ATO Interpretative Decision
ATO ID 2002/259 (Withdrawn)
Income Tax
Capital gain on asset owned by mutual associationFOI status: may be released
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This ATO ID is withdrawn as it is a straight application of the law and does not contain an interpretative decision.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the capital gain made on the sale of a property owned by an incorporated association disregarded under section 118-12 of the Income Tax Assessment Act 1997 (ITAA 1997) in circumstances where the principal of mutuality applies to any surplus accumulated by the association?
Decision
No. The capital gain is not disregarded under section 118-12 of the ITAA 1997.
Facts
An incorporated association owned, on behalf of its members, a property which had been purchased from the contributions made by the members.
The property was used and maintained solely as an administration centre to collect member subscriptions and to administer activities held for the benefit of members.
The property was sold and a capital gain was made.
The association is not an entity that is exempt from tax under any of the categories in Subdivision 50-A of the ITAA 1997.
Reasons for Decision
The principle of mutuality is a common law doctrine which recognises that one cannot make a profit out of oneself. As such, a person's income consists only of moneys derived from external sources. This was the basis of the decision in Bohemians Club v. Acting FC of T (1918) 24 CLR 334, where it was held that the surplus of subscriptions and contributions from club members over the expenditure of the club did not constitute income derived by the club. This view has been reaffirmed in many subsequent cases.
The principle of mutuality does not apply to a surplus that is derived from sources outside the contributors to the common fund such as interest from the investment of part of the fund (Revesby Credit Union C-Operative Ltd v. FC of T (1965) 112 CLR 564. Any surplus repaid to contributors must be a return of their contributions not a return on their contributions (Fletcher v. I T Comm (1971) 3 All ER 1185).
Section 118-12 of the ITAA 1997 provides that a capital gain or capital loss made from a CGT asset that is used solely to produce 'exempt income' is disregarded. 'Exempt income' is ordinary income or statutory income that is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law (section 6-20 of the ITAA 1997).
It has been established by the courts that mutual receipts are not income. If an amount is not income it cannot be 'exempt income'. This view is expressed in Taxation Determination TD 92/181.
On this basis, the property in question was not used to derive 'exempt income'. It follows that the capital gain made on the sale of the property used as the Association's administration centre is not disregarded under section 118-12 of the ITAA 1997.
Date of decision: 21 February 2002Year of income: Year ended 30 June 2001
Legislative References:
Income Tax Assessment Act 1997
section 118-12
section 6-20
Subdivision 50-A
Case References:
Bohemians Club v. Acting FC of T
(1918) 24 CLR 334
(1965) 112 CLR 564 Fletcher v. I T Comm
(1971) 3 All ER 1185
Related Public Rulings (including Determinations)
TD 92/181
Keywords
Capital gains tax
Mutuality principle
Exempt income
ISSN: 1445-2782
| Date: | Version: | |
| 21 February 2002 | Original statement | |
| You are here | 19 March 2010 | Archived |