 1997 section 30-120, | Income Tax Assessment Act 1997 section 30-125 | 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 and | Income Tax Assessment Act 1997 section 50-105.

Reasons for decision: Summary: The entity is entitled to be endorsed as an income tax exempt entity pursuant to section 50-105 of the ITAA 1997 provided it continues to be registered as a charity with the ACNC and has DGR status. | Detailed Reasoning - Detailed reasoning: An entity is exempt from income tax under section 50-1 of ITAA 1997 if it is covered by the tables in Subdivision 50-A. As the entity is registered as a charity with the Australian Charities and Not-for Profits Commission (ACNC) it is therefore covered by the item 1.1 'registered charity' in the table in section 50-5 of the ITAA 1997. A registered charity in section 50-5 of the ITAA 1997 must also comply with the special conditions in sections 50-50 and 50-52 of the ITAA 1997. Subsection 50-50(1) will be met by the entity if it has a physical presence in Australia, and to that extent incurs its expenditure and pursues its objects principally in Australia, or is a Deductible Gift Recipient (DGR) under item 1 in the table in section 30-15 of the ITAA 1997. The entity is currently endorsed as an item 1 DGR, in the table in section 30-15 of the ITAA 1997, by meeting the description of a 'public facility' under section 30-20(1) in Subdivision 30-B of the ITAA 1997. Therefore the entity meets the special condition in subsection 50-50(1) of the ITAA 1997by virtue of being a DGR. Subsection 50-50(2) of the ITAA 1997 requires that an entity must comply with all the substantive requirements in its governing documents and apply all of its income and assets solely for the purposes for which the entity is established. Clause 30.1 of the entity's constitution states that Subject to this rule 20, the Company must apply its assets and income solely towards promoting the Company Objects and no part of the Company's assets or income may be paid or transferred directly or indirectly by way of dividend, bonus or otherwise to members. On the facts provided considering the activities that the entity undertakes, including running the Facility including the Facility's staff there is nothing to indicate the entity does not meet the special conditions under subsection 50-50(2) of the ITAA 1997. Notably, section 50-52 states that an entity covered by item 1.1 in section 50-5 is not exempt from income tax unless it is endorsed as exempt under Subdivision 50-B. To be entitled to be endorsed as exempt under Subdivision 50-B the entity must: ● be a charity registered with the ACNC, ● have an ABN, and ● meet the special conditions under sections 50-50 and 50-52. The entity currently meets all these requirements to be entitled to be endorsed. On the facts provided, the entity is entitled to be endorsed as an income tax exempt entity pursuant to section 50-105 of the ITAA 1997 provided it continues to be registered as a charity with the ACNC and has DGR status. | Summary: The entity is entitled to be entitled to be endorsed as a DGR provided that it continues to be registered charity with the ACNC and a public facility within 30-20(1) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Under section 30-125 of the ITAA 1997 the entity is entitled to be endorsed as a DGR if: a) it has an Australian Business Number (ABN), b) it is an institution described in item 1, 2 or 4 of the table in section 30-15 of ITAA 1997, and c) meets the 'special conditions' relevant to the item of that table in which it is described. The entity has an ABN and is currently endorsed as an item 1 DGR, in the table in section 30-15, by meeting the description of a 'public facility' under section 30-20(1) in Subdivision 30-B of the ITAA 1997. The only special condition relevant to item 1 DGR, in the table in section 30-15, is that the entity must be 'in Australia'. Since the entity was established and is operated in Australia this requirement is met. The entity is currently registered with the ACNC as a 'charity' with a sub-entity type of 'advancing health'. On the facts provided, the entity is entitled to be endorsed as a DGR provided that it continues to be registered charity with the ACNC and a public facility within 30-20(1) of the ITAA 1997. | Summary: The benefits provided by the entity to its employees are exempt benefits under subsection 57A(3) of the FBTAA. It should be noted however, that section 5B of the FBTAA limits the exemption by providing that an FBT liability will arise if the value of certain benefits provided to an individual employee exceeds the specified amount. | Detailed Reasoning - Detailed reasoning: The entity will be entitled to Fringe Benefits Tax (FBT) exemption if it is a public facility. Section 57A of the FBTAA provides that certain employers are generally exempt from FBT on benefits provided to their employees. Specifically subsection 57A(3) of the FBTAA states: A benefit provided in respect of the employment of an employee is an exempt benefit if: (a) the employer of the employee is a public facility; … Therefore, as the entity is a public facility, benefits provided to the entity's employees will be exempt benefits. However, subsection 5B(1D) of the FBTAA provides that for a public facility, the employer's fringe benefits taxable amount will include the employer's aggregate non-exempt amount. The method for calculating the employer's aggregate non-exempt amount is contained in subsections 5B(1E) to 5B(1L) of the FBTAA. These subsections provide that a public facility will only be liable to pay fringe benefits tax on the amount by which the total grossed-up value of certain benefits provided to an individual employee exceeds $17,000 per annum. 5B(1E) also provides for a separate grossed-up cap of $5,000 for salary packaged meal entertainment. The benefits provided by the entity to its employees are exempt benefits under subsection 57A(3) of the FBTAA. These exempt benefits are limited however under the rules in 5B(1E).