Edited version of your private ruling

Authorisation Number: 1012127776449

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Subject: Income tax exemption

Question 1

Is the Entity exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as an society or association established for the purpose of promoting the development of tourism pursuant to item 8.1(b) in section 50-40 of the ITAA 1997 and for the purpose of the promoting the development of Australian resources as listed under item 8.2 in section 50-40 of the ITAA 1997?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commences on:

I July 2011

Relevant facts and circumstances

The Entity applied for a private ruling to confirm the continuation of its status as an income tax exempt entity.

Background

The Applicant advised in their present application letter that no material variation of facts have occurred since the issue of the previous ruling.

The Entity is an incorporated association.

The Entity's constitution provided for the following purposes and operation:

· It is established for altruistic purposes;

· It operates to assist and benefit the entire community;

· It's purpose is to promote the development of all industry, trade and commerce including agricultural, pastoral, forestry, horticultural, viticultural, agricultural, fishing, manufacturing, industrial, tourism, information and technology resources of Australia;

· It is non profit, the constitution containing suitable non profit clauses

The Entity's activities

Alliances

The Entity, through its Chief executive officer and executive committee members is represented on various government and community boards and committees. This representation is integral to fulfilling the Entity's object of supporting regional resource development.

Business and Community Directory

The Entity compiles a Business and Community Directory each year The Directory allows local and regional businessmen to advertise their products and services to the community.

Business Awards

The Entity presents yearly Business Awards across a diverse range of business and industry segments. Certain category winners go through to the State Awards providing State wide exposure for their business.

Tourism

The Entity provides support to developing tourism in the region in various ways.

Assumptions

N/A

Relevant legislative provisions

Income Tax Assessment Act 1997 - section 50-1

Income Tax Assessment Act 1997 - section 50-40

Reasons for decision

Section 50-1 of the ITAA 1997 provides that the ordinary and statutory income of the entities described in the tables which follow that section are exempt from income tax.

Included in those tables is item 8.1(b) within section 50-40 which refers to a society or association established for the purpose of promoting the development of tourism and item 8.2 of section 50-40 which refers to a society or association established for the purpose of promoting the development of any of the following Australian resources:

(a) Agricultural resources;

(b) Horticultural resources;

(c) Industrial resources;

(d) Manufacturing resources;

(e) Pastoral resources;

(f) Viticultural resources;

(g) Aquacultural resources;

(h) Fishing resources.

The special condition imposed on the society or association by section 50-40 for the exemptions to apply is that it is not carried on for the profit or gain of its individual members.

Accordingly the issues that need to be addressed to ascertain an organisation's income tax status under item 8.1(b) and item 8.2 of section 50-40 of the ITAA 1997 is determining whether:

· the organisation is an non profit association or society;

· the dominant or principal purpose for which the organisation is established is promoting resource or tourism development;

· the resources whose development are being promoted are within the umbrella of resources specified under 8.2;

· the resources, apart from tourism are resources of Australia.

Association or society

The terms 'association' and 'society' are not defined and have their ordinary meaning.

An association may be incorporated or unincorporated. However, it does not include a body formed and controlled by government and performing functions on behalf of government (see Taxation Determination TD 95/56).

Paragraph 2 of TD 95/56 states:

…The Shorter Oxford 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.

The Entity is an incorporated entity brought into existence by its members to pursue a common purpose as stated in its constitution. It is not a body controlled or formed by government or performing functions on behalf of government.

It is accepted that the Entity is an association.

Tourism

Tourism is not defined in the ITAA 1997. Page 22 of Income Tax Guide for Non Profit Organisations (Nat 7967-03.2007)(ITGNPO) provides that tourism has its ordinary meaning.

The Macquarie dictionary defines the term tourism as the practice of touring, especially for pleasure; the occupation of providing local services, as entertainment, lodging, food, etc., for tourists.

