Edited version of private ruling

Authorisation Number: 1011596228877

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Ruling

Subject: Income Tax Exemption - Promotion of Tourism

Question

Whether the entity is a society or association established for the purpose of promoting the development of tourism pursuant to the provisions of item 8.1 of the table in section 50-40 of the Income Tax Assessment Act 1997(ITAA 19997).

Advice/Answers:

No.

This ruling applies for the following period:

Income tax years ended 30 June 2011

Income tax years ended 30 June 2012

Income tax years ended 30 June 2013

Income tax years ended 30 June 2014

The scheme commenced on:

1 July 2010

Summary

The entity is established for the purpose of promoting the development of tourism as required by item 8.1 of the table in section 50-40 of the ITAA 1997.

Detailed reasoning

To satisfy the requirement of item 8.1(b) of the table in section 50-40 of the ITAA 1997, an entity must:

· be a non-profit association; and

· have a dominant or principal purpose of promoting the development of tourism.

Non-Profit Association

Non-profit requirement

The ATO publication, Income Tax Guide for Non Profit Organisations (ITGNPO) at page 6, states that:

The Tax Office accepts an organisation as non-profit where it's constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people - both while it is operating and when it winds up. These documents should contain acceptable clauses showing the organisation's non-profit character. The organisation's actions must be consistent with this requirement.

A non-profit organisation can still make a profit but this profit must be used to carry out its purposes…the profits must not be distributed to owners, members or other private people.

There are two requirements in the statement of non-profit character above. First, an entity's constituent documents must display a non profit character. Second, the entity's actions must be consistent with this non profit character.

Certain clauses of the constitution prevent the applicant from distributing its profits or assets among members while it is operating or on it's winding up.

Paragraph 76 of Taxation Ruling TR 2005/21 states:

An organisation is not charitable if it is carried on for the purposes of profit or gain to particular persons including its owners or members. This is known as the non-profit requirement. If an organisation is carried on for the profit of its owners or members, it is carried on for their benefit and not for the benefit of the community. This is the case irrespective of the number of owners or members, or whether charitable consequences flow from the organisation's activities.

The membership of the applicant consists of branches, none of which are income tax exempt. Their income consists of mutual income and income that is taxable. Therefore the branches are essentially for-profit entities that exist for the benefit of their members.

The activities undertaken by the applicant are for the benefit of the branches only. The applicant does not promote the activities of any similar type of organisation.

While the activities of the applicant may have some beneficial consequences for Australian tourism generally, this is not sufficient to give it the character of an entity that is carried on for the public benefit. The reality is that the applicant is carried on for the benefit of its members.

The applicant does not satisfy the non-profit requirement.

Association

The terms 'association' and 'society' are not defined and have their ordinary meaning.

An association may be incorporated or unincorporated. However, it does not include a body formed and controlled by government and performing functions on behalf of government (see Taxation Determination TD 95/56).

Paragraph 2 of TD 95/56 states:

…The Shorter Oxford Dictionary defines the term 'association' to be a 'body of persons associated for a common purpose; the organisation formed to effect their purpose'. The Macquarie Dictionary defines 'association' as being 'an organisation of people with a common purpose and having a formal structure'. Olsson J, in Quinton v. South Australian Psychological Board (1985) 38 SASR 523, also stated that the term 'association' has come to be regarded as attaching to a body of persons associated for a common purpose.

The applicant is an incorporated entity brought into existence by its members to pursue a common purpose as stated in its constitution. It is not a body controlled or formed by government or performing functions on behalf of government.

It is accepted that the applicant is an association.

Dominant or principle purpose of promoting the development of tourism

Tourism

Tourism is not defined in the ITAA 1997. Page 22 of the Income tax guide to non-profit organisations provides that tourism 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 Butterworth's 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 of the ITAA 1997 does not refer to the promotion of tourism. It is directed to the promotion of the development of tourism.

The ATO publication, Income tax guide to non-profit organisation, states that 'Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating co-operation, 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 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.

For example, the development of agricultural resources might be directly promoted by research, experimental farms, control of pests, education in farming methods, or the introduction of new and improved classes of products. It might be indirectly promoted by improved marketing methods, cooperative buying and selling, solution of labour disputes, or ameliorative legislation.

Development of resources can be promoted by facilitating the cooperation of business and instrumentalities. Chambers of commerce and regional development bodies may help promote resource development in these ways.

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.'

Dominant Purpose

The Income tax guide for non-profit organisations states:

The purpose of the society, association or club 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.

It is not sufficient that one of an association's purposes falls within the provision nor is it sufficient that the development of tourism is incidental to, involved with, or a consequence of an association's purposes.

In Boating Industries Association of New South Wales v. FC of T 85 ATC 4224; (1985) 16 ATR 383 at 85 ATC 4228; 16 ATR 387-8, the taxpayer was the Boating Industries Association of N.S.W.

Its objects included the promotion of interests in safe boating and the organisation of and staging of exhibitions and demonstrations intended to arouse public interest in marine activities. The Association contended that it was a non profit organisation established for the purpose of promoting the development of manufacturing resources of Australia.

The Commissioner rejected the Association's contention and assessed it on income tax. The Association objected and the Commissioner disallowed the objection. The Association appealed.

In dismissing the appeal it was held that section 23(h) of the ITAA 1936 (now repealed and replaced with section 50-40 of the ITAA 1997) requires that the relevant organisation be "established" for the purpose stated, not merely "involved". It is the purpose of the establishment of the body that is crucial. In this case it was clear from the evidence that the taxpayer's principal activity was safe boating and not the promotion of Australian manufactured boats. Accordingly the taxpayer was not established for the purpose of promoting the development of manufacturing resources of Australia.

The objects and activities of the applicant indicate that it is concerned with advancing its objects in Australia. From the information provided, it is accepted that the applicant actively encourages and promotes its objects in relation to the branches that are also members. However, as the activities principally benefit its members, none of whom are non-profit entities, the applicant does not exist for the purpose of promoting tourism but exists predominantly to promote the interests of its members to the exclusion of all other similar tourism providers. This view is reinforced by the fact that the applicant maintains its website for the benefit of the branches by providing a central booking system for those members which allows people to book its services anywhere in Australia. The website provides other pertinent information which promotes member associations to tourists.

The applicant does not satisfy this requirement as its dominant purpose is to promote the interests of its members.