Edited version of your private ruling

Authorisation Number: 1012580488508

Ruling

Subject: Non-profit - income tax exempt

Question

Is the Association exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a society or association established for the purpose of promoting the development of Australian horticultural resources as described in item 8.2(b) of section 50-40 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following periods:

1 June 2012 to 30 May 2013;

1 June 2013 to 30 May 2014.

The scheme commences on:

1 June 2012.

Relevant facts and circumstances

The Association is an Incorporated Association under the state Act. As an Incorporated Association, they must be non-profit as per the Associations Act which states:

40. Association not to provide pecuniary gain for its members

(1) An association must not conduct its affairs (including its affairs as trustee of any trust) so as to provide pecuniary gain for its members.

The Association has a website.

The Association's constitution contains Statement of Objects at clause 2 and a wind-up clause at 59.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 50-1;

Income Tax Assessment Act 1997 section 50-40.

Reasons for decision

Summary

It is considered that the Association meets the requirements of a society or association established for the purpose of promoting the development of Australian horticultural resources as described in item 8.2(b) of the table in section 50-40 of the ITAA 1997. Accordingly, the income of the Association is exempt from income tax under section 50-1 of the ITAA 1997.

Detailed reasoning

Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) exempts from income tax the income of the entities described in the tables listed in Subdivision 50A of the ITAA 1997.

Item 8.2 of the table in section 50-40 of the Income Tax Assessment Act 1997(ITAA 1997) exempts the ordinary and statutory income of an entity under Section 50-1 of the ITAA 1997 if it:

· is a society or association established for the purpose of promoting the development of specified Australian resources; and

· is not carried on for the profit or gain of its individual members.

The ATO publication (available on the ATO website www.ato.gov.au) Income tax guide for non-profit organisations (NAT 7967) provides information in relation to the conditions for not-for-profit entities.

Your organisation will be exempt from income tax if it meets all of the following requirements:

· it is a non-profit society or association

· it is not a charity

· it is established for the purposes of promoting the development of one of the following:

- aviation

- tourism

- agricultural resources of Australia

- aquacultural resources of Australia

- fishing resources of Australia

- horticultural resources of Australia

- industrial resources of Australia

- manufacturing resources of Australia

- pastoral resources of Australia

- viticultural resources of Australia

- Australian information and communications technology resources.

Non-profit

A non-profit organisation is an organisation that is not operating for the profit or gain of its individual members, whether these gains would have been direct or indirect. This applies both while the organisation is operating and when it winds up. Any profit made by the organisation goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members.

We accept an organisation as non-profit where its 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.

It is considered that the Association meets the non-profit requirement as it is an state incorporated association and under clause 40 of the state Act the requirement is that they must be an Association that does not provide pecuniary gain for its members and has an acceptable winding-up clause at clause 59 of their constitution. It is therefore considered that the Association is not carried on for the profit or gain of its individual members.

Society or association

The terms 'society' and 'association' are not defined in the ITAA 1997. The terms 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 structure.

In Pro-campo Ltd. v. Commr of Land Tax (NSW) 81 ATC 4270; (1981) 12 ATR 26 the court considered the meaning of 'society' and 'association'. The court stated at 4279:

In Theosophical Foundation Pty Ltd v. Commr of Land Tax (NSW) [1966] 67 SR (NSW)…Sugerman JA stated at 82:

"A society, in the relevant sense, is a number of persons associated together by some common interest or purpose, united by a common vow, holding the same belief or opinion, following the same trade or profession, etc; an association'…"

…

The meaning of "society" as the Oxford English Dictionary definition shows can be the equivalent of "association" and I do not think that any relevant distinction in nature exists between the two. It merely seems to have happened that some organizations are called "associations", others are called "societies" but no meaningful difference can be detected between the two…Although clubs can in some respects and in some instances be seen to be distinguishable by reason of their purposes from societies or associations, they nevertheless fall squarely within the dictionary definition of "society" set out above. In short the three words are describing bodies made up of groups of persons who have come together to implement common purposes and objects…

The Association is an Incorporated Association under the state Act. The Association was established as "an organisation of people with a common purpose" with a "formal structure" who have come together to promote the development and research of horticulture in Australia. The Association has a management committee and rules of association. The Association can be classified as a society or association for the purposes under item 8.2(b) of section 50-40 of the ITAA 1997.

Not a charity

Charity has a special meaning under law. To be a charity, your organisation must:

· be a not-for-profit

· have a charitable purpose

· be for the public benefit (other than where the charitable purpose is the relief of poverty).

Examples of charities include: religious groups, not-for-profit aged care homes, homeless shelters, disability service organisations, universities and colleges, animal welfare societies and artistic or cultural groups. From 3 December 2012, the Australian Charities and Not-for-profits Commission (ACNC) registers organisations as charities. Registration as a charity is voluntary. However, your organisation must be registered with the ACNC to access any charity tax concessions from the Australian Taxation Office (ATO).

The Association is considered to be promoting the development of horticultural resources as they provide information and education. The Association is not registered with the ACNC as a charity.

Purpose

A range of resource development organisations can be exempt from income tax and can self-assess their exemption if they are not charities. The organisations must be non-profit. They must also be established for the purpose of promoting the development of:

- aviation

- tourism

- agricultural resources of Australia

- aquacultural resources of Australia

- fishing resources of Australia

- horticultural resources of Australia

- industrial resources of Australia

- manufacturing resources of Australia

- pastoral resources of Australia

- viticultural resources of Australia

- Australian information and communication technology resources.

Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating cooperation and similar activities.

The main purpose of the society, association must be promoting the development of the relevant resources. To work out your organisation's main purpose you should look at its constituent documents, activities, use of funds and history. Any other purpose of the organisation must be incidental, ancillary or secondary to promoting development of the relevant resources.

The 'Statement of Objects', of the Association states it is established to increase awareness and educate people. On their website, it states that their aim is to encourage investigation and research, to collect information and publish the findings, and by appropriate means to make the information known throughout Australia.

The activities of the Association are directed at improving the knowledge, expertise and skills of people involved with horticulture through the provision of talks and information. The Association directs its activities to horticultural resources that are located in Australia and the activities of the association are conducted in Australia.

It is therefore considered that the Association's purpose is to promote the development of horticultural resources of Australia.

Conclusion

It is considered that the Association meets the requirements of a society or association established for the purpose of promoting the development of Australian horticultural resources as described in item 8.2(b) of the table in section 50-40 of the ITAA 1997. Accordingly, the income of the Association is exempt from income tax under section 50-1 of the ITAA 1997.