The Shorter Oxford English Dictionary defines the term to mean 'The theory and practice of touring; travelling for pleasure', and Butterworths Australian Legal Dictionary defines it to mean 'The practice of travel and associated activities for the primary purpose of recreation.'

Australian resources

Item 8.2 provides exemption for associations which have been established primarily for the purpose of promoting the development of agricultural, horticultural, industrial, manufacturing, pastoral, viticultural, aquacultural and fishing resources of Australia. These terms are not defined. Resources and their elements are accepted to include infrastructure, plant and equipment, livestock, personnel, knowledge, expertise and skills.

Promotion of Development

IT 2415 states that Section 50-40 does not refer to the promotion of the specified resource. It is directed to the promotion of the development of the specified resource.

The ITGNPO states 'Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating co-operation, and similar activities'.

The term 'development' is used in section 50-40 in a commercial or business sense. It comprehends all the elements which must be taken into account to ensure that the specified resources are best used.

'Promoting the development' may be direct or indirect. It need not be on a large scale or use commercial means. For example, the development of agricultural resources might be directly promoted by research, experimental farms, control of pests, education in farming methods, or the introduction of new and improved classes of products. It might be indirectly promoted by improved marketing methods, cooperative buying and selling, solution of labour disputes, or ameliorative legislation.

Development of resources can be promoted by facilitating the cooperation of business and instrumentalities. Chambers of commerce and regional development bodies may help promote resource development in these ways.

As Taxation Ruling IT 2415 points out, resource development might also be promoted by the identification of, and programs to overcome, labour needs and the establishment of systematic training schemes in particular industries. Although the connection may not be readily apparent, the development of marketing techniques may also be relevant to the development of resources.

As the Tribunal pointed out in Case W49 at 89 ATC 474; 20 ATR 3602: 'The enlargement of the market is one of the objectives of "promoting the development" of any relevant industry.'

However, not all activities connected with a resource will necessarily be for its development. The improvement of marketing will ground an exemption only where it is undertaken as a means of promoting development of the particular resources. If the marketing or other purported means is not sufficiently connected or integrated with resource development, it will not be for the purpose of promoting development of those resources. It is not enough that a consequence of the activities may be resource development.

The Entity

It is accepted the Entity's objects provide for the purpose of the promotion of the development of tourism under item 8.1(b) and the promotion of the development of resources that come within the umbrella of specified Australian resources within item 8.2.

The activities undertaken by the Entity's fall within the parameters set out in its objects.

Accordingly is accepted that the Entity has a purpose of promoting the development of Tourism and Australian Resources as listed in the tables under items 8.1(b) and 8.2 of the ITAA 1997.

Predominant purpose

To be exempt under section 50-40 an association must be established principally or predominantly for the purpose of promoting development, be it of Australian resources or tourism. It is not sufficient that one of an association's purposes falls within 50-40. Nor is it enough that resource or tourism development is incidental to, involved with, or a consequence of an association's purposes.

The association must be established for the required purpose. The term 'established' is not used in a narrow sense. It is necessary to consider an association's constituent documents and operations and activities.

IT 2415 states in paragraph 7 that:

The reasoning in the decision in the Australian Insurance Association case highlights the matters that need to be satisfied in any case before exemption under paragraph 23(h) applies:-

(a) Promotion of the specified resources must be the predominant purpose for which a particular body is established.

(b) The resources, the development of which is being promoted, must come within the umbrella of the specified resources.

The ITGNPO also states:

The purpose of the society, association or club must be promoting the development of the relevant resources…Any other purpose of the organisation must be incidental, ancillary or secondary to promoting the development of the relevant resources.

Accordingly to be exempt under items 8.1(b) or 8.2 in the tables within section 50-40 of the ITAA 1997, ACCI must be established principally or predominately for the purpose of promoting the development of tourism and/ or an Australian resource(s) listed in 8.2.

