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Edited version of your written advice
Authorisation Number: 1013094441465
Date of advice: 21 September 2016
Ruling
Subject: Income tax exemption
Question 1
Does the Taxpayer qualify for income tax exemption as a community service organisation under Section 50-10 Item 2.1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
This ruling applies for the following periods:
1 July 2015 to 30 June 2016
1 July 2016 to 30 June 2017
1 July 2017 to 30 June 2018
1 July 2018 to 30 June 2019
1 July 2019 to 30 June 2020
The scheme commences on:
1 July 2015
Relevant facts and circumstances
The Taxpayer's aim is to provide service to others, to promote integrity and advance world understanding, goodwill and peace through its fellowship of business, professional and community leaders.
All its programs are run on a not-for-profit basis by volunteers and most members self-fund their work. It is not a charity and its rules prohibit members from gaining financially. When a surplus is made it is used to further its programs.
The Taxpayer conducts a range of programs which are based on providing service to the community.
It is based on grouping its activities into five categories of service community service.
Reasons for decision
What is a community service organisation?
Subdivision 50-A of the ITAA 1997 itemises entities whose ordinary income and statutory income is exempt from income tax (section 50-1 of the ITAA 1997).
Item 2.1 is detailed at section 50-10 of the ITAA 1997 and provides an income tax exemption for community service organisations, subject to conditions specified in section 50-70 of the ITAA 1997.
Taxation 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? (TD 93/190) provides guidance on what a community service organisation is.
What is a community service organisation?
A community service organisation is a not-for-profit society, association or club established for community service purposes except political or lobbying purposes.
The main purpose of the organisation must be community services. Any other purpose of the organisation must be incidental, ancillary or secondary to the community service purpose.
Paragraph 3 of TD 93/190 provides that community service purposes are altruistic meaning that they are established and operated for the wellbeing and benefit of others.
Community service organisations promote, provide or carry out activities, facilities or projects for the benefit or welfare of the community or other members who have a particular need by reason of youth, age, infirmity or disablement, poverty or social or economic circumstances.
Organisations that seek to advance the common interests of their members are not altruistic and cannot be community service organisations.
Specified conditions
Section 50-70 of the ITAA 1997 looks at special conditions for items 1.7, 2.1, 9.1 and 9.2. Item 2.1 is specified in section 50-10 of the ITAA 1997.
Subsection 50-70(1) of the ITAA 1997 states that an entity covered by the specified items is not exempt from income tax unless it is not carried on for the purpose of profit or gain of its individual members and it:
a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or
b) meets the requirements in item 1 of the table in section 30-15 of the ITAA 1997; or
c) is located outside Australia and exempt from income tax in the country it is resident.
In the current circumstances the Taxpayer conforms with paragraph 50-10(1)(a) by virtue of its activities being concentrated in parts of Australia.
Subsection 50-70(2) of the ITAA 1997 states that the entity must comply with all substantive requirements in its governing rules and apply its income and assets solely for the purpose for which it is established.
Taxation Ruling 2015/1 Income tax: special conditions for various entities whose ordinary and statutory income is exempt (TR 2015/1) provides guidance regarding the special conditions for various entities whose ordinary and statutory income is exempt.
TR 2015/1 considers two conditions that an entity must satisfy which are:
• It must comply with all the substantive requirements in its governing rules; and
• The entity must apply its income and assets solely for the purpose for which it is established.
In the current circumstance the Taxpayer satisfies the conditions specified in subsection 50-70(2) through the provisions of its Constitution ensuring its income and assets are solely applied for the purpose for which it is established.
Conclusion
The Taxpayer is entitled to have its total ordinary income and statutory income be exempt from income tax.
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