Private ruling: Confirmation of deductible gift recipient endorsement
Published: December 2011
Ruling period: Income year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Would the proposed new activities of the entity affect its deductible gift recipient endorsement under section 30-125 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is a public benevolent institution pursuant to item 4.1.1 in section 30-45 of the ITAA 1997? | A1: No

Relevant facts and circumstances: The entity is a public benevolent institution. It proposes to conduct new activities and wants to know whether it would affect its deductible gift recipient endorsement. The proposed activities are considered to be minor and ancillary to its current objects.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 30-15 | Income Tax Assessment Act 1997 Section 30-45 | Income Tax Assessment Act 1997 Section 30-125(1)

Reasons for decision: Summary: Subsection 30-125(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that an entity is entitled to be endorsed as a deductible gift recipient (DGR) if: · the entity has an ABN; and · the entity is a fund, authority or institution that: (i) is described (but not by name) in item 1, 2 or 4 of the table in section 30-15; and (ii) is not described by name in Subdivision 30-B if it is described in item 1 of that table; and (iii) meets the relevant conditions (if any) identified in the column headed "Special Conditions" of the item of that table in which it is described; and · the entity meets the requirements of subsection (6), unless: · the entity is established by an Act; and (ii) the Act (or another Act) does not provide for the winding up or termination of the entity. The entity is currently endorsed as a DGR on the basis that it is a public benevolent institution. However, it proposes to conduct new activities by establishing a new fund. Accordingly, each of the requirements in subsection 30-125(1) of the ITAA 1997 will be addressed to determine whether the entity still remains entitled to DGR endorsement. | Detailed Reasoning - Requirement (a): The entity has an ABN. | Detailed Reasoning - Requirement (b): Item 1 of the table in section 30-15 of the ITAA 1997 covers a fund, authority or institution covered by an item in any of the tables in Subdivision 30-B. The table in subsection 30-45(1) of the ITAA 1997 lists a public benevolent institution (PBI) as a deductible gift recipient in item 4.1.1. There is no legislative or dictionary definition of the compound expression 'public benevolent institution'. In Perpetual Trustee Co Ltd v. FCT (1931) 45 CLR 224, a case concerning section 8(5) of the Estate Duty Assessment Act 1914-1928 , Starke J at page 232 said that the compound expression public benevolent institution means: an institution organised for the relief of poverty, sickness, destitution or helplessness; while Dixon J said, at page 233, that such institutions were for: the relief of poverty, suffering, distress or misfortune. Evatt J said, at pages 235-236: Such bodies vary greatly in scope and character. But they have one thing in common: they give relief freely to those who are in need of it and who are unable to care for themselves. Those who receive aid or comfort in this way are the poor, the sick, the aged, and the young. Their disability or distress arouses pity, and the institutions are designed to give them protection. Taxation Ruling TR 2003/5: Income tax and fringe benefits tax: public benevolent institutions provides the characteristics of a PBI: · it is set up for needs that require benevolent relief · it relieves those needs by directly providing services to people suffering from them · it is carried on for the public benefit · it is non-profit · it is an institution, and · its dominant purpose is providing benevolent relief. | Detailed Reasoning - Needs that require benevolent relief: Paragraph 32 of TR 2003/5 provides: 32. To be a public benevolent institution, the condition or misfortune that is relieved must be such as to arouse pity or compassion in the community. Not all degrees of what might be described as distress, suffering or poverty would necessarily have such an effect. In Perpetual Trustee (at 45 CLR 236) Evatt J referred to disability or distress which 'arouses pity'. In Cairnmillar Institute McGarvie J said (at 90 ATC 4761; 21 ATR 675): 'The descriptions of persons as poor, sick, suffering, helpless, in distress, or subject to misfortune or disability are relative descriptions: a person may be moderately or severely so. I consider that the test for whether relief to such persons amounts to benevolence is whether their disability or condition is of such seriousness as will arouse community compassion and thus engender the provision of relief.' Paragraph 149 of TR 2003/5 also provides: 149. Legal aid services may be public benevolent institutions where they are predominantly to handle the legal affairs of the needy and underprivileged. They might be operated by law societies, as community legal centres, or by government (as in Legal Aid Commission of Victoria v. Commr of Pay-roll Tax (Vic.)). The entity proposes to create a fund for disadvantaged persons. The intention of establishing the fund is to help the needy in the community and particularly those suffering from hardship and helplessness of such significance that would arouse community compassion. It is accepted that the fund is established to provide relief for the needy and underprivileged. Relieves those needs by directly providing services to people suffering from them Paragraph 61 of TR 2003/5 states: 61. Because the benevolence of public benevolent institutions is directed to persons in need of relief, they provide their aid and services directly to those people. In some circumstances such provision may be made by arrangement with other organisations. Services and aid do not need to be provided only by employees or volunteers of the institution, but may also be provided by agents (for example as in Legal Aid Commission of Victoria v. Commr of Pay-roll Tax (Vic.) 92 ATC 2053 at 2060; 23 ATR 1148 at 1157). The entity directly relieves benevolent needs by operating clinics for persons experiencing hardship and helplessness. The entity role will go beyond merely the distribution of funds since it will play a direct role of monitoring the progress of matters affecting those in benevolent need. These activities are determined to be sufficient in meeting the directness requirement of a PBI. | Detailed