Edited version of private ruling

Authorisation Number: 1011842084863

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Ruling

Subject : Income tax exemption - association or club

Question 1

Is the ordinary and statutory income of the Rulee exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997), because the Rulee is an association or a club established for community service purposes as described in item 2.1 of section 50-10 of the ITAA 1997 and which satisfies any of the special conditions stated in section 50-70 of the ITAA 1997?

Answer

Yes

This ruling applies for the following period

Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015

The scheme commenced on

1 July 2010

Relevant facts and circumstances

The Rulee is a Company limited by guarantee.

The Rulee is located in Australia and will incur its expenditure and pursue its activities principally in Australia.

The Rulee has an ABN.

The Rulee is governed by its constitution which allows for an unlimited number of members, and also sets out its objects.

The Rulee has an initial membership at formation stage.

The Rulee's objects are:

To support, encourage, educate and advance youth and their families in Australia .

The Rulee's constitution contains suitable non profit clauses.

The Rulee was established to operate and continue to promote and expand on number of programs which were previously undertaken by an associated entity.

The Rulee's role through its objectives is to influence the targeted youths to participate in the various programs which run in partnership with the qualified health and educational institutions, (direct providers of the activities and services) rather than the direct provision of such activities and education by the Rulee on its own.

Such programs are:

reading program, garden maintenance, adolescent and indigenous programs, camp activities to involve culture, history through site visits, finding bush tucker, learning about bush medicine and rock art, understanding of educational pathways and other opportunities in areas of Maths, Science, and Sports,, support selected charities by way of access to home games, anti-bullying program, sponsoring various sporting games.

Relevant legislative provisions

Section 50-1 of Income Tax Assessment Act 1997
Section 50-10 of Income Tax Assessment Act 1997
Section 50-70 of Income Tax Assessment Act 1997
Section 30-15 of Income Tax Assessment Act 1997

Reasons for decision

Summary

The Rulee is an entity which has been established for altruistic purposes that fall within the term 'community services purposes'. The Rulee is an entity described in item 2.1 of section 50-10 of the Income Tax Assessment Act 1997 (ITAA 1997). As such, the Rulee is exempt from income tax pursuant to section 50-1 of the ITAA 1997.
Detailed reasoning

Section 50-1 of the ITAA 1997 states that the total ordinary and statutory income of the entities covered by the tables in Sub Division 50-A of the ITAA 1997 is exempt income.

Sub division 50-A of the ITAA 1997 includes section 50-10 of the ITAA 1997. Item 2.1 of the table in section 50-10 describes a "society, association or club established for community service purposes (except political or lobbying purposes)".

Item 2.1 of the table in section 50-10 of the ITAA 1997 in conjunction with section 50-1 of the ITAA 1997, provides that the total ordinary income and statutory income of a society, association or club established for community service purposes (except political or lobbying purposes) is exempt from income tax, subject to the special condition detailed in section 50-70 of the ITAA 1997.

To be an entity described in item 2.1 the entity must:

· be a society, association or club,

· be established for community service purposes, and

· satisfy the special condition in section 50-70 of the ITAA 1997.

Each of these requirements is examined below in relation to the Rulee.

Society, association or club

The term society, club or association is not defined in the ITAA 1997. The term should therefore be construed according to the ordinary meaning of the words.

This approach was taken in Douglas v. Federal Commissioner of Taxation 36 ATR 532; (1997) 77 FCR 112; 97 ATC 4722. Reference was made by the court to the definitions contained in the Concise Oxford Dictionary for each of these terms. Society, association or club was accepted by the court as referring to a voluntary organisation having members associated together for a common or shared purpose.

The Rulee comprises members with common interests and purposes. That is, persons who are willing to participate in and promote various programs of altruistic nature, as their common or shared purpose. The Rulee is a society, club or association.

Established for community service purposes

A non-profit society, association or club established for community service purposes, excluding political or lobbying purposes, described in item 2.1 of section 50-10 of the ITAA 1997 is exempt from income tax. This legislation draws upon the predecessor section 23(g)(v) of the Income Tax Assessment Act 1936 (ITAA 1936).

The Explanatory Memorandum to Taxation Laws Amendment Bill (No 2) 1990, which introduced section 23(g)(v) of ITAA 1936, states the term is not limited to purposes beneficial to the community that are also charitable. They extend to a range of altruistic purposes, including 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 (intellectual or physical), poverty or social or economic circumstances. The emphasis is on present activities, even if the constitution, formation or history, suggest a different purpose in the past.

