Edited version of private advice

Authorisation Number: 1012678259617

Ruling

Subject: Exemption from income tax

Question 1

Is X Limited a non-profit club, society or association established for musical purposes or for the encouragement of music, art, science or literature pursuant to section 23(g)(ii) of the Income Tax Assessment Act 1936 (ITAA 1936) and therefore exempt from income tax for the income year ending 30 June 199Y?

Answer:

Yes

Question 2

Is X Limited a society, association or club established for the encouragement of science pursuant to item 1.7 of the table in section 50-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and therefore exempt from income tax under section 50-1 of the ITAA 1997 for the income years ending 30 June 199X and all income years intervening until 30 June 2013?

Answer:

Yes

This ruling applies for the following periods:

Year ending 30 June 2013

Year ending 30 June 2012

Year ending 30 June 2011

Year ending 30 June 2010

Year ending 30 June 2009

Year ending 30 June 2008

Year ending 30 June 2007

Year ending 30 June 2006

Year ending 30 June 2005

Year ending 30 June 2004

Year ending 30 June 2003

Year ending 30 June 2002

Year ending 30 June 2001

Year ending 30 June 2000

Year ending 30 June 1999

Year ending 30 June 1998

Year ending 30 June 1997

The scheme commences on:

1 July 199Z

Relevant facts and circumstances

Constitution

X Limited was incorporated as a company limited by guarantee. It operated under these corporate rules until a few years ago when new Constitution was written.

Objects

The objects of this organisation are set out in the Memorandum of Association are:

a. Foster and develop 'x health science' in Australia:

b. Improve standards for the educational and scientific qualifications of 'x health scientists' and for students in 'x health science';

c. Improve the 'x health science' knowledge of medicine professionals and the general community;

d. Improve the practical and theoretical knowledge of 'x health science' through lectures, experiments, demonstrations and post-graduate courses;

e. Advise on suitable courses for the training of 'x health scientists' and to give accreditation to the qualification of 'x health science';

f. Promote the professional practice of 'x health scientists';

g. Collect, compile and distribute amongst the public and among members information on matters pertaining to the practices of 'x health science';

h. Acquire in the interests of the public and all members knowledge of proposed or enacted Australian and overseas legislation in any way relating to the practice of 'x health science' and which affects or could affect the practice;

i. Represent 'x health scientists' on matters involving the practice of 'x health science' in discussions with international organisations and federal, state and local governments and any of their instrumentalities; and

j. Initiate, promote, support or oppose legislation or other measures or proceedings as may seem expedient for achieving any of the objects of the Association.

The objects of this organisation in the newer Constitution are exactly the same (word for word) as those stated in the Memorandum of Association.

Income and property

The Memorandum of Association states that profits or other income or property of the Association must be applied solely towards the promotion of the objects set out in the Memorandum of Association and no benefit can be paid to Members. The new Constitution has the same wording

Winding up

Upon winding up or dissolution of this organisation, after satisfaction of all its debts and liabilities, property must not be distributed among the members but must be given or transferred to another institution or institutions with similar objects and which is prohibited from paying a dividend to its members (Memorandum of Association and new Constitution).

Annual reports were supplied for each of the years subject to this ruling.

Relevant legislative provisions

Sub-section 23(g)(ii) of the Income Tax Assessment Act 1936

Item 1.7 in section 50-5 of the Income Tax Assessment Act 1997

Reasons for decision

Issue 1

Question 1

Summary

You are exempt from income tax as a non-profit club, society or association established for musical purposes or for the encouragement of music, art, science or literature pursuant to sub-section 23(g)(ii) ITAA 1936 for the income year ending 30 June 199Y.

You are exempt from income tax as an a society, association or club established for the encouragement of science pursuant to item 1.7 of the table in section 50-5 ITAA 1997 for the income years ending 30 June199X and all the intervening years until the income year ending 30 June 2013.

