Senate

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 5 - Measures to address tax avoidance through tax exempt entities distributing funds offshore

Overview

5.1 The proposed amendments contained in the legislation will amend the Income Tax Assessment Act 1936 (the Act) to:

•

remove the exemption provided by subparagraph 23(j)(ii) for funds established by will or instrument of trust for public charitable purposes ('charitable trusts') that are located offshore;

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restrict the exemption provided to charitable trusts established in Australia by will or instrument of trust for public charitable purposes;

•

remove exemptions from income tax provided by paragraphs 23(e), (ea), (f), and (g) and subparagraph (j)(iii) for certain organisations which are located offshore;

•

remove the above exemptions from income tax provided by section 23 for those organisations who do not incur their expenditure and pursue their objectives principally in Australia; and

•

remove the exemption from non-resident interest, dividend and royalty withholding tax provided by paragraph 128B(3)(a) for certain organisations located offshore.

Summary of the amendments

Purpose of the amendments

5.2 The measures will address avoidance arrangements which take advantage of the tax exempt status of charitable trusts and close off the possibility of certain organisations which also currently enjoy an income tax exemption from being used for tax avoidance purposes. Additionally, they will prevent, in particular circumstances, the transfer of revenue from Australia to a foreign country where Australia foregoes its taxing right by providing an income tax exemption for the Australian source income of an offshore organisation but the organisation is not exempt from tax on this income in its home country. The proposed amendments will:

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amend subparagraph 23(j)(ii) so that charitable trusts will be required to meet additional eligibility criteria. A charitable trust falling within this category will be required to be established in Australia and incur its expenditure and pursue its charitable purposes solely in Australia if it is to retain its tax exempt status. Alternatively, it may distribute solely to an Australian charitable trust which, to the best of the trustee's knowledge, meets these conditions. In addition, if a charitable trust has tax deductibility status under the gift provisions of the income tax law (section 78), or distributes its funds solely to a charitable fund, foundation or institution with section 78 status it will automatically retain its exempt status; and

•

remove the income tax exemption under paragraphs 23(e), 23(ea), and 23(g) for certain organisations which are located offshore or where they have a physical presence in Australia and do not incur their expenditure and pursue their objectives principally in Australia;

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remove the income tax exemption provided for employer and trade union associations under paragraph 23(f) and scientific research funds under subparagraph 23(j)(iii) unless they are located in Australia and, respectively, pursue their objectives and, conduct their research principally in Australia; and

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remove the exemption from non-resident interest, dividend and royalty withholding tax provided by paragraph 128B(3)(a) for certain offshore organisations which currently fall within paragraphs 23(e), 23(ea), 23(f), 23(g) and 23(j) - (see paragraph 5.26 for details of organisations which fall within these paragraphs of section 23).

Date of effect

Charitable trusts

5.3 The charitable trust measures will apply from the commencement of a charitable trust's 1996-97 year of income (generally 1July 1996). Accordingly, distributions made by charitable trusts after the commencement of their 1996-97 year of income will need to meet the new requirements.

Affected organisations

5.4 Income derived by the organisations affected by the measures after the 1996-97 Budget announcement will no longer be exempt from Australian income tax. A liability to withholding tax will also arise in relation to payments of interest, dividends or royalties made to affected offshore organisations after the 1996-97 Budget announcement.

5.5 Organisations which lose their income tax exemption, will therefore, be subject to tax on all of their income including capital gains from the date that they lose their exemption. Specific provisions (Division 57 of Schedule 2D), which were inserted into the Act in 1996 to provide for transitional tax issues of previously exempt bodies becoming taxable will apply.

Background to the legislation

Charitable trusts

5.6 Subparagraph 23(j)(ii) exempts from income tax, funds established by will or instrument of trust for public charitable purposes ('charitable trusts') provided that the fund is being applied for the purpose for which it was established. The proposed legislation is designed to counter arrangements which exploit this provision and which circumvent the gift provisions in the Act (section 78).

5.7 The arrangements provide opportunities to shift tax exempt income offshore through the use of a charitable trust and purported charitable organisations located offshore. A number of the distributions made to these organisations are either retained overseas or returned to Australia for the benefit of the controllers of the charitable trust.

5.8 Section 78 provides a tax deduction for donations of money or property of $2 or more where the recipient is either specifically listed or falls within existing general categories under the section.