Taxation Determination TD 93/190 states that the term "community service purposes" has a broader meaning than other purposes beneficial to the community which are also charitable. The 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.

The expression "community service purposes" has a wide meaning and encompasses traditional service clubs (e.g. Apex, Rotary, Lions, Zonta and Quota) and community service organisations (e.g. Country Women's Associations).

A body of persons, or of societies and associations in the form of a council, with the predominant purpose of co-ordinating community service work and providing information on women's issues, was found to be for community service purposes. This is reflected in the decision in National Council of Women of Tasmania v FC of T 98 ATC 2124.

In National Council of Women of Tasmania v FC of T 98 ATC 2124, the applicant was an unincorporated association established in 1899. Its membership consisted primarily of societies and associations, many of which were unincorporated, together with a number of individual associate and life members. Its objects were to establish a bond of union between various affiliated societies; to advance the interests of women and children and of humanity in general; and to confer on questions relating to the family, the State and the Commonwealth. The applicant acted as an umbrella organization, bringing together representatives of dozens of women's organisations.

It was held that the applicant was an association established for community service purposes, not being political or lobbying purposes, and was thus exempt from tax. The words "community service purposes" included the providing or carrying out of activities, facilities or projects for the benefit or welfare of the community, and also the promoting of such projects. The applicant was very much the promoter of its constituent organisations' activities, facilities or projects, more than it was a provider thereof. With few exceptions, the projects were very clearly for the benefit or welfare of the community. The applicant's predominant purpose was not that of a social club or discussion group. The predominant purpose of its meetings involved the co-ordination of community service work and the provision and exchange of information for the purpose of facilitating community service work.

In FC of T v Wentworth District Capital Ltd 2011 ATC 20-253, the entity was established to facilitate face-to-face banking services in a rural town following the closure of the Westpac branch (only bank in town). The closure of the only bank in town had presented significant inconvenience to its local residents and had had a negative impact on Wentworth's local economy. The taxpayer entered into arrangements with Bendigo Bank Ltd under which the bank provided banking services in Wentworth through premises, staff and equipment provided by the taxpayer. The banking services were intended for the community's general prosperity. At issue was whether the taxpayer was an association "established for community service purposes" and thus exempt from paying income tax on its ordinary income pursuant to s 50-1 and 50-10 of the Income Tax Assessment Act 1997.

The decision in this case confirmed that a not-for-profit company established to facilitate the provision of face-to-face banking services (under a franchise arrangement with Bendigo Bank) in a town that did not have such services was considered to be an organisation established for community service purposes.

In Draft Taxation Ruling TR 2011/D2 Income tax and fringe benefits tax: charities, at paragraph 15, the Commissioner accepts that a purpose is beneficial to the community if it offers a benefit that is real and of value, either tangible or intangible, and the benefit is for the public.

In the case of the Rulee, being a non-profit entity established for the purpose of promoting and expanding on a number of established programs for the supporting, encouraging, and fostering cultural diversity, education family, healthy lifestyle and development of character, the benefits are regarded to be of value and for the benefit of the public. These programs and objectives indicate that the Rulee is altruistic and that community service purposes are the main or predominant purpose because the Rulee's role through its objectives and such programs is to influence the targeted youths and their families to participate in the various programs which run in partnership with the qualified health and educational institutions, (direct providers of the activities and services), rather than the direct provision of such activities and education by the Rulee on its own.

It is accepted that the Rulee is 'established for community service purposes'.

Special Condition

Section 50-70 of the ITAA 1997 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 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 on the country it is resident.

The Rulee's constitution contains suitable non profit and dissolution clauses which satisfy the requirement that the Rulee is not carried on for the purpose of profit or gain of its individual members.

The Rulee is a Company limited by guarantee which is formed, registered and located in Australia and it will incur its expenditure and pursue its activities principally in Australia.

The Rulee satisfies the special condition in section 50-70 of the ITAA 1997.

Conclusion

In view of the above, the Rulee is considered to be a society, club or association which has been established for altruistic purposes that fall within the term 'community services purposes' as described in item 2.1 of the table in section 50-10 of the ITAA 1997.
As such, the Rulee is exempt from income tax pursuant to section 50-1 of the ITAA 1997.