Edited version of private advice

Authorisation Number: 1012659062574

Ruling

Subject: Community Service Organisation

Question

Does the Association qualify as a society, association or club established for community services purposes and therefore exempt from income tax by virtue of item 2.1 of section 50-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

The Association has been self-assessing its tax status as income tax exempt because it is a non-profit organisation.

The non-profit clause from the constitution states as follows:

Distribution of profits

The assets and income of the company shall be applied solely in furtherance of its abovementioned objects and no portion shall be distributed directly or indirectly to the members of the company except as bona fide compensation for services rendered or expenses incurred on behalf of the company.

The Winding up clause from the constitution states as follows

Winding up

In the event of the company being dissolved, the amount that remains after such dissolution and the satisfaction of all debts and liabilities shall be transferred to any association with similar purposes which is not carried on for the profit or gain of its individual members.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 50-47

Income Tax Assessment Act 1997 Section 50-10

Income Tax Assessment Act 1997 Section 50-70

Reasons for decision

For the Association to fall within item 2.1 of section 50-10 of the ITAA 1997, it needs to:

1. be a society, association or club;

2. be established for community service purposes

3. meet the special conditions of section 50-70 as it relates to the Association being:

a. not be carried on for the purpose of profit or gain of its individual members; and

b. has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia.

(1) Society or association

The words 'society' and 'association' are not defined in the ITAA 1997. An association is a voluntary organisation having members associated together for a common or shared purpose (Douglas & Ors v FCT 97 ATC 4722). Society has an equivalent meaning (Pro-Campo v Commissioner of Land Tax (NSW) 81 ATC 4270). An association may be incorporated or unincorporated.

The Association is a company limited by guarantee and was incorporated in 19XX the applicant is an organised body of members associated for a common purpose. It is accepted that it is an association.

(2) Community service purposes

The Association needs to be established for community service purposes.

Taxation Determination TD 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, provides the ATO view on the circumstances under which a society, association or club is regarded as being established for community services purposes.

Paragraph 4 of TD 93/190 states that having altruistic purposes is an essential element of even the widest interpretation of community service purposes. Paragraph 5 of TD 93/190 states that a common association such as members advancing their common interests is not altruistic as it is considered that such an entity is formed for the purposes of its members.

TD 93/190 states in paragraphs 3, 4 and 5 that:

3.There are four heads of charitable purpose, one of which is other purposes beneficial to the community; but this is limited by the common law to those purposes which are also charitable within the meaning of the Statute, 43 Elizabeth, Ch. 4. The term 'community service purposes' has a broader meaning than other purposes beneficial to the community which are also charitable. The Explanatory Memorandum to subparagraph 23(g)(v) confirms that the words 'community service purposes' are to be given a wide interpretation. Those 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 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 organisation 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.

The Associations purpose is:

• to simplify the procedure whereby persons undertaking certain activities may contact providers of services to determine the location of infrastructure;

• to increase community awareness in all parts of all states and territories of Australia of the existence of the service.

• to achieve a nationally consistent approach to the promotion, marketing and advertising of the Services, with a view to promoting a single widely recognised message to the Australian community; and

• to do all such lawful acts, matters and things as are incidental or conducive to the above objects.

Based on its objectives and activities the Association's dominant purpose is consistent with those of a community service organisation. It simplifies the procedure for persons undertaking certain activities enabling them to contact service providers to determine the location of certain infrastructure.

The Association is exempt from income tax as a community service organisation pursuant to item 2.1 in the table in section 50-10 of ITAA 1997.

(3a) Non-profit

The Association's constitution prevents the distribution of income and assets to its members while it is operating. The Association's constitution prevents the distribution of assets and property to its members upon winding up. On this basis, it is accepted that the Association is non-profit and satisfies the non-profit requirement.

(3b) In Australia

The Association is incorporated under the Corporations Law. The information provided by the Applicant supports that the Association has a physical presence in Australia and undertakes its activities in predominantly in Australia. The 'in Australia' requirement is satisfied.