Edited version of private advice

Authorisation Number: 1051562183421

Date of advice: 8 August 2019

Ruling

Subject: Income tax exemption

Question

Is the entity exempt from income tax, in accordance with section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) because it is an entity established for the purpose of promoting the development of resources under section 50-40 of the ITAA 1997?

Answer:

Yes

This ruling applies for the following period:

Year ended 30 June 2020

Year ended 30 June 2021

Year ended 30 June 2022

Year ended 30 June 2023

Year ended 30 June 2024

Year ended 30 June 2025

The scheme commenced on

1 July 2019

Relevant facts and circumstances

1. The entity is a company limited by guarantee.

2. The entity's purpose as stated in its constitution is to promote the development of manufacturing and ICT resources in Australia.

3. A significant event is undertaken by the entity annually and is the main activity used to promote the development of the resources.

4. The entity has appropriate not for profit income and property clauses in its constitution.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 50-1

Income Tax Assessment Act 1997 Section 50-40

Reasons for decision

Summary

Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the ordinary and statutory income of the entities covered by the tables in Division 50 is exempt from income tax.

To be an exempt entity under section 50-40 of the ITAA 1997 an entity must be a society or association established for the purpose of promoting the development of an Australian resource, the society or association must also not be carried on for the profit or gain of its individual members, and must satisfy the special condition in section 50-47 of the ITAA 1997. The entity does satisfy section 50-47 of the ITAA 1997 and its main purpose is the promotion of the development of Australian resources.

ACNC type entity condition

Section 50-47 of the ITAA 1997 provides a special condition that if an entity that is covered by one of the items in subdivision 50-A is an 'ACNC type of entity', they will not be exempt from income tax unless they are registered under the Australia Charities and Not-for-profits Commission Act 2012.

'ACNC type of entity' is defined in subsection 995-1(1) of the ITAA 1997 as an entity that meets the description of a type of entity in column 1 of the table in subsection 25-5(5) of the Australian Charities and Not-for-profits Commission Act 2012. Column 1 of the table in subsection 25-5(5) of the Australian Charities and Not-for-profits Commission Act 2012 describes a charity. The Charities Act 2013 provides a definition of 'charity' that applies to all Commonwealth laws.

The definition of 'charity' in section 5 of the Charities Act 2013 provides that 'charity' means an entity:

a)    That is a not-for-profit entity; and

b)    All of the purposes of which are:

                      i.        Charitable purposes that are for the public benefit; or

                     ii.        Purposes that are incidental or ancillary to, and in furtherance or in aid of, purposes of the entity covered by subparagraph (i); and

c)    None of the purposes of which are disqualifying purposes; and

d)    That is not an individual, a political party or a government entity

The entity is a not-for-profit entity. Charitable purposes are listed in section 12 of the Charities Act 2013. The entity has an independent purpose to provide benefits to its members. The entity does not have a solely charitable purpose and will not be an 'ACNC type of entity'.

Accordingly, section 50-47 of the ITAA 1997 will not apply and the entity can be considered for exemption under one of the non-charitable categories in Division 50 of the ITAA 1997.

Society or Association

The words 'society' and 'association' are not defined in the ITAA 1997 and therefore take their ordinary meaning.

Guidance on the terms 'society' and 'association' can be found in Pro-campo Ltd. v. Commr of Land Tax (NSW) 81 ATC 4270; (1981) 12 ATR 26. In that case the court made the following comments on the meaning of society and association (at 4279):

In Theosophical Foundation Pty Ltd v. Commr of Land Tax (NSW) [1966] 67 SR (NSW)... Sugerman JA stated at 82:

A society, in the relevant sense, is a number of persons associated together by some common interest or purpose, united by a common vow, holding the same belief or opinion, following the same trade or profession, etc; an association' (Oxford English Dictionary, 'Society'...

