Edited version of your written advice

Authorisation Number: 1012693482432

Ruling

Subject: Exempt entities - Not for profit organisation

Question 1

Is the entity a society or association established for the purpose of promoting the development of tourism pursuant to item 8.1(b) of the table in section 50-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following periods

1 July 2014 to 30 June 2024

The scheme commenced on

1 July 2014

Relevant facts and circumstances

The incorporated entity has applied for a ruling to reconfirm their income tax exemption as an entity established for the purpose of promoting the development of tourism.

The entity has previously applied for many rulings on the same issue. The entity's activities, its Constitution or section 50-40 of ITAA 1997 has changed since the last Private Ruling which confirmed the entity's income tax exempt status.

1. The entity is a member of an internationally recognised tourism body.

2. The role of the entity is to market Australia as a prime tourist destination. The entity does this directly via online and offline marketing initiatives and in collaboration with a number of tourism industry bodies.

3. The entity is non-profit. The following clauses in the entity's Constitution state that:

• No profits or property can be distributed to any member

• No amount can be paid to a

• upon the liquidation of the entity

• The entity's members must be non-profit entities who cannot distribute any amounts to their members

4. The dominant purpose of the entity is to promote the development of Australian tourism. In particular the focus is on the development of travel in Australia. Under the Constitution, the objects are:

• to create affiliations

• to promote tourism throughout Australia and its independent territories.

• to assist and encourage Member Organisations to co-ordinate their plans and to co-operate in their work

• to ensure that Member Organisations operate as solvent organisations providing facilities and services which are consistent with the objectives and policies of the entity

• to promote interstate and international friendship

• to actively promote Australia as the prime holiday destination for the members of overseas organisations

• to liaise with federal and state government departments and authorities responsible for the promotion of tourism to Australia internationally.

5. The entity operates one of the most successful tourism websites in Australia..

In addition to the website the entity is highly active in online communication. Over the past three years, the organisation has increasingly worked with a wide range of online publishers and bloggers, and sponsoring individuals and groups of bloggers to travel throughout Australia. The bloggers have acted as ambassadors, and their online stories have resulted in considerable coverage of Australia as a travel destination.

The entity publishes brochures promoting Australian locations as desirable tourist destinations. It also participates on a regular, annual basis in a range of tradeshows. It employs dedicated staff for specific overseas markets, who, in addition to tradeshows, attend consumer shows and agent road shows.

6. The entity has extensive opportunities to market Australia overseas as a prime tourism destination. These opportunities are enhanced by an efficient international booking network that links Australia with 65 other countries. The entity is an active member of various tourism industry bodies that have as their principal objectives the expansion of the tourism industry in Australia. It assists and gains assistance from these organisations in promoting Australian tourism.

7. The Commissioner has previously ruled that the entity is exempt from income tax in specific years:

Reasons for decision

Basic conditions

To be entitled to income tax exemption under item 8.1(b) of section 50-40 of the Income Tax Assessment Act 1997 (ITAA1997), an entity must satisfy the following:

1. it must not be carried on for the profit or gain of its members (Non-profit requirement); and

2. it must be established for the purpose of promoting the development of tourism.

The ATO publication Income Tax Guide for Non-Profit Organisations (the Guide) provides the following on the non-profit requirement:

Generally, your organisation will not be exempt from income tax, unless it meets all of the following conditions;

• it is a not-for-profit entity

• it operates and pursues its purposes principally in Australia

• it complies with all the substantive requirements in its governing rules

• it uses its income and assets solely to pursue the purposes for which it is established.

'Not-for-profit' condition

To meet this condition, your organisation must be an entity that does both of the following:

• It is not carried on for the profit or gain of its owners or members neither while it is operating nor upon winding up.

• Under an Australian law, foreign law or your organisations governing rules, it is prohibited from distributing, and does not distribute, its profits or assets to its owners or members (whether money, property or other benefits), neither while it is operating nor upon winding up, unless the distribution is:

n made to another not-for-profit entity with a similar purpose

n genuine compensation for services provided to or reasonable expenses incurred on behalf of, the entity.

Clauses of the entity's constitution prevent it from distributing income and property to members. There is no evidence from the facts that the entity is acting contrary to the prohibition.

The entity is not carried on for the profit or gain of its members.

Established for the purpose of promoting the development of tourism.

'Tourism' is not defined in the ITAA 1997, and is taken to have its ordinary meaning.

