Edited version of your written advice

Authorisation Number: 1012707925555

Ruling

Subject: Exempt Entity

Question 1

Is the organisation exempt from income tax pursuant to section 50-1 as a non-profit organisation established for the purpose of promoting the development of tourism under item 8.1(b), section 50-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following periods:

1 July 2014 - 30 June 2015

1 July 2015 - 30 June 2016

1 July 2016 - 30 June 2017

1 July 2017 - 30 June 2018

The scheme commences on:

1 July 2014

Relevant facts and circumstances

The organisation is a not for profit organisation which operates as the peak Industry body.

It was incorporated under the Associations Incorporations Act 1981 on dd/mm/yyyy. Prior to that it operated as a non-incorporated body since 19XX.

It has since transferred its incorporation from an incorporated association under the Associations Incorporation Act to a company limited by guarantee under the Corporations Act 2001 pursuant to section 601BA(1)(d) of part 5B.1 of the Corporations Act.

It provides information and training to its members by providing regular up-dated information and developments or issues via a monthly newsletter, meetings and teleconferences.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 50-40.

Reasons for decision

Detailed reasoning

To be entitled to income tax exemption under item 8.1(b) of section 50-40 of the Income Tax Assessment Act 1997 (ITAA1997), an entity must satisfy the following:

1. it must not be carried on for the profit or gain of its members (Non-profit requirement); and

2. it must be established for the purpose of promoting the development of tourism.

Non-profit requirement

The ATO publication Income Tax Guide for Non-Profit Organisations (the Guide) provides the following on the non-profit requirement:

Generally, your organisation will not be exempt from income tax, unless it meets all of the following conditions;

• it is a not-for-profit entity

• it operates and pursues its purposes principally in Australia

• it complies with all the substantive requirements in its governing rules

• it uses its income and assets solely to pursue the purposes for which it is established.

'Not-for-profit' condition

To meet this condition, your organisation must be an entity that does both of the following:

• It is not carried on for the profit or gain of its owners or members neither while it is operating nor upon winding up.

• Under an Australian law, foreign law or your organisations governing rules, it is prohibited from distributing, and does not distribute, its profits or assets to its owners or members (whether money, property or other benefits), neither while it is operating nor upon winding up, unless the distribution is:

• made to another not-for-profit entity with a similar purpose

• genuine compensation for services provided to or reasonable expenses incurred on behalf of, the entity.

The organisation's constitution prevents it from distributing income and property to members. There is no evidence from the facts that it is acting contrary to the prohibition.

The organisation is not carried on for the profit or gain of its members.

Established for the purpose of promoting the development of tourism.

'Tourism' is not defined in the ITAA 1997, and is taken to have its ordinary meaning.

The New Shorter Oxford Dictionary, Vol 2 (N-Z), provides the following meaning:

The theory and practice of touring; travelling for pleasure… the business of attracting tourists and providing for their accommodation and entertainment; the organization and operation of (foreign) holidays, esp. commercially.

The objects and activities show that the sole purpose is to foster and develop industry in Australian. This is a component of the tourism industry, being focused on accommodation for travellers. The organisation is considered to be in the business of tourism.

Promoting the development of tourism

To be exempt under item 8.1(b) it is not enough that the organisation be concerned with tourism, rather, it must be concerned with the development of tourism.

Taxation Ruling IT 2415 Income tax: associations promoting development of Australian resources, provides that 'development', in the context of section 50-40, has the following meaning:

…the term "development" must be taken to be used in a commercial or business sense, i.e. it comprehends all the elements which must be taken into account to ensure that the specified resources are used in the best interests of Australia.

The Guide provides that:

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

The organisation is a peak body that assists in protecting the interests of the industry. It acts to protect viability of the industry it promotes the development of the industry as it is in regular consultation with government departments to combat illegal activity.

The organisation provides information and training to its members by providing regular up-dated information and developments or issues via a monthly newsletter, meetings and teleconferences. It provides training through its annual state conference, this is held over 2 days and aims to inform and train members on current issues and initiatives that may affect their business.

Their website promotes the state as an attractive tourist destination encouraging tourists to travel there. The website dedicates pages to tips for tourists to help them feel comfortable when choosing to travel. It showcases many tourist destinations.

The objects and activities are considered to be concerned with growing the tourism industry. In Case W49 89 ATC 469, P.M Roach (Senior Member) stated:

The enlargement of the market is one of the objectives of "promoting the development" of any relevant industry (at 474).

The fact that the organisation assists its member organisations to meet their independent objectives does not contradict the conclusion that its purpose is promoting the development of tourism. Commonality of purpose in this context helps rather than hinders a finding that the character of a peak or service entity is similar to that of its members. This principle has been confirmed in Ziliani v. Sydney City Council (1985) 56 LGRA 58 (where a peak body that provided services to charitable show societies was accepted as a charity), and in a public benevolent institution context in Australian Council for Overseas Aid v. FC of T 80 ATC 4575 (where a body set up by public benevolent institutions to provide services to them was accepted as being itself a public benevolent institution).

It is therefore considered that the organisation is entitled to income tax exemption under item 8.1(b) of section 50-40 of the ITAA 1997 as a non-profit society or association established for the purpose of promoting the development of tourism.