Edited version of your private ruling

Authorisation Number: 1012590802265

Ruling

Subject: Exemption from income tax

Question 1

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

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commences on:

1 July 2013

Relevant facts and circumstances

The entity was accepted by the ATO as income tax exempt in the past. At that time, it was categorised as an association registered under an Act related to the settlement of industrial disputes pursuant to former section 23(f) of the Income Tax Assessment Act 1936.

The entity has applied for a private ruling on the basis that they are an association established for the promotion of the development of Australian industrial resources pursuant to section 50-40 of the ITAA 1997.

The entity has provided their original Memorandum and Articles of Association and their new Constitution which was recently adopted. Both the Memorandum and Articles of Association and the new Constitution are the same apart from some minor grammatical corrections. The Constitution is referred for purposes of this ruling.

The entity's main purpose in its Constitution is the promotion of the development of their specific industry.

The entity's Constitution has an applicable non-profit and dissolution clause for a non-profit entity.

The entity was established to provide a voice for its industry. It acts as the industry voice in dealing with governments at all levels, other industry groups and the unions. It focuses on ensuring appropriate standards (including Australian Standards, industry codes, sustainability frameworks and rating tools and workplace health and safety) and regulation because it believes there is a direct correlation between these and industry productivity and competiveness and thereby future viability.

The entity has also pioneered the development and promotion of an industry initiative which will enable the alignment of all the people, systems, and practices that are engaged in all stages of its industry. It is anticipated to result in reduced overall project costs, increased efficiencies, fewer delays in project completion, and increased productivity and consumption - key factors needed to "future proof" the industry in Australia. It is anticipated it may be developed for export in the future.

The members of the entity are all Australian companies who collectively comprise a substantial majority of the major participants in the industry. Hence, it is understood to speak for the industry as a whole.

The entity also develops and provides training and accreditation programmes for the industry, and promotes the industry to young people as an attractive career option.

Additional information was requested by letter dated dd/mm/yyyy and provided in letter dated dd/mm/yyyy. Key information provided is summarised as follows:

In regard to activities and time spent.

1. The industry initiative. Time spent 1 FTE (38 hours per week).

2. Industry standards and regulations (eg national industry code, Australian Standards, rating tools, sustainability frameworks). Time spent 1 FTE (38 hours per week).

3. Developing training programmes and accreditation standards. Time spent 1 FTE (38 hours per week).

4. Training services and promotion of apprenticeships. Time spent 2 FTE (20 hours per week).

5. Member services such as industrial relations assistance, provision of information on legal issues and technical matters, facilitating networking, facilitating income protection insurance, development of standard work contracts. Time spent 1 FTE plus a consultant is engaged where required. (38 hours per week).

You stated that you feel that even though members may benefit from all the other activities outlined above (in items 1 to 5), these benefits are not conferred in their capacity as members but rather in their capacity as industry participants.

In respect of industrial relations work, you provided the following information:

· The entity negotiates industry wide enterprise bargaining agreements, appear on behalf of its members in industrial disputes (e.g. at Fair Work Australia or at conciliations), and provides general assistance and advice to its members to assist them in dealing with workplace relations matters.

· The entity conducts briefings on emerging issues, for example, the prevention of bullying and legislative changes.

· The entity negotiates with the relevant trade unions for enterprise agreernents for the employees of our member companies. When agreement has been reached we prepare the necessary paperwork for those members that wish to sign up to the agreement. We provide members with on-going support with these agreements in terms of interpretation and advice when wages and allowances increase.

· The entity provides information to its members on a range of legal compliance issues including workplace relations, occupational health arid safety, tax and industry standards.

· The entity provides information to its members on technical matters, including the development of new technology, shifts in government policy and economic conditions.

· The entity facilitates networking opportunities amongst its membership through seminars, forums, workshops and conferences.

· The entity facilitates services such as the provision of income protection insurance, collecting premiums on behalf of the membership and payment lo insurers.

You paid scholarships and bursaries in the last year:

The entity's Annual Reports incorporating Financial Statements for the relevant financial years were provided.

You have advised that these facts will remain consistent for the ruling period.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 section 50-40.

Reasons for decision

Summary

It is considered that the entity is a non-profit association that meets the requirements of item 8.2(c) of the table in section 50-40 of the ITAA 1997 and its ordinary and statutory income is exempt from income tax under section 50-1 of the ITAA 1997.

