Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1051244781432

Date of advice: 03 July 2017

Ruling

Subject: Income tax exemption

Question 1

Is The Club a not-for profit (NFP) organisation?

Answer

Yes

Question 2

Is the ordinary and statutory income of The Club exempt from income tax under section 50-1 of the Income Tax Assessment Act (1997)?

Answer

No

This ruling applies for the following periods:

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 2017

Relevant facts and circumstances

The Club operates under a constitution. The club has never been incorporated and does not have an ABN or TFN. In the Private Ruling Application, The Club Treasurer stated: 'We are considering incorporating the club … '.

Employees of The Company can choose to become members of The Club. Members of The Club are required to pay a monthly membership fee. This fee is deducted from their post-tax income by their employer The Company. The Company provide an equivalent contribution for each member. The total membership amount is paid to The Club directly from The Company on a monthly basis.

The Club make a small profit selling chips, chocolates and drinks to all employees of The Company (including non-members).

Events are run at a discounted rate for members. The organiser of the event is paid a bonus by The Club for organising the event.

Expenses incurred by The Club include:

Relevant Rules of The Club Constitution:

Rule 3 (1) states that:

Rule 3 (2) states that:

Rule 24 states that:

Relevant legislative provisions

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 Subdivision 50-A

Further issues for you to consider

Mutuality and taxable income

The Club has dealings with both members and non-members. Receipts derived from mutual dealings with members of your organisation are called mutual receipts. Mutual receipts are not subject to income tax because they are not assessable income.

Examples of mutual receipts include:

Amounts paid by The Company to subsidise employee membership fees are treated as membership fees paid directly from the member.

Assessable income includes receipts from trading with non-members and entities outside the organisation. Examples of assessable receipts include:

Some of the revenue of The Club is from both members and non-members, such as the sale of 'Chips, Chocolates and Drinks’, this should be apportioned between assessable and non-assessable income.

Revenue that may need to be apportioned includes:

Your organisation must choose a method of apportionment. The method (or methods) your organisation chooses must reasonably and accurately reflect its revenue and expenses.

Further information can be found on the ATO website by searching for 'Mutuality and taxable income’ (Quick search code: QC 23099).

Reasons for decision

These reasons for decision accompany the Notice of private ruling for The Club.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Issue 1

Question 1

Summary

Yes. The Club is a not-for-profit organisation, as the rules contained in the Constitution of The Club prevent it from distributing profits or assets to particular people, whilst operating and upon wind up.

Detailed reasoning

A NFP organisation does not operate for the profit or gain of its individual members, whether these gains would have been direct or indirect. An organisation is considered to be NPF where its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people – both while it is operating and when it winds up.

The Club’s constitution contains the following valid non-profit and wind-up clauses:

Rule 3 (2)

Rule 24

The presence of these clauses satisfies the requirements of a non-profit organisation.

Question 2

Summary

No. The ordinary and statutory income of The Club does not meet the qualifying criteria of the various exempt entities covered by the tables in subdivision 50-A of the ITAA 1997.

Detailed reasoning

To be exempt from income tax, a non-profit organisation must meet the requirements for one of the types of exempt entities in the tax law. Section 50-1 of the ITAA 1997 states that the ordinary income and statutory income of entities covered by the tables in Subdivision 50-A of the ITAA 1997 is exempt from income tax. These entities fall into the following categories:

As your non-profit organisation does not meet the requirements of one of the types of exempt entity, it cannot be exempt.

Some not-for profit (NFP) clubs, societies and associations are taxable organisations, that is, they are not exempt from income tax. Examples of taxable NFP organisations include social clubs, certain business and professional associations, clubs whose main purpose is providing hospitality services for members, and political parties.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).