Draft Taxation Ruling TR 2005D6 Determining the purpose of a particular charitable institution or fu - PowerPoint PPT Presentation
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Draft Taxation Ruling TR 2005D6 Determining the purpose of a particular charitable institution or fu
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Title: Draft Taxation Ruling TR 2005D6 Determining the purpose of a particular charitable institution or fu
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Draft Taxation RulingTR 2005/D6Determining the
purpose of a particular charitable institution
or fund
- John Emerson
- 11 July 2005
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Overview
- TR 1999/D21 had only about 1000 words on this
issue - paras (103 to 116) - TR 2005/D6 contains over 3600 words (paras147 to
182)
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Overview (contd)
- Para 103 of D21
- for an institution to be a charitable
institution its sole or dominant purpose must be
charitable - Compare with para 147 of D6
- a charitable institutions purposes are wholly
and solely charitable
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Change of ATO view or simply change of language?
- In my view, in D6 the ATO is expressing in a more
user friendly way, the same principles it
outlined in D21. - D21 was indeed consistent with some judicial
statements regarding dominant purpose. But in
substance, the cases have generally required a
sole charitable purpose. - This has been the manner in which the ATO has
administered D21.
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Change of ATO view or simply change of language?
(contd)
- Misuse of language (ie, purpose v power) has
sometimes arisen due to the facts of particular
cases where, say, the constitution of an
institution includes in its purposes clause,
purposes that are not charitable. - When faced with this situation, judges have
understandably referred to the dominant purpose
in contrast to incidental or ancillary purposes.
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Change of ATO view or simply change of language?
(contd)
- Alternatively, courts have characterised the
non-charitable incidental or ancillary purpose
as powers by which the real purpose can be
achieved. - The difficulty with the wording in D21 was that
on a superficial reading, it could well construed
it as permitting a charity to have noncharitable
purposes.
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Change of ATO view or simply change of language?
(contd)
- Indeed, this appears to be a fair conclusion of
the requirement that a charitys sole or
dominant purpose must be charitable - And so
- - a body whose members carry on social welfare
work once a month for 6 hours but who meet as a
business networking group every week for one
hour or
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Change of ATO view or simply change of language?
(contd)
- - a body whose purposes are mainly animal
welfare but which also is a stamp collecting
club, - could well on its face be a charity.
- D6 makes it clear that this is not the case.
- Better approach from the publics viewpoint as
well as ATO officers and practitioners
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Drafting recommendations
- Adopt suggestion in footnote 171 of D6, namely,
clearly recognise the difference between an
object/purpose and a power, and separate the
objects clause from the powers clause. - Could introduce purposes clause with words like
The company / association / trust is
established for the public charitable purpose
of
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Drafting recommendations (contd)
- Confine the purposes to those currently intended
rather than adopt the drafting technique used
before the abolition of the ultra vires rule for
companies, of listing a wide range of purposes
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Drafting recommendations (contd)
- Be very careful to avoid including at the end the
purposes (or powers ) clause, the words commonly
used before the abolition of the ultra vires rule
for companies - The company may do all other things
considered by the directors to be incidental or
ancillary to attaining the above purposes.
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Drafting recommendations (contd)
- The reference to the subjective view of the
directors is unacceptable as the courts are
unable to find in these circumstances that the
purposes are in fact charitable the issue for
them is whether the directors consider them to be
charitable. And therefore the body will not be
charitable. - Omitting the words considered by the directors
to be would be sufficient.
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Drafting recommendations (contd)
- Could introduce powers clause with words like
- Solely for the purpose of carrying out the
above purposes, the company/association/ trust
may - ,,,,,
- And end the clause with words like
- and do all other things incidental or conducive
to so doing
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Drafting recommendations (contd)
- This approach is not only useful to identify the
real purposes of the entity from a taxation
perspective, but will assist those governing the
entity to identify, and differentiate, its
objects from its powers. - It also fits neatly with the gift fund
requirements in case of deductible gift
recipients (sec 30-125 of ITAA 97).
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