Edited version of private advice

Authorisation Number: 1051847550100

Date of advice: 3 June 2021

Ruling

Subject: Income tax exempt status

Question

Is X 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 20xx to 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

X is not a charitable entity; it is not registered with the Australian Charities and Not-for-profits Commission (ACNC). Further, it is not a Registered Training Organisation (RTO)

X has provided details of its goals, mission and purpose.

X has provided details of its objects and membership.

X conducts a range of activities to support their goals, mission and purpose:

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

Summary

The total ordinary income and statutory income of X is 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 the table in section 50-10 of the ITAA 1997.

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 X 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 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.

X's constitution sets out its purposes. X is a professional body and its non-charitable purpose is not ancillary or incidental. As X has a non-charitable purpose, it is not capable of being a registered charity.

Further, paragraph 140 in 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.

X is not an ACNC type of entity and section 50-47 does not apply.

Community Service Purposes

Item 2.1 of the table in section 50-10 of the 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 are:

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.

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

It is accepted that X is an association.

Political or Lobbying Purposes

Section 50-10 of the ITAA 1997 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.

X has 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?' which at paragraphs 3 to 5 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.

X has an altruistic purpose that is beyond that of a common association of people as it has been established to improve the standard of community 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.

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

In Australia

X 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.

X satisfies the special conditions in section 50-70 of the ITAA 1997.

Conclusion

Section 50-1 of the ITAA 1997 provides that the ordinary and statutory income 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 conditions.

X is a society, association or club and has been established for community service purposes. In addition, it satisfies the special conditions and is therefore exempt from income tax.

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