Private ruling: Payment of reasonable administrative costs for a public ancillary fund
Date of advice: 22 October 2018
Published: January 2019
Ruling period: 1 July 2018 to 30 June 2023
Date scheme commenced: 1 July 2018

Ruling: Question and answer | Can the Foundation, a Deductible Gift Recipient subject to Item 2 in the table in subsection 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997), use the Foundation’s income and capital to pay reasonable costs of administration for the Foundation? | Yes

Relevant facts and circumstances: 1. The Foundation was set up as a Public Ancillary Fund (PuAF) in 2010. 2. The Foundation has been registered as a charity since 2012 and remains registered with the Australian Charities and Not-for-profits Commission (ACNC). 3. The Foundation is endorsed as a Deductible Gift Recipient subject to Item 2 in the table of Subsection 30-15 of the ITAA 1997 (DGR 2) under section 50-105 of the ITAA 1997. 4. From 1 July 2012 to 30 June 2017 the Foundation has a sum of money. 5. To date the funds have been paid to a Deductible Gift Recipient endorsed under Item 1 in the table of subsection 30-15 of the ITAA 1997 (DGR 1). 6. A further sum of money is invested. 7. The average annual amount given to the DGR 1 has been 75% in the period. 8. The DGR has been the sole beneficiary of the Foundation.

Relevant legislative provisions: Section 30-15 of the Income Tax Assessment Act 1997 | Section 50-1 of the Income Tax Assessment Act 1997 | Section 50-105 of the Income Tax Assessment Act 1997 | Subsection 78(4) of the Income Tax Assessment Act 1936 | Subsection 78(5) of the Income Tax Assessment Act 1936 | Section 426-102 of the Tax Administration Act 1953

Reasons for decision: Summary: Reasonable costs of administering the Foundation for its purpose are costs ancillary to that purpose. Therefore, subject to Guideline 43 the trustee is able to pay such costs without contravening the Guidelines. | Detailed Reasoning - Detailed reasoning: Section 30-125 sets out the requirements for an entity to be entitled to endorsement as a Deductible Gift Recipient (DGR). One of the requirements is that the entity must be described in item 1, 2 or 4 of the table in section 30-15. Item 2 in the table of section 30-15 sets out the requirements for private and public ancillary funds. Item 2 states that the recipient of deductible gifts or contributions in this class is: An *ancillary fund established and maintained under a will or instrument of trust solely for: a) The purpose of providing money, property or benefits: ● To a fund, authority or institution gifts to which are deductible under item 1 of this table; and ● For any purposes set out in the item of the table in Subdivision 30-B that covers the fund, authority or institution; or b) The establishment of such a fund, authority or institution. Under section 426-102 public ancillary funds must comply with the Public Ancillary Fund Guidelines 2011 (the Guidelines). Guideline 43 allows the trustee of a public ancillary fund to apply trust funds: ● to reimburse the trustee for reasonable expenses incurred on behalf of the fund; and ● to pay fair and reasonable remuneration for the trustee’s services in administering the fund. Further the note to Guideline 43 states: Note: A trustee incurs reasonable expenses on behalf of a fund when providing reasonable remuneration benefits to some of the individuals listed in guideline 42 (including providing benefits of a minor or incidental nature to an employee). Taxation Ruling TR 95/27 Income tax: Public funds (TR 95/27) , describes how ancillary funds can meet their proper administrative costs in paragraphs 30 and 47. Although TR 95/27 refers to repealed provisions in subsections 78(4) and 78(5) of the Income Tax Assessment Act 1936 (ITAA 1936), the current provisions in Division 50 of the ITAA 1997 are similarly worded and TR 95/27 can still be applied. | Detailed Reasoning - Public funds under the ancillary fund provisions: 30. The essence of the ancillary funds referred to in subsection 78(5) is that they collect money, property, etc., which is passed on, less any proper and reasonable administrative expenses, to subsection 78(4) funds, authorities or institutions. Ancillary funds may be likened to a conduit or temporary repository for moneys which are to be channelled to particular subsection 78(4) funds. | Detailed Reasoning - Administrative expenses: 47. The restriction on investment of moneys received by a fund does not, of course, prevent the will or instrument giving the trustee power to meet proper administrative expense. Proper and 'reasonable' costs of establishing, promoting and managing an ancillary fund include such inevitable and incidental items as bank charges, stationery costs and accounting and audit fees relating expressly to the fund. However, 'reasonable' costs would not include an apportionment of normal expenses which an organisation may have necessarily incurred prior to the establishment of an ancillary fund. Reasonable expenses paid by the Trustee for the Foundation from the Foundation’s income and capital to meet the Foundation’s purpose will not breach the Guidelines.