Detailed reasoning

You have requested a ruling regarding whether you are exempt from income tax as a non-profit club, society or association established for musical purposes or for the encouragement of music, art, science or literature pursuant to sub-section 23(g)(ii) ITAA 1936 for the income year ending 30 June 199Y.

You have requested a ruling regarding whether you are exempt from income tax as a society, association or club established for the encouragement of science pursuant to item 1.7 of the table in section 50-5 ITAA 1997 for the income years ending 30 June 199X and all the intervening years until the income year ending 30 June 2013.

The law relating to scientific associations is has not altered from sub-section 23(g)(ii) ITAA 1936 to item 1.7 of the table in section 50-5 ITAA 1997, it is merely a more modern re-wording of the tax law. The wording of each sub-section refers to a society, association or club and it includes the words 'encouragement of science'. All the discussion below about the law regarding a scientific association is equally applicable to both sub-section 23(g)(ii) ITAA 1936 as to item 1.7 of the table in section 50-5 ITAA 1997.

The Income tax guide for non-profit organisations states the requirements for exemption from income tax regarding scientific organisations:

Scientific Associations

The main purpose of the non-profit society, association or club must be encouragement of science. Recreational or hobby clubs do not qualify. The main purpose must not be promoting the professional or business interests of members

Examples: Scientific associations

Example 1

A group of frog enthusiasts sets up a non-profit society to observe frogs in the district and record changes in their types, numbers and habits.
The society is established for the encouragement of science.

Example 2

A non-profit organisation is set up to advance the profession of surveying, raise professional standards and represent the profession to government and industry.

The organisation is not a scientific association.

1. Science

Science is not defined in the sub-section 23(g)(ii) of the Income Tax Assessment Act 1936 or in item 1.7 in sub-section 50-5 of the Income Tax Assessment Act 1997, so science has its ordinary meaning. Science is not limited to the physical sciences and includes the human and applied sciences (Commissioner of Inland Revenue v Forrest (Institution of Civil Engineers) 3 TC 117 Lord Macnaghten on the meaning of 'science' at 131).

In deciding that the study of human surgery was a field of science the High Court of Australia made it clear that science is not restricted to the theoretical study of science and does include the application of scientific knowledge and practice, Royal Australasian College of Surgeons v Federal Commissioner of Taxation [1943] 68 CLR 436 (The Surgeons Case) at 447:

The College would not be the less a scientific institution because it does not confine its activities to abstract or speculative science but applies scientific knowledge and practice to the advancement of surgery.

You state you provide health information and advice, based on scientific evidence, to enhance the health of all Australians.

We agree with you that your field of practice is a part of health science, and thus a field of science.

2. Encouragement of science

The next question is whether you are set up for the encouragement of science. The Australian Tax Office Income tax guide for non-profit organisations says: "Common ways of advancing science include research, exploration and teaching. Disseminating information will often be involved."

The written objects of an association or society and its activities are used in determining whether it is established for the encouragement of science (Farmer v Juridical Society of Edinburgh (1914) 6 TC 467). Your written objects appear in the current Constitution and the Memorandum of Association and have identical wording. The objects read:

a. Foster and develop 'x health science' in Australia:

b. Improve standards for the educational and scientific qualifications of 'x health scientists' and for students in 'x health science';

c. Improve the 'x health science' knowledge of medicine professionals and the general community;

d. Improve the practical and theoretical knowledge of 'x health science' through lectures, experiments, demonstrations and post-graduate courses;

e. Advise on suitable courses for the training of 'x health scientists' and to give accreditation to the qualification of 'x health science';

f. Promote the professional practice of 'x health scientists';

g. Collect, compile and distribute amongst the public and among members information on matters pertaining to the practices of 'x health science';

h. Acquire in the interests of the public and all members knowledge of proposed or enacted Australian and overseas legislation in any way relating to the practice of 'x health science' and which affects or could affect the practice;

i. Represent 'x health scientists' on matters involving the practice of 'x health science' in discussions with international organisations and federal, state and local governments and any of their instrumentalities; and

j. Initiate, promote, support or oppose legislation or other measures or proceedings as may seem expedient for achieving any of the objects of the Association.