Detailed reasoning

Under section 50-1 of Income Tax Assessment Act 1997 (ITAA 1997) the ordinary and statutory income of entities covered by the tables in sections 50-5 to 50-45 is exempt from income tax. The appropriate section for consideration in this ruling is item 8.2(c) of the table in section 50-40 of the ITAA 1997.

Item 8.2 of the table in section 50-40 of the ITAA 1997 states the following as being an exempt entity:

A society or association established for the purpose of promoting the development of any of the following Australian resources:

(a) agricultural resources;

(b) horticultural resources;

(c) industrial resources;

(d) manufacturing resources;

(e) pastoral resources;

(f) viticultural resources;

(g) aquacultural resources;

(h) fishing resources.

The special condition of the section is that the society or association is not carried on for the profit or gain of its individual members.

The entity has applied for consideration as a society or association established for the purpose of promoting the development of Australian industrial resources pursuant to item 8.2(c) of the table in section 50-40 of the ITAA 1997.

The conditions of section 50-40 of the ITAA 1997 are discussed below:

1. It must be a society or association.

The term society, association or club is not defined in the ITAA 1997. The term is therefore construed according to the ordinary meaning of the words.

In Theosophical Foundation Pty Ltd v. Commissioner of Land Tax (NSW) [1966] 67 SR (NSW), Sugerman JA defines society at 82:

A society, in the relevant sense, is a number of persons associated together by some common interest or purpose, united by a common vow, holding the same belief or opinion, following the same trade or profession, etc; an association"

The meaning of "society" as the Oxford English Dictionary definition shows can be the equivalent of "association" and I do not think that any relevant distinction in nature exists between the two. It merely seems to have happened that some organisations are called "associations", others are called "societies" but no meaningful difference can be detected between the two.

Paragraph 2 of Taxation Determination TD 95/56 considers the definition of 'association' as follows:

…The Shorter Oxford English 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 Macquarie Dictionary 2001, 5th edition (The Macquarie Library Pty Ltd, Macquarie University) defines 'club' as a group of persons organised for a social, literary, sporting, political, or other purpose, regulated by rules agreed by its members.

The interpretations of society, association or club as described above, emphasise on a 'body of persons' and 'an organisation of people' with a 'common purpose'. The entity is a company limited by guarantee, an organisation of people with a common purpose (as per its objects) and a formal structure. It is considered to be a society or association.

2. It must be established for the purpose of promoting the development of Australian industrial resources.

The term 'development' is used in section 50-40 of the ITAA 1997 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.

The meaning of 'development' was examined by the High Court in the case of FC of T v. Broken Hill Pty Co. Ltd 69 ATC 4028; 1 ATR 40 where, in considering the phrase 'development of mining property' the majority of the High Court accepted the interpretation of Kitto J:

In its ordinary English sense the word 'development' when used in relation to a property refers to the unfolding, the bringing out, of some latent capability of that property…It covers I think, any preparation, adaption or equipment of the property for the exploration of an inherent potentiality which cannot be exploited or fully exploited, without some such preliminary treatment.

The promotion of development may be direct or indirect. Methods of promoting resources include marketing, training, research, education, introduction of new and improved classes of product and facilitation of cooperation, and similar activities (refer page 22 of the Income tax guide for non-profit organisations).

The concept of industrial resources is considered in Taxation Ruling IT 2415 Income Tax: Associations Promoting Development of Australian Resources. At paragraph 6 of IT 2415 it is stated:

6. ..... the Court concluded that the expression "industrial resources" in paragraph 23(h) refers to resources such as those of the building, mining, quarrying, shipping and transport industries - it does not extend to business or commercial resources or resources of the kind promoted by the Association.

The entity as set out in its Constitution and incorporating the activities of the industry initiative, industry standard and regulation development, industry safe work method statement, training programmes and accreditation courses and promotion of apprenticeships, is established to promote their industry's resources in Australia. We now will consider if their industry qualifies as industrial resources of Australia.

Resources or their elements include infrastructure, plant and equipment, livestock, personnel, knowledge, expertise and skills. An industry's businesses and their assets may be resources. Sheppard J said in Australian Insurance Association at 79 ATC 4573; 10 ATR 337: '... the undertakings of the Australian insurance companies, viewed as a whole, are a resource of Australia. I use the word "undertakings" in the broadest sense. I include within it not only the businesses of the various companies but also their assets and the knowledge and skill of their staffs.'