As discussed above the Entity's objects define a clear purpose of promoting the development of tourism and/ or Australian resource(s) as listed within item 8.1(b) and item 8.2. The Entity's current operations and activities fall within the parameters of their objects, providing for the promoting of the development of tourism and the specified Australian resources.

Accordingly it is accepted that the Entity is established for the predominate purpose of promoting the development of tourism and Australian resources as listed in the tables under items 8.1(b) and 8.2 of the ITAA 1997.

Non Profit

The ITGNPO at page 6 states that:

The Tax Office accepts an organisation as non-profit where it's constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people - both while it is operating and when it winds up. These documents should contain acceptable clauses showing the organisation's non-profit character. The organisation's actions must be consistent with this requirement.

A non-profit organisation can still make a profit but this profit must be used to carry out its purposes…the profits must not be distributed to owners, members or other private people.

There are two requirements in the statement of non-profit character above. First, an entity's constituent documents must display a non profit character. Second, the entity's actions must be consistent with this non profit character.

The Entity's constitution prevents it from distributing its profits or assets among members while it is operating or on it's winding up.

The Entity has not undertaken any actions inconsistent with the required non profit character.

It is accepted that the Entity is a non-profit association.

Benefits to members

If an association operates principally to confer benefits on its members jointly or as a group, it is unlikely to be predominantly for promoting resource development and thus not exempt under section 50-40 of the ITAA 1997.

In Case 46/94 at 94 ATC 417; 29 ATR 1108 the tribunal found, as an alternative ground, that the association was not exempt under 23(h) because it was principally to promote the interests of its members. It operated to look after the needs of consulting surveyors through such activities as public liability insurance, professional development, training of employees, assuring quality client service, publishing business practice and technical material, and lobbying to obtain work for members particularly from government.

In Australian Insurance Association v. Federal Commissioner of Taxation (1979) 10 ATR 333 (1979) 41 FLR 256, the Association comprised the majority of general insurance companies carrying on business in Australia. At issue was inter alia, whether it primarily promoted the interests of its members, or whether the benefits to members were incidental to the purpose of being established to develop a particular resource. Sheppard J in concluding said, at ATC 4572:

In my opinion the difference between the parties in the way that each views the evidence is one of emphasis. The very nature of the appellant's undertaking is such that it must further the more selfish interests of its members by engaging in the various activities which it does and in any event itself leads to a situation pursuant to which the appellant's endeavours do have the overall effect of promoting the protection and furtherance of Australian Insurance business.

And further at ATC 4576:

The submission is based upon so much of the activities of the appellant as relate to the fostering - the promotion - of underwriting skills and knowledge in persons employed by insurance companies in Australia, whether Australian owned or not. As I have already said, that is one of the purposes for which the appellant was established. But it is only one of those purposes. A more substantial purpose, on the findings I have made, was the protection and furtherance of the interests of the Australian companies making up the appellant's membership. In my opinion the Commissioner is correct in his submission that the purpose which is referred to in sec. 23(h) must be the principal or dominant purpose for which the association or society was established…

Accordingly an organisation must be able to demonstrate that it has a predominant purpose of promoting resource development or tourism rather than the interests of its own members.

The Entity's objects specifically require it to provide its services to the whole community not just its members.

The activities undertaken by the Entity also principally provide a benefit for all the community.

Accordingly it is accepted the Entity's services are not carried out predominantly for its members rather it is established to benefit to the entire community in the region.

The resources, apart from tourism are resources of Australia

The Entity through its constitution and its activities restricts itself to the promotion of resources of Australia.

This requirement is satisfied.

Conclusion

The Entity meets the requirements for exemption from income tax under section 50-1 of the ITAA 1997 as it is established for the purpose of promoting the development of tourism pursuant to item 8.1(b) of the ITAA 1997 and for the purpose of promoting the development of the Australian resources listed under item 8.2 of the ITAA 1997.

The Entity is therefore exempt from income tax under section 50-1 of the ITAA.