Edited version of your written advice

Authorisation Number: 1012750073075

Ruling

Subject: Exempt entities - Community service

Question 1

Is the organisation exempt from income tax on its ordinary and statutory income as it is an entity covered by the tables in subdivision 50-A of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following periods

01/07/2014 - 30/06/2015

01/07/2015 - 30/06/2016

01/07/2016 - 30/06/2017

01/07/2017 - 30/06/2018

01/07/2018 - 30/06/2019

01/07/2019 - 30/06/2020

The scheme commences on

1 July 20XX

Relevant facts and circumstances

The entity has applied for a private ruling on its income tax liability, in particular if its income is exempt as an organisation covered by the tables in Division 50 of the ITAA 1997.

The village is managed by a group of volunteer residents.

Residents contribute a monthly fee to pay for the up keep, repairs and maintenance of the property.

The Bylaws include a dissolution clause which states that any excess funds remaining after wind up will be transferred to another organisation with similar objects.

Dissolution Clause

In the event of the organisation being dissolved, the amounts that remain after such dissolution and the satisfaction of all debts and liabilities will be transferred to another organisation with similar purpose which is not carried on for the profit or gain of its individual members.

The Bylaws contain a non-profit clause that prohibits the distribution of fees or salary to any member except as bona fide compensation for services rendered.

Non Profit Clause

The assets and income of the organisation shall be applied solely in the furtherance of it above mentioned objects and no portion shall be distributed directly or indirectly to the members of the organisation except as bona fide compensation for services rendered or expenses incurred on behalf of the organisation

List of Activities

• Dinner for residents

• Carpet Bowls

• Croquet

• Billiards and snooker activities

• Concerts

• Bus trips

• Mothers days celebrations

• Easter Functions

• Happy Hours

• Melbourne Cup Luncheons

• Christmas Function

• Birthday Functions

• Library Facilities

• Hairdressing Facilities

• Open Kitchen for Morning and afternoon teas

• Card afternoons

• Mobile Fashion shows

• Raffles

• Daily Exercise programs

• Organise charity work for Red Cross

Daily & Weekly Office Activities

• Organise fortnightly shopper's bus transport

• Liaise with external care workers

• Administer daily office functions

• Organise external tradesmen for residents when required

• Manage repairs and maintenance on buildings and common areas

• Organise and oversee AGM and monthly management meetings

• Manage contract accountant invoicing and collecting monthly strata fees

• Liaise with gardener and maintenance man work schedule for entire village

Relevant legislative provisions

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

Is the organisation exempt from income tax on its ordinary and statutory income as it is an entity covered by the tables in subdivision 50-A of the Income Tax Assessment Act 1997 (ITAA 1997)?

Detailed reasoning

In order to qualify for exemption under item 2.1 of the table in section 50-10 of the ITAA 1997 the entity must be a society, association, or club established for community service purposes. The entity must also satisfy the special conditions contained in section 50-70 of the ITAA 1997.

The requirements to be met are:

1. it must be a society, association or club;

2. it must be established for community service purposes;

3. the special conditions in section 50-70 of the ITAA 1997, namely that it has a physical presence in Australia and incurs its expenditure within Australia in pursuing its objectives principally in Australia.

A society, association or club

The ITAA 1997 and Income Tax Assessment Act 1936 do not define 'a society, association or club' therefore the ordinary meaning of the words is to be applied. The definition of 'association' used in Tax Determination TD 95/56 Fringe benefits tax: can a body which is formed by government, is controlled by government and performs functions on behalf of government be an 'association' for the purposes of section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? (As at 1 November 1995) is based on the Shorter Oxford Dictionary and the Macquarie Dictionary and can be summarised as: A body of persons associated for a common purpose and having a formal structure

Summary

The organisation has been established under the Strata Title Act 1985. The entity has a formal structure and its common purpose is stated in the objects. It is an association.

Community service purposes

In Tax 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 ? on organisations established for community service purposes (not being political purposes or lobbying purposes), the Commissioner states that the purpose of enacting subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 (ITAA 1936) (which corresponds to item 2.1 of section 50-10 of the ITAA 1997) was to create a category of exemption for community bodies whose activities are not accepted as being charitable for the purposes of subparagraph 23(e) of the ITAA 1936 (which corresponds to item 1.1 of section 50-5 of the ITAA 1997) but which nevertheless conduct activities of benefit to the community.

The definition of 'community service purposes' used in TD 93/190 paragraph 3 is:

a range of altruistic purposes that are not otherwise charitable, such as promoting, providing or carrying out activities, facilities or projects for the benefit or welfare of the community or any members of the community who have a particular need by reason of youth, age, infirmity or disablement, poverty or social or economic circumstances.

The determination also states at paragraph 6:

Political or lobbying activities often are said to be motivated by altruism. Even if this is so, organisations established for political or lobbying activities are excluded from exemption under the provision. Political or lobbying activities are not limited to party political activities; they include activities directed to influence changes to the law or its administration: cf National Anti-Vivisection Society v. Inland Revenue Commissioners [1948] AC 31. requires entities that seek to qualify under this category not to have political or lobbying purposes.

TD 93/190 paragraph 7 also provides the following as examples of organisations that are considered to be exempt under this provision:

(a) non-profit child care centers, including those providing long day care facilities, after school care and day child care in activity caravans;

(b) age pensioner or senior citizens associations;

(c) associations of play groups; and

(d) associations of Justices of the Peace.

Summary

The entity has been established to assist elderly residents of a retirement village by providing or carrying out activities, facilities or projects for the benefit or welfare of the residents. As per above examples, the entity is an age pensioners or senior citizens association and it has been established for community service purposes.

The purpose and activities of the entity indicate that it has been established for the purpose of assisting the elderly in a retirement villages that are in need of help because of their age.

Special conditions

Special conditions under section 50-70 (a) of the ITAA 1997 require that an:

Organisation is not carried on for the purpose of profit or gain of its individual members, the organisation has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia.

Summary

This entity satisfies these conditions as its bylaws contain a suitable non-profit clause and a suitable dissolution clause. It also operates within Australia.

Conclusion

The entity is an organisation that has been established for community service purposes. It has been established for the purpose of helping elderly residents of a retirement village by providing or carrying out activities, facilities or projects for their benefit or welfare.

The entity also meets the special conditions to qualify as it operates within Australia.

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 organisation has requested a ruling for a six year period. The organisation has undertaken to notify the Commissioner of any significant change in its activities or by laws 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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