ATO Updates Trust Deeds for Ancillary Funds

The Australian Tax Office has updated versions of its Private ancillary fund model trust deed and Public ancillary fund model trust deed.

The updated deeds replace the versions released on April 30, 2012 and apply from January 1, 2014.

The ATO says the deeds have been changed to update the definition of eligible entity, that is, the types of entity to which public and private ancillary funds can distribute.

The changes to the deeds result from the enactment of the Charities Act 2013 and Charities (Consequential Amendments and Transitional Provisions) Act 2013, which take effect from January 1, 2014.

Among other things, the Charities Act 2013:

• defines “charity” and “charitable purpose” for the purposes of all Commonwealth laws and allows charitable funds to retain their charitable status for the purposes of Commonwealth law where they provide benefits to an entity that would be a charity were it not a government entity. Examples are government owned public hospitals, public libraries and public art galleries.

The Charities (Consequential Amendments and Transitional Provisions) Act 2013 includes amendments to the tax law to remove the specific income tax exemption for endorsed non-charitable ancillary funds from January 1, 2014.

What are endorsed non-charitable ancillary funds?

These are funds that provide money, property and benefits to tax exempt deductible gift recipients (DGRs), whether or not the DGR is charitable. An example of a non-charitable DGR is a government controlled DGR.

These funds are currently endorsed by the ATO as income tax exempt funds (ITEFs).

The ATO says funds endorsed by us as ITEFs as at December 31, 2013 will be transitioned into the new arrangements as follows:

• the purpose of each fund will be treated as a charitable purpose;

• they will be automatically registered with the Australian Charities and Not-for-profits Commission (ACNC) as charities and endorsed by us to access income tax exemption as a charity from 1 January 2014;

• they will be provided with an opt-out provision, should they not wish to be a registered charity and income tax exempt.

The ATO says funds can continue to contribute to the same types of DGRs provided for in their trust deeds as at December 31, 2013, including if they have utilised powers in state trust law to contribute to DGRs that are not charities.

“These funds can continue to provide benefits to their current DGR beneficiaries until the fund ceases to meet the requirements that previously entitled it to endorsement as an ITEF,” it says.

Ancillary funds established on or after January 1, 2014, must apply for registration with the ACNC as a charity and be endorsed by us as income tax exempt as a registered charity.

Ancillary funds established on or after January 1, 2014 should ensure that the class of beneficiaries that they can provide money, property or benefits to is consistent with the relevant definition of 'eligible entity' in the new model trust deeds.

Ancillary funds should refer to the definition of “eligible entity” that applies to the state or territory law under which they are governed.