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Edited version of private ruling

Authorisation Number: 1011589190711

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Ruling

Subject: Income tax exempt status

1. Is the entity exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as an association established for the purpose of promoting the development of Australian resources falling under item 8.2 of section 50-40 of the ITAA 1997?

No.

2. Is the entity a rebatable employer pursuant to subsection 65J(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) on the basis that it is a non-profit society, or non-profit association, established for the purpose of promoting the development of agricultural, pastoral, horticultural, viticultural, aquacultural, fishing, manufacturing or industrial resources of Australia?

No.

This ruling applies for the following periods:

1 July 2009 to 30 June 2010

1 July 2010 to 30 June 2011

1 July 2011 to 30 June 2012

The scheme commences on:

Not applicable

Relevant facts and circumstances

The entity is established as a public company limited by guarantee.

Objects

The objects of the entity have been provided.

Membership

The entity has tripartite membership covering the primary industries, government and education sectors.

Non-profit

The constitution has been provided. The constitution states the company is a not-for-profit company.

Activities

The entity has provided a list of its activities

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 65J(1)

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 section 50-40

Reasons for decision

Question 1

Summary

The entity will be exempt from income tax if it is a non-profit association whose dominant purpose is the promotion and development of resources of Australia that fall under item 8.2 of section 50-40 of the ITAA 1997. Having regard to its purposes and activities it is considered that the entity is not promoting the development of the specified resources of Australia.

Detailed reasoning

Assessable income of an entity is exempt under section 50-1 of the ITAA 1997 where the entity falls within the following description contained in item 8.2 of section 50-40 of the ITAA 1997:

The exemption is subject to a special condition that the society or association is not carried on for the profit or gain of individual members.

The matters to be satisfied before this exemption applies are:

If the association fails to satisfy these requirements, its income will not be exempt under this provision.

Association

One of the requirements of section 50-40 of the ITAA 1997 is that the entity be a society or association.

The terms association and society are not defined and have their ordinary meaning. The Macquarie Dictionary defines association as an organisation of people with a common purpose and having a formal structure. Society has an equivalent meaning (Pro-campo Ltd v. Commr of Land Tax (NSW) 81 ATC 4270 at 4279; (1981) 12 ATR 26 at 35).

The entity takes on the structure of a company limited by guarantee. It is comprised of members who share a common purpose. Therefore, it is accepted that the entity is an association.

Non-profit and benefits to members

Section 50-40 of the ITAA 1997 requires that the association not be carried on for the purposes of profit or gain to its individual members. This is known as the non-profit requirement.

The ATO publication Income tax guide for non-profit organisations (NAT 7967-03.2007) on page 6 provides the following:

The entity's constitution contains appropriate clauses which show its non-profit character whilst operating and on winding up.

Furthermore, based on the purposes and activities of the entity it does not appear to be operating for the benefit of its individual members.

Principal or dominant purpose - promote development of resources of Australia

In order to obtain income tax exemption the entity must be established for the purpose of promoting the development of any of the following resources:

The entity's constitution indicates that its purposes relate to 'Primary Industries' which include agriculture, fisheries and forestry.

The resources under item 8.2 are not defined and so take on their ordinary meaning.

In the Macquarie Dictionary agriculture is defined as:

the cultivation of land, including crop-raising, forestry, stock-raising, etc.; farming.

Therefore, given that agriculture encompasses forestry it is accepted that the entity is concerned with industries whose resources fall under the umbrella of resources specified at item 8.2 of section 50-40 of the ITAA 1997, namely agricultural and fishing resources.

As outlined at paragraph 9 of IT 2415, the provision does not refer to the promotion of specified resources, it is directed to the promotion of the development of the specified resources. The term "development" must be taken to be used in a commercial or business sense, that is, it comprehends all the elements which must be taken to ensure that the specified resources are used in the best interests of Australia.

The promotion of development may be direct or indirect. IT 2415 demonstrates that promotion of development can be achieved indirectly with industry training committees (ITC's). As paragraph 5 of IT 2415 outlines, the objectives on an ITC include the identification of manpower training needs, the development and implementation of policies, plans and programs to systematically meet these needs and the promotion and improvement of systematic industry training for all levels of employment in their respective industry. One of the functions of an ITC is to promote and develop systematic training in its industry. Paragraph 9 of IT 2415 states that there can be little doubt that the identification of, and programmes to overcome, manpower needs and the establishment of systematic training schemes in a particular industry are necessary for the efficient operation of the industry - they are part and parcel of the development of the resources specified.

In relation this entity, the applicant's position is that promotion of the development of agricultural (and other) resources includes promotion which is performed indirectly through the encouragement and facilitation of education activities, similarly to an industry training committee.

It is clear that the purposes and activities of the entity are directed towards the promotion of the agricultural and fishing industries through the advancement of education in relation to these industries in primary and secondary schools in Australia. However, such purposes and activities cannot be likened to an industry training committee. An industry training committee identified manpower training needs within an industry. In this case the entity is not identifying and implementing policies in relation to training needs within the agricultural and fishing industry for employees of that industry. Its purposes and activities are directed to education outside of the industries to primary and secondary school children.

The education of primary and secondary school children in relation to agricultural and fisheries industries does not lead to the promotion or the development of agricultural and fisheries resources as the connection between improving their education and awareness of the industries and the benefits that it may provide these industries down the track if any of these children pursued careers within the industries is too remote.

Therefore, the entity is not considered to be established for the purpose of promoting the development of Australian agricultural and fisheries resources.

Question 2

Detailed reasoning

Subparagraph 65J(1)(l) of the FBTAA provides that a rebatable employer can be a non-profit society, or non-profit association, established for the purpose of promoting the development of agricultural, pastoral, horticultural, viticultural, aquacultural, fishing, manufacturing or industrial resources of Australia.

As outlined above, the entity is a non-profit association but it is not considered to be established for the purposes of promoting the development of Australian agricultural or fishing resources.

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