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Section 275 of the Duties Act 1997 provides that duty is not chargeable on certain transactions relating to charitable or benevolent bodies. The exemption applies differently to 2 types of ‘exempt charitable or benevolent body’ as defined in section 275 (3).
Section 275 (3)(a) [formerly section 275(a)] applies generally to transactions entered into by societies or institutions for the relief of poverty or promotion of education. Section 275 (3)(b) [formerly section 275(b)] applies to a broader category of charitable or benevolent bodies, but is limited by reference to the purposes of the transaction or instrument or the use of the property, and those purposes or uses must be in accordance with guidelines approved by the Treasurer. In addition, section 275A provides a partial exemption for transactions relating to land used partly for exempt purposes.
This ruling replaces rulings DUT 006 and DUT 007, and gives general examples as to what societies or institutions might be considered to be of a charitable or benevolent nature, together with information as to what evidence is required when applying for exemption.
The ruling also outlines the guidelines currently approved by the Treasurer. In their application to the partial exemption under section 275A and instruments of trust over unidentified property or non-dutiable property, the guidelines have been applied to transactions effected or instruments executed on or after 15 December 2004. In their application to land rich acquisitions, they have been applied to transactions effected on or after 10 November 2004. In all other respects, the guidelines have been applied to transactions effected or instruments executed on or after 1 June 2004.
Sections 275 and 275A and the Treasurer's guidelines contain references to vendor duty and land rich disposal duty. As these duties were abolished for transactions on or after 2 August 2005, this ruling does not consider those duties.
Ruling
The following transactions or instruments are eligible for exemption.
Under Chapter 2 (Transactions concerning dutiable property):
a transfer of dutiable property to an exempt charitable or benevolent body
an agreement for the sale or transfer of dutiable property to an exempt charitable or benevolent body
a declaration of trust over dutiable property held or to be held on trust for an exempt charitable or benevolent body
an instrument that declares a trust over unidentified property or non-dutiable property held or to be held on trust for an exempt charitable or benevolent body.
Under Chapter 4A (Acquisition and disposal of interests in land rich landholders):
an acquisition of an interest in a land rich landholder by an exempt charitable or benevolent body.
Under Chapter 5 (Lease instruments):
a lease of dutiable property to an exempt charitable or benevolent body.
Under Chapter 7 (Mortgages):
a mortgage given by or on behalf of an exempt charitable or benevolent body.
Society or institution
The exemption applies to ‘any society or institution’, which can include a wide range of organisations with varying degrees of formal structure. A distinction can be drawn between the society or institution and the legal entity involved in the transaction. For example, a school that is an institution may purchase land by means of a transfer to a company acting as trustee for a trust established to operate the school. Such a transaction would be eligible for exemption.
An institution is an establishment, organisation or association, so that a trustee acting alone in exercising the powers conferred by the trust deed is not an institution [see Sargents Charitable Foundation v Chief Commissioner or State Revenue [2005] NSWSC 659]. However, a fund raised by public contributions and administered by trustees for specific charitable purposes could be an institution [see Stratton v Simpson (1970) 125 CLR 138], so that a purchase of land by trustees who are actively involved in administration of a charitable trust fund could be eligible for exemption if the trust fund is itself an ‘institution’. The public nature of the trust could be sufficient to characterise it as ‘an establishment, organisation or association’, as opposed to a private charitable trust. OSR will consider the following factors in determining whether a trust is a society or institution:
whether it is for a specific charitable object that requires the participation of persons other than the trustee, such as establishing a school or hospital (as opposed to general charitable purposes)
whether it has been established by an organisation or association, such as a community group or a recognised religion, (as opposed to a private donor)
whether it has been established by public fundraising (as opposed to private funds).
The applicant must be a non-profit organisation. That is, its rules should provide that its income is not distributed to its members by way of profit and that, on dissolution or winding up of the organisation, its assets would be distributed to another organisation with similar rules and objects.
Registered charities or organisations approved under other legislation relating to charitable purposes are not automatically eligible for exemption.
Paragraph (a) - Relief of poverty or promotion of education
To obtain the benefit of the exemption under paragraph (a), the applicant must provide evidence that:
its rules or objects include either the promotion of education in Australia or the relief of poverty in Australia or both of them; and
its resources are used wholly or predominantly on either or both of the promotion of education in Australia or the relief of poverty in Australia.
In determining whether the resources of the society or institution are being used predominantly for the promotion of education or relief of poverty, consideration will be given to any current or proposed transactions being undertaken by the body.
The exemption only applies to a society or organisation for the time being approved by the Chief Commissioner. The words ‘for the time being approved’ do not allow approval under paragraph (a) to be limited to a single transaction. The exemption is determined by the nature of the society or institution, and not by reference to the purposes for which that body enters into a particular transaction.
An approval will remain in force until withdrawn. However, an approval ceases to be in force upon any changes to the memorandum and articles of association or constitution of the organisation, unless the Chief Commissioner is notified of these changes immediately. The exempt status of the organisation will be reviewed, and the applicant will be advised whether the approval is to continue for the time being or is withdrawn. All approvals will be subject to periodic review, and may be withdrawn by the Chief Commissioner, by notice in writing, until such time as evidence is provided that the applicant remains eligible for approval.
An approval that is in force will apply to all transactions or instruments of the nature specified in paragraph 6 of this ruling. A copy of the notice of approval should be lodged whenever an instrument or statement is submitted for stamping. Approvals will have effect from the date of application, and will not be granted retrospectively. However, where approval is granted, any transaction or instrument upon which a liability to duty arose within 3 months prior to application for approval will be assessed on the basis that the society or institution was approved at the time of that liability.
