Edited version of private ruling

Authorisation Number: 1011476756585

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Ruling

Subject: Income tax exemption

Question:

Are you exempt from income tax in the years to which this ruling applies, pursuant to item 9.1(b) of section 50-45 of the Income Tax Assessment Act 1997 (ITAA 1997) as a society, association or club established for the encouragement of art?

Answer:

Yes.

Relevant facts and circumstances

The Club was established some time ago and is governed by its Rules.

Its objectives in the Rules are:

· To develop and promote photography in the community

· To assist members to become efficient in the use of photographic equipment

· To keep abreast of evolving technology through provision of workshops and education

Its Rules contains clauses that prohibit the distribution of profit and gain to its members when it is operating and when it winds up.

Its main activities are photo competitions, workshops, field trips and public exhibition of photos etc.

Reasons for Decision

Item 9.1(b) of section 50-45 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a society, association or club established as a cultural organisation for the encourage of art, literature or music is exempt from income tax provided that the society, association or club entity also satisfies the requirements of section 50-70 of the ITAA 1997.

The requirements that the entity must satisfy in order to be qualified as a cultural organisation are explained on page 15 of the Income tax guide for non-profit organisations (The Guide). In particular, the entity must:

· Be a non-profit society, association or club;

· be established for

· the encouragement of art, literature or music, or

· musical purposes

· not be a charity; and

· satisfy at least one of the three tests in section 50-70 of the ITAA 1997.

Requirement a)

The non-profit requirement is explained in page 6 of the Guide where a non-profit organisation is an entity which is not operating for the profit or gain of its members. It further states that the Tax Office accepts an organisation as being non-profit where its constituent documents contain clauses which prevent the distribution of profits or assets to members while the organisation is operating and upon its winding up.

Relevant clauses of the Rules contain appropriate non-profit and dissolution clause, therefore the Club is considered to be non-profit as helping members to use photographic equipment is considered incidental to its objects and activities.

The term society, association or club are not defined in the ITAA 1997, and accordingly, have their ordinary meanings. This issue was addressed In Douglas & Ors v. Federal Commissioner of Taxation 36 ATR 532; (1997) 77 FCR 112; 97 ATC 4722 which made reference to the definitions contained in the Concise Oxford Dictionary for each of these terms -

· society: association of persons united by a common aim or interest or principle

· association: organised body of persons for a joint purpose

· club: association or persons united for some interest, usually meeting periodically for shared activity

As stated in the Rules, The Club aims to promote photography in the community and assist members to have various photography experiences through the provision of workshops and education. As shown by the Club's activities, it operates for a group of people with the common interest in photography to get together to for meetings, workshops, field trips and exhibition. The Club's objectives and activities are very much the same as the definitions above, hence, is considered to be a society, association or club.

Requirement b)

To satisfy this condition, page 15 of the Guide states that an entity's main purpose must be for the encouragement of art, literature or music, therefore, any other purpose must be incidental, ancillary or secondary to these purposes. The words art, literature and music are not defined in the legislation and take their nature meaning. Encourage is defined by page 15 of the Guide to include training, performing, displaying, providing information, studying, judging and critiquing.

As stated in the Rules, the Club aims to develop and promote photography in the community through the provision of workshops and education. The Club achieve the objectives by providing services to people who are interested in photography such as regular meetings, workshops, field trips and public exhibition. Therefore, the Club is clearly an association established for the encouragement of photography.

The Macquarie Dictionary defines photography as:

"the process or art of producing images of objects on sensitised surfaces by the chemical action of light or of other forms of radiant energy, as X-rays, gamma rays, cosmic rays etc."

Therefore, the Club is considered to have been established for the encouragement of art.

Requirement c)

The Club will satisfy this requirement if it is not a charity. The Guide states that a charity is an entity which fulfils all of the following conditions:

· it is an institution or fund;

· it is non-profit

· it is established for the benefit of the public; and

· its sole purpose is charitable in nature

Page 34 of the Guide specifically states that many community organisations are not charities because it is primarily for sporting, recreational or social purposes. Page 39 further lists some non-charities examples which include camera clubs. Therefore, the Club is not considered to be a charity.

Requirement d)

Section 50-70 of the ITAA states that an entity is not exempt unless it is not carried on for the purposes of profit or gain of its individual members, and:

· It has a physical presence in Australia and, to that extent it pursues its objectives and incurs its expenditure principally in Australia; or

· It is a deductible gift recipient; or

· It is prescribed by law in the income tax regulations and it is located outside Australia and is exempt from income tax in its country of residence

The Club operates, pursues its objectives and incurs its expenditure in North Queensland. This requirement is satisfied.

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