Private ruling: Continuation of deductible gift recipient status
Published: June 2015
Ruling period: 1 July 20xx to 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Will X School Foundation Ltd continue its deductible gift recipient status under table item 2.1.13 of section 30-25 of the Income Tax Assessment Act 1997 ITAA 1997 despite including the Y Scholarship within its administration? | A1: Yes.

Relevant facts and circumstances: Endorsement as a deductible gift recipient: The X School Foundation Ltd (the Foundation) operates an approved scholarship fund, namely X School Foundation Scholarship Fund (the Fund). The Foundation received endorsement from the Tax Office as a deductible gift recipient in relation to the Fund under table item 2.1.13 of section 30-25 of the ITAA 1997 as per table item 1 of section 30-15 of the ITAA 1997. The Fund was established to provide scholarship by the X School (the School). Entry and scholarship applications are accepted from Australian citizens or permanent residents throughout Australia. In its application for the DGR status, the Foundation stated that the scholarships are offered for the purposes of promoting the recipient's education at the School, at primary and secondary level. Further it is stated that the scholarships are awarded on the basis of academic, music or general excellence achievement, to assist a student who is experiencing socio-economic disadvantage or hardship. The Y Scholarship: A former student of the School and their spouse (the sponsors) wish to endow a scholarship for children to attend the School. This will be an endowment to the Fund, managed by the Foundation, being known as the Y Scholarship (the Scholarship). The Scholarship will be directed to the fee schedule, to pay tuition fees for the scholarship holders. The Scholarship will be awarded to the recipients, beginning at year 7 or at a later year level as decided by the Headmaster until they graduate from year 12. If for any reason a recipient withdraws from the School prior to completion of year 12, the school will go through the relevant selection process to offer the Scholarship to another child. Once a recipient graduates from year 12, another Scholarship will be offered. Advertisement for the Scholarship: The Scholarship will be advertised in the media and on the School's website along with other scholarships offered by the School. The School will meet the costs of advertising the Scholarship, and any incidental expenses. Criteria for eligibility: The Scholarship will be means tested, and only available to applicant whose financial position would not otherwise allow their child to attend the School. The application must include details of annual income and details of any assets owned by the parents, inclusive of property, shares and other investments on a confidential basis and the Scholarship will continue notwithstanding the death of parent. At the discretion of the Headmaster, the Headmaster will determine the level of the Scholarship, based on financial need and where possible, the parent of the Scholarship recipient will contribute a percentage of the school fees. The Scholarship will only be available to applicants who are supported by a single parent. The Headmaster will determine the extent of enquiry appropriate to ascertain the applicant is of single parent status. The successful applicant must have exhibited a positive attitude to learning and be able and willing to enthusiastically participate in the life of the School. Administration of the Scholarship: The current Headmaster of the School or his successor, or successors in title, has the sole authority to award the Scholarship. Again, the Headmaster, in his absolute discretion and following an annual review, may terminate the Scholarship if the recipient does not fulfil the requirements of the Scholarship. The parent of the Scholarship holders will be required to advise the Headmaster of any changes to their status as a single parent and to update their financial information on an annual basis. If the circumstances of the parent have changed to the extent that the Scholarship holder no longer meets the criteria, the Headmaster may, at his discretion, withdraw the Scholarship in whole or in part. The sponsors reserve the right to recommend an applicant to the Foundation acknowledging, however, that the decision on application of the Scholarship is the sole discretion of the Headmaster based on the merit of the applications.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 30-25 | Income Tax Assessment Act 1997 section 30-37

