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Ruling

Subject: Income Tax Exemption - Promotion of Tourism

Question

Whether the Company is a society or association established for the purpose of promoting the development of tourism pursuant to the provisions of item 8.1 of the table in section 50-40 of the Income Tax Assessment Act 1997.

Answer
Yes

This ruling applies for the following periods:

Income tax years ended 30 June 2012
Income tax years ended 30 June 2013
Income tax years ended 30 June 2014
Income tax years ended 30 June 2015

The scheme commences on:
1 September 2011

Relevant facts and circumstances

Preamble to the Company's constitution:

The Company was incorporated following extensive consultation with stakeholders from the tourism, hospitality and events industry (the Industry).
The primary focus of the company is the provision of policy, advocacy and representation services to businesses in the Industry. In addition, the Company will provide services and/or products to assist businesses in the Industry to be commercially sustainable, profitable and innovative.
The Company has been developed as a vehicle for bringing together businesses from all sectors of the Industry into a single peak body that has the capacity to provide robust, professional and strategic policy, advocacy, representation and services to all businesses in the Industry.
The Industry includes businesses that contribute to, engage with or provide products or services to tourism, hospitality or events businesses.

The Company is a public company limited by guarantee.

Objects clause:

The Objects for which the Company is established are:

(a) to secure for the Members all advantages of unity of action and to protect the interests of members in any lawful manner whatsoever on matters relating to the Industry;

(b) to effect a thorough organisation of the Industry in a manner that facilitates the achievement of the Objects;

(c) to affiliate, act with or engage with kindred organisations, associations or industry bodies that have an interest in the Industry with the purposes of expressing a collective opinion or view on any matter relating to the Industry;

(d) to promote and foster the consideration and free discussion of all matters and questions affecting the Industry either directly or indirectly;

(e) to act as the official expresser of opinions or views on any matter relating to the Industry;
(f to engage in activities to create an environment which is conducive to the development of businesses in the Industry that are vibrant, innovative and commercially sustainable;

(g) to raise issues of concern to its members with Local, State or Federal Governments, regulators, industry bodies or institutions particularly when policies affecting the Industry are being reviewed, developed, debated or implemented;

(h) to raise and maintain the profile of the Industry, its value, importance and position in the economy;

(i) to provide such services from time to time as may assist to improve the technical or business methods of members including confidential exchange of information supplied by Members for the benefit of Members;

(j) to encourage the study of all matters relating to the Industry with a view to instructing or teaching and to test by examination or otherwise the competency of persons, and to award certificates that denote verification of competence;

(k) to organise conferences, courses, or other activities that the Company may think desirable for the achievement of the Objects;

(I) to print and publish any newspapers, periodical, book or leaflet that the Company may think desirable for the achievement of the Objects;

(m) to acquire, purchase, lease or otherwise hold any land, building or other property real or intangible that the Company may think desirable for the achievement of the Objects;

(n) to sell, improve, maintain, manage, lease, mortgage, dispose of, turn to account or otherwise deal with all or any part of the property and rights of the Company;

(o) to raise and borrow money in such a manner and upon such security as the Company thinks fit;

(p) to invest and deal with the funds and moneys of the Company in such a manner or on such terms and conditions as may from time to time be determined by the Company to best achieve the Objects;

(q) to establish and or accept trusts having for their objects the welfare and benefit of any Member or business to enable the Company to more effectively achieve the Objects; and

(r) any other objectives ancillary to and not inconsistent with the above.

Non-profit requirements

Limitation of Company - clause 4.1:

The Company must not be operated for the purpose of the profit or gain of any individual Member.

Winding up provisions:

75. Rights of Members on winding up
If the Company is wound up or dissolved, the Members have no right to participate in any distribution or payment of the assets or property of the Company.

76. Distribution of assets
76.1 If the Company is wound up or dissolved, the assets and property available for distribution after satisfaction of all debts and liabilities shall be given or transferred to some other institution or institutions:
(a) which has objects similar to the Objects;

(b) whose constitution prohibits the distribution of its income and property to an extent at least as great as that imposed by clause 4.2(b); and

(c) which is an income tax exempt entity under the income Tax Assessment Act 1997 (Cth).
76.2 For the purposes of clause 76.1, the Board shall identify the institution or institutions at the time of dissolution.
76.3 If the Board fails to identify the institution or institutions under clause 76.1, the Supreme Court shall make that determination.

Tax payer contentions contained in application:

1. The taxpayer constitutes an exempt entity

It is our submission that the taxpayer is eligible for income tax exempt status on the basis that it is a society or association established for the purpose of promoting the development of tourism in accordance with item 8.1 in section 50-40 of the Income Tax Assessment Act 1997 (the Act).


