Edited version of your private ruling

Authorisation Number: 1012398199563

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Income tax exemption

Question 1

Is the ordinary and statutory income of the Association exempt from income tax under Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

This ruling applies for the following periods:

Relevant income years

Relevant facts and circumstances

The Applicant made a submission in support of the application in a letter and included the following statements:

The association was formed by people from a certain part of a country to promote cultural and social activities for them. In due course they bought shares in a parcel of land in Australia and accumulated funds in a savings account from which they derive income and on which they pay income tax.

The Applicant attached the following documents in support of their application: Memorandum of Association and Articles of Association.

The Memorandum of Association includes the following pertinent clauses:

…

2. The objects for which the Association is established are:

(a) To promote and assist in any cultural and social activities for the benefit and advancement of the members of the Association and of persons born on the mainland of a country or descendants of any such persons.

(b) To provide premises for members of the Association to meet in for social purposes and the holding of meetings or otherwise.

(c) To hold lectures, dances and social engagements for the recreation of members of the Association and to raise funds to financially assist any necessitous, sick or incapacitated member or any person of a certain origin or descent as aforesaid.

(d) To assist and contribute to any fund wheresoever the same may be constituted having as its object the relief of distress or safeguarding the health of persons or their descendants from the mainland of a certain country.

(e) To subscribe to, become a member of and cooperate with any other club, association or organisation, whether incorporated or net, whose objects are altogether or in part similar to those of the Association, provided that the Association shall not subscribe to or support with its funds any club, association or organisation which does not prohibit the distribution of its income and property among its members to an extent at least as great as that imposed on the Association under or by virtue of Clause 3 of this Memorandum.

In a letter dated 3 December 2012 the following further information was provided:

1) the applicant is relying on Division 50(1) of the Income Tax Assessment Act 1997

2) the activities of the organisation are an occasional picnic and bus tour

3) details of activities are generally only distributed to members

4) no members receive any benefits

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 50

Reasons for decision

The income tax law under Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that certain types of clubs, societies and associations are exempt from paying income tax. For ordinary and statutory income of an organisation to be exempt from income tax under Division 50 that organisation must be an entity covered by the tables of exempt entities contained in subdivision 50-A. From the information provided about your organisation, it does not qualify as an exempt entity listed in this subdivision (also refer to the Tax Office publication Income tax guide for non-profit organisations for this list of income tax exempt entities available at ato.gov.au)

Of the exempt entities listed only s50-10 community service purposes and section 50-45 sports, culture, film and recreation, appear to have any relevance to the Association. These specific categories are considered in further detail below.

Summary

The Association is not exempt from income tax as a community service organisation pursuant to item 2.1 in the table in section 50-10 of the ITAA 1997. The Association is found to be primarily providing a social forum for people from a particular country.

Detailed reasoning

Is the Association exempt from income tax as a community service organisation pursuant to item 2.1 in the table in section 50-10 of the ITAA 1997?

For the Association to fall within item 2.1 of section 50-10 of the ITAA 1997, it needs to:

1. be a society, association or club;

2. be established for community service purposes and meet the special conditions of section 50-70

Society or association

The words 'society' and 'association' are not defined in the ITAA 1997. An association is a voluntary organisation having members associated together for a common or shared purpose (Douglas & Ors v FCT 97 ATC 4722). Society has an equivalent meaning (Pro-Campo v Commissioner of Land Tax (NSW) 81 ATC 4270). An association may be incorporated or unincorporated.

The Association was incorporated as a Company Limited by Guarantee. The Association is an organised body of members associated for a common purpose. It is accepted that the entity is an association.

Community service purposes

The Association needs to be established for community service purposes.

Taxation Determination TD 93/190 Income tax: what is the scope of the exemption from income tax provided by subparagraph 23(g)(v) of the Income Tax Assessment Act 1936, provides the ATO view on the circumstances under which a society, association or club is regarded as being established for community services purposes.

Paragraph 4 of TD 93/190 states that having altruistic purposes is an essential element of even the widest interpretation of community service purposes. Paragraph 5 of TD 93/190 states that a common association such as members advancing their common interests is not altruistic as it is considered that such an entity is formed for the purposes of its members.

The Association's purpose as stated in its objects is:

2. The objects for which the Association is established are:

(a) To promote and assist in any cultural and social activities for the benefit and advancement of the members of the Association and of persons born on the mainland of a country or descendants of any such persons.

(b) To provide premises for members of the Association to meet in for social purposes and the holding of meetings or otherwise.

(c) To hold lectures, dances and social engagements for the recreation of members of the Association and to raise funds to financially assist any necessitous, sick or incapacitated member or any person of a certain origin or descent as aforesaid.

(d) To assist and contribute to any fund wheresoever the same may be constituted having as its object the relief of distress or safeguarding the health of persons or their descendants from the mainland of a certain country.

