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Edited version of private advice

Authorisation Number: 1012650113467

Ruling

Subject: Income Tax - exempt entities - community service

This ruling applies to

An entity

Question 1

Is the ordinary and statutory income of the entity exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) under item 2.1 of the table in section 50-10 of the ITAA 1997?

Answer

Yes

Question 2

Can the entity self-asses its income tax exemption status?

Answer

Yes

This ruling applies for the following period

1 July 20CC to 30 June 20DD

The scheme commenced on

The scheme has commenced

Relevant facts

The entity was registered as an incorporated association.

The association has been set up as a not-for-profit organisation which offers a service to participants and the wider community.

The entity receives the majority of its income from participant's payments for this service and government subsidies.

Approximately 80% of its revenue is paid out in the form of salaries and wages and other staff related costs. The balance of the revenue is spent on the operating costs of the entity's premises offering this service.

A copy of the rules for the entity has been provided and the rules indicate that:

Relevant legislative provisions

Income Tax Assessment Act 1936 subparagraph 23(g)(v)

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 section 50-10

Income Tax Assessment Act 1997 section 50-70

Reasons for decision

Question 1

Summary

The entity can claim exemption from income tax.

Detailed reasoning

Section 50-1 of the ITAA 1997 exempts from income tax the total ordinary and statutory income of an entity covered by section 50-10 of ITAA 1997. Item 2.1 of the table in section 50-10 of the ITAA 1997 states that a society, association or club, established for community service purposes, (except political or lobbying purposes) shall be exempt from income tax, subject to the special conditions in section 50-70 of the ITAA 1997.

Accordingly, to be exempt from income tax under item 2.1 of the table in section 50-10 of the ITAA 1997, an entity must:

Society, Association or Club

The words 'society', 'association' or 'club' are not defined in the ITAA 1997 and have their ordinary meaning.

The Macquarie Online Dictionary (Sixth edition) defines an association as 'an organisation of people with a common purpose and having a formal structure'. 'Society' has an equivalent meaning as discussed at length in Pro-Campo Limited v. Commissioner of Land Tax (NSW) 81 ATC 4270 at 4279; (1981) 12 ATR 90 at 35.

The entity is an organisation of people with a common purpose acting under an incorporated association therefore for the purposes of determining whether the entity can be described as a 'society, association or club' it fulfills the initial requirement.

Established for community service purposes

Item 2.1 in section 50-10 of the ITAA 1997, is the equivalent of subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 (ITAA 1936). Guidelines for the exemption provided by that subparagraph are located in 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? (TD 93/190).

TD 93/190 states that the purpose of enacting the provision was to create a category of exemption for community bodies whose activities are not accepted as being charitable because they do not fall within one of the four heads of charitable purpose. The provision does not give exemption from income tax to a broad range of organisations that are established within the community whose purposes are not of an altruistic nature. Altruistic purposes are an essential element of even the widest interpretation of 'community service purposes': In accordance with the Macquarie Online Dictionary (Sixth edition) 'altruistic' means regardful of others; having regard to the wellbeing or best interests of others.

TD 93/190 considers the meaning of a community service purpose and states at paragraphs 3-5:

The Explanatory Memorandum for the Taxation Laws Amendment Bill (1990) which introduced subparagraph 23(g)(v) of the ITAA 1936 provides further guidance. The Explanatory Memorandum states that the words 'for community service purposes' are to be given a wide interpretation and that:

The Explanatory Memorandum and TD 93/190 indicate that to determine whether an association is established for community service purposes it is necessary to consider its constitution, its current operations and activities, and also the circumstances and needs of those who benefit from the operations. If it can be shown that an entity is established mainly to provide benefits to the community, it will not be a disqualifying attribute if there is an incidental benefit derived by members.

TD 93/190 indicates that an entity can be considered to be providing eligible activities for 'community service purposes' where the community or members of the community have a particular need. The ruling offers examples of associations which are considered exempt because they have demonstrated by their current operations and activities that they are established for community service purposes. Example 7(a) of the ruling includes 'non-profit child care centres, including those providing long day care facilities, after school care and day child care in activity caravans'.

The entity qualifies to be considered an association established for community service purposes under this example.

Political or lobbying purposes

The Explanatory Memorandum to Taxation Laws Amendment Bill (No. 2) 1990 confirms the words 'political or lobbying purposes' to mean:

It is accepted that the entity has been established for community service purposes and not for political or lobbying purposes.

Special Conditions

Section 50-70 of the ITAA 1997 states that there are special conditions which must be satisfied for entities to be considered for income tax exemption under section 50-10 (Item 2.1) of the ITAA 1997.

The conditions state that an entity covered by item 2.1 is not exempt from tax unless the entity is a society, association or club that is not carried on for the purpose of profit or gain of its individual members and that it:

The entity has a non-profit clause in its rules which states:

The entity also has a dissolution clause in its rules which states:

It is accepted that the entity is an association which operates in a non-profit manner.

For the entity to satisfy the conditions it must have a 'physical presence' in Australia and, to that extent, incur its expenditure and pursues its objectives principally in Australia.

From the information provided, the entity has a physical presence in Australia.

Accordingly, the entity satisfies the 'Special Conditions' specified in section 50-70 of the ITAA 1997.

Conclusion

Based on the information provided, the total ordinary income and statutory income of the entity is exempt from income tax under section 50-1 of the ITAA 1997 as it is a society, association or club established for community service purposes under item 2.1 of the table under section 50-10 of the ITAA 1997.

Question 2

Summary

The entity can self asses its income tax exempt status.

Detailed reasoning

Information provided on the Australian Taxation Office (ATO) website states that:


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