We refer to the ATO publication 'Income tax guide for non-profit organisations' (NAT 7967) and submit that the taxpayer constitutes a Resource Development Organisation' as discussed on page 22 of this publication. The taxpayer constitutes a resource development organisation established for the purpose of promoting the development of tourism as it operates for the benefit of the tourism industry in general, rather than for individual members.


The primary focus of the taxpayer, as set out in the preamble of taxpayer's Constitution (a copy of which is enclosed), is the provision of policy, advocacy and representation services to businesses in the Industry (defined in the Constitution to mean the tourism, hospitality and events industry). In addition, the taxpayer provides services and/or products to assist businesses in the Industry to be commercially sustainable, profitable and innovative.

The taxpayer's objects, as set out in clause 6 of the taxpayer's Constitution include the following:


• to affiliate, act with or engage with kindred organisations, associations or industry bodies that have an interest in the Industry with the purposes of expressing a collective opinion or view on any matter relating to the Industry;

• to promote and foster the consideration and free discussion of all matters and questions affecting the Industry either directly or indirectly;

• to act as the official expresser of opinions or views on any matter relating to the Industry;

• to engage in activities to create an environment which is conducive to the development of businesses in the Industry that are vibrant, innovative and commercially sustainable;

• to raise issues of concern to its members with Local, State or Federal Governments, regulators, industry bodies or institutions particularly when policies affecting the Industry are being reviewed, developed, debated or implemented;

• to raise and maintain the profile of the Industry, its value, importance and position in the economy; and

• to encourage the study of all matters relating to the Industry with a view to instructing or teaching and to test by examination or otherwise the competency of persons, and to award certificates that denote verification of competence.


The taxpayer exists for the benefit of the tourism industry and its objects, preamble and activities reflect this. The other purposes of the taxpayer that relate to assistance for members are incidental, ancillary or secondary to the main purpose of the taxpayer, which is to promote the development of the tourism industry.

2. The taxpayer is note-for-profit


The taxpayer is not carried on for the purpose of profit or gain to its owners or members (refer to clause 4.1 of the taxpayer's Constitution). We also refer to clause 75 which provides that if the taxpayer is wound up or dissolved, the members have no right to participate in any distribution or payment of the assets or property of the taxpayer.


Further, under clause 76, upon the winding up or dissolution of the taxpayer, its assets and property must be transferred to an income tax exempt institution that has objects similar to the taxpayer and whose constitution prohibits the distribution of income and property to an extent at least as great as that imposed by subclause 4.2(b) of the taxpayer's Constitution. Accordingly, the members cannot receive distributions from the taxpayer.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 50-40, item 8.1(b).

Reasons for decision

Detailed reasoning

To satisfy the requirement of item 8.1(b) of the table in section 50-40, an entity must:

(1) be a non-profit association; and

(2) have a dominant or principal purpose of promoting the development of tourism.

Non-Profit Association

Non-profit requirement

The ATO publication, Income Tax Guide for Non Profit Organisations (ITGNPO) at page 6, states that:

The Tax Office accepts an organisation as non-profit where it's 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.

Paragraph 76 of Taxation Ruling TR 2005/21 states:

An organisation is not charitable if it is carried on for the purposes of profit or gain to particular persons including its owners or members. This is known as the non-profit requirement. If an organisation is carried on for the profit of its owners or members, it is carried on for their benefit and not for the benefit of the community. This is the case irrespective of the number of owners or members, or whether charitable consequences flow from the organisation's activities.

Clauses 4, 75 and 76 of the constitution, prevent the Company from distributing its profits or assets among members while it is operating or on it's winding up.

According to clause 63 of the constitution, membership of the Company is open to any enterprise activity engaged in the industry, and therefore it does not appear that membership will be limited to a select few. While the activities of the Company may have some benefit for members generally, there is nothing at this stage to indicate that membership will provide member benefits such that the non-profit requirement would be compromised.

The Company satisfy the non-profit requirement.

Association

The terms 'association' and 'society' are not defined and have their ordinary meaning.

An association may be incorporated or unincorporated. However, it does not include a body formed and controlled by government and performing functions on behalf of government (see Taxation Determination TD 95/56).

Paragraph 2 of TD 95/56 states:

…The Shorter Oxford Dictionary defines the term 'association' to be a 'body of persons associated for a common purpose; the organisation formed to effect their purpose'. The Macquarie Dictionary defines 'association' as being 'an organisation of people with a common purpose and having a formal structure'. Olsson J, in Quinton v. South Australian Psychological Board (1985) 38 SASR 523, also stated that the term 'association' has come to be regarded as attaching to a body of persons associated for a common purpose.

