Private ruling: Charitable institution - fundraising activities
Published: August 2014
Ruling period: Income year ended 30 June
Date scheme commenced: The scheme has not commenced

Ruling: Q1: Will any net capital gain arising from proposed fundraising activities be included in the assessable income of the Entity under section 102-5 of the Income Tax Assessment Act 1997 ? | A1: No.

Relevant facts and circumstances: The Entity is a public benevolent institution which was endorsed as a deductible gift recipient under item 1 of the table in section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997). The Entity is endorsed for income tax exemption as a charity. The Entity is registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC). The Entity is considering a fundraising initiative involving the purchase and sale of assets. The method of disposal of the assets may consist of sale, auction or as the prize from a raffle.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 50-1 | Income Tax Assessment Act 1997 section 50-5 | Income Tax Assessment Act 1997 section 50-47 | Income Tax Assessment Act 1997 Subdivision 50-B | Income Tax Assessment Act 1997 section 102-5 | Australian Charities and Not-for-profits Commission Act 2012

Reasons for decision: Summary: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income and are also included in assessable income. Section 102-5 of the ITAA 1997 states that a person's assessable income includes any net capital gain for the income year. Sections 50-1 of the ITAA 1997 exempts from income tax the ordinary and statutory income of entities covered by the tables in subdivision 50-A of the ITAA 1997. Item 1.1 of section 50-5 of the ITAA 1997 includes a registered charity as an entity whose ordinary and statutory income is exempt. Subdivision 50-B of the ITAA 1997 sets out the rules about endorsement where entities will only be exempt from income tax if they are endorsed by the Commissioner. The Entity is an income tax exempt entity under item 1.1 of section 50-5 of the ITAA 1997 as a registered charity which was endorsed under subdivision 50-B of the ITAA 1997 for income tax exemption by the Commissioner. In addition, section 50-47 of the ITAA 1997 sets out a special condition that an entity is not exempt from income tax unless it is registered under the Australian Charities and Not-for-profits Commission Act 2012 . The Entity is registered as a charity under the Australian Charities and Not-for-profits Commission Act 2012 with the ACNC. Paragraphs 61 to 63 of Taxation Ruling TR 2011/4 Income tax and fringe benefits tax: charities states the Commissioner's view in relation to fundraising activities involving a commercial enterprise as follows: 61. However, commercial or business-like activities can be compatible with a charitable purpose. An institution undertaking commercial or business-like activities can be charitable if: • its sole purpose is charitable and it carries on a business or commercial enterprise to give effect to that charitable purpose. In these circumstances it does not matter that the activities themselves are not intrinsically charitable; • the sole purpose of the institution is charitable and the commercial activities directly carry out the charitable purpose; • it has a business or commercial purpose that is simply incidental or ancillary to its charitable purpose; or • its activities are intrinsically charitable but they are carried on in a commercial or business-like way. 62. An institution in these circumstances can hold passive investments to receive a market return to further its charitable purpose, or to meet reasonable operational expenses, without undermining its charitable status. 63. An institution carrying on a business or commercial enterprise will not be charitable simply because it is controlled by another institution that is charitable. It is the purpose of the entity itself which must be charitable. Therefore, any profits or gains derived by the Entity through fundraising activities which involve the buying and selling of assets will be exempt from assessable income tax during any period the Entity is an endorsed income tax exempt charity and registered under the Australian Charities and Not-for-profits Commission Act 2012 (or replacement arrangements when relevant). Neither the scale of fundraising activities e.g. whether single or multiple assets are sold over single or multiple years, nor the method of disposal of the assets e.g. sale, auction or raffle, will affect the exempt status of the income derived during any period the Entity is an endorsed income tax exempt charity and registered under the Australian Charities and Not-for-profits Commission Act 2012 (or replacement arrangements when relevant). NOTE: Any charitable activities undertaken by the Entity must conform to the aims and objects of the Entity's Constitution; must be for charitable purposes; and must not confer any private benefits or benefits to members of the Entity.