Edited version of your written advice

Authorisation Number: 1012744749539

Ruling

Subject: Exempt entity

Question 1

Will the company be exempt from income tax under section 50-1 of the ITAA 1997 because it is an exempt entity as described in item 8.1(b) of the table in section 50-40 of the ITAA 1997?

Answer

Yes

This ruling applies for the following periods:

1 July 2013 - 30 June 2014

1 July 2014 - 30 June 2015

1 July 2015 - 30 June 2016

1 July 2016 - 30 June 2017

1 July 2017 - 30 June 2018

1 July 2018 - 30 June 2019

The scheme commences on:

1 July 2013

Relevant facts and circumstances

You have provided the following information in support of your ruling request,

• In achieving its principal objective, the company continues to undertake, among other things, the following key activities the company continues to maintain a website that is available to the general public and disseminates information regarding touring. The website also provides an up to date schedule of upcoming events.

• The company continues to publish and distribute at no cost, high quality magazines containing touring information.

• The company continues to maintain an interactive online database, plotting points of interest

• The company now has XX chapters and X special interest groups. These are essentially groups of members within an area, who will meet for social activities, events and outings.

• To ensure the sustainable growth of tourism, the company continues to promote environmental awareness for tourists through a variety of means and initiatives.

• The company continues to be perceived by the media to be representative of the growing tourism; it is often called upon by media to comment on issues regarding this demographic segment.

• The company attends Local Government annual conferences in all States to raise awareness of and promote the interests of tourists.

• Regular member activities continue to be held in locations across Australia to explore the lesser travelled localities.

• The company has been formally acknowledged several times by State and Local Government departments, for the company's contribution to the promotion of tourism in a particular area.

Constitution

The company's constitution has not changed since the previous request for a private binding ruling. Importantly, the objects clause in the Constitution remains unchanged from that as considered by the ATO when it previously granted tax exempt status to the company, and provides that the primary function is to promote tourism in Australia.

The current structure and activities have previously been approved by the ATO as conforming to the requirements of section 50-40 of the ITAA 1997.

Not for profit

It has previously been determined that the company does not carry on its activities for the profit or gain of its individual members on the basis that the Constitution prevents the distribution for profits to its members, and prevents any property being distributed to members upon a winding up.

On the basis that the constitution has not changed since the previous private binding ruling, it is submitted that the company does not carry on its activities for the profit or gain of its individual members for the purposes of section 50-40. It has previously been determined that the activities are targeted at promoting either directly or indirectly the development of tourism, and that the main purpose for which the company was established is the promotion of tourism.

The main activities undertaken have not changed since the last request for a private binding ruling was submitted.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 50-40.

Reasons for decision

Question 1

Will the company be exempt from income tax under section 50-1 of the ITAA 1997 because it is an exempt entity as described in item 8.1(b) of the table in section 50-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Detailed reasoning

A society or association established for the purpose of promoting the development of tourism that is not carried on for the profit or gain of its individual members as described under item 8.1(b) of the table in section 50-40 of the ITAA 1997 is exempt from income tax under section 50-1 of the ITAA 1997.

Accordingly, the company will be exempt from income tax if it meets the following requirements:

• it must be a society or association;

• it must not be carried on for the profit or gain of its individuals members; and

• the society or association must be established for the purpose of promoting the development of tourism.

Society or Association

The terms "association" and "society" are not defined in the ITAA 1997 and therefore adopts its ordinary meaning. The Commissioner considers the meaning of the term "association" in Taxation Determination TD 95/56 which states:

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 organisation is a public company limited by guarantee which was established to pursue the objects stated in its constituent documents. It is accepted that the company is an association.

Not for profit

The special condition for an entity to be exempt pursuant to item 8.1 of the table in section 50-40 of the ITAA 1997 requires that the association does not carry on its activities for the profit or gain of its individual members.

Clause x and clause x of the constitution, set out in the facts above, respectively prevents the distribution of profits to its members and prevents any property being distributed to members upon winding up. Accordingly, it is accepted that the company does not carry on its activities for the profit or gain of its individual members.

Established for the Purpose of Promoting the Development of Tourism

The company must be established for the purpose of promoting the development of tourism to qualify as an exempt entity pursuant to item 8.1(b) of the table in section 50-40 of the ITAA 1997.

Tourism

The Macquarie Dictionary defines the term 'tourism' to be:

'the practice of touring, especially for pleasure; the occupation of providing local services, as entertainment, lodging, food, etc, for tourists'.

The Shorter Oxford English Dictionary defines the term to mean:

'The theory and practice of touring; travelling for pleasure'

and Butterworths Australian Legal Dictionary defines it to mean:

'The practice of travel and associated activities for the primary purpose of recreation'.

Promoting development

The Tax Office publication Income Tax Guide for Non Profit Organisations (the Guide) provides that promoting development of a specified resource can be by various means, including research, providing facilities, training, improving marketing methods, facilitating cooperation and similar activities.

Main or dominant purpose

To be characterised as an entity under item 8.1(b) of the table in section 50-40 of the ITAA 1997, an association must be established principally or predominantly for the purpose of promoting the development of tourism.

To determine an entity's purpose, regard must be had to the entity's constituent documents, activities, history and control (Boating Industries Association of New South Wales v. FC of T (1985) 16 ATR 383). Any other purpose of the organisation must be incidental, ancillary or secondary to promoting development of the relevant resources.

A review of activities undertaken by the company support the contention that the company's dominant purpose is the promotion of the development of tourism.

• Organising events - The rallies and safaris organised by the company relate directly to the development of tourism by encouraging tourists to visit regional parts of Australia to meet at designated locations for rallies. By facilitating and encouraging people to travel to these locations for these rallies the company is promoting the development of tourism to these destinations.

• Distribution of publications, website and database - Through the distribution of its publications and the maintenance of its online database and website, the company is directly promoting tourism and travel around Australia.

We accept that the entity is not carried on for the gain of individual members

Accordingly, as the company is a non-profit association established for the purpose of promoting the development of tourism, it is an exempt entity pursuant to item 8.1(b) of the table in section 50-40 of the ITAA 1997.

The Commissioner must consider each new Private Ruling request on its merits, consideration has occurred on one prior occasion and the Commissioner ruled that the company is an exempt entity under item 8.1(b) of the table in section 50-40 of the ITAA 1997, an association established principally or predominantly 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 internal ATO consultation, the policy in relation to determining the period for which to provide 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 company has requested a ruling for a six year period. They have supported their request by stating a favourable ruling has been issued previously. The company's constitution has not materially changed since the last ruling. It is expected of the company 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 revenue risk it is considered reasonable to issue the ruling for a six year period.

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