(e) To subscribe to, become a member of and cooperate with any other club, association or organisation, whether incorporated or net, whose objects are altogether or in part similar to those of the Association, provided that the Association shall not subscribe to or support with its funds any club, association or organisation which does not prohibit the distribution of its income and property among its members to an extent at least as great as that imposed on the Association under or by virtue of Clause 3 of this Memorandum.

Accordingly, the Association's dominant purpose as drawn from its objects and described by the tax agent is to promote social activities and raise money. It is stated that its members do not receive any benefits.

TD 93/190 states in paragraphs 3, 4 and 5 that:

3.There are four heads of charitable purpose, one of which is other purposes beneficial to the community; but this is limited by the common law to those purposes which are also charitable within the meaning of the Statute, 43 Elizabeth, Ch. 4. The term 'community service purposes' has a broader meaning than other purposes beneficial to the community which are also charitable. The Explanatory Memorandum to subparagraph 23(g)(v) confirms that the words 'community service purposes' are to be given a wide interpretation. Those words extend to a range of altruistic purposes that are not otherwise charitable, such as promoting, providing or carrying out activities, facilities or projects for the benefit or welfare of the community or any members of the community who have a particular need by reason of youth, age, infirmity or disablement, poverty, or social or economic circumstances.

4. However, the provision does not give exemption from income tax to a broad range of organisations that are established within the community, but whose purposes are not of an altruistic nature. Altruistic purposes are an essential element of even the widest interpretation of 'community service purposes'.

5. It is not accepted that common association as such is altruistic. Neither the purposes of members, nor the purposes of their organisation, are altruistic merely because the members form a non-profit organisation to advance their common interests. Members who seek to advance their common interests are not therefore motivated by an unselfish regard for others, and neither is their organisation. It follows that an organisation established for the purposes of its members is not therefore established for community service purposes. Only when the purposes of the organisation are altruistic can they be community service purposes.

Paragraph 7 of TD 93/190 lists examples of organisations that are not considered to be exempt under this provision. Included in this list are clubs that provide a social forum for expatriates of a particular country.

It is not accepted that the Association's membership base is materially different from this example. It is not established for community services purposes because it advances the common interests of the members, i.e its purpose is not altruistic.

Therefore it is determined that the Association purpose falls within the example in paragraph 7 of TD 93/190.

Accordingly the Association is not exempt from income tax as a community service organisation pursuant to item 2.1 in the table in section 50-10 of ITAA 1997.

Issue 2

Does the Association (the Association) qualify as a society, association or club established for sports, culture, film and recreation and therefore exempt from income tax by virtue of item 9.1 or 9.2 of section 50-45 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

The Association is not exempt from income tax as a as a society, association or club established for sports, culture, film and recreation and therefore not exempt from income tax by virtue of item 9.1 or 9.2 of section organisation. The Association is found to be primarily providing a social forum for people from a particular country.

Detailed reasoning

To be considered under section 50-45 of the Act the entity must be:

a society, association or club established for the encouragement of:

(a) animal racing: or

(b) art: or

(c) a game or sport; or

(d) literature; or

(e) music

It must also meet the special conditions of section 50-70 as it relates to the Association being:

a) not be carried on for the purpose of profit or gain of its individual members; and

b) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia.

Society or association

The words 'society' and 'association' are not defined in the ITAA 1997. An association is a voluntary organisation having members associated together for a common or shared purpose (Douglas & Ors v FCT 97 ATC 4722). Society has an equivalent meaning (Pro-Campo v Commissioner of Land Tax (NSW) 81 ATC 4270). An association may be incorporated or unincorporated.

The Association was incorporated as a Company Limited by Guarantee. The Association is an organised body of members associated for a common purpose. It is accepted that the entity is an association.

Established for the encouragement of culture

To be eligible for exemption the Association's main purpose must be to encourage one of the items named in section 50-45 of the Act. In determining an organisation's main or dominant purpose, difficulties arise where the activities of the organisation do not accord entirely with its stated objects.

From the information provided by the applicant and the objects listed in the Memorandum the dominant purpose and activity of the Association has been to promote social activities and raise money, it is not to encourage, art, literature or music.

(3a) Non-profit

Clause 3 of the Association's Memorandum prevents the distribution of income and assets to its members while it is operating. Clause 6 of the Association's Memorandum and clause 57 of its Articles prevents the distribution of assets and property to its members upon winding up. On this basis, it is accepted that the Association is non-profit and satisfies the non-profit requirement.

(3b) In Australia

The Association is incorporated in a state and the information provided by the Applicant supports that the Association has a physical presence in Australia and undertakes its activities in predominantly in Australia. The 'in Australia' requirement is satisfied.

Summary

The Association is not exempt from income tax due to not meeting the requirements of the various types of exempt entities. The Association is not exempt from income tax under Division 50 of the ITAA 1997, it is therefore a taxable organisation and required to lodge tax returns.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).