‘In Australia’ – What Does It Mean and How Does It Affect You?

The definition of “in Australia” could have a significant impact on whether a not for profit continues to qualify for DGR status, writes Mariana von Lucken from HLB Mann Judd Sydney.

The recent draft Taxation Ruling: the “in Australia” requirement for certain deductible gift recipients (DGR) and income tax exempt entities (TR 2018/D1) may have left some people scratching their heads.

After all, isn’t it obvious what “in Australia” means? And why is the tax ruling so important?

In fact, the definition of “in Australia” may have a significant impact on whether a not-for-profit or charitable organisation continues to qualify for DGR status.

When an entity registers with the Australian Charities and Not-for-profits Commission (ACNC) for charity/DGR status, it must show that it meets certain conditions.  

One of these is the “in Australia” condition. This is important in certain circumstances if you want to:

• be registered as a charity and not pay tax
• be registered as a DGR, meaning donations are tax deductible plus other benefits
• be able to get a refund of franking credits when you are a charity or DGR.

This condition must not only be met at registration time but continuously over the life of the charity/DGR. If it isn’t, then an entity may lose its charity/DGR status.

While it may seem that the definition of “in Australia” is obvious, clearly this is not the case as there has been a High Court Case in 2008 (Word Investments); announcements in the 2009/2010 federal budget to tighten up the requirements of “in Australia”; significant public consultation; a failed exposure draft legislation; and finally the ACNC and ATO dealing with this through an administrative response, one being the current tax ruling 2018/D1.

Evidently, the definition is not a straight forward as one might assume!

Anyone seeking to register a charity or DGR, or who manages a charity or DGR, should check with their adviser whether the draft Tax Ruling is relevant to them, as there are details which may impact their organisation and its status.  

At a most basic level, it is worthwhile checking what category the entity was registered as a charity/DGR. The ACNC and ABR look-up website will assist to a certain point, although in order to know specifically which category your charity is registered in, you need to either go to the paperwork or ask your advisor.

This information is required in order to check whether the “in Australia” condition is relevant for your organisation.

There are still some concerns about this ruling, and submissions have already been made by many interested parties. It’s a case of “wait and see” for the final ruling.

About the author: Mariana von Lucken is a partner, tax consulting at HLB Mann Judd Sydney.