5.9 The section is generally directed towards donations made to institutions whose activities are confined to Australia. However, the concession is extended, under the 'Overseas Aid Gift Deduction Scheme' (OAGDS), to certain public funds which operate offshore. Although these public funds are established exclusively for the relief of persons in certified developing countries they must be established and administered in Australia. To qualify under OAGDS a fund must be approved by the Treasurer and the Minister for Foreign Affairs under subsection 78(21) to be an eligible fund.

5.10 At present, however, by using a charitable trust, taxpayers can make distributions to any offshore charitable organisation, whether or not it has been approved by the Australian Government, and thereby circumvent the gift provisions. The proposed legislation will ensure that only those overseas organisations which have been approved by the Australian Government can receive income tax concessions.

5.11 The arrangement mentioned in paragraph 5.7 is structured so that distributions are received by an Australian charitable trust as beneficiary of a family trading trust. Under trust law the beneficiary would normally be taxable on the trading profits instead of the trust itself. However, because the beneficiary is a charitable trust, no tax is paid on the trading profits at all. As the overseas 'charities' are not required to be approved by the Government or scrutinised by the Australian Taxation Office it is possible for the trading profits to escape Australian income tax completely even though the funds are not used for charitable purposes.

Charitable trusts established other than by will and charitable trusts established by will after 7:30 pm eastern standard time on 20 August 1996 (the 1996-97 Budget announcement)

5.12 The proposed legislation is designed to address the tax avoidance arrangements by prohibiting charitable trusts from making distributions to offshore organisations and from undertaking direct charitable activities offshore if the trust is to retain its tax exempt status. Flow chart 2 provides an explanation of this measure.

5.13 In performing its work a charitable trust often undertakes direct charitable activities, for example, purchasing and distributing food to persons in necessitous circumstances or providing scholarships to underprivileged but gifted children. Alternatively, a charitable trust may act as a conduit through which funds are distributed to other charitable organisations which undertake the direct charitable activities. To remain eligible for the exemption currently provided by subparagraph 23(j)(ii) charitable trusts will be required to meet additional eligibility criteria. A charitable trust falling within this category will be required to be established in Australia and:

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undertake any direct charitable activities in Australia;

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make any distributions to other charities located in Australia which undertake their activities solely in Australia; or

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make distributions to charitable funds, foundations or institutions with section 78 status.

5.14 If a charitable trust fails to comply with the new eligibility criteria at any time it will lose its exemption from income tax entirely and permanently. Consequently, any income derived by the trust will be assessed in accordance with the general trust provisions of the Act.

Charitable trusts established by will prior to the 1996-97 Budget announcement

5.15 The Government has decided to exclude charitable trusts established by will ('testamentary charitable trusts') prior to the 1996-97 Budget announcement from certain requirements imposed by the proposed legislation. The income and capital held by the trustees of these existing testamentary charitable trusts as at 20 February 1997 will not be subject to the new requirements and trustees will be permitted to continue to distribute these funds offshore without affecting a charitable trust's tax exempt status. Flowchart 3 provides an explanation of this measure.

The 'new trust'

5.16 In order to prevent testamentary trusts from being used as conduits in tax avoidance arrangements, settlements (for example trust distributions, funds or shares) received on or after 20 February1997 (the date of the release of this legislation in draft form) will be subject to the proposed new measures.

5.17 Where assets are received by way of settlements etc. on or after 20February1997 the proposed amendments will have the effect of separating the existing charitable trust into two notional trusts. Assets received on or after that date together with any income derived from those assets will be deemed to form part of the new notional trust, (referred to as the 'new' trust') for which separate accounting records will need to be kept.

5.18 The 'newtrust' will be governed by the existing trust deed and will generally be required to meet the same restrictions as non-testamentary charitable trusts and testamentary trusts established by will after the 1996-97 Budget announcement. To remain eligible for the income tax exemption the assets which constitute the 'new trust' must be used to:

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undertake any direct charitable activities in Australia;

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make any distributions to other charities located in Australia which undertake their activities solely in Australia; or

•

make distributions to charitable funds, foundations or institutions with section 78 status.

5.19 Because the 'new trust' will be subject to the existing trust deed it will not have to be established in Australia.

5.20 Where the 'new trust' fails, at any time, to comply with the new eligibility criteria it will lose its exemption from income tax entirely and permanently. Consequently, any income derived by the 'new trust' will be assessed in accordance with the general trust provisions of the Act.

