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Authorisation Number: 1051296357815

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Date of advice: 18 October 2017

Ruling

Subject: Income tax exemption

Question 1

Is the Entity a society, association or club established for the community service within the meaning of section 50-10 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 Entity states that it is not a charitable entity; it is not registered with the Australian Charities and Not-for-profits Commission. Further, it is not a Registered Training Organisation (RTO)

The Entity has been in operation for X years and has X members

The Entity’s goals, mission and purpose are:

● Connecting people and ideas to improve services

● To be an independent professional association for people with a common interest in promoting excellence in promoting excellence in services, to achieve better outcomes

● A shared belief that its members and the sector should have a commitment to;

● excellence and innovation

● accountability

● professional standards and life-long learning

● respect and tolerance

● service to the sector and in the public interest, and

● political neutrality and impartiality

The objects of the Entity are to:

● Advance and promote services and sector professionalism

● Provide thought leadership and foster informed debate about and within the sector

● Build the capacity of the sector to meet the ongoing challenges and innovation in the sector

● Provide opportunities to enhance fellowship and the exchange of ideas between professionals

● Be a rich source of knowledge and information and reform, and

● Provide the framework to support members in developing their competencies and capabilities as professionals

Membership is open to:

● Individuals directly employed by and working in the sector

● Consultants working for, with or who have a direct interest in the sector

● Academics and students with a direct interest in the sector and

● Individuals with a direct interest in the sector

The Council may reject an application for membership. The Council is not required to supply reasons for accepting or rejecting an application for membership.

The Entity is controlled and managed by a Council. It is the Entity’s governing and policy making body. The Council meets at least four times a year.

The Entity’s funds are derived from entrance fees, annual membership subscriptions, interest, grants and donations, seminars and similar fundraising opportunities.

The Entity’s assets are to be applied solely in furtherance of its objects. Funds are not to be distributed directly or indirectly to the members except as remuneration for services rendered or expenses incurred on behalf of the Entity.

In the event of winding up the Entity’s surplus funds will be transferred to another organisation with similar objects and a constitution prohibiting distribution of its assets and income to members.

The Entity reinvests any surplus funds into the development of products and services for members and the community.

The Entity conducts the following activities to support their goals, mission and purpose:

● Training and online courses

● Professional development programs

● A partnership with an RTO providing access to nationally recognised qualifications

● Conferences, including joint ventures

● Public orations and forums

● Networking and capacity building activities

● Access to academic journals and online publications

Relevant legislative provisions

Australian Charities and Not-for profits Commission Act 2012

Income Tax Assessment Act 1997 Section 50-1

Income Tax Assessment Act 1997 Section 50-10

Income Tax Assessment Act 1997 Section 50-47

Income Tax Assessment Act 1997 Section 50-70

Reasons for decision

Issue 1

Income Tax - Exempt entities

Question 1

Is the Entity a society, association or club established for the community service within the meaning of section 50-10 of ITAA 1997?

Summary

The total ordinary income and statutory income of the Entity exempt from income tax pursuant to section 50-1 of the ITAA 1997 on the basis it is an entity described in item 2.1 of section 50-10 of the ITAA1997.

Detailed reasoning

Not an ACNC type Entity

Section 50-47 of the ITAA 1997 provides a special condition for all entities covered by section 50-1 of the ITAA 1997, it states that:

An entity that:

(a) is covered by any item; and

(b) is an ACNC type of entity;

is not exempt from income tax unless the entity is registered under the Australian Charities and Not-for profits Commission Act 2012.

Broadly, an entity capable of being a registered charity is an ACNC type of entity. Thus, if the Entity is capable of being a registered charity it will not be exempt from income tax unless it is registered as such under the Australian Charities and Not-for profits Commission Act 2012 (ACNC Act).

Taxation Ruling TR 2011/4 Income tax and fringe benefits tax: charities (TR 2011/4) sets out the Commissioner’s views on the meaning of 'charitable' in the terms 'charitable institution' and 'fund established for public charitable purposes' by reference to principles established by court decisions. Paragraph 26 provides that an institution is charitable if it’s main or predominant or dominant' purpose is charitable in the technical legal meaning and it was established and is maintained for that charitable purpose. Any other purpose can only be incidental or ancillary to the charitable purposes.