The New Shorter Oxford Dictionary, Vol 2 (N-Z), provides the following meaning:

The theory and practice of touring; travelling for pleasure… the business of attracting tourists and providing for their accommodation and entertainment; the organization and operation of (foreign) holidays, esp. commercially.

The objects and activities of the entity show that the sole purpose is to promote Australian tourism. The entity is considered to be concerned with tourism.

Promoting the development of tourism

To be exempt under item 8.1(b) it is not enough that the entity be concerned with tourism, rather, the entity must be concerned with the development of tourism.

Taxation Ruling IT 2415 Income tax: associations promoting development of Australian resources, provides that 'development', in the context of section 50-40, has the following meaning:

…the term "development" must be taken to be used in a commercial or business sense, i.e. it comprehends all the elements which must be taken into account to ensure that the specified resources are used in the best interests of Australia.

The Guide provides that:

Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating cooperation, and similar activities.

The entity is a national representative tourism body. Its membership comprises of organisations in each of the states and territories of Australia (all of which are non-profit). As the national representative tourism body the entity represents its state and territory organisations at national and international forums. The state and territory bodies rely on the entity to promote the market in Australia.

To this end, the entity runs a website promoting the industry that promotes tourism in Australia and the Australian tourism market, publishes brochures and other publications on Australian tourism locations, and has specific overseas countries marketing representatives that attend international trade shows, consumer shows and agent road shows to promote the entity and Australian destinations.

The objects and activities of the entity are considered to be concerned with growing the tourism market in Australia. In Case W49 89 ATC 469, P.M Roach (Senior Member) stated:

The enlargement of the market is one of the objectives of "promoting the development" of any relevant industry (at 474).

The entity is considered to be promoting the development of tourism.

The fact that the entity assists its member organisations to meet their independent objectives does not contradict the conclusion that its purpose is promoting the development of tourism. Commonality of purpose in this context helps rather than hinders a finding that the character of a peak or service entity is similar to that of its members. This principle has been confirmed in Ziliani v. Sydney City Council (1985) 56 LGRA 58 (where a peak body that provided services to charitable show societies was accepted as a charity), and in a public benevolent institution context in Australian Council for Overseas Aid v. FC of T 80 ATC 4575 (where a body set up by public benevolent institutions to provide services to them was accepted as being itself a public benevolent institution).

It is, therefore, considered the entity is entitled to income tax exemption under item 8.1(b) of section 50-40 of the ITAA 1997 as a non-profit society or association established for the purpose of promoting the development of tourism.

Period of Ruling

The law does not require either the applicant or the Commissioner to specify the period applicable to a private ruling. However, our practice is to specify the years of income or periods to which the ruling applies, in the interests of providing certainty.

Private rulings may be given for:

• a past income year or period

• the current income year or period

• a future income year or period.

Normally, a ruling will be for the period specified by the applicant. There may be occasions, however, where we consider that a ruling needs to cover a different period from that specified in the application. When this occurs, the ruling must specify the time it applies to the taxpayer.

Following consultation, the policy in relation to determining the period for provision of a private ruling has changed. The previous guideline of issuing a ruling for not more than 3 to 4 years has been removed, and the appropriate length of time for which to rule is determined by the case officer and approving officer.

In determining the appropriate length of time for which to rule, consideration has been made to:

• the likelihood of a change to the law, and

• the likelihood of changes to the facts of the scheme

These considerations are balanced against the facts of the case.

It is important to note that a private ruling will no longer apply, and the taxpayer will no longer be protected by it:

• if the law changes

• if the facts underlying the scheme change and the scheme is not implemented in the way set out in the private ruling

• if it is overridden by a later ruling.

In addition, a court may refuse to entertain a case based on a ruling if it considers that the facts or tax law are so likely to change that it would make the case of no legal consequence to either of the parties.

The entity has requested a ruling for a ten year period. They have cited significant administrative costs, ongoing organisational stability and the Commissioner's commitment to cut red tape as reasons for requesting the extended period. The entity has supported their request by;

• advising four favourable rulings have been previously issued

• the entity has not changed its sole purpose and there are no plans to change the sole purpose in the future

• the entity has undertaken to notify the Commissioner of any significant change in its activities or Constitution to enable the Commissioner to review its Private Ruling.

As a result of the policy change, the unlikely change to the facts and the lack of risk to revenue it is considered reasonable to issue the ruling for a ten year period.

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).