The 'old trust'

5.21 Assets held by the charitable trust as at 20 February 1997 together with any income derived from those assets will be deemed to form part of a second and separate notional trust, (referred to as the 'old trust'). The 'old trust' will be governed by the existing trust deed and will be totally excluded from the new measures. Trustees will be permitted to distribute these funds offshore without affecting a charitable trust's tax exempt status.

5.22 It will also be necessary for trustees to maintain separate accounts in respect of the 'old trust'.

Affected offshore organisations

Removal of the income tax exemption

5.23 Section 23 provides an exemption from income tax for income derived from sources in Australia by a range of entities irrespective of whether these entities are located in Australia or offshore or whether their activities are undertaken in Australia or offshore. A similar exemption from non-resident interest, dividend and royalty withholding tax is provided by paragraph 128B(3)(a) where the non-resident entity is also exempt from income tax in the country in which it resides.

5.24 The Government has decided to remove these exemptions for these organisations if they are located or pursue their objects offshore in order to prevent:

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certain tax avoidance arrangements which could use these organisations to shift untaxed funds overseas; and

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a transfer of revenue from Australia to a foreign country where income is exempted in Australia but not in the organisation's country of residence.

5.25 The following provisions which currently provide the exemption will be amended:

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23(e) - income of a religious, scientific, charitable or public educational institution;

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23(ea) - the income of a public hospital, or of a non-profit hospital;

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23(f) - the income of a trade union or of an association of employers or employees relating to the settlement of industrial disputes;

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23(g) - the income of non-profit friendly societies, associations or clubs which are established for:

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musical purposes, or for the encouragement of music, art, science or literature;

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the encouragement or promotion of a game or sport;

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the encouragement or promotion of animal races; or

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community service purposes; and

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23(j) - the income of funds established by will or instrument of trust for public charitable purposes and of funds established for the purpose of enabling scientific research to be conducted by or in conjunction with a public university or public hospital.

5.26 To remain eligible for the exemption from income tax provided by the abovementioned provisions of section 23 it will be necessary for an organisation to meet an extended set of eligibility criteria. These criteria will differ depending on the type of organisation involved. Flowchart 4 provides an explanation of this measure.

Meaning of "in Australia"

5.27 The Bill provides that for an organisation to remain exempt it must generally have a 'physical presence' in Australia or in some cases be 'located' in Australia. These terms are not defined in the legislation and therefore take their ordinary or everyday meaning.

5.28 In the case of 'physical presence' a broad interpretation is to be adopted - all that is required is for an organisation to operate through a division, sub-division or the like in Australia. The structure of the organisation is immaterial as is whether it has its central management and control or principal place of residence in Australia. On the other hand, the term would not apply where an organisation merely operates through an agent based in Australia.

5.29 A much narrower meaning is intended in relation to the term 'located'. A mere physical prescence will not be sufficient to satisfy this requirement although it will not be necessary for an organisation to be a resident for income tax purposes. A separate centre of operations such as a branch would fall within the meaning of this term.

Trade unions, employer associations and scientific research funds

5.30 To remain eligible for the exemption from income tax provided by paragraph 23(f) it will be necessary for the organisation to be located in Australia and to incur its expenditure and pursue its objectives principally in Australia.

5.31 Similarly, in the case of scientific research funds falling within subparagraph 23(j)(iii) it will be necessary for the fund to be located in Australia and for the expenditure to be incurred and the research conducted principally in Australia. Alternatively, it may be a scientific research fund with section 78 status.

Offshore testamentary charitable trusts established by will before the 1996-97 Budget announcement

5.32 Testamentary charitable trusts established before the 1996-97 Budget announcement will not lose their income tax exemption in relation to income generated from investments held at the 1996-97 Budget announcement whether or not the trust has been established offshore.

5.33 As explained in paragraphs 5.16 to 5.20, however, assets received by these trusts on or after 20February1997 will be deemed to form part of the 'new trust 'and will be subject to the proposed measures outlined in those paragraphs. Accordingly, the exemption will only apply to the 'new trust' if the trustee complies with the new requirements.

5.34 The effect of the proposed amendments is that testamentary charitable trusts which operate offshore will lose their income tax exemption in relation to any income derived by the 'new trust' as they will be unable to comply with the new eligibility criteria.

Religious, scientific, charitable or public educational institutions, public and non-profit hospitals and non-profit cultural, sporting and friendly societies

5.35 An organisation which falls within paragraphs 23(e), 23(ea) or 23(g) which has a physical presence in Australia but which does not incur its expenditure and pursue its objectives principally in Australia will only remain eligible for the exemption from income tax if the organisation falls within section 78 (see paragraph 5.8).