The Surgeons Case states at p 452 that the objects should not be looked at individually but "in conjunction with one another and in the light of the circumstances in which the College was formed and of the manner in which the College is fulfilling the purposes for which it was incorporated."

Taking the objects of your organisation as a whole it appears that you are set up for the encouragement of science as well as for the benefit of the members as a professional association.

3 Main purpose for encouragement of science, not sole purpose

For an organisation to be exempt from income tax for the encouragement of science, the main purpose of a non-profit society, association or club must be encouragement of science (Farmer v Juridical Society of Edinburgh (1914) 6 TC 467). It is possible to have a secondary purpose that is not for the encouragement of science but it must not be the dominant purpose.

In the Surgeons Case the objects set out in the constitution were partly for the promotion of surgical knowledge and practice and partly for the promotion of professional interests. The principle activities of the organisation included holding conferences for surgeons, the provision of a technical surgical library for the use of members, the publication of surgical journals, the financing of surgical research, conducting examinations for admission to fellowship to the College and the administration of funds for surgical research and the award of scholarships to medical students. The High Court decided that College's purpose was for the advancement of science and any other purpose such as promoting the professional interest of members was merely incidental.

In Cronulla Sutherland Leagues Club Ltd v Federal Commissioner of Taxation 90 ATC 4215 Lockhart J of the High Court held that the decision in the Surgeons Case does not prevent a scientific institution from having a secondary purpose, however, the secondary purpose cannot be of equal importance to the scientific purpose (at 4223-5):

The principles which I distil from the Royal Australian College of Surgeons case are that the question whether the College was a scientific institution within the meaning of sec. 23(e) depended upon whether its main object was to promote the science of surgery and that the exemption was available even if its objects were of a mixed character, partly professional and partly scientific, provided that its main object was the promotion of science of surgery…

Each of their Honours agreed that the test is to determine the main purpose of the College. In none of the judgements do I see support for the proposition that, if the promotion of professional interests of the members concerned was not properly characterised concomitant, incidental or ancillary to the main object of the promotion of the science of surgery but was a secondary purpose, it would bar the college from the exemption ….

The objects of your organisation labelled (a), (c), (d), (g), and (h) tend towards encouragement of science, providing for encouragement of 'x health science', improving knowledge through courses and lectures both for professional 'x health scientists' and the general community, and distributing information to the public on the practice of 'x health science'.

The objects set out in the Constitution have specific wording to focus on supporting your members in their professional practice. A significant number of the objects, those labelled (b), (e), (f), (i), and (j), refer to what could be viewed as member benefits provided for a professional association. These are member accreditation, advice on training to qualify, promotion of the profession, representation to government and promoting certain legislative provisions.

Williams J. said in Royal Australasian College of Surgeons v Federal Commissioner of Taxation [1943] 68 CLR 436 at 452:

But, in order to determine what is the main or dominant purpose of the College, it is a mistake to examine the objects contained in the memorandum in this disjunctive fashion. They should be examined in conjunction with one another and in the light of the circumstances in which the College was formed and of the manner in which the College is fulfilling the purposes for which it was incorporated.

The Surgeons Case makes it clear that where the Constitution of an organisation has a number of objects and it is not clear which are its main or dominating characteristics, that the activities of the organisation be examined.

In summary, the activities of your organisation have a focus on assisting members with professional accreditation and the functions of a professional body promoting a profession and they also have a focus encouraging the science of 'x health science'.

Science media campaigns - educating the public

Your organisation has had a significant media profile right from its establishment. In its first few years, you were in the unique situation of being in a field of science that was of great interest to the general public. In the build-up to a major event, you were invited to regularly present information in the mainstream media (television, radio, magazines).

You published information about 'x health science' for the general public in high circulation general interest magazines on a regular basis for a number of years.

