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Edited version of private ruling
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Ruling
Subject: Income Tax Exemption
Question: Is the entity tax exempt
Answer: Yes.
Relevant facts and circumstances
The entity is a body of persons associated to effect a common purpose as set out in the objects in the Memorandum of Association.
The entity is stated to be a non-profit society or association established for the purpose of promoting the development of Australian pastoral resources.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 50-40
Detailed reasoning
SECTION 50-40 Primary and secondary resources, and tourism
Primary and secondary resources, and tourism | ||
Item |
Exempt entity |
Special conditions |
8.2 |
a society or association established for the purpose of promoting the development of any of the following Australian resources: |
not carried on for the profit or gain of its individual members |
|
(e) pastoral resources; |
|
Association
The terms 'association' or 'society' are not defined in the ITAA 1997 and have their ordinary meaning.
In Taxation Determination TD 95/56 the tax office considers the meaning of association as follows:
The Shorter Oxford English 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.
In Pro-campo Ltd v. Commr of Land Tax (NSW) (1981) 12 ATR 26 at 35 Lee J said:
The meaning of "society" as the Oxford English 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 organisations are called "associations", others are called "societies" but no meaningful difference can be detected between the two.
Based on this previous ATO advice, it is considered that the applicant meets the requirements of an association being a body of persons associated to effect a common pursue as set out in the objects in the Memorandum of Association.
Main purpose promotion of the development of resources
Item 8.2, section 50-40, lists resources development orgainsations. Item 8.2(e) specifically relates to pastoral resources. A pastoral resources organisation is stated to be:
a non-profit society or association established for the purpose of promoting the development of Australian pastoral resources.
These words take their ordinary meaning. It is considered that the objects of the applicant involving: marketing and promoting the industry in Australia, improving the production and quality of products, improving the methods of production, handling, storage, transport and marketing of the product, encouraging the production of the product and more efficient marketing and to undertake, co-ordinate and fund research are promoting the development of a resource referred to in section 50-40 of the ITAA 1997. The activities of the company including provision of expert advice to government to ensure access to overseas markets, lobbying of overseas governments for improved access to their markets, marketing and promotion activity to increase demand for products, research to improve productivity and breeding and research into markets to ensure local product meets needs of the market, are consistent with the objects and are for the promotion of the development of a resource referred to in section 50-40 of the ITAA 1997.
Australian
The activities of the company are directed to Australian resources.
Non-profit
The special condition in item 8.2, Section 50-40 requires that the entity not be carried on for the profit or gain of its individual members.
Page 62 of the ATO publication: Income tax guide for non-profit organisations states:
For an organisation to be non-profit:
· It must be a company that is not carried on for the purposes of profit or gain to its members, and
· Its constituent documents must prohibit it from making any distributions, whether in money, property or otherwise, to its members.
Your organisation can be a non-profit company and still make a profit. However, any profits it makes must be used to carry out its purposes. The profit must not be distributed to the members.
It is considered that clauses 4 and 7 of the Memorandum of Association of the company satisfy the requirement that its governing documents prevent it from distributing profits or assets for the benefit of its members. Membership is not compulsory to benefit from the activities of the applicant, as it makes the results of its activities available to anyone via its website.
Conclusion
It is considered that the requirements of item 8.2(e), section 50-40 of ITAA 1997, have been met and the ordinary and statutory income of the company is exempt under section 50-1 of the ITAA 1997.