5.36 An organisation which falls within the above paragraphs but which is located offshore can only be exempt from Australian tax on its Australian source income if it is exempt from income tax in the country in which it is located and is specifically prescribed by the Income Tax Regulations to be exempt.

5.37 In the case of a charitable or religious institution which falls within paragraph 23(e), and which has a physical presence in Australia it will also be possible to gain an exemption by being specifically prescribed in the Regulations.

5.38 These conditions recognise that there may be some organisations that fall within section 78 although they undertake activities offshore. It will also allow the Government to grant income tax exemptions, on a case by case basis, to paragraph 23(e), 23(ea) or 23(g) organisations located offshore or paragraph 23(e) charitable or religious institutions with a physical presence in Australia but which pursue their objectives offshore.

5.39 This regulation making process will allow Parliament the opportunity to fully scrutinise the organisation to determine whether it should receive the benefit of the exemption.

The 'Activity test' - gifts

5.40 Voluntary payments of money such as donations, tithes, plate money and the like or transfers of property from one person to another are generally not income in the hands of the recipient. Broadly speaking, these payments or transfers constitute a 'gift' where they are made without legal obligation, by way of benefaction and without any advantage of a material character being received in return. However, a payment or transfer of property may constitute income in the hands of the recipient notwithstanding that it is a gift.

5.41 The test as to whether a gift is income in the ordinary sense of the word is whether it is made in relation to some activity or occupation of the donee of an income producing character. Therefore, the character of the receipt in the hands of the recipient becomes the determinative issue in each particular case in deciding whether the 'gift' constitutes income.

5.42 Accordingly, gifts received by either Australian or offshore organisations which are not made in relation to some activity of the organisation of an income producing character will not constitute income in the hands of the organisation and will not be assessable.

5.43 These gifts will be disregarded when determining whether an organisation incurs its expenditure and pursues its objectives principally in Australia and, therefore, can be applied overseas without affecting an organisation's income tax exempt status. Government grants may also be applied offshore without affecting the tax exempt status of organisations. Flow chart 1 provides an explanation of this measure.

Removal of the non-resident withholding tax exemption

5.44 As with the exemptions from income tax, eligibility for the exemption from non-resident interest, dividend and royalty withholding tax will depend on the type of organisation involved.

Trade unions, employer associations and scientific research funds

5.45 Paragraph 128B(3)(a) will be amended to remove the exemption from non-resident interest, dividend and royalty withholding tax for organisations falling within paragraph 23(f) and subparagraph 23(j)(iii).

Offshore Testamentary charitable trusts established before the 1996-97 Budget announcement

5.46 Offshore testamentary charitable trusts established prior to the 1996-97 Budget which fall within subparagraph 23(j)(ii) will remain exempt from non-resident interest, dividend and royalty withholding tax in respect of any interest, dividend or royalty income derived from investments held at the 1996-97 Budget announcement.

5.47 As explained in paragraphs 5.16 to 5.20, however, assets received by these trusts on or after 20February1997 will be deemed to form part of the 'new trust 'and will be subject to the proposed measures outlined in those paragraphs.

5.48 The effect of the proposed amendments is that testamentary charitable trusts which operate offshore will also lose their non-resident interest, dividend and royalty withholding tax exemption in relation to any interest, dividend or royalty income derived by the 'new trust'.

Religious, scientific and public educational institutions, public and non-profit hospitals and non-profit cultural, sporting and friendly societies

5.49 In the case of paragraphs 23(e), 23(ea), and 23(g) the exemption will only be available for offshore organisations which can satisfy the new requirements. This is a complementary measure which will allow the Government to grant, in addition to an exemption from income tax, a non-resident withholding tax exemption.

Explanation of the amendments

Charitable trusts

Charitable trusts established other than by will and charitable trusts established by will after the 1996-97 Budget announcement

5.50 In order to restrict the exemption currently provided by subparagraph 23(j)(ii) in relation to these trusts the proposed amendments will insert new subparagraph 23(j)(iia). This new provision will limit the exemption to charitable trusts which meet the following additional requirements:

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the trust is established in Australia;

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the trust incurs, and has at all times since 20 August 1996 incurred, its expenditure principally in Australia and pursues, and has at all times since 20 August 1996, pursued its charitable purpose solely in Australia; or

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is a fund to which a gift by a taxpayer is an allowable deduction because it is referred to in a table in subsection 78(4) or is an ancillary fund as defined in subsection 78(5); or

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distributes solely, and has at all times since 20 August 1996 distributed solely, to a charitable fund, foundation or institution which, to the best of the trustee's knowledge:

(i)

is located in Australia and incurs its expenditure principally in Australia and pursues its objects solely in Australia; or

(ii)

is a charitable fund, foundation or institution to which a gift by a taxpayer is an allowable deduction because it is referred to in a table in subsection 78(4) or is an ancillary fund as defined in subsection 78(5). [Item 6]

5.