Based upon the above discussion, it is accepted that the entity has a purpose to promote the development of Australian industrial resources. To qualify for exemption under item 8.2(c) of the table in section 50-40 of the ITAA 1997, that purpose must be the dominant purpose for which the association was established. Therefore, both the entity's dominant objects as per its Constitution and its dominant activity must be for this purpose.

The entity's principal purpose is set out in its Constitution.

This is achieved by representation of its member organisations, advancement of professional standards and training and development to ensure acceptable operational standards are met in its industry. In addition, the entity provides training services as described in the facts of this case. In accordance with paragraphs 9 and 10 of IT 2415 industry training is an acceptable activity for purposes of promotion of a specified resource of Australia, in this case industrial resources of Australia.

It is accepted that the entity is established principally for the purpose of promoting the development of Australian industrial resources.

Special Condition.

The entity must not be carried on for the profit or gain of its individual members.

Where an association operates principally to confer benefits to its members jointly or as a group, it is unlikely to be predominantly for promotion of resource development and therefore not exempt from income tax under item 8.2(c) of section 50-40 of the ITAA 1997. If an association is carried on for the profit or gain of its individual members, it will fail the non-profit requirement. Such a purpose is unlikely to be consistent with the purpose of promoting resource development. It is necessary to distinguish from the dominant purpose of providing benefits to members as a group from the incidental benefit which will often flow to members from activities promoting the development of resources with which they are involved.

An association usually ensures they operate on a non-profit basis by including non-profit clauses in their constituent documents. It is considered that the entity has acceptable non-profit clauses in their Constitution.

It is also necessary that the association's actions are consistent with their constituent documents. As the cases below illustrate, there are instances where benefits to members have been accepted. However, what is important to distinguish is whether benefits are conferred to members along with others in the community or as individual members.

The phrase 'profit or gain of its individual members' was considered in the case Commissioner of Taxation v Co-operative Bulk Handling limited [2010] FCAFC 155 (CBH case). In the CBH case, the members had to be customers of CBH. However, CBH's services were not restricted to members; non-members could also contract for CBH's bulk handling services. It was held that CBH made its facilities available to any grain trader or miller, whether or not they were members. Further, it was held at 112:

While members do benefit from the activities of CBH, in its grain handling and storage activities, they do so at no greater extent than, and have no preference over, non-members who deal with the company, and on these circumstances such benefits do not accrue to them as 'individual members'.

From the information provided the members of the entity do receive benefits. However, apart from general training and advice on the latest industry trends and techniques, members do not appear to benefit to a greater extent than non-members. Members also receive assistance in industrial relations. However, as per the 2013 Annual Report, this occurs only on a few occasions and is considered as ancillary to its other activities. It is considered that the benefits provided to members do not accrue to them as 'individual members'.

However, benefits which are received jointly as members and which are incidental to the pursuit of the association's objects, will not prevent it from passing the non-profit test. For example business members will commonly receive some advantages, including financial advantages, as an incidental result of resource development (Australian Insurance Association case).

In the case of Inland Revenue Commissioners v Yorkshire Agricultural Society (1928) 1 KB 611 (Yorkshire Agricultural case) the provision of specific benefits to members to induce membership were disregarded. Although the Society applied as a charitable institution, it was found that the benefits to the members in the form of various privileges attaching to membership could be disregarded. The fact that benefits accrued to members of the Society did not detract from the fact that the Society had been established for the purpose of improvement of agriculture as a whole and not for any confined purpose of benefiting only the particular members of the Society. His Lordship said at 631:

…If the benefit given to members is only given to them with a view of giving encouragement and carrying out the main purpose which is a charitable purpose, then I think the mere fact that the members are benefited in the course of promoting the charitable purpose would not prevent the society being established for charitable purposes only.

It can be seen from entity's website and information provided that member benefits are designed to add to the member's industry knowledge and assist them to learn the latest industry trends and methods by way of conferences, training and newsletters. These benefits are directly related to the greater purpose of promoting the industry as a whole, an industrial resource of Australia. It is considered that the entity does not exist principally to confer benefits on its members.

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