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Edited version of your written advice
Authorisation Number: 1012898563889
Date of advice: 23 October 2015
Ruling
Subject: Income tax exemption
Question 1
Are you exempt from Income Tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as an association not carried on for the purpose of profit or gain to the individual members, established for the purpose of promoting the development of a manufacturing resource of Australia under item 8.2(d) in section 50-40 of the ITAA 1997?
Answer
Yes. You are entitled to exemption from income tax under section 50-1 ITAA 1997 as it satisfies the requirements under item 8.2(d) in section 50-40 ITAA 1997.
This ruling applies for the following periods:
• 1 July 2015 to 30 June 2016
• 1 July 2016 to 30 June 2017
• 1 July 2017 to 30 June 2018
The scheme commenced on:
1 July 2001
Relevant legislative provisions
• Section 50-1 of the Income Tax Assessment Act 1997
• Section 50-40 of the Income Tax Assessment Act 1997
Reasons for decision
In order for you to be eligible for income tax exemption under section 50-1 of the ITAA 1997 the requirements under item 8.2 in section 50-40 of the ITAA 1997 must be satisfied.
Non-profit requirement
You are required to be a non-profit association under section 50-40 of the ITAA 1997. This means that you must not be carried on for the purpose of profit or gain to its individual members.
You will not be exempt where their main objects and activities are to protect or promote the interests of your members as it will not satisfy the dominant or principal purpose requirement under section 50-40 of the ITAA 1997. Similarly, if you are carried on for the profit or gain of your individual members, it will fail the non-profit requirement. Such purposes are unlikely to be consistent with the purpose of promoting resource development.
It is necessary to determine whether your dominant purpose is to provide benefits to members as a group or whether the benefits to members are incidental benefits which will often flow to members from activities that entail promoting the development of resources of the industry in which they are involved.
In this case, the members of your association derive benefits as a result of their membership. However, based on the above information benefits to members are derived jointly and are incidental to the pursuit of the association's objects. Any indirect benefit that may flow on to members is secondary to the overall purpose. This conclusion is based on the fact that qualification for membership is that the business within the industry meets minimum criteria set by a committee of the board of your association. The separation between your members and others in the industry is the standards of competency and professionalism required of your members.
Your Constitution has a suitable non-profit clause and a suitable dissolution clause for income tax exempt entities. It is sufficient that income or property of your association cannot be distributed to its members except in the form of reasonable and proper remuneration.
As your association is not considered to be an association that operates principally to confer benefits on its members jointly or as a group, and your Constitution contains suitable non-profit clauses, it satisfies the non-profit requirement and does not fail the dominant purpose test.
Promoting resource development
Section 50-40 of the ITAA 1997 requires your principal or dominant purpose is to promote the development of one or more of the resources specified under the section.
The object of your association is to promote the development of the respective industries through marketing, cooperation between businesses, innovation and development of improved materials, products and design of the products.
Dominant or principle purpose
To be exempt under section 50-40 of the ITAA 1997, your association must be established principally or predominantly for the purpose of resource development. It is not sufficient that one of the association's purposes falls within section 50-40, nor is it enough that resource development is incidental to, involved with, or a consequence of an association's purposes.
The objects clause in your Constitution indicates that the predominant purpose of your association is to promote your industry.
Resources of Australia
Item 8.2 in section 50-40 of the ITAA 1997 requires the resources must be resources of Australia.
In this case it is considered that you are promoting the development of an Australian resource.