Edited version of private ruling

Authorisation Number: 1011929348191

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Ruling

Subject: Income tax exemption

Question 1

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 under section 50-1 of the ITAA 1997?

Answer

Yes

Question 2

Would a grant or a donation from a local authority to be used to purchase assets and or assist with the general running costs of the organisation be assessable income?

Answer

No

Relevant facts:

· The entity is a non-profit incorporated association

· The entity is established for community service purposes.

· Membership to the entity will be open to all without limitation

· The entity's facilities will be available for use by any member of the community and use will be subject to registration and fees.

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 50-70

Reasons for decision

Question 1

Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) exempts from income tax the total ordinary and statutory income of an entity covered by section 50-10 of ITAA 1997. 

Item 2.1 of the table in section 50-10 of the ITAA 1997 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 the special conditions in section 50-70 of the ITAA 1997.

Accordingly, to be exempt from income tax under item 2.1 of the table in section 50-10 of the ITAA 1997, an entity must:

(d) be a society, association or club;

(e) be established for community service purposes (except political or lobbying purposes); and

(f) meet the special conditions specified in section 50-70 of the ITAA 1997.

(a) Society, Association or Club

The words 'society', 'association' or 'club' are not defined in the ITAA 1997 and have their ordinary meaning.

The Shorter Oxford English Dictionary defines 'association' to be 'a body of persons associated for a common purpose; the organisation formed to effect their purpose. The Macquarie Dictionary defines it as 'an organisation of people with a common purpose and having a formal structure'. 'Society' has an equivalent meaning (Pro-campo Ltd v. Commr of Land Tax (NSW) 81 ATC 4270 at 4279; (1981) 12 ATR 90 at 35).

This approach is also confirmed in Taxation Determination 95/56 - 'Fringe benefits tax: can a body which is formed by government, is controlled by government and performs functions on behalf of government be an 'association' for the purposes of section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? (TD 95/56), which refers to the decision by Olsson J, in Quinton v. South Australian Psychological Board (1985) 38 SASR 523, who also stated that the term 'association' has come to be regarded as attaching to a body of persons associated for a common purpose.

The entity is an incorporated association. It is an incorporated entity brought into existence by its members to pursue a common purpose as stated in its constitution.

Therefore it is accepted that that the entity is an association.

(b) Established for community service purposes

For an organisation to exist for community service purposes its purposes must be altruistic. 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) considers the meaning of a community service purpose and states at paragraphs 3-5:

"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.

The entity seeks to '..bring the Community together' and 'provide education to the community…'. The entity provides an opportunity for community residents to become involved in the community and also serves as a way of keeping community members healthy and active.

The entity is affiliated with various disability support service organisations in the community and therefore specifically targets disadvantaged groups in the community.

The entity's facilities will be available for use by any member of the community though use will be subject to registration and fees. However, membership to the entity will be open to all without limitation.

Notwithstanding its membership structure the entity exists to promote broader purposes that benefit and contribute to the wellbeing of a community. It is therefore considered that it is not established to merely advance the common interests of its members, but rather has a broader altruistic and therefore a community service purpose.

(c) Special Conditions

Section 50-70 of the ITAA 1997 states:

50-70 Special conditions for items 1.7, 2.1, 9.1 and 9.2

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.

(i) Not carried on for the profit or gain of its members

The entity has a non-profit clause and a dissolution clause in its Constitution.

It is accepted that the entity operates in a non-profit manner.

(ii) Has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia

For the entity to meet this condition, it must have a 'physical presence' in Australia and, to that extent, incur its expenditure and pursues its objectives principally in Australia.

From the information provided, the entity has a physical presence in Australia. It incurs its expenditure and pursues its purposes principally in Australia.

Accordingly, the entity satisfies the 'Special Conditions' specified in 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 the ITAA 1997 as it is a society, association or club established for community service purposes pursuant to item 2.1 of the table under section 50-10 of the ITAA 1997.

Question 2.

It has been determined that the entity is exempt from income tax under section 50-1 of the ITAA 1997 as it is an association established for community service purposes pursuant to item 2.1 of the table under section 50-10 of the ITAA 1997.

As the total ordinary income and statutory income derived by the entity will be exempt from income tax grants or donations received by the entity from a local authority is not assessable income.