Helen Kroger (Victoria, Liberal Party) Share this | Link to this | Hansard source

asked the Minister representing the Treasurer, upon notice, on 8 March 2012:

With reference to Schedule 8 of the Tax Laws Amendment (2011 Measures No. 7) Act 2012, which amends the Income Tax Assessment Act 1997, the Taxation Administration Act 1953 and the A New Tax System (Australian Business Number) Act 1999 to improve the integrity of public ancillary funds, and given that item 8.7 of Chapter 8 of the explanatory memorandum describes the nature of a public ancillary fund as follows: 'A fund is a public ancillary fund where: it is the intention of the promoters or founders that the public will be invited to contribute to the fund; the public, or a significant part of it, does in fact contribute to the fund; and the public participates in the administration of the fund (see Bray v FC of T 78 ATC 4179 (1978) 8 ATR 569). These requirements are intended to ensure that moneys and property donated to the fund, and which attract a taxation concession, are used for the purpose for which the fund has been granted DGR [Deductible Gift Recipient] status':

(1)   Should a perpetual public ancillary fund that has a substantial corpus comprised almost entirely of testamentary gifts surrender its DGR endorsement and be permitted to continue to pursue its public charitable purposes.

(2)   If a public ancillary fund has received some small donations from the public in the years of its existence and has made distributions far in excess of the funds so donated, on surrendering DGR endorsement, will the fund have no additional obligations to satisfy the Government that moneys received by way of tax deductible gifts from the public have been distributed appropriately.

Penny Wong (SA, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

The Treasurer has provided the following answer to the honourable senator's question:

(1)   A public ancillary fund is a trust fund eligible for deductible gift recipient (DGR) status set up for the sole purpose of regularly disbursing publicly donated funds to 'direct assistance' DGRs, for example, hospitals or homeless shelters.

A public ancillary fund must meet the following requirements:

- the purpose of providing money, property or benefits to 'direct assistance' DGRs; or

- the establishment of 'direct assistance' DGRs.

The constituent documents of a public ancillary fund must require that the capital (including testamentary gifts) and income of the fund and any moneys from the realisation of its assets, be applied exclusively for the purposes of applying money or benefits to 'direct assistance' DGRs.

A public ancillary fund is also required to have a dissolution clause which provides that on winding up of the fund, all assets remaining after the payment of debts and liabilities are transferred to another fund, authority or institution with DGR status.

The purpose of the requirement that a public ancillary fund only apply income or capital (including on winding up) to 'direct assistance' DGRs is so that money or assets of the fund from sources where tax concessions are available (such as tax deductible donations, income tax exemptions, franking credits or a CGT exemption for donated property that is a testamentary gift) cannot be applied for non-DGR purposes. To allow money or assets of the fund to be distributed to entities outside the DGR framework would allow these money or assets to be applied for purposes for which tax concessions are not intended.

The policy intent of DGR status is to encourage the provision of publicly valued goods and services with a broad public benefit that may not otherwise be provided in a functioning market. The tax concessions that are available to donors to entities with DGR status is in recognition of the valuable services these entities provide to the community.

It is thus not appropriate for a fund with DGR status to be permitted to change its status, for example, to a charitable trust that does not have advancing DGRs as its purpose. This is longstanding policy based on the need to protect the integrity of the DGR framework; prevent the purpose of the charitable fund that was gifted or left by will from being altered after the fact; and ensure the valuable tax concessions that are available to entities are used as authorised by Parliament.

For these reasons, donors and testators are made fully aware of the limitations and restrictions that apply to donations and testamentary gifts in advance of their decision to gift monies to those funds.

(2)    For the reasons outlined above, it is not appropriate to allow a public ancillary fund to change its form even though it has distributed more than the amount of publicly donated funds. Furthermore, it would require a trustee of a public ancillary fund to distinguish between various sources of funds, for example, from tax-concessional and non-tax-concessional sources. To require trustees of public ancillary funds to trace funds would impose a significant compliance burden on these funds. It also may lead to current trustees changing the fund in a manner not consistent with the intentions of the donor or deceased and thus also undermine the charitable law framework.