Edited version of your written advice

Authorisation Number: 1051477220028

Date of advice: 25 January 2019

Ruling

Subject: Income tax exemption

Question 1

Is the entity exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the purpose of promoting the development of tourism under item 8.1(b) in section 50-40 ITAA 1997?

Answer

Yes

Question 2

Is the entity a rebatable employer pursuant to section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA ) for the purpose of promoting the development of tourism under item 8(a)(ii) in subsection 65J(1) of the FBTAA?

Answer

Yes

This ruling applies for the following period

1 July 2017 to 30 July 2021

The scheme commences on:

1 July 2017

Relevant facts and circumstances

The entity is a company limited by guarantee and is the peak body for the industry in Australia.

The entity’s objectives include:

● promotion and market development, and to advocate for best practice.

● represent the Industry in Australia as a peak body

● collect, analyse and disseminate research, scientific, technical and other information

● co-operate with appropriate organisations at the State, Territory, national level

● provide and influence technical education, activities, projects and resources to promote the industry.

The entity has a non-profit clause and a winding up clause in its constitution:

Relevant legislative provisions

Item 8 (a), subsection 65J(1) of the Fringe Benefits Tax Assessment Act 1986

Subsection 65J(1) of the Fringe Benefits Tax Assessment Act 1986

Subsection 65J(5) of the Fringe Benefits Tax Assessment Act 1986

Section 50-1 of the Income Tax Assessment Act 1997

Item 8.1, section 50-40 of the Income Tax Assessment Act 1997

Reasons for decision

Summary

The entity is exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a society or association established for the purpose of promoting the development of tourism under item 8.1(b) of s50-40 of the ITAA 1997.

ACNC type entity condition

Section 50-47 of the ITAA 1997 provides that an entity that is covered by any item and 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 (‘ACNC Act’). Section 50-47 of the ITAA 1997 provides:

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.

The expression ‘ACNC type of entity’ is defined in subsection 995-1(1) of the ITAA 1997 to mean an entity which meets the description of a type of entity in column 1 of the table in subsection 25-5(5) of the ACNC Act.

Broadly, an entity capable of being a registered charity is an ACNC type of entity.

In Taxation Ruling TR 2011/4 Income tax and fringe benefits tax: charities 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 of TR 2011/4 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 Constitution provides that the objects are mainly to promote the development of tourism. These purposes are non-charitable. As the entity has non-charitable purposes, it is not capable of being a registered charity. The entity is therefore not an ACNC type of entity and section 50-47 is not applicable.

Question 1

Is the entity exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the purpose of promoting the development of tourism under item 8.1(b) in section 50-40 ITAA 1997?

Assessable income of an entity is exempt under s50-1 of the ITAA 1997 where the entity falls within the following description contained in item 8.1 of s50-40 of the ITAA 1997.

Item 8.1 states the following:

a society or association established for the purpose of promoting the development of:

(a) aviation; or

(b) tourism

The exemption is subject to a special condition that the society or association is not carried on for the profit or gain of individual members. To satisfy the requirements of item 8.1(b) of the table in section 50-40 of the ITAA 1997, an entity must:

1. be a non-profit association; and

2. have a dominant or principle purpose of promoting the development of tourism.

Non-profit association

Non-profit requirement

Section 50-40 of the ITAA 1997 requires that the association not be carried on for the purposes of profit or gain to its individual members.

This means that the organisation is not operating for the profit or gain of its individual members, whether these gains would have been direct or indirect. This applies both while the organisation is operating and when it winds up. Any profit made by the organisation goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members.

In Taxation Ruling TR 2011/4 at paragraph 235 an organisation is accepted as non-profit where its constituent or governing documents contain clauses:

… that prevent the institution from distributing its profits or assets for the benefit of particular persons while it is operating and on winding up (commonly called the ‘non-profit’ or ‘not for profit’ clauses). The courts have tended to regard these clauses as an essential aspect of the constituent documents.

