Edited version of private ruling

Authorisation Number: 1011828501316

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Ruling

Subject: Entity established for the purpose of promoting the development of Australian agricultural

Question 1

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

Answer

Yes

Facts

The entity was provided with a private ruling in 2003 The years to which the private ruling applied were:

Year ended 31 March 2005

Year ended 31 March 2006

Year ended 31 March 2007

The entity was subsequently issued with a private ruling in 2007. The years to which the ruling applied were:

Year ended 30 June 2007

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

On both occasions the entity received a favourable ruling.

The entity has now applied for a further private ruling. The entity has made the statement that:

Private ruling expires on 30/6/11. Business activities has not changed. The entity is seeking an extension of ruling. All its activities remain the same.

The following information was provided with the 2003 private ruling application:

The entity exists to assist a number of sugar cane farmers who supply cane to the local mill. All farmers who supply the mill are members. The entity is funded principally by a per hectare levy on cane land farmed by members. The levy is paid half each by farmers and the sugar mill. The Memorandum of Agreement between each farmer and the milling co-operative provides that members of the co-operative must be members of the entity.

Objects

A clause of the entity's constitution lists the Objects:

Object

The entity shall have for its object the destruction and prevention of all sugar cane pests and diseases and the furtherance of all aspects of increased crop productivity.

Non-profit

Other clauses indicate the entity's non-profit character

Non-profit

All income of the Board shall be solely applied to the object of the Board. No dividend or disbursement of funds or assets shall be made to any member of the Board except in the case of re-imbursement of goods and/or services supplied in the course of commercial activity.

Dissolution

…In the event of dissolution, any surplus funds or assets will be applied to the object of the Board, either through the winding down of operations, or by gift or transfer to another or other organisations with similar objects. Such organisation(s) must be approved by the Commissioner of Taxation as a fund, authority or institution referred to in section 23 of the Income Tax Assessment Act 1936. Under no circumstances shall there be any distribution of assets to members or former members.

Activities

A full-time supervisor is employed to carry out the entity's work. The main functions are to:

· Inspect the crop for pests and diseases - over 95% of the supervisor's time

· Provide a source of disease free seed - planted in an isolation plot.

Members are not required to purchase the entity's disease free seed (the seed is provided on a cost recovery basis)

· Advice to farmers - re pest and disease identification

The entity does not charge for the above services.

The services/goods of the entity are not available to non-members.

The only benefit received by committee members is a $XX fee per meeting (X meetings per year). Only farmer members receive the meeting fee. The chairman, secretary and treasurer positions are all honorary and do not include meeting fees.

Members receive public liability insurance coverage from the entity.

Reason for decision

Summary

The entity is exempt from income tax under section 50-1 of the ITAA 1997 on the basis that it is established for the purpose of promoting the development of Australian agricultural resources under item 8.2(a) of section 50-40 of the ITAA 1997.

Section 50-40 of the ITAA 1997 states that a 'society or association established for the purpose of promoting the development of any of the following Australian resources' will be exempt from income tax, subject to the fact that it is not carried on for the profit or gain of its individual members.

The items listed under item 8.2 include the following:

a) Agricultural resources;

b) Horticultural resources;

c) Industrial resources;

d) Manufacturing resources;

e) Pastoral resources;

f) Viticultural resources;

g) Aquacultural resources; and

h) Fishing resources

Detailed reasoning

In order for the entity to satisfy the requirements in item 8.2 of the table in Section 50-40 ITAA 1997 it must:

1. be a society or association;

2. be established for the dominant or principle purpose of promoting the development of an Australian resource as described in item 8.2 of the table in section 50-40 of the ITAA 1997; and

3. not carried on for the profit or gain of its individual members.

The above criteria will be considered in turn.

Society or association

The terms 'association' and 'society' are not defined in the ITAA 1997, therefore they should be interpreted according to their ordinary meaning. For the purposes of section 50-40 of the ITAA 1997, the terms 'society' and 'association' generally have the same meaning.

The Macquarie Dictionary defines 'association' as an organisation of people with a common purpose and having a formal structure', with 'society' considered to have an equivalent meaning (Pro-campo Ltd v Commr of Land Tax (NSW) 81 ATC 4270 at 4279; (1981) 12 ATR 26 at 35). An association may be incorporated or unincorporated.

The entity is an incorporated association, it's structure has not changed since its formation, and it is still considered to be "an organisation of people with a common purpose" with a "formal structure" who have come together to promote the development of Australian agricultural resources (sugar cane).

The Association satisfies the above requirement.

Australian resources

The use of the word "Australian" applied to resources in section 50-40 of the ITAA 1997 limits the exemption to associations whose activities are directed towards Australian resources.

The entity promotes the development of 'Australian" resources. For example, a clause of the constitution is concerned with 'the destruction and prevention of all sugar cane pests and diseases and the furtherance of all aspects of crop productivity'. This is supported by the entity's activities which are all applied to Australian resources, as outlined in the current and previous Private Ruling application form.

The entity states that it exists to support cane farmers who supply cane to a particular sugar mill.

Therefore, the Board satisfies this requirement as it intends to promote the development of "Australian" resources.

Promoting the development of Australian Resources

Australian agricultural resources

Taxation ruling IT 2415 Income tax: Associations promoting the development of Australian resources states the following on the meaning of 'development':

The term "development" must be taken to be used in a commercial or business sense, i.e. it comprehends all elements which must be taken into account to ensure that the specified resources are used in the best interests of Australia.

Taking into consideration the entity's primary activities, and the objectives contained in their constitution, it is apparent that they would most appropriately be described as 'promoting the development of Australian agricultural resources', as they are focused on the development of productivity improvements and disease control in the sugar cane industry.

In Cooperative Bulk Handling v. FCT [2010] FCA 508 the term 'agricultural resources' was found to include the means by which agricultural products are transported, stored and loaded and is not restricted to growing, harvesting and breeding activities.

Additionally, as per the decision in the Co-operative Bulk Handling case, the services provided by the entity are restricted to growing activities.

The promotion of development may be direct or indirect. Activities directly promoting the development of agricultural resources include research, education and training, development and monitoring of standards in agriculture, and introduction of new and improved processes. Activities that indirectly promote development include marketing, and participation in industry committees.

The objectives contained in the constitution promote the improvement in sugar cane production. Through these improvements the entity is improving the resilience of sugar crops in a manner that is beneficial to the resource in Australia.

Therefore, it is accepted that the entity directly promotes the development of agricultural resources in Australia.

Conclusion

The entity is exempt from income tax under item 8.2(a) of the table in section 50-40 of the ITAA 1997.

The rulings in the Register have been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict Tax Office policy or decisions.

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