Edited version of private ruling

Authorisation Number: 1011675181744

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Ruling

Subject: Income Tax Exemption

Is the entity income tax exempt?

Question

Is the entity a society, association or club established for community service purposes pursuant to item 2.1 of the table under section 50-10 of the Income Tax Assessment Act 1997 (ITAA 1997) and therefore exempt from income tax?

Answer: Yes

This ruling applies for the following periods:

Income year ended 30 June 2006

Income year ended 30 June 2007

Income year ended 30 June 2008

Income year ended 30 June 2009

Income year ended 30 June 2010

The scheme commenced on:

1 July 2005

Relevant facts

The entity is a not-for-profit association.

The entity is established to develop links between palliative care practitioners, provide a forum for the exchange of information between palliative care providers and to raise awareness of the need for new palliative care services.

The entity provides workshops and conferences for palliative care practitioners, provides meetings for the exchange of information and publishes newsletters.

The entity is funded exclusively by members with the exception of donations and government grants.

The entity applies the government grants and donations to its overseas activities. All other funds are incurred in Australia.

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

Income Tax Assessment Act 1997 Section 50-75(1)

Reasons for decision

Item 2.1 of section 50-10 of ITAA 1997 Act provides 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 states:

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.

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

It is accepted that the entity is an association.

Political or Lobbying Purposes

Paragraph 102 in Taxation Ruling 2005/21 - Income tax and fringe benefits tax: charities (TR 2005/21) states:

An institution or fund is not charitable if its purpose is advocating a political party or cause, attempting to change the law or government policy, or propagating or promoting a particular point of view (emphasis added).

From the objects and purposes in its constitution it is accepted that the entity is not advocating a political party or cause, attempting to change the law or government policy, nor propagating or promoting a particular point of view.

Note that following the recent High Court decision Aid/Watch Incorporated v Commissioner of Taxation [2010] HCA 42 (Aid/Watch), political or lobbying purposes were considered charitable. The ATO is currently establishing its views on this judgement through a Decision Impact Statement.

Notwithstanding the Aid/Watch decision, the entity has not been established for 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?' (TD 93/190) which 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.

We consider that the primary purpose of the entity is to develop and foster links between palliative care practitioners and organisations; provide a forum for the exchange of information and ideas between providers of palliative care; and raise awareness of the needs for new palliative care services and further development of palliative care in the region. It is considered that these purposes are directed at improving the standard of palliative care services in the region.

In support of the entity's purpose are its activities:

· Publishing newsletters on palliative care

· Sponsoring workshops, conferences and seminars on palliative care methods

· Arranging local meetings for the exchange of information.

Although these activities are directed towards practitioners of palliative care services, we acknowledge that in providing them it is people suffering in the last phase of their life who benefit. The programs and volunteer work undertaken by members of the entity indicate that they are seeking to help people in need of palliative care.

Persons in need of palliative care would meet the definition of a section of the community who have a particular need by reason of youth, age, infirmity or disablement, poverty, or social or economic circumstance. We consider that the entity has an altruistic purpose that is beyond that of a common association of people as it has been established to improve the standard of palliative care services in the region.

Consequently, the entity is considered to be established for community service purposes.

Special Conditions

The special conditions in section 50-70 of ITAA 1997 requires that the organisation is not carried on for the purpose of profit or gain of its individual members and has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia.

Non Profit

The entity has acceptable non-profit and dissolution clauses that ensure the entity operates in a non-profit manner during its operation and upon its winding up.

In Australia

For an entity to be considered to be 'in Australia', it must have a 'physical presence' in Australia and, to that extent, incur its expenditure and pursues its objectives principally in Australia.

However, certain distributions may be disregarded; this is stated in subsection 50-75(1):

In determining for the purposes of this Subdivision whether an institution, fund or other body incurs its expenditure or pursues its objectives principally in Australia, distributions of any amount received by the institution, fund or other body as a gift (whether of money or other property) or by way of government grant are to be disregarded.

The entity receives donations and government grants to fund its overseas activities. According to subsection 50-75(1), donations and government grants are disregarded when determining if an entity incurs it expenditure and pursues its purposes in Australia. Therefore all of the entity's expenditure and objectives are incurred principally in Australia.

The entity satisfies the 'Special Conditions' requirement of section 50-70 of the ITAA 1997.

Conclusion

Based on the above, the total ordinary income and statutory income of the entity is exempt from income tax pursuant to section 50-1 of ITAA 1997 as it is an association established for community service purposes, pursuant to item 2.1 of the table in section 50-10 of the ITAA 1997.