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Edited version of your private ruling
Authorisation Number: 1012474991927
Ruling
Subject: Principle of Mutuality
Question
Does the principle of mutuality apply to the fee income received by the Rulee?
Answer
No
This ruling applies for the following periods:
Financial year ended 30 June 2010
Financial year ended 30 June 2011
Financial year ended 30 June 2012
Relevant facts and circumstances
The Rulee is a company limited by guarantee.
The Rulee is a non-profit company as outlined in its Constitution.
Members are elected to their positions and are drawn from associated entities:
The Rulee is responsible for providing administrative and managerial support to associated entities and their members.
Each associated entity member is required to pay a fee to the Rulee to cover services.
Reasons for decision
The principle of mutuality is a common law doctrine developed in the United Kingdom which has been accepted and applied in Australian income tax law.
The principle of mutuality applies where:
· a voluntary association of persons (contributors) make contributions out of their own moneys to a common fund (which they create, own, control and all have an interest in) for a common purpose (which is for their personal benefit - as participators) and not for profit (merely to cover expenses);
· contributions are based on an estimate of expected expenses (mutual liabilities), and are made subject to any surplus (the unused or unexpended amount) being sooner or later returned to the contributors (in their capacity as contributors) in some form or other;
· there is complete identity as a class between the contributors and the participators; and
· a reasonable relationship exists between what a member contributes and what the member may expect or be entitled to receive from the common fund, including rights to participate in any surplus.
Where these conditions are met, any return of surplus to the contributors is treated as a return of their own moneys and not as income. Also, contributions by the members into the common fund ('mutual receipts') are not treated as income of the association.
The issue is whether the Rulee can be regarded as a common fund, established, owned and controlled by the members of the Rulee or the associated clubs: see Revesby case
The fee income, once paid to the Rulee, cannot be regarded as remaining in substance the monies of the contributors. They are not mutual receipts in the hands of the Rulee.