51 Failure to meet these requirements will result in the charitable trust losing its income tax exemption entirely and permanently. [Item 6]

Charitable trusts established by will prior to the 1996-97 Budget announcement

5.52 The income and capital held as at 20 February 1997 by trustees of testamentary charitable trusts, whether or not it is established in Australia, and any income derived from the investment of that income or capital will not be subject to the new requirements. Distributions of this income or capital overseas for charitable purposes will not affect the income tax exemption.

5.53 However, if assets (for example trust distributions, funds or shares) are received, other than in return for valuable consideration, by these testamentary trusts on or after 20February1997 new subsection 23AAAB(1) creates, for the purposes of new subparagraph 23(j)(iia), two separate notional trusts from the existing testamentary trust. These are referred to in the proposed legislation as the 'new trust' and the old trust'. [Items 5 and 8]

The 'new trust'

5.54 If a testamentary charitable trust established before the 1996-97 Budget announcement receives assets after 20 February 1997 (the date of the release of this legislation in draft form) those assets and any income derived from those assets will be deemed to form part of a separate notional trust called the 'new trust'. [Item 8 - new subsection 23AAAB(1)]

5.55 This 'new trust' must comply with new subparagraph 23(j)(iia) and its assets and any income derived from those assets must, subject to one exception, be used in accordance with the requirements of this provision. [Item 6]

5.56 The exception is contained in new subsection 23AAAB(2) which provides that new subparagraph 23(j)(iia) applies to the 'new trust' as if the words 'in Australia' were omitted from that provision This will allow testamentary charitable trusts established offshore prior to the 1996-97 Budget announcement to remain eligible for the income tax exemption in relation to the 'new trust' as long as they meet the other new requirements. [Item 8]

The 'old trust'

5.57 The 'old trust' will consist of assets which existed at 20 February 1997 including any income derived from those assets. [Item 8 - new subsection 23AAAB(1)]

5.58 As the 'old trust' is taken to have been created before the 1996-97 Budget announcement it will be subject to an amended subparagraph 23(j)(ii) and will, therefore, not be subject to the new eligibility criteria. Distributions of these assets overseas which are made in accordance with the trust deed will not affect the existing exemption. [Item 5]

5.59 Income derived after the 1996-97 Budget announcement from assets which existed at 20 February 1997 will also be subject to subparagraph 23(j)(ii) and excluded from the new requirements. [Item 8 -new subsection 23AAAB(1)]

5.60 Paragraph 23(j)(ii) will not require the 'old trust' to be established in Australia. [Item 5]

Affected offshore organisations

Removal of the income tax exemption

Trade unions, employer associations and scientific research funds

5.61 Item 3 will amend paragraph 23(f) to provide that the trade union or employer association must be located in Australia and incur its expenditure and pursue its objectives principally in Australia in order to be eligible for this exemption.

5.62 Similarly, subparagraph 23(j)(iii) will be amended to provide that the scientific research fund must be established for the purpose of enabling scientific research to be conducted principally in Australia by or in conjunction with a public university or public hospital located in Australia and where its expenditure is also incurred principally in Australia. Alternatively, it may be a scientific research fund with section 78 status. [Item 7]

Offshore testamentary charitable trusts established before the 1996-97 Budget announcement

5.63 Testamentary charitable trusts established offshore prior to the Budget announcement will retain their income tax exemption in relation to any income generated from investments held at 7:30 pm EST on 20 August 1996. [Item 5 - subparagraph 23(j)(ii)]

5.64 As explained in paragraphs 5.54 to 5.56, however, new subsection 23AAAB(1) will deem assets received by these trusts on or after 20February1997 to form part of the 'new trust ' which will be subject to new paragraph 23(j)(iia). Accordingly, the exemption will only apply to the 'new trust' if the trustee complies with the new requirements. [Items 6 and 8]

Religious, scientific, charitable or public educational institutions, public and non-profit hospitals and non-profit cultural, sporting and friendly societies

5.65 Paragraphs 23(e), 23(ea) and 23(g) are amended by Items 1, 2 and 4 to provide an extended set of eligibility criteria in relation to organisations falling within these provisions. These organisations will be eligible for the income tax exemption if they meet any of the following criteria:

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the organisation has a physical presence in Australia and that particular body in Australia incurs its expenditure and pursues its objects principally onshore; or

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the organisation falls within subsection 78(4); or

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if the organisation is located offshore;

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it is exempt from income tax in its country of residence; and

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has been prescribed by the Income Tax Regulations to be an exempt organisation.

