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Edited version of your private ruling
Authorisation Number: 1012469601761
Ruling
Subject: Income Tax Exemption under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) pursuant to section 50-45 of the ITAA 1997.
An Entity established for the encouragement of an activity specified in section 50-45 of the ITAA 1997.
Question 1
Is the entity exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a society, association or club established for the encouragement of a specified activity pursuant to item 9.1 in the table in section 50-45 of the ITAA 1997?
Answer
Yes. The entity is exempt from income tax under section 50-1 of the ITAA 1997 as a society, association or club established for the encouragement of a specified activity pursuant to item 9.1 in the table in section 50-45 of the ITAA 1997.
This ruling applies for the following periods:
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
The scheme commences on:
1 July 2012
Relevant facts and circumstances
This ruling is an application for an extension of a previous Private Ruling which stated that the entity was exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a society, association or club established for the encouragement of an activity specified in item 9.1 in the table in section 50-45 of the ITAA 1997. The Private Ruling also held that the entity meets the special conditions in paragraph 50-70(a) of the ITAA 1997.
The applicant states that the circumstances and facts have not changed since the previous private ruling. The organisation is not for profit, its object is to promote the specified activity in a State in Australia, and to that extent it has an agreement with the appropriate controlling body for the sole rights to manage the specified activities.
The applicant is exempt from income tax as an organisation established for the encouragement of the specified activities:
Facts as stated in previous Private Ruling applications.
The entity is a proprietary company limited by shares. It is governed by a Constitution.
The objects of the entity are stated at Clause 2.
The constitution stipulates that shares will not entitle the holder to any dividend or other distribution of profits. It also stipulates that shares will not entitle the holder to participate in any distribution of the assets of the Company upon winding up in excess of the paid up value of the shares.
To this end, the constitution also contains a suitable non-profit clause and dissolution clause.
Other Relevant Comments
The applicant entity has submitted a (draft) Service Agreement with the controlling body, whereby the controlling body will agree to provide funding to the entity.
· to cover costs associated with the establishment and incorporation of the entity.
· a non-repayable grant from a specified fund, to conduct the business of the entity.
· to cover the cost of employing suitably qualified persons such as the managing director and financial controller of the entity.
· as non-repayable grants or interest free loans as requested by the entity agreed between the parties.
Under the Service Agreement, the controlling body will provide the entity with the administrative facilities and services required in order to carry on its business for the advancement of the specified activity
Relevant legislative provisions
Income Tax Assessment Act 1997 section 50-1.
Income Tax Assessment Act 1997 section 50-45.
Income Tax Assessment Act 1997 section 50-70.
Taxation Administration Act 1953 section 359-25
Reasons for decision
An entity which has been established for the encouragement of an activity specified in item 9.1 in the table in section 50-45 of the ITAA 1997 is exempt from income tax pursuant to section 50-1 of the ITAA 1997.
Taxation Ruling TR 97/22 Income tax: exempt sporting clubs provides guidelines which could apply in determining if an entity satisfies item 9.1 in the table in section 50-45 of the ITAA 1997.
For an entity to comply with section 50-45 of the ITAA 1997 it needs to satisfy three tests:
· it cannot be carried on for the purposes of profit or gain to its individual members
· it must be for the encouragement of a specified activity
· that encouragement must be the club's main purpose.
Non-profit requirement:
The club must not be carried on for the purposes of profit or gain to its individual members.
The clubs constituent document must contain clauses that prevent it from distributing its profits or assets among members on a daily operational basis and on its winding up. This provision must also be reflected in its activities.
The company's constitution contains appropriate non profit and dissolution clauses. Its activities are consistent with its constitution.
The applicant entity meets the non-profit requirement.
Encouragement of specified activity as main purpose:
The Australian Taxation Office (ATO) publication Income tax guide for non-profit organisations (NAT 7967) provides general guidance for these types of organisations.
The applicant entity was established to manage certain identified rights of the specified activity in a State in Australia, by acting as a representative body for the clubs in that State that wish or intend to participate in the collective negotiation of identified arrangements.
The licence deeds give the entity the right to disseminate and provide certain identified needs relating to the specified activity. The applicant entity is able to coordinate and control the specified needs of all specified activities in the specified State.
By entering into the licence deed and specified agreements, the applicant has broadened the scope of the current operations and in turn provided more members of the public with the opportunity to connect with the specified activity events and to become familiar with the specified activity in general.
The primary object of the entity is for the encouragement and promotion of the specified activities in a specified State in Australia through the conduct of activities stated in its constitution.
The entity is established for the encouragement of the specified activity.
The applicant has stated that none of the circumstances have changed since the previous Private Ruling and on this basis the main purpose of the entity continues to be the encouragement of the specified activity.
Assumptions
It is assumed that the draft Service Agreement with the controlling body, as per the previous private ruling application, has been duly executed by both parties, is binding and remains unchanged.
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