ATO Interpretative Decision
ATO ID 2002/931 (Withdrawn)
Income Tax
Income Tax Exempt Status - Association established for community service purposesFOI status: may be released
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This ATO Interpretative Decision is withdrawn from the database following the decision of the Full Federal Court in Commissioner of Taxation v. Wentworth District Capital Limited [2011] FCAFC 42. Refer to the Decision Impact Statement published on 12 August 2011 in relation to that 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 organisation, a community bank, exempt from income tax under sections 50-1 and 50-10 of the Income Tax Assessment Act 1997 ('ITAA 1997')?
Decision
No, the community bank is not exempt from income tax under sections 50-1 and 50-10 of the ITAA 1997.
Facts
The community bank is a company limited by guarantee. Its object, as outlined in its constituent document, is to enter into a management agreement with a major bank to manage a franchised office of the major bank and to conduct commercial banking.
The objects also state that any profits derived by the community bank from carrying on the management of, or conducting the business of, the banking franchise are to be used for such community purposes as the board of the community bank may decide.
The constitution of the community bank contains acceptable non-profit clauses and a dissolution clause which limits the distribution of any property remaining after payment of debts and liabilities to another non-profit institution or company having similar objects to the community bank.
Reasons for Decision
Sections 50-1 and 50-10 (item 2.1) of the ITAA 1997 provide that an organisation will be exempt from the payment of income tax if it is '...a society, association or club established for community service purposes (except political or lobbying purposes)...'. An applicant must also satisfy the special conditions described in section 50-70 of the ITAA 1997.
It is accepted that the community bank would be an association. It is also accepted that the community bank would satisfy the special conditions set out in section 50-70 of the ITAA 1997 as it has a physical presence in Australia and there is no evidence that the organisation is carried on for the profit or gain of its individual members.
The purpose for which an organisation is established can be determined by examining the objects present in the organisation's constituent documents and the manner in which these objects are carried out.
Despite the fact that the organisation's objects make reference to the distribution of profits for community purposes, it is arguable that the community bank's objects, as previously stated, disclose only one purpose - that is, the operation and management of a franchised outlet of the major bank. The intention to distribute profits for community service purposes is not considered to be a purpose. Even if it was found to be a purpose, it is not considered to be the sole or dominant purpose. The application of surplus from a commercial enterprise for a charitable purpose will not constitute the carrying out of a charitable purpose (Glebe Administration Board v Commr of Pay-roll Tax (NSW) (1987) 10 NSWLR 352; (1987) 87 ATC 4825; (1987) 19 ATR 297 - NSWCA. There is no evidence that the community bank is itself engaged in an altruistic activity.
It is considered that the community bank's dominant purpose is to operate and manage a franchised outlet. While there is a consequential benefit to the community, the common association of the members is to advance their common interest. Their motivation for participation could not be described as an unselfish regard for the needs of others.
Consequently, the community bank is not an association established for community service purposes under item 2.1 of section 50-10 of the ITAA 1997.
Date of decision: 21 August 2002Year of income: Year ended 30 June 1999 Year ended 30 June 2000 Year ended 30 June 2001
Legislative References:
Income Tax Assessment Act 1997
Section 50-1
Section 50-10
Section 50-70
Case References:
Royal Australasian College of Surgeons v. Federal Commissioner of
(1943) 68 CLR 436
(1943) 7 ATD 289
(1943) 2 AITR 490
(1987) 10 NSWLR 352
(1987) 87 ATC 4825
(1987) 19 ATR 297 - NSWCA
Related Public Rulings (including Determinations)
Taxation Determination TD 93/190
Keywords
Income tax general exemption
Community services organisations
Income tax exempt charities
Non profit associations & clubs
ISSN: 1445-2782
| Date: | Version: | |
| 21 August 2002 | Original statement | |
| You are here | 19 August 2011 | Archived |