Edited version of your written advice

Authorisation Number: 1012814361267

Ruling

Subject: Income tax exemption as a 'scientific institution'

Question 1

Will the New Company, once incorporated, be eligible for income tax exemption as a 'scientific institution' in accordance with item 1.3 of section 50-5 of the Income Tax Assessment Act 1997?

Answer

Yes

This ruling applies for the following period:

1 July 2014 to 30 June 2019

The scheme commences on:

1 July 2014

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You have provided the following facts in your application:

Statutes

Article 2 of the statutes provide the objects of the Entity:
The Entity shall pursue exclusively and directly non-profit and scientific objectives.
The Entity shall have the following objects:

a. to promote the understanding of the necessity at both the national and international level for protection in the broadest sense

b. to study and compare existing laws and proposed new laws, to propose improvements to them and to promote their harmonisation

c. to work for the development, expansion and improvement of international conventions and agreements

d. to promote training and continuing education

The Entity shall pursue its objectives by, in particular:

a. publicly disseminating information, including preparing and distributing publications

b. organising congresses and other meetings

c. making representations to governments and intergovernmental bodies, as well as to national, regional, and international organisations

Regulations

The Entity is an unincorporated association registered in Australia. Rule 1 of the regulations provides that a meeting shall take place every year.

The purposes of the Entity are:

a. to further the work and objects of the associated Entity

b. to obtain recognition of the necessity for international co-ordination in all matters and to examine and compare existing laws with a view to their possible improvement and increased uniformity

c. to discuss, examine, initiate, support or if necessary oppose proposals, laws, measures or other matters

d. to hold meetings to further the objects of the Association

e. to facilitate the dissemination to members of the Association and to the public of knowledge of the law and practice in Australia and elsewhere

f. to encourage the development of the law and practice and the efficient administration of such law arid practice in order to promote the development of the resources of Australia; and

g. to do all such other lawful things as are incidental to the attainment of the abovementioned purposes or any one of them

Constitution

The Entity proposes to incorporate and register a new company limited by guarantee (the 'New Company'). The New Company would be constituted as follows:

a. The sole member would be the Entity

b. The directors would be selected from the directors of the Entity

Objects

A rule of the New Company's proposed Constitution provides that the object of the Company is to be a Scientific Institution within Australia. This object will be achieved by:

a. Collecting researching and studying in an organised and scientific manner information (including but not limited to the study and research of local and international laws, treaties, industry best-practice, expert opinion, peer research and methodologies) to advance understanding within Australia and determine opportunities of measures to improve same

b. Disseminating details of its research and findings to its members, industry and the wider public

c. Promoting the understanding of and necessity for both domestic and international protection and the attendant benefits to Australia

d. Organising and facilitating conferences to promote these objects

and doing all the acts and things as may be deemed reasonably necessary or incidental to the achievement of similar objects.

The New Company will pursue its objectives principally in Australia.

Dissolution Clause

A rule of the New Company's proposed Constitution provides that if after the Company's winding up or dissolution and the discharge of all its debts and liabilities, any property remains, that property must not be paid to or distributed among the Members. Any remaining property must be given or transferred to some other organisation:

a. Having objects similar to the Company's objects

b. Which prohibits the distribution of its or their income amongst its or their Members, and

c. Which is a company, fund or authority or institution approved by the Commissioner of Taxation as a benevolent institution for the purposes of income tax, sales tax, fringe benefits tax or otherwise under the provisions of an applicable income tax legislation including the Income Tax Assessment Act 1997.

Non-ProfIt Clause

A rule of the New Company's proposed Constitution provides that the income and property of the Company must be applied solely for the benefit and promotion of the Company's objects and no part of the income or property will be:

a. Paid or transferred directly or indirectly by way of dividends, bonus or otherwise to the Members, or

b. Paid to directors as fees or other remuneration or other benefit in money or money's worth.

Activities of the New Company

Study and Research

The New Company will collect, analyse and study information and conduct research within Australia (including local and international laws and treaties; industry best-practice, discussions and methodologies; expert opinion and publications)

The research and study conducted will advance and promote a body of systemised knowledge in Australia for the benefit of members, the industry and the public generally.

This information will be acquired by the New Company from various sources, including:

a. the educational programme at annual Congresses;

b. Global presentations, seminars and literature prepared by industry experts;

c. the content of Resolutions made at Congress;

d. any other internal source;

e. direct sources e.g. local and international laws and treaties; and

f. any other source that the New Company identifies and pursues.

The New Company will organise and facilitate conferences to promote its objects. Attendees of the conferences and congresses will be members, industry members and members of the public generally.

The New Company will make available, disseminate and promote its research findings to members, the industry and the public at large via the Australian conferences and presentations, printed materials and similar mediums.

The New Company will retain all property rights in respect of research findings.

Relevant legislative provisions

Income Tax Assessment Act 1936 (ITAA 1936) section 23(e)

Income Tax Assessment Act 1997 (ITAA 1997) section 30-15

Income Tax Assessment Act 1997 (ITAA 1997) Division 50

Reasons for decision

Issue 1

Income tax exemption as a 'scientific institution'

Question 1

Will the New Company, once incorporated, be eligible for income tax exemption as a 'scientific institution' in accordance with item 1.3 of section 50-5 of the Income Tax Assessment Act 1997?

Detailed reasoning

Scientific Institution

For the ordinary and statutory income of an organisation to be exempt from income tax under Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997), that organisation must be an entity covered by the tables of exempt entities contained in subdivision 50-A of the ITAA 1997.