You regularly provided commentary on 'x health science' at live community events, some of which were televised.

The media work become such a significant a part of your organisation's activities that your leaders were regularly taking training on presenting in the media in order to deliver their messages on radio, television and print media.

Fact Sheets

Throughout the life of your organisation there has been a focus on developing fact sheets for the general public on how to use 'x health science'. These sheets use language for the 'man in the street'. The current website shows over X fact sheets about 'x health science' which are available for the public.

Professional education

Your organisation holds regular meetings of members to discuss current research in 'x health science' and the practical application in this research. Some of this information is used as specialist professional development material for qualified 'x health scientists' to maintain their professional accreditation and some is rewritten into language more readily understood by the general public. You have also written a textbook on 'x health science' for professional practitioners.

There is also a monthly member's e-newsletter, including the column with summaries of relevant scientific research.

Presentations at science conferences

Your organisation participates in a number of science forums and conferences annually.

Course - for professional 'x health scientists'

Your organisation has run a X day professional course in 'x health science' for qualified 'x health scientists' in each year since establishment. In recent years this course has been run a number of times each year.

Public courses

You run courses are designed to educate the general public about 'x health science'. These courses were developed in 200X and have been run each year at a number of venues across Australia.

Website

Your organisation has a website. This website commenced development when you established and has been continually monitored, updated, improved and re-designed. The website has developed into a large resource of information about 'x health science' with a wide variety of information for the general public and further professional level information in the members of your organisation. It gives the public general access to the many fact sheets on 'x health science'. It includes a members-only area.

The website has a links to the latest scientific research in the field of 'x health science', resources including books. The 'members only' area on the website has professional educational material, scientific journal reviews and reports from conferences.

Scientific Research Grants

Your organisation has offered research grants for research in 'x health science'. A few years ago a scientific research grant was made. Recently scientific research grants were given, with indications that this is a continuing and expanding program for future years.

Expert Scientific Panel

An expert scientific panel, a sub-committee of your organisation, was established. This panel provided peer review of all resources developed by your organisation to ensure that information was based on 'sound scientific principles'.

The Panel has provided advice or assisted to develop the content of a number of courses of study in the field of 'x health science' and it has partnered with a university to compile a position statement on specific issues within 'x health science'.

Your organisation has consulted in a number of reviews for Australia and overseas standards.

Membership

In this case full membership of your organisation is confined to qualified 'x health scientists' with additional accredited training in 'x health science'. It has associate membership for students studying for a university degree in 'x health science'. Membership is not open to the general public.

The Surgeons Case clarifies that a confined membership is not contrary to an organisation being established for the encouragement of science. Membership does not have to be open to the public.

Membership benefits for members

There are a number of member benefits shown in the annual reports. The benefits of membership of your organisation include

• networking with peers

• formal professional accreditation

• education opportunities to further the profession at regular meetings, seminars and conferences

• member only newsletter

• promotion of members as private practitioners to the public through displays at conferences, media appearances and in print media

• some minor discounts on the cost of training courses run by your organisation

• advocacy to health insurance funds to include services from private practitioner members as claimable benefits

• free subscription to one science journal

• some discounts for accommodation at one particular hotel chain

• your website has a small percentage of content to promote private practitioners to members of the public.

• you provide some paid work to members to produce publications.

Overall, the major focus of your activities promotes the science in your particular field of health science with member benefits being a secondary purpose only.

3. Special Conditions for exemption under item 1.7 of section 50-5 ITAA 1997

Item 1.7 in section 50-5 of the Income Tax Assessment Act 1997 is subject to the special conditions set out in section 50-70 ITAA 1997. Your organisation must pass one of the following tests: physical presence in Australia test, the Deductible Gift Recipient (DGR) test or prescribed by law test. As your organisation exists, operates and incurs its expenditure solely and entirely in Australia, you meet the physical presence in Australia test and meet the special conditions for exemption under item 1.7 of sub-section 50-5 ITAA 1997.