ATO Interpretative Decision

ATO ID 2005/348

Income tax

Issue

Is the taxpayer, an association of employees, an exempt entity that is a 'trade union' for the purposes of item 3.2 in the table in section 50-15 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The taxpayer, an association of employees, is an exempt entity that is a 'trade union' for the purposes of item 3.2 in the table in section 50-15 of the of the ITAA 1997 as it's main purpose is that of a 'trade union' according to the ordinary meaning of that term.

Facts

The taxpayer is an association of employees that has a range of objectives, including those traditionally associated with the term 'trade union'. This includes the protection and furtherance of employee member's interests in regard to wages, hours and working conditions.

The taxpayer's activities are in accordance with its stated objectives.

The taxpayer is located in Australia, incurs its expenditure, and pursues its objectives exclusively in Australia.

Reasons for Decision

By virtue of section 50-1 of the ITAA 1997, an entity that is a 'trade union' for the purposes of item 3.2 in the table in section 50-15 of the ITAA 1997 is exempt from income tax on the total of its ordinary income and statutory income providing it is located in Australia and incurs its expenditure and pursues its objectives principally in Australia.

'Trade union' is not defined for the purposes of the ITAA 1997. A number of case law judgements discuss the meaning of 'trade union' as it applied to section 23(f) of the Income Tax Assessment Act 1936, the predecessor to section 50-15 of the ITAA 1997. The judicial approach has been that of understanding the term in its ordinary sense and, beginning with Victorian Employers' Federation v. Federal Commissioner of Taxation (1957) 96 CLR 390; 11 ATD 266, it has been held that popular usage of the term 'trade union' conforms to its Oxford English Dictionary meaning:

An association of the workers in any trade or in allied trades for the protection and furtherance of their interests in regard to wages, hours, and conditions of labour, and for the provision, from their common funds, of pecuniary assistance to the members during strikes, sickness, unemployment, old age, etc. (The Oxford English Dictionary, Vol XI, (Oxford: OUP, 1989))

In Norseman Amalgamated Distress and Injustices Fund v. Commissioner of Taxation (1995) 56 FCR 512; (1995) 95 ATC 4227; (1995) 30 ATR 356, Justice Lee ruled that the first part of the Oxford English Dictionary meaning was predominant in that an association of employees may well administer a fund for the mutual aid and protection of its members in their time of need, but that association would not qualify as a 'trade union' unless:

the association of employees in question has been formed to deal with the employers of the members and for the protection and furtherance of the interests of members in respect of the conditions of their employment.

In Taxation Ruling TR 97/22, the Commissioner has indicated that one of the tests for eligibility of an entity for income tax exemption under a particular provision is that its main purpose must relate to the subject of the exemption provision. Where an entity conducts ancillary or incidental activities this would not of itself change what is regarded as the entity's main purpose. In that regard, Lockhart J in Cronulla Sutherland Leagues Club Limited v. FC of T (1990) 23 FCR 82; 90 ATC 4215 at 4225; (1990) 21 ATR 300 at 312 said:

It [the club] may have other objects or purposes which are merely incidental or ancillary thereto or which are secondary and even unrelated to the main object or purpose without disqualifying the body from the exemption.

However, if an entity is equally involved in other purposes, then that entity would not be eligible for exemption. As Lockhart J said at ATC 4225; ATR 312:

But if it has two co-ordinate objects, one of which is outside the exemption, the exemption cannot apply because it would be impossible to say that one object is the main or predominant object.

Taxation Ruling TR 97/22 also indicates the Commissioner's view that it is appropriate to take into account the activities of an organisation to support a conclusion that the organisation's main purpose is relevant to the subject of the exemption provision.

The taxpayer's stated objectives are similar to those described in the dictionary meaning of 'trade union' and whilst it has other objectives that are not of a kind specifically referred to in the dictionary meaning, those objectives are considered to be ancillary to the main objects or purpose of the taxpayer. Further, the taxpayer's activities support a conclusion that its main purpose is that of a trade union.

Accordingly, it is considered that the taxpayer, an association of employees, is an exempt entity that is a 'trade union' for the purposes of item 3.2 in the table in section 50-15 of the of the ITAA 1997.

Year of income:  Year ended 30 June 2006

Legislative References:
Income Tax Assessment Act 1997
   section 50-1
   section 50-15 item 3.2

Case References:
Victorian Employers' Federation v. Federal Commissioner of Taxation
   (1957) 96 CLR 390
   11 ATD 266

Related Public Rulings (including Determinations)
Taxation Ruling TR 97/22

Other References:
The Oxford English Dictionary Vol XI, (Oxford: OUP, 1989)

Keywords
Exempt entities
Trade unions & employee associations

Siebel/TDMS Reference Number:  4794453; 1-5RSHKUR

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  16 December 2005
Date reviewed:  2 April 2015

ISSN: 1445-2782