Edited version of private advice

Authorisation Number: 1052021697745

Date of advice: 15 August 2022

Ruling

Subject: Exempt income - community service purposes

Question

Is your income exempt under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is an association established for community service purposes (except political or lobbying purposes) under item 2.1 of the table in section 50-10 of the ITAA 1997?

Answer

No.

This ruling applies for the following period:

20XX

The scheme commences on:

20XX

Relevant facts and circumstances

You are a not-for-profit organisation run by volunteers and no Management Committee member receives any funds for their time, effort, or other costs.

You are governed by your Rules of Association which include your objects and use of assets and income.

Your members pay a fee.

You deliver presentations/panel discussions by expert speakers predominantly for members.

You also provide members with access to resources and information on your website, and professional networking and sharing of resources and support from other members.

Apart from some fees, all your funds are directed to providing services to your members.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 section 50-10

Income Tax Assessment Act 1997 section 50-70

Reasons for decision

All references made in these reasons for decision are to the Income Tax Assessment Act 1997 unless otherwise stated.

Summary

You are not considered to be an association established for community service purposes under item 2.1 of the table in section 50-10 as your main purpose is to provide benefits to your members, therefore your income is not exempt under section 50-1.

Detailed reasoning

Section 50-1 exempts from income tax the total ordinary and statutory income of an entity covered by section 50-10.

Item 2.1 of the table in section 50-10, 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 the special conditions in section 50-70.

Section 50-70 states:

50-70(1)

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;

and the entity satisfies the conditions in subsection (2).

50-70(2)

The entity must:

(a) comply with all the substantive requirements in its governing rules; and

(b) apply its income and assets solely for the purpose for which the entity is established.

Non-profit requirement as a society, association, or a club

For an entity to be non-profit it must not be carried on for the purposes of profit or gain of its individual members. Its constituent document must contain clauses that prevent it from distributing its profits or assets among members on a daily operational basis and on its winding up. This provision must also be reflected in its activities.

Your Rules include clauses preventing the distribution of profits or assets to your members and on winding up. All your funds are used to undertake your activities.

It is accepted you operate as a non-profit association.

Established for community service purposes, except for political or lobbying purposes

Community service purposes is discussed in Taxation Determination TD 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)

TD 93/190 states at paragraph 2 that in relation to former subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 (ITAA 1936), which preceded item 2.1 of the table in section 50-10, that

the purpose of enacting subparagraph 23(g)(v) was to create a category of exemption for community bodies whose activities are not accepted as being charitable ... but which, nevertheless, conduct activities of benefit to the community.

TD 93/190 further states at paragraphs 3 to 5:

3. ... The term 'community service purposes' has a broader meaning than other purposes beneficial to the community which are also charitable. The Explanatory Memorandum to subparagraph 23(g)(v) confirms that the words 'community service purposes' are to be given a wide interpretation. Those words extend to a range of altruistic purposes that 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 organisation 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.

In Navy Health Limited v Deputy Commissioner of Taxation [2007] FCA 931, Jessup J said that:

I consider that the essence of 'community service' is that a service is provided to the community, or a section of the community. Here the word "service" is used in the sense of 'help, benefit or advantage', particularly 'the action of serving, helping or benefiting, conduct tending to the welfare or advantage or another.

In this regard, His Honour went onto say that the benefit provided must not be vague. Specifically, His Honour said that community service:

...deals with 'service' in a much more concrete setting, and requires, in my view, the community, or a section of the community, to benefit by way of the receipt of some identifiable help, benefit or advantage...

In Victorian Healthcare Association Limited and Commissioner of Taxation [2010] AATA 473, the Administrative Appeals Tribunal considered whether a healthcare association had been established for community service purposes. In finding that it was not so established, Senior Member Pascoe stated that [at 22]:

...its principal or dominant purpose is to provide services as directed and needed by its member. As with Navy Health its operations may result in an improvement in community health as provided by its members but that is a by-product of its principal or dominant purpose, not any altruistic purpose for which it was established.

Although some of your networking and professional development opportunities may be open to non-members, they are clearly directed at your members.

Your activities do not themselves deliver practical help, benefit, or advantage to the community, rather, they benefit your members directly. Whilst there is an expectation that these members may use this personal advantage to benefit the community, the potential community service is too far removed from your activities.

As your main purpose is to provide benefits to your members, you do not satisfy the requirement of being a society, association or club established for community service purposes. Therefore, your ordinary and statutory income will not be exempt under section 50-1 pursuant to item 2.1 of the table in section 50-10.

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