The meaning of "society" as the Oxford Dictionary definition shows can be the equivalent of "association" and I do not think that any relevant distinction in nature exists between the two. It merely seems to have happened that some organizations are called "associations", others are called "societies" but no meaningful difference can be detected between the two... In short the ... words are describing bodies made up of groups of persons who have come together to implement common purposes and objects...

The interpretations of 'society' and 'association' as described above, emphasise a 'body of persons' and 'an organisation of people' with a 'common purpose'. The entity is a public company limited by guarantee. It is an organisation of people with a formal structure, formed to pursue a common purpose as stated in its constitution. The entity is a society or association.

Resources of Australia

The exemption is limited to associations whose activities are directed to Australian resources, thereby excluding associations whose activities are directed to the resources of places beyond Australia. Where an association is established for the purpose of promoting the development of a foreign resource, or of both Australian and foreign resources, the test for exemption is not met.

Resources or their elements include infrastructure, plant and equipment, livestock, personnel, knowledge, expertise and skills. An industry's businesses and their assets may be resources Australian Insurance Association at 79 ATC 4574; 10 ATR 339.

Case W49 89 ATC 469 (at 473) said, in relation to importing materials and components from foreign jurisdictions, '... what is exported is ordinarily the product of Australian industry; and that what is imported is not a finished product... but rather materials for use in Australian primary and secondary industry.'

In Case U70 87 ATC 440; Tribunal Case 56 (1987) 18 ATR 3360, the Tribunal found that expression 'and elsewhere' did not prevent exemption because in practical terms the principal activities were all concerned with Australia and not with 'elsewhere'.

Application to the facts:

As the principal activities of the entity are directed to Australian resources and conducted in Australia this requirement is satisfied.

Manufacturing Resource item 8.2(d) of section 50-40

The term 'manufacturing resource' is not defined in the legislation. It takes its ordinary meaning.

Manufacturing resources extend to 'plant and equipment, manpower, skill and know-how in manufacturing such articles as steel products, clothing and furniture, and such non-tangible commodities as gas and electricity': Australian Insurance Association at 79 ATC 4574; 10 ATR 339.

Information and Communications Technology (ICT) resource item 8.3 of section 50-40

The terms 'information', 'communications', 'technology', and resources, and the composite expression 'information and communications technology resources' are not defined in the ITAA 1997, and take on their ordinary meaning.

The Online Macquarie Dictionary defines 'information' to mean; 'knowledge communicated or received concerning some fact or circumstance', 'knowledge on various subjects, however acquired', 'the act of informing', or 'the state of being informed'.

'Communication' is defined to mean; 'the act or fact of communicating; transmission', 'the imparting or interchange of thoughts, opinions, or information by speech, writing, or signs', 'that which is communicated or imparted', 'a document or message imparting views, information, etc', 'passage, opportunity of passage, or a means of passage between places', or 'the science or process of conveying information especially by electronic or mechanical means' (Online Macquarie Dictionary).

'Technology' is defined to mean; 'the branch of knowledge that deals with science and engineering, or its practice, as applied to industry; applied science', ' equipment of a technologically sophisticated nature, such as computers, internet connections, audiovisual equipment, etc', or 'equipment, tools, etc' (Online Macquarie Dictionary).

Application to the facts

The manufacturing resource is the plant and equipment, manpower, skill and know-how.

The ICT resource is the software and hardware and the manpower, skill and know-how in creating the software and hardware.

Promoting the Development

The promotion of development may be direct or indirect. Methods of promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating cooperation and similar activities.

The term 'development' is used in section 50-40 of the ITAA 1997 in a commercial or business sense. It comprehends all the elements which must be taken into account to ensure that the specified resources are used in the best interests of Australia.

