Edited version of private ruling

Authorisation Number: 1011531613345

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Ruling

Subject: Promoting the Development of Industrial Resources

What this ruling is about:

Is the company exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a 'society or association established for the purpose of promoting the development of Australia's industrial resources' in accordance with item 8.2(c) of the table in section 50-40 of the ITAA 1997?

Ruling:

Yes

Year(s) of income or period(s) to which this ruling applies:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Commencement date of scheme:

1 July 2010

The scheme that is the subject of the ruling:

The company is a company limited by guarantee. Its constitution prohibits the distribution of income and property to its members in the course of its operations and when it winds up.

The company collects contributions by way of levy from participating members operating in an Australian industry in accordance with the terms of an agreement.

The company, in partnership with other funding bodies and after selection of projects, enters into contracts with researchers, on a merit selection process, for the conduct of research and development projects that are consistent with its objectives. The company makes payments of project fees and other expenses for the provision of projects.

The company disseminates project outcomes to its members and the public for purposes other than commercialisation. Any income, fees etc. received from commercialisation of the intellectual property generated as a result of projects funded by the company will be shared between the funding bodies in accordance with the terms of the funding contracts.

Relevant provisions:

Income Tax Assessment Act 1997 section 50-1.

Income Tax Assessment Act 1997 section 50-40.

Explanation: (This does not form part of the notice of private ruling)

The company applied for income tax exemption under item 8.2(c) in the table in section 50-40 of the ITAA 1997 which states:

50-40 Primary and secondary resources, and tourism
Item	Exempt entity	Special conditions
8.2	a society or association established for the purpose of promoting the development of any of the following Australian resources: …	not carried on for the profit or gain of its individual members
	(c) industrial resources; …

Accordingly to be exempt from income as an exempt entity under section 50-1 of the ITAA 1997, the Company must:

a) be a society, or association;

b) be established for promoting the development of Australian industrial resources; and

c) not be carried on for the profit or gain of its individual members.

Society or association

The company applied for income tax exemption pursuant with item 8.2(c) in the table in section 50-40 of the ITAA 1997 as 'a society or association established for the purpose of promoting the development of Australian resources'.

The company is an incorporated entity under the Corporation Act 2001 and has more than one member.

It is accepted as an 'association or society' for the purposes of the exemption provision.

Established for the purpose of promoting the development of Australian industrial resources

Taxation Ruling IT 2415 Income tax: association promoting development of Australian resources (IT 2415) states in paragraphs 6 to 8 that:

6. The operation of paragraph 23(h) was considered by the Supreme Court of New South Wales in Australian Insurance Association v. FCT, 79 ATC 4569 ; 10 ATR 333. … Furthermore, the Court concluded that the expression "industrial resources" in paragraph 23(h) refers to resources such as those of the building, mining, quarrying, shipping and transport industries - it does not extend to business or commercial resources or resources of the kind promoted by the Association.

7. The reasoning in the decision in the Australian Insurance Association case highlights the matters that need to be satisfied in any case before exemption under paragraph 23(h) applies:-

a) Promotion of the specified resources must be the predominant purpose for which a particular body is established.

b) The resources, the development of which is being promoted, must come within the umbrella of the specified resources.

8. It is important to note that paragraph 23(h) does not refer to the promotion of specified resources - it is directed to the promotion of the development of the specified resources. In the context of paragraph 23(h) the term "development" must be taken to be used in a commercial or business sense, i.e. it comprehends all the elements which must be taken into account to ensure that the specified resources are used in the best interests of Australia. Reference might usefully be made to the observations of the High Court in FCT v. Broken Hill Pty. Co. Ltd., 69 ATC 4029 ; 1 ATR 40 on the meaning of the term "development" in relation to the development of a mining property.

The resource for which development is being promoted comes within the meaning of industrial resources as described in IT 2415.

The company's constitution and the agreements which it has entered into indicate a dominant purpose of the development and implementation of projects to assist the development of technologies which will facilitate the enhanced use of the resource.

Through promoting research and/or projects that develop enhanced ways to use the resource the company endeavors to improve the marketability of the resource so that it is used in a manner that is in the best interests of Australia.

Therefore, the company's purpose is primarily to develop new and potential technologies from contributions received to maintain and improve the sustainability of the resource for consumption in the Australian industry and overseas markets. This as stated in paragraph 8 of IT 2415 comes within the meaning of promoting the development of a resource as required in item 8.2(c) in the table in section 50-40 of the ITAA 1997.

Accordingly it is accepted the Company meets the requirement of being established for a purpose of promoting the development of Australian industrial resources.

Not be carried on for the profit or gain of its individual members

The Income tax guide for non-profit organisations (NAT 07967) states at page 6:

The Tax Office accepts an organisation as non-profit where its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people - both while it is operating and when it winds up. These documents should contain acceptable clauses showing the organisation's non- profit character. The organisation's actions must be consistent with this requirement.

A non-profit organisation can still make a profit, but this profit must be used to carry out its purposes. …... the profits must not be distributed to owners, members or other private people.

There are two requirements in the statement of non-profit character above. First, the company's constituent documents must display a non-profit character. Second, the company's actions must be consistent with this non-profit character.

The constitution of the company includes acceptable clauses to prohibit the distribution of income and property to its member directly or indirectly during its operations and when it winds up.

The activities of the company and the terms of the research contracts and contributing agreement indicate that:

· outcomes of the research and development are readily available to the company for dissemination to members and other persons but only for non commercialisation purposes;

· no funds can be returned to its members who receive benefits primarily through the benefit to the industry as a whole; and

· the members do not choose the projects to be undertaken.

In Australian Insurance Association v. Federal Commissioner of Taxation 10 ATR 333;(1979) 41 FLR 256;79 ATC 4569 (Australian Insurance) Sheppard J concluded, at 79 ATC 4572; 10 ATR 336:

…many of the activities of the appellant have been concerned with the protection and furtherance, directly and indirectly, of the interests and businesses of its members, not in the sense of protecting or furthering the interests of any one of them but rather in the sense of protecting and furthering the interests of Australian insurance companies generally and as a whole…

And

The very nature of the appellant's undertaking is such that it must further the more selfish interests of its members by engaging in the various activities which it does. But that, in my opinion, is only a consequence of what it does and in any event itself leads to a situation pursuant to which the appellant's endeavours do have the overall effect of promoting the protection and furtherance of Australian insurance business.

While the company members will receive advantages through reports and intellectual property that result from the projects undertaken they will not have the right to commercialise the project outputs. Neither do they have exclusive rights to the project outputs. Further they do not choose the projects to be undertaken by the company.

The company's overall endeavour as determined from its constitution and the agreements provided is the promotion and development of projects that have the potential to enhance the use of the resource in Australia in order to aid the Australian industry as a whole.

As found in Australian Insurance while the activities that the company undertakes do further the interests of its members, it mainly furthers their interests as a consequence of what it does, by its activities in developing and implementing research projects into the production of technology, thereby increasing the acceptability of the resource and as a consequence furthering the market for the resource in Australia, not just for the members of the company but the Australian industry as a whole.

Accordingly the company is not set up to primarily promote the interests of its members rather to further the development of the industry as a whole in Australia.

It is concluded that the company's constituent documents and activities are consistent with the requirement that it is not carried on for the profit and gain of its individual members.

Conclusion

The company satisfies the criteria in item 8.2 (c) under section 50-40 of the ITAA 1997 and is therefore entitled to income tax exemption under section 50-1 of the ITAA 1997.

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