Private ruling: Income Tax Exemption and deductible gift recipient status
Date of advice: 29 April 2016
Published: June 2016
Ruling period: 1 July 2015 to 30 June 2016 | 1 July 2016 to 30 June 2017
Date scheme commenced: 1 July 2015

Ruling: Q2: Will The entity maintain its status as a tax exempt entity under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) if it acquires all the units in a unit trust and all the shares in the trustee company, and amends the objects clause of its Constitution? | A1: Yes

Relevant facts and circumstances: The following information has been provided by the applicant: 1. The entity is a company limited by guarantee and is incorporated. 2. The principal objects and purposes of the entity are stated in its constitution. 3. The entity currently operates in some Australian states. 4. The services offered by the entity are principally designed to help people with various illnesses and other psychosocial disabilities. 5. The entity is a registered charity and public benevolent institution (PBI) with the Australian Charities and Not-for-profits Commission (ACNC). 6. At all material times since its establishment, the entity has maintained its status as a deductible gift recipient (DGR) covered by Item 1 of the table in section 30-15 of the Income Tax Assessment Act 1997 (ITAA97). The entity is also endorsed as a tax exempt entity under section 50-1 of the ITAA97. 7. For the purposes of further advancing and promoting its benevolent objects, the entity intends to purchase all the units in the unit trust and all the shares in the trustee company. 8. The unit trust operates in other areas of Australia. 10. The entity considers that the acquisition of all the units in the unit trust and all the shares in the trustee company will expand the scope of its benevolent activities by assisting people with various illnesses and psychosocial disabilities in more areas throughout Australia. 11. In order to encapsulate the broadened scope of the entity's activities when it acquires the units, the company intends to amend its Constitution. 12. The entity will continue its existing activities and operate the business currently operated by the unit trust in furtherance of its objects as stated in its Constitution. The extension of services into other regions will enable the entity to provide assistance to a greater number of people in the Australian community who suffer from various illnesses, psychosocial disabilities, physical impairments or other serious illnesses.

Relevant legislative provisions: Income Tax Assessment Act 1997 - Division 30 | Income Tax Assessment Act 1997 - section 30-120 | Income Tax Assessment Act 1997 - section 30-125 | Income Tax Assessment Act 1997 - section 50-1 | Income Tax Assessment Act 1997 - section 50-5 | Income Tax Assessment Act 1997 - section 50-110

Reasons for decision: Summary: The entity will maintain its status as a deductible gift recipient (DGR) if it acquires all the units in the unit trust and all the shares in the trustee company, and amends its Constitution? | Detailed Reasoning - Detailed reasoning: To be endorsed as a DGR under section 30-120 of the ITAA 1997, an entity must meet the requirements for endorsement in section 30-125 of the ITAA 1997. The entity must: • have an ABN • be a fund, authority or institution that is described in item 1, 2 or 4 of the table in section 30-15 of the ITAA 1997, and meet the special conditions of the item of the table in which it is described. • meet the requirements in subsection 30-125(6), which concern the transfer of surplus gifts and deductible contributions in circumstances where an entity is wound up or its endorsement as a DGR is revoked. | Detailed Reasoning - Application to your situation: The entity has an ABN. It is a 'registered public benevolent institution' in accordance with item 4.1.1 of the table in section 30-45, currently it is a 'registered public benevolent institution' as defined in section 995-1(1) of the ITAA1997: A registered public benevolent institution means an institution that is: (a) a registered charity; and (b) registered under the Australian Charities and Not-for-profits Commission Act 2012 as the subtype of entity mentioned in column 2 of item 14 of the table in subsection 25-5(5) of that Act. Entities described in item 4.1.1 have no special conditions. The entity's constitution contains a satisfactory winding up clause. The entity meets the requirements as specified in item 1 of the table in section 30-15 of the ITAA 1997. Providing the entity continues to be a 'registered public benevolent institution' with the ACNC the entity will satisfy the requirements for endorsement and will maintain its DGR status. | Summary: The entity will maintain its status as a tax exempt entity if it acquires all the units in the unit trust and all the shares in the trustee company, and amends its Constitution? | Detailed Reasoning - Detailed reasoning: To be endorsed as exempt from income tax under section 50-105 of the ITAA 1997, an entity must meet the requirements for endorsement under section 50-110 of the ITAA 1997. The entity must: • be an entity covered by item 1.1 of the table in section 50-5 of the ITAA 1997. That is, registered as a charity under the Australian Charities and Not-for-profits Commission Act 2012 (ACNCA 2012). • have an ABN • meet the 'special conditions' of item 1.1 of the table in section 50-5. The relevant special conditions are set out in section 50-50 of the ITAA 1997: Section 50-50(1) An entity covered by item1.1 is not exempt from income tax unless the entity: (a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia, or (b) is an institution that meets the description and requirements in item 1 of the of the table in section 30-15, or ... Section 50-50(2) The entity must: (a) comply with all substantive requirements in its governing rules; and (b) apply its income solely for the purpose for which the entity is established. | Detailed Reasoning - Application to your situation: The entity has an ABN and is registered as a charity with the ACNC. The entity conducts its activities in various states of Australia. It therefore has a physical presence in Australia. There is no evidence to suggest that it does not operate in accordance with its constitution, nor that it does not apply its income and assets solely for its purposes as stated in that constitution. As discussed in question 1, the entity is an entity that meets the description and requirements set out in item 1 of the table in section 30-15(1). Therefore the entity meets all the required conditions in section 50 and will maintain its endorsement as exempt from income tax. Providing the entity continues to be a registered charity with the ACNC as a public benevolent institution, the endorsement as an income tax exempt entity and deductible gift recipient will also continue to apply.

Will the entity maintain its status as a deductible gift recipient (DGR) for the purposes of Division 30 of the Income Tax Assessment Act 1997 (ITAA 1997) if it acquires all the units in a unit trust and all the shares in the trustee company, and amends the objects clause of its Constitution?