Private ruling: Continuation of endorsement
Published: July 2012
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Please note that if the law changes the protection of this advice ceases from the date of effect of the change. It is anticipated that new legislation affecting the endorsement of charities will be enacted with a commencement date of 1 October 2012. Therefore the protection of this advice will cease on 1 October 2012 if this legislation is enacted.
Date scheme commenced: 1 July 2011

Ruling: Q1: Will the proposed arrangement change the entity's entitlement to endorsement as a charitable institution under item 1.1 of the table in section 50-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No

Relevant facts and circumstances: The entity is currently endorsed as a charitable institution under item 1.1 of the table in section 50-5 of the ITAA 1997. It intends to take on a new activity in partnership with two other entities. In respect of the application a copy of the entity's constitution and annual reports were provided.

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 | Income Tax Assessment Act 1997 Section 50-52

Reasons for decision: Summary: The new scheme is consistent with the purpose of the entity. In applying Taxation Ruling TR 2011/4 Income tax and fringe benefits tax: charities this purpose is charitable as outlined in both the Constitution and the annual reports and the entity is a charitable institution. | Detailed Reasoning - Detailed Reasoning: An entity is entitled to be endorsed as an exempt entity under section 50-5 of the ITAA 1997 if it meets the following requirements: · Has an Australian Business Number (ABN); · Is an entity covered by item 1.1, 1.5, 1.5A or 1.5B of the table in section 50-5 or item 4.1 of the table in section 50-50; · Meets the relevant 'Special conditions' of that item. In this case the entity is already endorsed by the Commissioner as an entity covered by item 1.1 (charitable institution) of the table in section 50-5 of the ITAA 1997. What they are asking is whether their participation in a new scheme will have a negative impact of that endorsement. The term 'charitable institution' is not defined in the legislation. However, TR 2011/4 provides the Commissioner's view on the characteristics of a 'charity' which is based on common law. In respect of a charity that is a charitable institution these characteristics are: · it is an entity that is an institution; · its sole purpose is charitable within the legal sense of that term; · it exists for the public benefit or the relief of poverty; and · it is non-profit. | Detailed Reasoning - Institution: Paragraph 24 of TR 2011/4 provides the Commissioner's view of 'institutions': 24. An institution is an establishment, organisation or association, instituted for the promotion of some object, especially one of public or general utility. It connotes a body called into existence to translate a defined purpose into a living and active principle. It may be constituted in different ways including as a corporation, unincorporated association or trust. However it involves more than mere incorporation, and does not include a structure controlled and operated by family members and friends and undertakes limited activities, is not an institution. The information provided demonstrates that the entity is an institution. | Detailed Reasoning - Sole purpose is charitable: A charity is an entity established for altruistic purposes that the law regards as charitable. Charitable purposes are commonly grouped, following the terminology used in The Commissioners for Special Purposes of the Income Tax v. Pemsel [1891] AC 531; [1891-4] All ER Rep 28, as the 'four heads of charity': · the relief of poverty; · the advancement of education; · the advancement of religion; and · other purposes beneficial to the community. In this case we'll be looking at the fourth head of charity, and for an institution to be a 'charitable institution' its sole purpose must be charitable in the technical legal meaning and it cannot have any independent non-charitable purposes. However, paragraph 174 of TR 2011/4 specifies that an institution with non-charitable purposes that are simply incidental or ancillary to a charitable purpose (as opposed to independent) can be charitable. Based on the information provided this purpose is charitable. | Detailed Reasoning - Public benefit or relief of poverty: An essential characteristic of a charitable purpose is that it is of recognised public benefit unless the entity has been established for the relief of poverty. This requirement has two aspects: · There has to be a value or benefit to the community; and · That value or benefit has to be available to the public. | Detailed Reasoning - Value or benefit to the community: The value or benefit provided by a charitable purpose must be of worth, advantage, utility, importance or significance. It can be either tangible or intangible. Given the nature of the purpose there is a value or benefit to the community in that purpose. | Detailed Reasoning - Available to the public: The benefit of a charitable purpose must be available to the public. It need not be for the whole community, but most be for at least an appreciable section of it. TR 2011/4 states at paragraph 140: Placing limits on who can benefit is generally incompatible with an intention of benefiting the public if the limits are by reference to a personal connection that is not available to the public generally, such as: · being members of a family or a group which is based on personal relationships to particular persons; · contractual relationships (for example, the employees of a particular employer); and · membership of bodies that can admit or exclude members of the public. In these situations, benefits are usually intended for people in their capacity as relatives, employees or members rather than as a section of the public. The service of the entity is available to the public. | Detailed Reasoning - Non-profit: A charitable institution is carried out without purpose of private gain for particular persons including its individual members. If an organisation was carried on for the profit of its members or owners, it would be for their benefit and not for the benefit of the public. This would still be the case even if, as a consequence of its operations, some needy people were better off. The constituent documents or rules governing its activities must state that any income or property cannot be distributed to members. This includes preventing transfers to other organisations which do not have the appropriate non profit clauses in their constitution or rules. There are sufficient non-profit clauses within the Constitution

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.