The Entity’s constitution sets out its purposes which includes the goal of becoming an independent professional association for people with a common interest in promoting excellence in the sector. The Entity is therefore a professional body and this non-charitable purpose is not ancillary or incidental. As the Entity has a non-charitable purpose, it is not capable of being a registered charity.

Further, paragraph 140 TR 2011/4 states:

Placing limits on who can benefit is generally incompatible with an intention of benefiting the public if the limits are by reference to a personal connection that is not available to the public generally, such as:

● being members of a family or a group which is based on personal relationships to particular persons;

● contractual relationships (for example, the employees of a particular employer); and

● membership of bodies that can admit or exclude members of the public.

In these situations, benefits are usually intended for people in their capacity as relatives, employees or members rather than as a section of the public.

The Entity can reject membership application without supplying reasons therefore the Entity’s benefits are primarily intended for members rather than as a specific part of the population.

Therefore the Entity is not an ACNC type of entity and section 50-47 does not apply.

Item 2.1 of section 50-10 of ITAA 1997 states that a ‘society, association or club established for community service purposes (except political or lobbying purposes)’ shall be exempt from income tax, subject to special conditions in section 50-70.

The special conditions in section 50-70 states:

Community service purpose

An entity covered by item 1.7, 2.1, 9.1 or 9.2 is not exempt from tax unless the entity is a society, association or club that is not carried on for the purpose of profit or gain of its individual members and that:

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

b) is a society, association or club that meets the description and requirements in item 1 of the table in section 30-15, or

c) is a prescribed society, association or club which is located outside Australia and is exempt from income tax in the country in which it is resident.

Society, Association or Club

The words 'society' and 'association' are not defined in the ITAA 1997. An association is a voluntary organisation having members associated together for a common or shared purpose (Douglas & Ors v FCT 97 ATC 4722). Society has an equivalent meaning (Pro-Campo v Commissioner of Land Tax (NSW) 81 ATC 4270). An association may be incorporated or unincorporated.

The Entity is an incorporated entity and is an organised body of members for the purpose as per its constitution.

It is accepted that the Entity is an association.

Political or Lobbying Purposes

The ITAA 1997 section 50-10 states that a non-profit society, association or club established for community service purposes, excluding political or lobbying purposes, is income tax exempt.

Paragraph 71 in TR 2011/4 states:

Following the High Court's decision in Aid / Watch:

● an entity can be charitable if it has a purpose (including a sole purpose) of generating public debate with a view to influencing legislation, government activities or government policy in relation to subject matters that come within one or more of the four heads of charity, as long as the means used and the ends to be achieved are not inconsistent with the rule of law and the established system of government;

● whether generating public debate to influence legislation, government activities or government policy can be a charitable purpose under the fourth head where the subject matter lies beyond existing heads of charity will be decided on a case by case basis. Arguably, all government activity or policy is intended to be 'beneficial to the community' but this does not mean generating public debate about any government activity or policy will be charitable. The subject matter to which the debate is directed will still need to either come within the spirit and intendment of the Preamble to the Statute of Elizabeth (and this is usually established by analogy to existing charitable purposes) or be deemed charitable by legislation applying for that purpose (see paragraph 10 of this Ruling). However, it is expected that the subject matter of many areas of government activity or policy would fall under one of the first three heads of charity or the already established charitable purposes under the fourth head, and where they do, a purpose of generating public debate about that activity or policy will be charitable. Examples of purposes that have been held to be charitable under one of the four heads of charity are in Appendix 2 from paragraph 315 of this Ruling; and

● an entity does not necessarily have to present a balanced position in order to be considered an entity with a purpose of generating public debate: it could express a singular point of view about a subject matter that comes within one of the four heads of charity.

The Entity’s constitution states that ‘its members and the sector should have a commitment to impartiality. While the Entity may influence legislation, government activities or government policy they have not been established as a body with political or lobbying purposes.

