Private ruling: Intellectual Property
Published: November 2012

Ruling: The sale or licensing of intellectual property by the Foundation would not effect the Foundation's endorsement as a tax concession charity - charitable fund or deductible gift recipient - ancillary fund. | Reasons | Page 96 of the Income tax guide for non-profit organisation NAT 7967-03.2007 states that: | A charitable fund is a fund established under an instrument of trust or a will for charitable purposes. The purpose set out in the will or instrument of trust must be charitable. Charitable funds mainly manage trust property, and/or hold trust property to make distributions to other entities or people. In contrast, if the trustee mainly carries on activities that are charitable, the fund will be treated as a charitable institution and as a charitable fund. | Trustees are expected to invest the money of the trust fund only in a way in which trustees are permitted to invest under the laws of Australia or of any State or Territory of Australia and consistent with the Public Ancillary Fund guidelines. | Public Ancillary Fund Guidelines 2011 (the guidelines) make some reference to investments by public ancillary funds: | 30.The trustee must prepare and maintain a current investment strategy for the fund. | 34. The fund's investments must be made and maintained on an arm's length basis. | 40.The fund must not carry on a business. | Guidelines 30 to 32 of the explanatory statement for the Public Ancillary Fund Guidelines 2011 states that: | Trustees must prepare an investment strategy in relation to the fund's assets. The strategy aims to ensure the long term protection of the fund's philanthropic assets. Imposing an obligation to put in place an investment strategy avoids the need to impose inflexible and prescriptive investment limitations upon the fund. | The Foundation's investment strategy as set out in the trust deed is very broad. However, the income generated by the sale or licensing of its intellectual property would clearly benefit the Foundation without any perceivable risk to it, thus aiding the Foundation's charitable purpose. | The intellectual property will include a trademark and computer software. The intention is to use this intellectual property to generate income for the purpose of furthering the charitable purpose of the entity, either by its sale or license. | Sale of intellectual property | Page 51 of the Income tax guide for non-profit organisation states in one of the examples that a charity can hold income producing property where the income is used for a charitable purpose. | The trustee of the Foundation has the power under clause 5 of the trust deed to sell or otherwise dispose of property of the foundation. Therefore intellectual property, being property of the Foundation, may be sold where it benefits the charitable purpose. | The sale of intellectual property, by the Foundation would not contravene its powers, as long as the sale or license of the property was made at arms length. | Licensing of intellectual property | Given that the guidelines do not say otherwise, we are of the view that earning income from the licensing of intellectual property is akin to the rental income generated from a rental property, in that the intellectual property is generating an income stream. Earning income from a rental property is stated in the guidelines as being an appropriate investment by a fund. | Guideline 40 of the guidelines states that a fund must not carry on a business. However, 40.1 states that: | …… a fund does not contravene this guideline merely because its investment activities, because of repetition, volume and regularity, mean that it is *carrying on a *business. | In addition to this note 1 of guideline 40 states: | The guidelines state that the holding of investments, such as bonds, shares or rental properties, for the purpose of deriving income that can be distributed to deductible gift recipients is not subject to the carrying on a business restrictions. | Therefore, the Foundation would not under the guidelines be deemed to be involved in the carrying on of a business. | Charitable purpose | To be entitled for endorsement as an income tax exempt charity a charitable fund must be applied for the purposes for which it was established. If it is not being applied for those purposes it is not entitled to endorsement. | The sale or licensing of the intellectual property of the foundation for the purpose of acquiring funds to be used in the furtherance of its objects would not be inconsistent with its objects. | We are therefore of the view that the intellectual property is the legal property of the Foundation and that the trustee holds that property in trust for the Foundation.




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