The Constitution contains clauses preventing benefits or profits being distributed to members both during its operation and on winding up.

The entity satisfies this requirement.

Association

The terms ‘association’ and ‘society’ are not defined and have their ordinary meaning. The Macquarie Dictionary defines association as an organisation of people with a common purpose and having a formal structure. Society has an equivalent meaning (Pro-campo Ltd v. Commissioner of Land Tax (NSW) 81 ATC 4270 at 4279; (1981) 12 ATR 26 at 35).

The entity is incorporated under the Corporations Act 2001 as a company limited by guarantee and is governed by its constitution. The common purpose for which the entity’s shareholders have joined together is expressed in the constitution’s objects. Therefore, it is accepted that the entity is an association.

Dominant or principal purpose of promoting the development of tourism

Tourism

‘Tourism’ is not defined in the ITAA 1997 and has its ordinary meaning.

The Macquarie Dictionary defines the term tourism as the practice of touring, especially for pleasure; the occupation of providing local services, as entertainment, lodging, food, etc, for tourists.

The Shorter Oxford English Dictionary defines the term to mean 'The theory and practice of touring; travelling for pleasure', and Butterworths Australian Legal Dictionary defines it to mean 'The practice of travel and associated activities for the primary purpose of recreation.'

Promotion of Development

Item 8.1(b) of the table in section 50-40 does not refer to the promotion of tourism. It is directed to the promotion of the development of tourism.

Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating co-operation, and similar activities.

Income Tax IT 2415 states:

The term 'development' is used in section 50-40 in a commercial or business sense. It comprehends all the elements which must be taken into account to ensure that the specified resources are best used.

Promoting the development may be direct or indirect. It need not be on a large scale or use commercial means. However, not all activities connected with a resource will necessarily be for its development. Activities directly promoting development include research, education and training, development and monitoring of standards in manufacturing, (accreditation) and introduction of new and improved classes of product.

As Taxation Ruling IT 2415 points out at paragraph 9:

Although the connection may not be as readily apparent the development of marketing techniques may also be relevant to the development of resources - it could be said that there is little point in developing resources if the products of the resources cannot be sold. Another area where the connection with development of resources may not be direct is the development of tourism - but it does play a part in the development of the resources specified in paragraph 23(h).

As the Tribunal pointed out in Case W49 at 89 ATC 474; 20 ATR 3602:

The enlargement of the market is one of the objectives of "promoting the development" of any relevant industry.

The objects of the entity as stated above are consistent with those necessary to promote the development of tourism.

The facts indicate that the development of tourism occurs in Australia and the activities of the organisation are conducted in Australia.

The above shows that the entity satisfies this requirement.

Dominant Purpose

The purpose of the association must be promoting the development of the relevant resources. Any other purpose of the organisation must be incidental, ancillary or secondary to promoting development of the relevant resources.

This means that to be exempt under item 8.1(b) in the table of section 50-40 of the ITAA 1997, an association must be established principally or predominantly for the purpose of promoting the development of tourism.

An association may have a purpose and conduct activities that are ancillary or incidental to its main purpose. In that regard, Lockhart J in Cronulla Sutherland Leagues Club Limited v FC of T (1990) 23 FCR 82; 90 ATC 4215 at 4255; (1990) 21 ATR 300 at 312 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 exemption.

As the following cases illustrate, it is necessary to distinguish a dominant purpose of providing benefits to members as a group from the incidental benefits which will often flow to members from activities promoting the development of tourism.

In Case 46/94 94 ATC 412; (1994) 29 ATR 1102 at ATC 417; ATR 1108 the Tribunal found, as an alternative ground, that the association was not exempt because it principally promoted the interests of its members. It operated to look after the needs of consulting surveyors through such matters as public liability insurance, professional development, training of employees, assuring quality client service, publishing business practice and technical material, and lobbying to obtain work for members particularly from government. (The association was accepted as non-profit.)