Where approval under section 275 (3)(a) is granted, but application for exemption was made more than 3 months after the initial liability to duty arose, the specific transaction or instrument will be exempted under section 275 (3)(b). If approval is not granted under section 275 (3)(a), approval for the specific transaction or instrument will still be considered under section 275 (3)(b).
Paragraph (b) - Charitable or benevolent
The society or institution must be, in the opinion of the Chief Commissioner, of a charitable or benevolent nature, or have as its primary object the promotion of the interests of Aborigines. The wide scope of charitable purposes is evident in the case law, and OSR will generally follow the analysis in the Australian Taxation Office Taxation Ruling TR 2005/21. However, even if the society or institution is of a charitable or benevolent nature, the transaction, instrument or use of the property also must be for such charitable or benevolent purposes of the organisation as are approved. The following are purposes which may be approved in accordance with guidelines approved by the Treasurer:
the relief of poverty
the relief and prevention of sickness and disability
the relief of suffering and distress caused by old age
the promotion of education
the establishment of organisations to assist sections of the community with special needs
the relief of distress caused by natural disasters or sudden catastrophes.
The following additional guidelines apply:
The transaction for which exemption is claimed must relate to property to be used for the charitable or benevolent purposes of the organisation. It cannot be acquired for the purpose of being leased or sold for profit. (A transaction is not ineligible merely because the property is subject to an existing short term lease or a short term lease back to the vendor.)
Property acquired for use as the headquarters of an approved organisation will be eligible for exemption if the use of the property is part of continuing charitable or benevolent work.
A transaction by which property is donated will be eligible for exemption if it is to be used for approved purposes, or is to be sold and the proceeds applied to a specific proposal that is for approved purposes.
Property acquired by religious organisations must be used for approved charitable and benevolent purposes of the organisation and not for predominantly religious purposes.
Partial exemption under section 275A
Where the transaction or instrument relates to land (including the land holdings of a landholder in the case of a land rich transaction) used partially for approved purposes, the transaction may be eligible for a ‘partial’ exemption under section 275A. In effect, this is a reduction in the duty otherwise payable.
If the land is to be used partly for an approved purpose, duty is charged on a reduced amount. The relevant amount (the cost of the lease, the amount secured by the mortgage, the unencumbered value of the land holding or the dutiable value) is reduced by the proportion of that amount referable to the portion of the land to be used for approved purposes. For example, a transaction relating to land on which separate buildings are used as a church, residence and school would be subject to duty on the amount calculated by reducing the unencumbered value of all the dutiable property by the value of the portion used as a school.
This partial exemption does not apply to land used for approved and non-approved purposes at different times, such as a building used for religious and educational purposes at different times of the day. In such a case, exemption under section 275 will be determined according to the predominant use of the property. Similarly, where land is used only for a single purpose such as a nursing home or retirement village, eligibility for exemption will be determined according to the guidelines in paragraph 26 below, and partial exemption will not apply.
Other requirements under paragraph (b) or section 275A
An application for exemption under section 275 (3)(b) or partial exemption under section 275A may be made at any time up to 5 years after the initial assessment of duty.
Where the applicant organisation seeks exemption on the basis that, although the organisation is not, of itself, of a charitable or benevolent nature, the transaction is for rechannelling into charitable or benevolent purposes, the transaction will not be eligible for exemption. The property must be used directly by the applicant for the purpose of promoting whatever charitable or benevolent purpose is claimed.
The following are examples of institutions and purposes that may be approved:
The provision of accommodation for the sick, aged or infirm is an approved purpose. Private hospitals, retirement homes and nursing homes (including those operated by religious organisations) may still be approved for exemption even if financial restrictions are placed on entry and accommodation, provided that a ‘fair’ proportion of units or beds will be available for persons who do not have the financial capacity to pay the usual fees and charges.
Premises providing accommodation for the aged will be considered on the basis of how the right to live in such premises is acquired, such as a requirement to pay regular levies, or to assign pension payments. Consideration will be given to how reasonable the fees are as compared to the ability of an average member of the community to meet such a commitment. Premises where a condition of entry is a substantial initial contribution by way of premium or loan would not be approved for exemption if it could be concluded that financially disadvantaged persons would be excluded. What constitutes a ‘substantial’ initial contribution will vary with the prevailing economic conditions.
Property used as a school, hospital or sheltered workshop by organisations for the welfare of disabled or physically or mentally impaired persons is eligible for approval. Sheltered workshops are eligible even if there is some commercial activity. While such institutions are often subsidised by government, this is not a pre-requisite for exemption. Similarly, property used as a hostel, sheltered workshop or clothing and food centre by a community support enterprise for the poor and needy or homeless persons is eligible.
Property used by a private school for school purposes, including playing fields and classrooms, is eligible if entry is not restricted to a particular sector of the community. Non-profit making, community based pre-schools qualifying for government financial assistance are also eligible for approval. Halls used by Scouts, Guides, etc are also eligible.
The following are examples of institutions and purposes that may not be approved:
Although most religious bodies are charitable institutions, property used for churches, residences or religious activities (including religious instruction or religious education) are not used for approved purposes.
Sporting bodies or sporting institutions generally, including those conducting activities on the sporting periphery such as equine research projects, are not accepted as charitable or benevolent bodies.
The provision of accommodation, including holiday accommodation, paid for by the recipient is not an approved purpose unless for the provision of respite care.
The provision of lifestyle courses is not an approved purpose.
Applications for exemption1 should contain relevant supporting information, such as:
the instrument effecting or evidencing the transaction for which exemption is requested (a full photocopy may be submitted in the first instance);
a full copy of the rules, regulations and objectives of the applicant organisation;
full details as to how the property or borrowing in question will be used;
any promotional material associated with the project; and
any other information that might indicate that the purposes for which the property or borrowing will be used are of a charitable or benevolent nature or for the promotion of the interests of Aborigines.