In Co-operative Bulk Handling Ltd v Federal Commissioner of Taxation 2010 ATC 20-183, Gilmour J (at first instance) accepted that 'promoting the development of resources' under section 50-40 of the ITAA 1997 entails "unlocking, exploiting or bringing out the inherent potentialities and latent capabilities" of the resources. (at paragraph 80)

This reflects the meaning of 'development' given by Kitto J in Federal Commissioner of Taxation v Broken Hill Proprietary Company (1969) 120 CLR 240 in the phrase 'development of mining property' used in section 122 of the Income Tax and Social Services Contribution Assessment Act 1936-1964 (Cth):

In its ordinary English sense the word "development", when used in relation to a property, refers to the unfolding, the bringing out, of some latent capability of the property... It covers, I think, any preparation, adaption or equipment of the property for the exploitation of an inherent potentiality which cannot be exploited, or fully exploited, without some such preliminary treatment. (at 247)

It is not sufficient that one of an Association's purposes falls within section 50-40 of the ITAA 1997. Nor is it enough that resource development is incidental to, involved with or a consequence of an Association's purposes. The Association must be established for the required purposes. The term 'established' is not used in a narrow sense. It is necessary to consider an Association's constituent documents, operations and activities.

Not all activities connected with a resource will necessarily be for its development. For example, the improvement of marketing will ground an exemption only where it is undertaken as a means of promoting development of the particular resources. If the marketing or other purported means is not sufficiently connected or integrated with resource development, it will not be for the purpose of promoting development of those resources. It is not enough that a consequence of the activities may be resource development.

Promoting Development Conclusion

A significant event is undertaken by the entity annually and is the main activity used to promote the development of the Australian resources. The entity does have the predominant purpose of expanding the body of knowledge relating to manufacture and ICT resources. This requirement is met.

Benefits to members

If an association operates principally to confer benefits on its members jointly or as a group, it is unlikely to be predominantly for promoting resource development and thus not exempt under section 50-40 of the ITAA 1997.

In Case 46/94 at 94 ATC 417; 29 ATR 1108 the tribunal found, as an alternative ground, that the association was not exempt under 23(h) because it was principally to promote the interests of its members. It operated to look after the needs of consulting surveyors through such activities 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.

In Australian Insurance Association v. Federal Commissioner of Taxation (1979) 10 ATR 333 (1979) 41 FLR 256, the Association comprised the majority of general insurance companies carrying on business in Australia. At issue was inter alia, whether it primarily promoted the interests of its members, or whether the benefits to members were incidental to the purpose of being established to develop a particular resource. Sheppard J in concluding said, at ATC 4572:

In my opinion the difference between the parties in the way that each views the evidence is one of emphasis. The very nature of the appellant's undertaking is such that it must further the more selfish interests of its members by engaging in the various activities which it does. But that, in my opinion, is a consequence of what it does and in any event itself leads to a situation pursuant to which the appellant's endeavours do have the overall effect of promoting the protection and furtherance of Australian Insurance business.

An organisation must be able to demonstrate that it has a predominant purpose of promoting resource development of the resource rather than the interests of its own members.

Application to the facts

While some benefits may flow to members as a consequence of membership, the entity's principal purpose is to promote the development of the relevant resource, not to benefit members. Non-members, and other participants in the industry, also benefit from the activities of the organisation, as does the Australian community at large. Member benefits are minor or ancillary.

Not be carried on for the profit or gain of its individual members

In Federal Commissioner of Taxation v Co-operative Bulk Handling Ltd (Supra) Mansfield and McKerracher JJ stated the following about the meaning of 'not be carried on for the profit or gain of its individual members':

In all cases of exemption, it must be the position that it is not open to the body to disburse any profits or dividends to members. (at paragraph 95)

The entity's Constitution prohibits the entity from applying its assets for the benefit of individuals while it operates and on winding-up.

Conclusion:

A review of the entity's application and supporting information demonstrates that the it is a non-profit association which has been established principally or predominantly for the purpose of promoting development of the relevant resource. It therefore qualifies for income tax exemption under section 50-1 of the ITAA 1997 as an association established for the purpose of promoting the development of an Australian resource under section 50-40 of the ITAA 1997.

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