Reasoning - Carried on for the public benefit: Paragraph 18 of TR 2003/5 provides: 18. A public benevolent institution is organised to confer benevolence upon an appreciable needy class in the community. Organisations are not public in the required sense where: • they are carried on for the profit or gain of particular persons including the organisation's individual members; • benefits are not provided to the public or a section of it, but rather on such grounds as personal relations, membership of a voluntary association, or an employment relationship; or • benefits are provided on a discriminatory basis, not primarily because of need. The funds from the fund will be distributed towards assisting persons who are experiencing hardship and helplessness. It is acknowledged that both of these reasons for establishing the fund are directed towards an appreciable needy class in the community. The entity also submits that funds will not be allocated based on personal relations, membership of a voluntary association or an employment relationship. No discriminatory criteria will be used to assess who will receive its services. | Detailed Reasoning - Non-profit: The constituent document of the entity indicates that it has a non-profit character. | Detailed Reasoning - Institution: Paragraph 91 of TR 2003/5 provides: 91. No particular structure is prescribed for public benevolent institutions. An institution has been described as 'the body (so to speak) called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle' ( Mayor of Manchester v. McAdam (1896) 3 TC 491 at 497; [1896] AC 500 at 511 per Lord Macnaghten). Some institutions take the form of corporations limited by guarantee, unincorporated associations or charitable trusts. Incorporation is not sufficient on its own: Trustees of the Allport Bequest . An institution may be created by will: Lemm at 66 CLR 409-410 per Williams J. Whether a particular entity is an institution is indicated by a range of factors including activities, size, permanence and recognition. All relevant factors need to be considered and whether an institution exists will depend on its particular facts. Institutions accepted by the High Court in this and related contexts have included a Boys' Brigade, a home for aged women, a university and a university college, a publisher of law reports, a YMCA, and an association of surgeons. The word institution has a meaning 'greater than a structure controlled and operated by family members and friends': Pamas Foundation (Inc) v. DFC of T 92 ATC 4161 at 4168; (1992) 23 ATR 189 at 197. The entity is an incorporated association pursuant to legislation. It has defined objects, employs staff to carry out activities to meet its objects, and it is not an organisation that is controlled by family members. | Detailed Reasoning - Dominant purpose is providing benevolent relief: Paragraphs 100 and 101 of TR 2003/5 provide: 100. Deciding whether an organisation is predominantly for the provision of benevolent relief is a matter of fact and degree. It is an objective question which will involve the weighing of all relevant factors. Both the organisation's constitution and activities are relevant. As it is the character and purpose of the organisation that must be ascertained, a solely quantitative measurement would be inadequate (cf Cairnmillar Institute at 92 ATC 4312-4313; 23 ATR 321 per Tadgell J). 101. If there are changes in an organisation's constitution and operations, its status may change. This means an organisation's character upon foundation will not be determinative. However, the foundation, history and proposed future directions may all be relevant… Paragraph 123 of TR 2003/5 provides guidance on distributions to other organisations: 123. The distributions of funds that public benevolent institutions sometimes make to other bodies should promote benevolent purposes. If funding is not relevant or incidental to those purposes, their status may be jeopardised… The entity submitted that the amount of time and resources it expects to spend on activities surrounding the establishment of the fund would be minimal. It was advised that the proposed activities would not be the dominant or primary activities of the entity but rather they would merely be ancillary to its main objects. To fulfil its current objects, the entity provides direct services through certain targeted projects. It does this by operating a number of clinics. The new activities surrounding the fund could be said to play a role in the carrying out of the entity's objects provided in its constituent document. All funds from the fund will be allocated towards the promotion of benevolent purposes. Therefore it is accepted that the fund is an additional method of providing benevolence to those experiencing poverty, suffering, distress, misfortune, destitution or helplessness, and will supplement the entity's dominant purpose of providing benevolent relief. | Detailed Reasoning - Requirement c): Subsection 30-125(6) of the ITAA 1997 states: A law (outside this Subdivision), a document constituting the entity or rules governing the entity's activities must require the entity, at the first occurrence of an event described in subsection (7), to transfer to a fund, authority or institution gifts to which can be deducted under this Division: (a) any surplus assets of the gift fund; or (b) if the entity is not required by this section to meet the requirements of section 30-130 - any surplus: (i) gifts of money or property for the principal purpose of the fund, authority or institution; and (ii) contributions described in item 7 or 8 of the table in section 30-15 in relation to a *fund-raising event held for that purpose; and (iii) money received by the entity because of such gifts or contributions. The events stated in subsection 30-125(7) are: · the winding up of the fund, authority or institution; and · if the entity is endorsed because of a fund, authority or institution - the revocation of the entity's endorsement under this Subdivision relating to the fund, authority or institution. The entity's constituent document provides an appropriate winding up and revocation clause. | Detailed Reasoning - Conclusion: The new activities of the entity would not affect its DGR endorsement under section 30-125 of the ITAA 1997 on the basis that it is a public benevolent institution pursuant to item 4.1.1 under section 30-45 of the ITAA 1997.

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