Under item 1.3 of the table in section 50-5 of the ITAA 1997, an entity will be exempt from income tax if it satisfies these requirements:

1. it is an institution;

2. It is a scientific institution; and

3. It meets the special conditions contained in section 50-55.

Section 50-55 of the ITAA 1997 states:

An entity covered by item 1.3, 1.4, 6.1 or 6.2 is not exempt from income tax unless the entity:

a. has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or

b. is an institution that meets the description and requirements in item 1 of the table in section 30-15; or

c. is a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident.

The entity has a physical presence in Australia and therefore satisfies this requirement.

Is the Entity an institution?

'Institution' is not defined in the ITAA 1997, but paragraph 4 of Taxation Ruling TR 92/17 Income tax and fringe benefits tax: exemptions for 'religious institutions' states:

A body is an institution for the purposes of both the ITAA and the FBTAA if it is an establishment, organisation or association, instituted for the promotion of some object 9 especially one of public or general utility) that is religious, charitable, educational, etc. That definition was accepted by the High Court in YMCA of Melbourne v FC of T (1926) 37 CLR 351 and later in Stratton v Simpson (1970) 125 CLR 138.

The entity, once incorporated, will be a company limited by guarantee, established to conduct scientific research. It will give public benefit by providing the Australian Commonwealth Government assistance in formulating national policy as well as providing education to the public generally regarding the operation of current laws. Findings will be published in various forms and disseminated to members, industry and the public at large. It is therefore operating as an institution.

Is the Entity a Scientific Institution?

The term 'scientific institution' is not defined in the Act and therefore will take on its ordinary meaning. The Macquarie Dictionary defines 'science' as:

1. a. the systematic study of humans and their environment based on the deductions and inferences which can be made, and the general laws which can be formulated, from reproducible observations and measurements of events and parameters within the universe. b. the knowledge so obtained. 2. systematised knowledge in general. 3. a particular branch of knowledge. 4. skill; proficiency.

and 'scientific' as:

1. having to do with science or the sciences: scientific studies. 2. occupied or concerned with science: scientific men. 3. regulated by or conforming to the principles of exact science: a scientific method. 4. systematic or accurate.

The meaning of 'institution'' was considered in the High Court in Stratton & Ors v Simpson & Ors (1970) 125 CLR 138, where Gibbs J said:

In its ordinary sense 'institution' means 'an establishment, organisation, or association, instituted for the promotion of some object, especially one of public utility, religious, charitable, educational etc' (The Shorter Oxford English Dictionary). It means as was said in Mayor etc of Manchester v McAdam (1896) AC 500 at p 511, 'an undertaking formed to promote some defined purpose ...' or 'the body (so to speak) called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle'. Although its meaning must depend on its context, it would not ordinarily connote a mere trust (cf Minister of National Revenue v Trusts and Guarantee Co Limited).

In Royal Australasian College of Surgeons v. Federal Commissioner of Taxation (1943) 68 CLR 436 (Surgeon's Case) the High Court considered the meaning of 'scientific institution' under section 23 (e) of the Income Tax Assessment Act 1936 (ITAA1936). Latham CJ at 442 stated that 'a scientific institution is one which has for its sole or dominant object the enlargement of scientific knowledge.' He also stated 'if these objects and activities are of mixed character, being partly professional and partly literary or scientific, then the question must be decided according to the prevalent or main character.'

The Income tax guide for non-profit organisations, on page 24, states that scientific institutions are set up and operated for the dominant purpose of advancing science. Common ways of advancing science include research, exploration and teaching. Disseminating information will often be involved. Scientific institutions do not include organisations run for the profit of their individual owners or members.

Further in the Surgeon's Case Rich J said:

The inclusion of an institution in the exemption clause (section 23(e) of the Income Tax Assessment Act 1936) depends upon the intrinsic character of the object which it promotes and not upon the scope of the benefits which may result from its transactions.

It is evident from the information provided that the applicant will be significantly involved in research activities as, once incorporated, it will acquire and study information and conduct research for the purposes of enlarging and extending the body of systemised knowledge in Australia. The New Company's objectives, framework and imperatives will be mainly or predominately concerned with promotion or advancement of scientific knowledge.

The entity satisfies the criterion to be considered a scientific institution.

Non-profit requirement

The ITAA 1997 does not expressly impose a non-profit requirement in terms of a scientific institution under item 1.3. Notwithstanding this, in the Surgeon's Case, Latham CJ stated that a scientific institution is a charitable institution. As a result, the non-profit requirement applies.

Member benefits

Paragraph 47 of Taxation Ruling TR 2011/4 Income tax and fringe benefits tax: charities states that if an organisation is carried on for the profit of its owners or members, it is carried on for their benefit and not for the benefit of the community.

The New Company will have a sole Member - no part of the income or property will be paid or transferred directly or indirectly by way of dividends, bonus or otherwise to the Member. The New Company will retain all rights in respect of research findings. Additionally, income and property will not be paid to directors as fees or other form of remuneration.

Non-ProfIt Clause

Rule 7.1 of the New Company's proposed Constitution provides that the income and property of the Company must be applied solely for the benefit and promotion of the Company's objects. Rule 8 of the New Company's proposed Constitution provides that if after the Company's winding up or dissolution and the discharge of all its debts and liabilities, any property remains, that property must not be paid to or distributed among the Members. Any remaining property must be given or transferred to some other organisation:

a. Having objects similar to the Company's objects

b. Which prohibits the distribution of its or their income amongst its or their Members; and

c. Which is a company, fund or authority or institution approved by the Commissioner of Taxation as a benevolent institution for the purposes of income tax, sales tax, fringe benefits tax or otherwise under the provisions of an applicable income tax legislation including the Income Tax Assessment Act 1997.

The applicant's constitution contains acceptable non-profit and winding up clauses. It therefore, satisfies the non-profit and dissolution criteria.

In conclusion, the entity satisfies all the requirements to be a scientific institution and is an income tax exempt entity for the purposes of the section 50-5 of the ITAA 1997.

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