5.66 In the case of charitable and religious institutions covered by paragraph 23(e) an exemption may also be granted by regulation, on a case by case basis, even if the organisation has a physical presence in Australia but does not incur its expenditure and pursues its objects onshore.

The "Activity test" - gifts

5.67 New section 23AAAA will be inserted in order to allow gifts and government grants to be applied overseas without affecting the income tax exempt status of organisations and funds falling within paragraphs 23(e), 23(ea), 23(f) and 23(g) and subparagraphs 23(j)(iia) and 23(j)(iii). This provision will allow gifts and government grants received by an organisation, fund or other body to be disregarded for the purpose of determining whether it incurs its expenditure and pursues its objects in Australia. [Item 8]

5.68 Where an organisation is not referred to in subsection 78(4) itself but operates a fund which is referred to in that subsection, distributions may also be made offshore from the fund itself without affecting the "activity test". The moneys of these funds are, therefore to be treated in exactly the same way as gifts and government grants distributed offshore. [Item 8 - new subsection 23AAAA(2)]

5.69 The legislation is silent about whether an institution has to monitor the source of the funds that it applies overseas - ie. whether they are obtained from income or from gifts. While it would be expected that an institution would have strict procedures in place to account separately for government grants and/or approved fund moneys under section 78, money is fungible and it loses its particular identity when combined with other money.

5.70 In these circumstances it would be reasonable to assume, that with the exception of government grants and section 78 fund moneys, money applied overseas would be applied firstly from "gifts" and that the "activity test" would only need to be applied if the total funds applied overseas exceeded the sum of the gifts and donations received.

Removal of the non-resident withholding tax exemption

5.71 Item 9 will omit the references to paragraphs 23(e), 23(ea), 23(f) 23(g), 23(h), 23(j) and 23(jb) from paragraph 128B(3)(a) and substitute paragraphs 23(e), 23(ea), 23(g), 23(h), 23(jb) and subparagraph 23(j)(ii). This drafting technique has the following effects.

Trade unions, employer associations and scientific research funds

5.72 The references to paragraphs 23(f) and 23(j) will be omitted from paragraph 128B(3)(a) thereby removing the exemption from non-resident interest, dividend and royalty withholding tax for trade unions, employer associations and scientific research funds. [Item 9]

Offshore testamentary charitable trusts established before the 1996-97 Budget announcement

5.73 A reference to subparagraph 23(j)(ii) will be inserted into paragraph 128B(3)(a). This will provide an exemption from non-resident interest, dividend and royalty withholding tax in respect of any interest, dividend or royalty income derived from investments held at the 1996-97 Budget announcement for these testamentary charitable trusts. [Item 9]

Religious, scientific and public educational institutions, public and non-profit hospitals and non-profit cultural, sporting and friendly societies

5.74 The exemption from non-resident interest, dividend and royalty withholding tax will be retained for organisations falling within 23(e), 23(ea), and 23(g). However, these organisations will need to satisfy the new and more stringent requirements of those provisions. This will reduce the number of organisations which will be eligible for this exemption. [Item 9; paragraphs 23(h) and 23(jb)]

5.75 There will be no effect on non-profit aviation, tourism, agricultural and manufacturing associations which promote the development of resources of Australia or foreign superannuation funds etc.

Record keeping

5.76 Where new subsection 23AAAB(1) creates a 'new trust' and an 'old trust', new subsection 262A(1C) will provide that the trustee must maintain separate accounting records in respect of each trust. [Item 10]

Application

5.77 The amendments to the charitable trust provisions made by item 6 apply in relation to income derived during the 1996-97 (generally 1 July 1996) and subsequent years of income. [Item 11]

5.78 The amendments made by items 1 to 4 and 7 to 10 apply in relation to income derived after 7:30 pm EST on 20 August 1996. [Item 11]

5.79 The amendments made by item 5 to subparagraph 23(j)(ii) will apply from Royal Assent.