The Company is an incorporated entity brought into existence to pursue a common purpose as stated in its constitution. It is not a body controlled or formed by government or performing functions on behalf of government.

It is accepted that The Company is an association.

Dominant or principle purpose of promoting the development of tourism

Tourism

Tourism is not defined in the ITAA 1997. Page 22 of the Income tax guide to non-profit organisations provides that tourism has its ordinary meaning.

The Macquarie dictionary defines the term tourism as the practice of touring, especially for pleasure; the occupation of providing local services, as entertainment, lodging, food, etc., for tourists.

The Shorter Oxford English Dictionary defines the term to mean 'The theory and practice of touring; travelling for pleasure', and Butterworths Australian Legal Dictionary defines it to mean 'The practice of travel and associated activities for the primary purpose of recreation.'

Promotion of Development

Item 8.1(b) of the table in section 50-40 does not refer to the promotion of tourism. It is directed to the promotion of the development of tourism.

The ATO publication, Income tax guide to non-profit organisation, states that:

Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating co-operation, and similar activities.

Income Tax IT 2415 states:

The term 'development' is used in section 50-40 in a commercial or business sense. It comprehends all the elements which must be taken into account to ensure that the specified resources are best used.

Promoting the development may be direct or indirect. It need not be on a large scale or use commercial means. However, not all activities connected with a resource will necessarily be for its development.

For example, the development of agricultural resources might be directly promoted by research, experimental farms, control of pests, education in farming methods, or the introduction of new and improved classes of products. It might be indirectly promoted by improved marketing methods, cooperative buying and selling, solution of labour disputes, or ameliorative legislation.

Development of resources can be promoted by facilitating the cooperation of business and instrumentalities. Chambers of commerce and regional development bodies may help promote resource development in these ways.

As Taxation Ruling IT 2415 points out at paragraph 9:

Although the connection may not be as readily apparent the development of marketing techniques may also be relevant to the development of resources - it could be said that there is little point in developing resources if the products of the resources cannot be sold. Another area where the connection with development of resources may not be direct is the development of tourism - but it does play a part in the development of the resources specified in paragraph 23(h).

As the Tribunal pointed out in Case W49 at 89 ATC 474; 20 ATR 3602:

The enlargement of the market is one of the objectives of "promoting the development" of any relevant industry.

The objects of the Company as stated above are consistent with those necessary to promote the development of tourism.

Dominant Purpose

The Income tax guide for non-profit organisations states:

The purpose of the society, association or club must be promoting the development of the relevant resources…Any other purpose of the organisation must be incidental, ancillary or secondary to promoting development of the relevant resources.

This means that to be exempt under item 8.1(b) in the table of section 50-40 of the ITAA 1997, an association must be established principally or predominantly for the purpose of promoting the development of tourism.

It is not sufficient that one of an association's purposes falls within the provision nor is it sufficient that the development of tourism is incidental to, involved with, or a consequence of an association's purposes.

In Boating Industries Association of New South Wales v. FC of T 85 ATC 4224; (1985) 16 ATR 383 at 85 ATC 4228; 16 ATR 387-8, the taxpayer was the Boating Industries Association of N.S.W.

Its objects included the promotion of interests in safe boating and the organisation of and staging of exhibitions and demonstrations intended to arouse public interest in marine activities. The Association contended that it was a non profit organisation established for the purpose of promoting the development of manufacturing resources of Australia.

The Commissioner rejected the Association's contention and assessed it on income tax. The Association objected and the Commissioner disallowed the objection. The Association appealed.

In dismissing the appeal it was held that section 23(h) (now repealed and replaced with section 50-40) requires that the relevant organisation be "established" for the purpose stated, not merely "involved". It is the purpose of the establishment of the body that is crucial. In this case it was clear from the evidence that the taxpayer's principal activity was safe boating and not the promotion of Australian manufactured boats. Accordingly the taxpayer was not established for the purpose of promoting the development of manufacturing resources of Australia.

Object (g), which contains elements of lobbying, would not be considered to be for the promotion of tourism. However, this activity is considered incidental to the main objects of the Company. As long as this remains the case, it will not affect the dominant purpose.

The objects and activities of the Company indicate that it is concerned with advancing tourism in Australia. From the information provided, it is accepted that the Company's dominant purpose is to actively encourage and promote tourism in your State.

The Company satisfies this requirement as its dominant purpose is the promotion of tourism.

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