Edited version of your written advice

Authorisation Number: 1013082851260

Date of advice: 1 September 2016

Ruling

Subject: Exemption from income tax as a trade union

Question

Is your income exempt from income tax pursuant to item 3.2 of section 50-15 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following periods:

Income years ended 30 June 2017 - 2021

The scheme commences on:

1 July 2016

Relevant facts and circumstances

The Association is an incorporated association that has a range of objectives, including those traditionally associated with the term 'trade union'. It is actively engaged in protecting and furthering the interests of its members, who are employees in the relevant industry.

The Association is located in Australia and incurs its expenditure and pursues its objectives principally in Australia.

Relevant legislative provisions

Section 50-1 of the ITAA 1997

Section 50-15 of the ITAA 1997

Reasons for decision

Pursuant to section 50-1 of the ITAA 1997, an entity that is a 'trade union' for the purposes of item 3.2 in the table in section 50-15 of the ITAA 1997 is exempt from income tax on the total of its ordinary income and statutory income, providing it is located in Australia and incurs its expenditure and pursues its objectives principally in Australia.

The term 'trade union' is not defined for the purposes of the ITAA 1997. To establish whether an organisation is a trade union it is necessary to adopt the ordinary meaning of the term. This approach is supported by case law.

In Victorian Employers' Federation v. Federal Commissioner of Taxation (1957) 96 CLR 390; 11 ATD 266, it was held by Kitto J that popular usage of the term 'trade union' conforms to its Oxford English Dictionary meaning:

…an association of the workers in any trade or in allied trades for the protection and furtherance of their interests in regard to wages, hours, and conditions of labour, and for the provision, from their common funds, of pecuniary assistance to the members during strikes, sickness, unemployment, old age, etc.

In Norseman Amalgamated Distress and Injustices Fund v. Federal Commissioner of Taxation (1995) 56 FCR 512; 95 ATC 4227; (1995) 30 ATR 356, Justice Lee ruled that the first part of the Oxford English Dictionary meaning was predominant in that an association of employees may well administer a fund for the mutual aid and protection of its members in their time of need, but that association would not qualify as a 'trade union' unless:

…the association of employees in question has been formed to deal with the employers of the members and for the protection and furtherance of the interests of members in respect of the conditions of their employment.

Section 3 of the Trade Unions Act 1958 (VIC) defines the term trade union to mean:

…any combination whether temporary or permanent for regulating the relations between workmen and employers or between workmen and workmen or between employers and employers or for imposing restrictive conditions on the conduct of any trade or business whether such combination would or would not if this Act or any corresponding previous enactment had not been passed have been deemed to have been an unlawful combination by reason of some one or more of its purposes being in restraint of trade. …

In Taxation Ruling TR 97/22, the Commissioner has indicated that one of the tests for eligibility of an entity for income tax exemption under a particular provision is that its main purpose must relate to the subject of the exemption provision. Where an entity conducts ancillary or incidental activities this would not of itself change what is regarded as the entity's main purpose. In that regard, Lockhart J in Cronulla Sutherland Leagues Club Limited v. Federal Commissioner of Taxation (1990) 23 FCR 82; 90 ATC 4215; (1990) 21 ATR 300 said:

It [the club] may have other objects or purposes which are merely incidental or ancillary thereto or which are secondary and even unrelated to the main object or purpose without disqualifying the body from the exemption.

However, if an entity is equally involved in other purposes, then that entity would not be eligible for exemption. As Lockhart J said:

But if it has two co-ordinate objects, one of which is outside the exemption, the exemption cannot apply because it would be impossible to say that one object is the main or predominant object.

Taxation Ruling TR 97/22 also indicates the Commissioner's view that it is appropriate to take into account the activities of an organisation to support a conclusion that the organisation's main purpose is relevant to the subject of the exemption provision.

The taxpayer's stated purposes are similar to those described in the dictionary meaning of 'trade union' and whilst is has other objectives that are not of a kind specifically referred to in the dictionary meaning, those objectives are considered to be ancillary to the main objects or purposes of the taxpayer. Further, the taxpayer's activities support a conclusion that its main purpose is that of a trade union.

Accordingly, the taxpayer is an exempt entity that is a trade union for the purposes of item 3.2 in section 50-15 of the ITAA 1997.

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