Established for Community Service Purposes

For an organisation to exist for community service purposes its purposes must be altruistic as per Taxation Determination 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) which states:

3. …The Explanatory Memorandum to section 23(g)(v) of the Act confirms that the words 'community service purposes' are to be given a wide interpretation. Those words extend to a range of altruistic purposes which are not otherwise charitable, such as promoting, providing or carrying out activities, facilities or projects for the benefit or welfare of the community or any members of the community who have a particular need by reason of youth, age, infirmity or disablement, poverty, or social or economic circumstances.

4. However, the provision does not give exemption from income tax to a broad range of organisations that are established within the community, but whose purposes are not of an altruistic nature. Altruistic purposes are an essential element of even the widest interpretation of 'community service purposes.'

5. It is not accepted that common association as such is altruistic. Neither the purposes of members, nor the purposes of their organisation, are altruistic merely because the members form a non-profit association to advance their common interests. Members who seek to advance their common interests are not therefore motivated by an unselfish regard for others, and neither is their organisation. It follows that an organisation established for the purposes of its members is not therefore established for community service purposes. Only when the purposes of the organisation are altruistic can they be community service purposes.

Therefore, to be considered an organisation established for community service purposes, the organisation's activities must be directed to altruistic purposes. Altruistic purposes are directed for the benefit or welfare of the community or any members of the community who have a particular need by reason of youth, age, infirmity or disablement, poverty, or social or economic circumstances. That is, a community services organisation is expected to serve at least a particular group in need such as those expressed in paragraph 3 of TD 93/190.

We consider that the primary purpose of the entity is to develop and foster professional development to ensure the sector have the necessary skills, capacity and capabilities to provide exceptional service to the greater community and more generally members of the community who engage with, and avail themselves of services. The Entity builds ‘networks, collaboration and connectivity within organisations and across the sector to develop and leverage collective capability’. The Entity serves the needs of the greater community including the young, aged, disabled, impoverished and those whose need arises from social or economic disadvantage.

The Entity’s activities support its purpose:

● Training and online courses

● Professional development programs

● Conferences, public orations and forums

● Networking and capacity building

● Access to online academic journals

Although these activities are directed towards building service capability, we acknowledge that in providing them it is people accessing services who benefit. The programs and volunteer work undertaken by members of the entity indicate that they are seeking to build the sector so it can better meet the needs and expectations of the community.

Persons who use services would meet the definition of a section of the community who have a particular need by reason of youth, age, infirmity or disablement, poverty, or social or economic circumstance. We consider that the entity has an altruistic purpose that is beyond that of a common association of people as it has been established to improve the standard of specific services.

Consequently, the entity is considered to be established for community service purposes.

Special condition

Section 50-70 of the ITAA 1997 states that an entity covered by item 2.1 is not exempt from income tax unless the entity is not carried on for the profit or gain of its members and:

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

● it is a deductible gift recipient, or

● it is prescribed by law in the income tax regulations and it is located outside Australia and is exempt from income tax in its country of residence.

Non Profit

Organisations satisfy the non-profit requirement if their constituent documents prevent them from distributing profits or assets among members while the organisation is functional and on winding up. The organisation's actions must be consistent with this requirement.

The Entity’s constitution prevents distribution to members. The entity is not carried on for the profit or gain of its individual members.

In Australia

The Entity is incorporated in Australia, is located in Australia and carries on its activities in Australia. It pursues its objectives and incurs its expenditure in Australia and therefore satisfies this requirement.

The Entity satisfies the special condition in section 50-70 of the ITAA 1997.

Conclusion

Section 50-1 of the ITAA 1997 provides that the incomes of the entities covered by the tables in sections 50-5 to 50-45 of the ITAA 1997 are exempt from income tax.

An entity is exempt from income tax as a society, association or club established for community services purposes pursuant to item 2.1 of the table in section 50-10 of the ITAA 1997 if it:

● is a society, association or club,

● is established community service purposes, and

● satisfies the special condition.

The Entity is a society, association or club and has been established for community service purposes. In addition, it satisfies the special condition and is therefore exempt from income tax for the years ended 30 June 2016 until 30 June 2020.

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