Revised Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello MP)Chapter 10 Allow certain funds to obtain an Australian Business Number
Outline of chapter
10.1 Schedule 10 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and the A New Tax System (Australian Business Number) Act 1999 (ABN Act) to allow certain funds that raise money for other deductible gift recipients (DGRs), to obtain an Australian Business Number (ABN) so that those funds can be exempt from income tax and receive input tax credits for goods and services tax (GST) paid and other GST benefits.
Context of amendments
10.2 Division 30 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a tax deduction to taxpayers who make a gift or contribution to a fund, authority or institution which is a DGR, subject to some conditions.
10.3 Public ancillary funds and prescribed private funds are DGRs under Subdivision 30-A of the ITAA 1997. Section 50-20 of the ITAA 1997 provides an income tax exemption to non-charitable public ancillary funds and prescribed private funds which donate to DGRs that are income tax exempt, whether or not the DGR is a charity.
10.4 A public ancillary fund is a fund established and maintained solely for the purpose of providing money, property or benefits to other DGRs or for the establishment of DGRs.
10.5 A prescribed private fund is a trust fund established by businesses, families and individuals for philanthropic purposes to receive tax deductible donations to be used for similar purposes as a public ancillary fund. Prescribed private funds differ from public ancillary funds in that while they must meet all the criteria required of public ancillary funds, they may but are not required to seek contributions from the public. They must also be prescribed in the Income Tax Assessment Regulations 1997 .
10.6 As an integrity measure, for an entity to be a DGR and exempt from income tax it must be endorsed by the Commissioner of Taxation (Commissioner). Endorsement requires the entity to have an ABN.
10.7 To be eligible to receive an ABN an entity must carry on an 'enterprise' within the meaning of the GST and ABN Acts. The definition of 'enterprise' does not cover most public ancillary funds and prescribed private funds that are not charities. As a result, they are not entitled to have an ABN.
Summary of new law
10.8 Schedule 10 amends the definition of 'enterprise' in both the GST Act and the ABN Act so that non-charitable public ancillary funds and prescribed private funds can obtain an ABN and will, where applicable, be entitled to be endorsed as income tax exempt. This amendment will also ensure that the DGR status of non-charitable public ancillary funds and prescribed private funds is maintained and these entities can receive input tax credits for GST included in their acquisitions and importations.
10.9 As these entities will become DGRs for income tax purposes, they will also become gift-deductible entities for GST purposes and be able to access the GST concessions available to these entities.
Comparison of key features of new law and current law
| New law | Current law |
| Public ancillary funds and prescribed private funds can obtain an ABN even if they are not charitable, and where applicable, can obtain an income tax exemption, DGR status and claim input tax credits for GST purposes. | Public ancillary funds and prescribed private funds which are not charitable are not eligible for an ABN and are not eligible for an income tax exemption, DGR status and to claim input tax credits for GST purposes. |
Detailed explanation of new law
10.10 Prescribed private funds and public ancillary funds are funds established for the purposes of providing money, property or benefits to other DGRs. The ITAA 1997 allows public ancillary funds and prescribed private funds to be endorsed as income tax exempt if they are charitable funds. This requires that these funds distribute money, property and benefits only to DGRs that are endorsed by the Commissioner as charities.
10.11 However, not all DGRs are endorsed as charities, and some DGRs, such as public ambulance services and research authorities, are income tax exempt but not charities. It is a well-established principle of the existing common law that a government body is not a charitable institution simply because it is performing a government responsibility.
10.12 Public ancillary funds and prescribed private funds that are not charitable because they distribute to non-charitable DGRs do not meet the definition of 'enterprise' and are therefore not entitled to have an ABN. This amendment allows the trustees of public ancillary funds and prescribed private funds to obtain an ABN regardless of their charitable status, by expanding the definition of an 'enterprise' in the GST and ABN Acts. The amendment to the GST Act will enable non-charitable public ancillary funds and prescribed private funds to register for GST purposes and therefore claim input tax credits. [Schedule 10, items 1 and 3, paragraph 38(1)(h) of the ABN Act and paragraph 9-20(1)(h) of the GST Act]
10.13 This amendment to the GST Act, in conjunction with the amendment to the ABN Act, will enable non-charitable public ancillary funds and prescribed private funds to qualify as DGRs and fully access the GST concessions which are available to all gift-deductible entities, regardless of whether or not they are charities. These concessions include: GST-free status for certain supplies for nominal consideration; GST-free status for certain sales of donated second hand goods; GST-free status for raffles and bingo; and the availability of input tax credits for reimbursements made to volunteers. Furthermore, input tax credit adjustments will not be required where an item acquired is gifted. Distributions from a trust that is a member of a GST group to a public ancillary fund or prescribed private fund will not cause the trust to lose its status as a member of the GST group.
10.14 Since these funds were effectively input taxed under the current GST law, some of these benefits and others were already available to non-charitable public ancillary funds and prescribed private funds. However, these amendments will allow these funds to be able to enjoy the benefit of all GST concessions for DGRs on a similar basis to charitable funds.
Application and transitional provisions
10.15 These amendments apply from 1 July 2005 to align with the commencement of section 50-20 of the ITAA 1997. [Schedule 10, item 5]
10.16 Taxpayers and DGRs will not be worse-off as a result of these amendments and will benefit from being able to take advantage of the concessions in section 50-20 of the ITAA 1997.
Consequential amendments
10.17 Both the ABN and the GST Act will also be amended to ensure that the changes to the definition of 'enterprise' will not be excluded by the provisions in both Acts, which outline the exclusions to the definition of 'enterprise'. [Schedule 10, items 2 and 4, paragraph 38(2)(c) of the ABN Act and paragraph 9-20(2)(c) of the GST Act]