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Edited version of your private ruling
Authorisation Number: 1012563182010
Ruling
Subject: Mutuality Principle
Question 1
Is the income earned by the Shop subject to the mutuality principle or is it assessable income?
Answer
The income earned is assessable income.
Question 2
If the income of the shop is subject to the mutuality principle, does a separate survey need to be conducted for this business or can we use the percentage of non member income calculated at the club?
Answer
Not applicable, the income earned is assessable income and not subject to the mutuality principle.
This ruling applies for the following period:
1 January 2013 to 30 June 2013
The scheme commences on
1 January 2013
Relevant facts and circumstances
The Club is not exempt for income tax purposes. However the Club receives income from members and non members and the tax return is completed every year using the mutuality principle.
The Club has a shop in town. From the general public's perspective, this is not part of the Club. It is simply a venture that the Club has funded to create such a facility in town. It does not operate as part of the Club. It is located some distance from the Club. The profits earned by the shop go back to the Club.
Reasons for decision
Question 1
The principle of mutuality is a common law doctrine which recognises that one cannot make a profit out of oneself.
Taxation Determination TD 1999/38 states at paragraph two and three:
2. The principle of mutuality is based on the proposition that a taxpayer cannot derive income from itself. Generally, under this proposition, income derived by a registered/licensed club from its members is not treated as assessable income for taxation purposes.
3. Conversely, income derived from 'external sources', i.e., from sources other than members, is not mutual income and is therefore not subject to the principle of mutuality. Accordingly, such income is fully assessable.
Our guide for taxable non-profit organisations - Mutuality and taxable income (NAT 73436) states the following on page sixteen:
Taxable non-profit organisations may have hotels, motels,
gyms, squash courts, swimming pools or other such facilities.
Where an organisation leases out a facility it owns to an external
operator, the lease revenue is fully assessable regardless of who
uses the facility.
EXAMPLE
A non-profit club owns a motel and leases it out to a
motel operator. The lease revenue received by the club
is assessable, even though guests at the motel may
include club members.
Similarly, where an organisation owns a facility and operates
it purely as a commercial investment to generate income
and the facility does not form part of the organisation's
facilities for its members, the revenue from the facility is
fully assessable income.
EXAMPLE
A non-profit sporting club owns and operates a hotel purely
as an investment to earn income. The hotel is not used in
pursuing the club's purposes for which it was established.
The income the club receives from the hotel is assessable,
even though guests at the hotel may include club members.
Based on the facts provided the shop is set up to provide additional income for the Club. The income from the shop is not subject to the principle of mutuality. Therefore the income derived from the shop is fully assessable to the Club.
Question 2
The income earned from the shop is assessable income and not subject to the mutuality principle.
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