ATO Interpretative Decision

ATO ID 2002/808

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does CGT event A1 (section 104-10 of the Income Tax Assessment Act 1997 ('ITAA 1997')) happen when an unincorporated association incorporates under the Associations Incorporation Act 1981 (Qld) (AIA (Qld))?

Decision

Yes. CGT event A1 (section 104-10 of the ITAA 1997) happens because the newly incorporated association is not the same entity as the unincorporated association resulting in a change in the ownership (ie a disposal) of the assets from the unincorporated association to the incorporated association upon incorporation.

Facts

An unincorporated association, a club, converts to an incorporated association under the AIA (Qld). The club is not an exempt entity under Division 50 of the ITAA 1997.

Relevant provisions of the AIA (Qld) include:

14 Registration of association

(1)

.....

(2)

on registration -

(a)

the association is incorporated

(b)

the members of the association become members of the incorporated association; and

(c)

................

22 Property for an association

(1)

On incorporation of an association -

(a)

property held for the association or its objects, whether on trust or otherwise, becomes property of the incorporated association; and

(b)

the provisions of a trust that applied to the property immediately before incorporation continue to apply.

(2)

the operation of subsection (1)(a)-

(a)

does not affect a covenant, contract or liability that applied to the property before the association's incorporation; and

(b)

relieves a person who held the property for the association or its objects, whether on trust or otherwise, from -

(i)

liability or accountability for the property; or

(ii)

being bound to see to the application, distribution or appropriation of the property.

(3)

The Stamp Act 1894 does not apply to an action done or a thing created because of this section.

23 Transfer of other assets, rights and liabilities

(1)

On incorporation of the association, the association's assets, rights and liabilities become the incorporated association's assets, rights and liabilities.

24 Duty to notify registrar of titles of land or interest in land etc.

(1)

The secretary of an incorporated association must ask the registrar of titles,.............to record in the appropriate register land or an interest in land gained by the association because of its incorporation under this Act.

Reasons for Decision

An unincorporated association has no separate or distinct existence apart from its members. It is a voluntary combination of persons with some object or purpose in common (see Kibby v. Registrar of Titles and Another [1999] 1 VR 861; [1998] VSC 148). Hence, an unincorporated association is not an entity at general law.

By comparison, an incorporated association is a body corporate and is an entity at law. Ford H. A. J., 1990, Principles of Company Law, 5th edn, Butterworths, Australia, p. 3. cites the following description of a body corporate from Kyd's, Treatise on the law of corporations (1793) Vol 1 p 13:

'a collection of individuals, united in one body, under a special denomination, having perpetual succession under an artificial form, and vested, by the policy of the law, with a capacity of acting, in several respects, as an individual, particularly of taking and granting property, of contracting obligations, of suing and being sued; of enjoying privileges and immunities in common, and of exercising a variety of political rights, more or less extensive, according to the design of it's institution, or powers conferred upon it, either at the time of its creation, or at any subsequent period of its existence.'

For the purposes of the ITAA 1997, subsection 960-100(1) of the ITAA 1997 includes unincorporated associations and body corporates separately within the definition of 'entity'. They are also separately included within the definition of 'company' in section 995-1 of the ITAA 1997.

The fact that the unincorporated association is a 'company' for income tax purposes and, after incorporation, the incorporated association is also a 'company' for income tax purposes does not make them the same 'company' for the purposes of the ITAA 1997.

The legislation under which incorporation is effected (the AIA (Qld)) does not provide for the continuation of the same legal entity. These provisions merely provide for registration of the association (section 14 of the AIA (Qld)) and set out the effects of incorporation (sections 22, 23 and 24 of the AIA (Qld)). In particular, subsections 22(1), 23(1) and 24(1) of the AIA (Qld) indicate that property, assets, rights, land, etc, are transferred from the unincorporated association to the incorporated association.

A change of ownership (ie, a disposal) will happen on the transfer of the assets from the unincorporated association to the incorporated association. The provisions also contain an express override of the stamp duties legislation so that it does not apply to the transfer of property to the incorporated association (subsection 22(3) of the AIA (Qld)).

Therefore, as the incorporated association is not the same entity as the unincorporated association and there is a change in ownership of the assets upon incorporation, CGT event A1 (section 104-10 of the ITAA 1997) will happen to the assets of the unincorporated association on the conversion to an incorporated association.

Amendment History

Year of income:  Year ending 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 104-10
   section 960-100(1)
   section 995-1

Case References:
Kibby v. Register of Titles and Another
   [1999] 1 VR 861
   [1998] VSC 148

Related ATO Interpretative Decisions
ATO ID 2002/809
ATO ID 2003/254
ATO ID 2004/750 (Withdrawn)
ATO ID 2004/811
ATO ID 2010/72

Other References:
Ford H. A. J., 1990, Principles of Company Law, 5th edn, Butterworths, Australia
Kyd, Treatise on the Law of Corporations (1793)

Keywords
Association income
Capital gains
Capital gains tax
CGT event A1 - disposal of CGT asset
Companies
Non Profit companies

Siebel/TDMS Reference Number:  DW326429

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  22 August 2002
Date reviewed:  23 March 2017

ISSN: 1445-2782