Reasons for decision: Summary: Subsection 30-25(1) of the ITAA 1997 sets out the general categories of education recipients and includes at table item 2.1.13 a public fund that is established and maintained solely for providing money for scholarships, bursaries or prizes to which section 30-37 of the ITAA 1997 applies. Section 30-37 of the ITAA 1997 states as follows: For the purposes of item 2.1.13 of the table in Subsection 30-25(1), a scholarship, bursary or prizes is one to which this section applies if: (a) it may only be awarded to Australian citizens, or permanent residents of Australia, within the meaning of the Australian Citizenship Act 2007 ; and (b) it is open to individual or groups of individuals throughout a region of at least 200,000 people, or through at least an entire State or Territory; and (c) it promotes recipients' education in either or both of the following: (i) pre-school courses, primary courses, secondary courses or tertiary courses; (ii) educational institutions overseas, by way of study of a component of a course covered by subparagraph (i); and (d) it is awarded on merit or for reasons of equity. Table item 2.1.13 also includes a special condition that the public fund must be a registered charity or operated by a registered charity. In the present case, the Fund is administered by the Foundation which already received endorsement from the Tax Office as a deductible gift recipient. The Fund provides merit-based scholarships, bursaries, and prizes etc. to the primary and secondary students in different areas of excellence. The application is open to all Australian citizen or permanent resident. Similar to the scholarships administered by the Foundation, the Scholarship will be open to students of year 7 to 12 who are Australian citizen or permanent resident. Therefore it satisfies subsection 30-37(a) of the ITAA 1997. The sponsors of the Scholarship would like the Scholarship to be awarded to applicants from a single parent family who are financially struggling. Limiting the Scholarship to a particular class of the population is allowed under subsection 30-37(b) of the ITAA 1997 which includes "individual" or "groups of individuals" throughout a region of at least 200,000 people, or throughout at least an entire State or Territory. Single parent family at present covers a wide demography of the Australian society and would be beyond the 200,000 population mark as it is stated in this subsection. Subsection 30-37(c) of the ITAA 1997 is also satisfied for the proposed Scholarship as it is to be offered to secondary courses at the School. Subsection 30-37(d) of the ITAA 1997 is also met as the Scholarship is to be awarded on the basis of merit and who are of economically disadvantaged background with single parents. This limitation of the social and economic group does not make the award of the scholarship too narrow as to disqualify for endorsement. Example 11.23 of the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 3) Bill 2006 (the EM) provides as follows: A charitable fund is set up to provide scholarships to students from a remote area to attend higher education training. The scholarship is open to students in the rural areas of Western Australia, Northern Territory and South Australia. Eligibility is assessed against a set of criteria to determine the greatest level of need, including economic circumstances, distance from the nearest school and the student's academic ability. The public fund is eligible for endorsement under this category as it is open to a region of 200,000 people or more and its award is based on assessment against an objective set of criteria. However, the qualifying class must not be too narrow as to go beyond restricting eligibility to ensure the Scholarship is awarded on the basis of merit or equity. Example 11.30 of the EM provides such a situation where endorsement was not granted where scholarship is open to children whose parents are members of a nationwide club. Considering the above provisions of the legislation against the facts of the proposed Scholarship, it is clear that the Scholarship satisfies the requirements of section 30-37 of the ITAA 1997. The Scholarship will be administered by the Foundation along with other scholarships that the School offers. Although the sponsors might have some input in the selection of the applicants, it will be the sole discretion of the Headmaster in relation to final award of the Scholarship. The Headmaster will also review the continued eligibility of the Scholarship holder and will make decision at their sole discretion as to whether to continue the Scholarship or to cancel it in full or in part and to provide it to another student who will be more benefited by the financial assistance. Therefore, including the Scholarship within the administration of the Foundation will not take away the general purpose or character of the Foundation because the Scholarship's purpose and objectives are similar to the other scholarships of the Fund that the Foundation administers. The Scholarship also satisfies all the requirements of sections 30-37 and 30-25 of the ITAA 1997 on the basis of which the Foundation received its DGR status in the first place. In other words, it will be business as usual for the Foundation to include the management of the Scholarship. Accordingly, the Foundation will continue its deductible gift recipient status under table item 2.1.13 of section 30-25 of the ITAA 1997.