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Authorisation Number: 1012917384404
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You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.
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Date of advice: 25 November 2015
Ruling
Subject: Promoting the Development of Industrial Resources
Question:
Is Company A exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is a society or association established for the purpose of promoting development of Australian industrial resources under item 8.2(c) in the table in section 50-40 of ITAA 1997?
Answer:
Yes.
This ruling applies for the following periods
1 July 200X to 30 June 2025
The scheme commences on
1 January 200X
Relevant facts and circumstances
Company A is a peak body that is a public company limited by guarantee
Company A is not a charity.
Its constitution prohibits the distribution of income and property to its members in the course of its operations and when it winds up.
Company A has never made any distributions of profits or assets to its members in the past and will not make such distributions to its members in the future.
Company A uses its profits to carry out its purposes stated in its constitution.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 50-1
Income Tax Assessment Act 1997 section 50-40
Reasons for decision
Summary
Company A is a non-profit association established for the purpose of promoting the development of Australian industrial resources for the purposes of item 8.2(c) in the table in section 50-40 of the ITAA 1997. Accordingly, its ordinary and statutory income is exempt from income tax pursuant to section 50-1 of the ITAA 1997.
Detailed reasoning
Section 50-1 of the ITAA 1997 provides that the ordinary and statutory income of certain entities is exempt from income tax. The entities are those listed in the tables contained in sections 50-5 to 50-45 of the ITAA 1997.
Item 8.2 (c) in the table in section 50-40 of the ITAA 1997 provides that an entity must be a society or association established for the purpose of promoting the development of industrial resources.
The special condition attached to this item is that it is not carried on for profit or gain of its individual members.
Accordingly, to be exempt from taxation under 50-1 of the ITAA 1997, Company A must meet the relevant conditions of item 8.2(c) in the table in section 50-40 of the ITAA 1997. The conditions are as follows:
• It must be a society or association
• It must not be a charity
• It must not be carried on for the profit or gain of its individual members
• It must be established for the purpose of promoting the development of industrial resources of Australia.
Society or association
The term society or association is not defined in the legislation. The term is therefore construed according to the ordinary meaning of the words.
In Theosophical Foundation Pty Ltd v. Commissioner of Land Tax (1966) 67 SR (NSW) 70, Sugerman JA stated at 82:
A society, in the relevant sense, is "a number of persons associated together by some common interest or purpose, united by a common vow, holding the same belief or opinion, following the same trade or profession, etc.; an association"
In Pro-Campo Limited v. Commissioner of Land Tax (N.S.W.) 81 ATC 4270, Lee J stated at 4279:
The meaning of "society" as the Oxford English Dictionary definition shows can be the equivalent of "association" and I do not think that any relevant distinction in nature exists between the two. It merely seems to have happened that some organisations are called "associations", others are called "societies" but no meaningful difference can be detected between the two.
The term association is also discussed in paragraph 2 of Taxation 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 At 1986 (FBTAA)? . This discussion is also relevant here. TD 95/56 considers to the definition of 'association' as follows:
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.
Company A is a public company limited by guarantee. We consider that it is an organisation of people with a common purpose (as per its objects in the constitution) and a formal structure and that it is a society or an association.
Not be a charity
A resource development organisation described in section 50-40 of the ITAA 1997 will not be exempt from income tax as such if it is an organisation that is also a charity.
Company A is not a charity and therefore satisfies this requirement.
Not be carried on for the profit or gain of its individual members
A not-for-profit (NFP) organisation does not operate for the profit or gain of its individual members. This applies both while the organisation is operating and when it winds up. Its constituent or governing documents must prevent it from distributing profits or assets for the benefit of particular people - both while it is operating and when it winds up. A NFP organisation can still make a profit, but this profit must be used to carry out its purposes and must not be distributed to owners, members or other private people.
The NFP requirement is also explained in Taxation Ruling TR 97/22 Income tax: exempt sporting clubs. Whilst explained in relation to sporting clubs it is also applicable to other types of organisations. In addition to the above mentioned requirements, it provides that the actions must consistent with the NFP restrictions in its constitution, and that benefits received by members communally as members and incidental to pursuit of entity's objects do not prevent the entity from passing the non-profit test, nor does the payment of reasonable remuneration to members for services they provide to the entity.
The constitution of Company A prevents it from distributing its profits and assets among members during the course of its operations and on its winding up.
Furthermore, Company A has never made any distributions of profits or assets to its members in the past and will not make such distributions to its members in the future.
Accordingly, we accept that Company A satisfies the non-profit test.
Established for the purpose of promoting the development of industrial resources of Australia
The meaning of this requirement has been considered in a number of court cases, including Australian Insurance Association v. Federal Court of Taxation 79 ATC 4569, 10 ATR 333 (Australian Insurance) and Boating Industries Association of New South Wales v. Federal Commissioner of Taxation 85 ATC 4224, (1985) 16 ATR (Boating). These cases indicate that in order for a non-profit association to satisfy this particular requirement, various conditions must be met. These conditions are summarised below.
Dominant Purpose
To be exempt from income tax pursuant to item 8.2 in the table in section 50-40 of the ITAA 1997, an association must be established for the dominant purpose of promoting the development of the relevant Australian resources. This means that both the association's dominant object as per its constitution and its dominant activity must be for this purpose (Australian Insurance and Boating).
Determining an association's dominant purpose is a matter of fact and degree (Boating). It involves considering the association's constituent documents, history, operation, activities and use of funds.
Promoting development
Item 8.2 in the table in section 50-40 of the ITAA 1997 is directed to the promotion of the development of the specified resources and not to the promotion of the various resources themselves (Taxation Ruling IT 2415 Income tax: associations promoting development of Australia resources which discusses paragraph 23(h) of the Income Tax Assessment Act 1936, now section 50-40 of the ITAA 1997).
The term 'development' is used in a commercial or business sense. It comprehends all the elements which must be taken into account to ensure that the resources are best used (IT 2415).
Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating co-operation and similar activities (Income Tax Guide for Non-Profit Organisations NAT7967).
Resources of Australia
The word 'Australia' limits the application of item 8.2 in the table in section 50-40 of the ITAA 1997 to associations whose activities are directed to Australian resources.
It is a matter of fact and degree whether an association is predominantly for the purpose of promoting Australian resources.
Industrial Resources
The term 'industrial resource' is not defined in the legislation. It takes its ordinary meaning.
The expression "industrial resources" in refers to resources such as those of the building, mining, quarrying, shipping and transport industries. It does not extend to business or commercial resources. (Paragraph 6 of IT 2415)
Conclusion - established for the purpose of promoting the development of industrial resources of Australia
It is considered that Company A's dominant purpose and activity, as evidenced by the objects stated in its constitution and activities, are to promote the development of the Australian industrial resources.
Conclusion
Company A is a non-profit association established for the purpose of promoting the development of Australian industrial resources for the purposes of item 8.2(c) in the table in section 50-40 of the ITAA 1997. Accordingly, its ordinary and statutory income is exempt from income tax pursuant to section 50-1 of the ITAA 1997.
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