While Case W49 89 ATC 469; at 474 states:

The enlargement of the market is one of the objectives of "promoting the development" of any relevant industry. In my view the relevant test is satisfied provided that members do not benefit "as members". I find that the Association does not have as an object the generation of increased profits to any one or more members to the exclusion of others or have as an object the equal or equitable distribution of any increased market profit between its members to the exclusion of others.

The entity does confer benefits to its members. This is evident through its purposes, activities and financial expenditure. However, these are incidental to the main objects of the entity.

The entity is entitled to income tax exemption under item 8.1(b) of s 50-40 of the ITAA 1997 as it is a non-profit association established for the purposes of promoting the development of tourism.

Question 2

Is the entity a rebatable employer pursuant to section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA ) for the purpose of promoting the development of tourism under item 8(a)(ii) in subsection 65J(1) of the FBTAA?

In determining whether the entity is an eligible rebatable employer pursuant to paragraph 65(J)(1) of the FBTAA, we must first determine if it is a rebatable employer.

An employer is a rebatable employer for a year of tax if the employer:

● is exempt from income tax at any time during the year of tax, and

● satisfies any special conditions set out in the table to ss65J(1).

Specifically, item 8(a)(ii) of the table in ss65J(1) of the FBTAA covers the following:

A society or association:

(a) established for the purposes of promoting the development of:

(i) aviation; or

(ii) tourism; and

(b) covered by item 8-1 of the table in section 50-40 of the Income Tax Assessment Act 1997

Therefore, to qualify as a rebatable employer under item 8(a)(ii) of the table in subsection 65J(1) of the FBTAA, an entity must:

● be established for the purpose of promoting the development of tourism and be covered under item 8.1 of s50-40 of the ITAA 1997.

As discussed in relation to question 1 the entity fulfils the requirements for tax exemption under item 8-1 of the table in section 50-40 of the ITAA 1997 as it promotes the development of tourism.

In addition, the association must comply with s65J(5) of the FBTAA.

Subsection 65J(5) of the FBTAA states:

A society, association or club is not club is not covered by table item 4, 5, 8, 9, 10, 11, 12 in subsection (1) for a year of tax if it is:

(a) an incorporated company where all the stock or shares in the capital of the company is or are beneficially owned by

(i) the Commonwealth, a State or a Territory; or

(ii) an authority or institution of the Commonwealth, a State or a Territory; or

(b) an incorporated company where the company is limited by guarantee and the interests and rights of the members in or in relation to the company are beneficially owned by:

(i) the Commonwealth, a State or a Territory; or

(ii) an authority or institution of the Commonwealth, a State or a Territory.

Therefore, to qualify as a non-profit association under ss65J(5) of the FBTAA, an entity must:

● be non-profit

● be a society, association or club, and

● not be under beneficial ownership of the Commonwealth, a State or a Territory or an authority or institution of the Commonwealth, a State or a Territory.

Non-profit

As discussed above, the entity is considered to be non-profit as its Constitution contains an appropriate non-profit and dissolution clause.

Society, association or club

As discussed in Question 1 in relation to the entity’s income tax exemption status, it meets the ordinary meaning of an association.

However, Taxation Determination TD 95/56 serves to slightly modify the ordinary meaning of an ‘association’ for the purpose of s65J of the FBTAA. It states that a body cannot be an association where it is:

● formed by government

● controlled by government, and

● performs functions on behalf of government.

A review of the Constitution indicates that the entity has not been formed or controlled by government to carry out functions on behalf of government, and is therefore not a body formed by the federal, state or territory governments, for the purpose of subsection 65J(5) of the FBTAA.

The entity satisfies subsection 65J(5) of the FBTAA as it is not beneficially owned by the government.

Conclusion

The entity is established for the purpose of promoting the development of tourism under section 50-1 of the ITAA 1997 and meets the special conditions in subsection 65J(5) of the FBTAA. As it satisfies all the necessary conditions to be considered a rebatable employer under subsection 65J(1) of the FBTAA.

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