On 12 October 2011, the ATO released a new tax ruling TR 2011/4
setting out its views on the meaning of 'charitable' in the
context of determining whether the purpose of an organisation is
charitable, including the features distinguishing a charitable
institution and a charitable fund, and the circumstances in which
an institution or fund will be considered charitable.
This is important to existing charities as it brings alignment
between the tax ruling and current operations.
Operational implications for charities
TR 2011/4 is the final form of the draft ruling TR 2011/D2
released in May 2011 (see our update
here) and includes a compendium of the ATO's comments on
the issues raised in the submissions to TR 2011/D2.
The new tax ruling TR2011/4 can be accessed
here, and the compendium of comments can be accessed
The changes made by the ATO following public submissions clarify
some aspects of the draft ruling. Among the most significant points
for existing charities are:
Clarity that lobbying and advocacy activities of themselves do not
prejudice charitable status.
the advancement of education, relief of poverty and the
advancement of religion are presumed to be for the public benefit
unless shown otherwise.
Passive and accumulated investments
The holding of passive investments, for example reserves, to
receive a market return to meet reasonable operational expenses
does not undermine charitable status. In addition, a fund can
accumulate investment income and still be charitable, although the
ability to accumulate significant amounts or for extended periods
may not be constistent with a charitable purpose.
Commercial or business activities can be compatible with a
charitable purpose where those activities give effect to the
charitable purpose or if they are simply incidental to the
charitable purpose, or if they are charitable but carried out in a
Many charities will find that the new ruling, for the most part,
brings the ATO's position in line with their current
operations. This should reduce the compliance risk faced by
charities in relation to their charitable status.
The broader implication of the changes is that they recognise
the complexity of a charitable organisation and acknowledge that
effective delivery of charitable purposes requires a holistic
approach, which includes ensuring that the charity can, without
jeopardising its charitable status:
use its experience to address the underlying systemic issues of
its charitable purpose through advocacy and lobbying
tailor its capital structure to ensure that it is appropriate
for its charitable purposes and operational strategy and future
undertake activities not reliant upon external funding and
therefore increase sustainability and capacity building.
Gadens Lawyers is able to assist charities
reviewing their operational strategies to assess risks and to carry
out their activities with greater efficiency and
Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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