Edited version of private ruling

Authorisation Number: 1011752788383

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Ruling

Subject: Income Tax Exemption

Question 1

Is the income of the Foundation, exempt from income tax under Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) because it is an association established for community service purposes (section 50-10 of the ITAA 1997) that meets the special conditions of section 50-70 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following period<s>:

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commences on:

1 July 2010

Relevant facts

This organisation is a non-profit organisation which principally provides community services to a particular region.

Reasons for decision

Section 50-1 of the ITAA provides that the ordinary and statutory income of an entity covered by section 50-10 of the ITAA 1997 is exempt from income tax. Section 50-10 refers to a society, association or club established for community services purposes (except political or lobbying purposes), meeting the special conditions of section 50-70 of the ITAA 1997.

Section 50-70 of the ITAA 1997 provides that the entity must not be carried on for the profit or gain of its individual members; must have a physical presence in Australia and to that extent incur its expenditure and pursue its objectives principally in Australia. It is considered that the Foundation meets this part of the requirements of this section, because it has the appropriate non-profit and winding up clauses, it is located in Australia and incur its expenditure and pursue its objectives principally in Australia.

Community Service Purposes

The phrase 'community service purposes' is not defined in the ITAA 1997. Olney J considered the meaning of the term in Douglas v. Federal Commissioner of Taxation 97 ATC 4722. His Honour stated at ATC 4726; ATR 536 that

'The absence of a statutory definition and the very broad ambit of the words "community service" justify resort to the explanatory memorandum to identify more precisely the legislative intention.'

The community service purposes category of exempt entity was introduced into the Income Tax Assessment Act 1936 by Taxation Laws Amendment Bill (No. 2) 1990.

The Introductory Note in the Explanatory Memorandum at Part 3 Clause 6, as far as it is relevant, reads as follows:

'Paragraph (b) of this clause will introduce subparagraph 23(g)(v) which will exempt from income tax the income of not-for-profit bodies established for community service purposes. The words 'for community service purposes' are not defined but are to be given a wide interpretation. The words are not limited to those purposes beneficial to the community which are also charitable. They extend to a range of altruistic purposes. The words would extend to promoting, providing or carrying out activities, facilities or projects for the benefit or welfare of the community, or of any members of the community who have particular need of those activities, facilities or projects by reason of their youth, age, infirmity or disablement, poverty or social or economic circumstances. An exclusion from the exemption will apply to bodies established for political or lobbying purposes.

As with sporting clubs, the bodies exempted include any qualifying society, association or club, whether incorporated or not. Similarly, a body's present conduct and activities show the purpose for which it is presently established, even if its constitution or its formation and history suggest a different purpose in the past.

The provision does not impose a narrow geographic limit by its reference to the community. Charitable purposes beneficial to the community may properly be carried out overseas, or among people everywhere; they need not be confined to the population of a particular region. Similarly, community service purposes are not required to be limited to the population, or part of the population of a region. 

When purposes are directed to the benefit or welfare of members of the community in particular need, that need must arise by reason of youth, age, infirmity or disablement, poverty or social or economic circumstances. These causes of need are intended to be read broadly. Infirmity or disablement, for example, could be intellectual or physical, and could be congenital or the product of disease or of injury. Similarly, social or economic circumstances could include such varied matters as sex, living in a remote area, or inability to speak English.

Political or lobbying purposes include standing candidates for election, campaigning for changes to the law or to government policy, and the like. Community service organisations may engage in political or lobbying activities, provided these are no more than merely incidental to other purposes beneficial to the community. But a body will be unable to claim exemption from income tax under this subparagraph if its only undertakings for the benefit of the community are political or lobbying ones.

All the traditional service clubs such as Apex, Rotary, Lions, Zonta, Quota and the like and community service organisations such as the Country Women's Association of Australia and its constituent Associations are considered to be exempt from income tax under the new subparagraph.'

Taxation Determination TD 93/190

This income tax determination answers the question "What is the scope of the exemption from income tax provided by subparagraph 23(g)(v) of the Income Tax Assessment Act 1936?"

The determination provides that the words 'community service purposes' 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.

At paragraph 6 it is stated:

'Political or lobbying activities often are said to be motivated by altruism. Even if this is so, organisations established for political or lobbying activities are excluded from exemption under the provision. Political or lobbying activities are not limited to party political activities; they include activities directed to influence changes to the law or its administration: cf National Anti-Vivisection Society v. Inland Revenue Commissioners [1948] AC 31.'

ClubPack states on page 40 that:

'The main purpose of the organisation must be community service purposes. Any other purpose of the organisation must be incidental, ancillary or secondary to the community service purposes.'

The Foundation undertakes activities to benefit local communities in Australia and also helps in developing those areas economically for the benefit of the community in general. These projects include the development of certain transport and industrial facilities. This usually entails, planning and promoting projects. Sometimes this also involves the initial running of the project until it can be taken over by another organisation.