Edited version of your written advice

Authorisation Number: 1013089171894

Date of advice: 20 September 2016

Ruling

Subject: Income tax exemption under item 8.2(c) of the table in Section 50-40 of the ITAA 1997

Question 1

Is the Association exempt from income tax under 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 industrial resources under item 8.2(c) of section 50-40 of the ITAA 1997?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

The scheme commences on:

2016

Relevant facts and circumstances

The entity is the peak national body representing an industry throughout Australia

Constitution

The Association's constitution contains the following:

3. Objects

(a) To promote and develop the industry and undertake its activities to serve the best interests of the industry on behalf of its Members and the community;

(b) To promote and increase understanding of the role and contribution of the industry and its Members to the economy, and the community;

(c) To inform and represent the Industry and its Members with respect to public policy, legislative or regulatory proposals, arrangements and measures which affect or are likely to affect the industry in any respect;

(d) To communicate industry positions and formulate relevant policies by providing Members with an Industry forum for debate, discussion and assessment of issues effecting the industry;

(e) To co-ordinate relevant research, development, analysis information and education programs, projects or studies related to the industry and issues affecting its Members including policy, regulatory and technology matters.

(f) To promote safety, quality, environmental and technical standards and practices in the industry activities for the benefit of its Members.

(g) To encourage industry professional development by coordinating, promoting or participating in communication, information, training, and conference programs for its Members;

(h) To undertake relevant activities including research and policy analysis specific to the industry

(i) To foster closer relations and co-operation in the Industry within Australia as well as internationally.

(j) To liaise with, co-operate with, or engage in relevant information exchange with organisations involved in industry related matters within Australia as well as internationally; and

(k) To enter into co-operative agreements, arrangements or collaborative projects with other organisations in pursuit of the objectives and the operation of the Company

Relevant legislative provisions

Income Tax Assessment Act 1997 section 50-40

Reasons for decision

The Association is exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is established for the purpose of promoting the development of Australian industrial resources under item 8.2(c) of section 50-40 of the ITAA 1997.

Section 50-40 of the ITAA 1997 states that a 'society or association established for the purpose of promoting the development of any of the following Australian resources' will be exempt from income tax, subject to the fact that it is not carried on for the profit or gain of its individual members.

The items listed under item 8.2 include the following:

a) Agricultural resources;

b) Horticultural resources;

c) Industrial resources;

d) Manufacturing resources;

e) Pastoral resources;

f) Viticultural resources;

g) Aquacultural resources; and

h) Fishing resources.

Detailed reasoning

In order for the Association to satisfy the requirements in item 8.2 of the table in Section 50-40 ITAA 1997 it must:

1. be a society or association;

2. established for the dominant or principle purpose of promoting the development of an Australian resource as described in item 8.2 of the table in section 50-40 of the ITAA 1997; and

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

The above criteria will be considered in turn.

Society or association

The terms 'association' and 'society' are not defined in the ITAA 1997, therefore they should be interpreted according to their ordinary meaning. For the purposes of section 50-40 of the ITAA 1997, the terms 'society' and 'association' generally have the same meaning.

The Macquarie Dictionary defines 'association' as an organisation of people with a common purpose and having a formal structure', with 'society' considered to have an equivalent meaning (Pro-campo Ltd v Commr of Land Tax (NSW) 81 ATC 4270 at 4279; (1981) 12 ATR 26 at 35). An association may be incorporated or unincorporated.

The Association is a public company limited by guarantee. It is considered to be "an organisation of people with a common purpose" with a "formal structure" who have come together to promote the development of Australian industrial resources.

The Association satisfies the above requirement.

Not a charity

The Association is not a registered charity on the Australian Charities and Not-for-profits Commission (ACNC) website.

Australian industrial resources

The use of the word 'Australian' applied to resources in section 50-40 of the ITAA 1997 limits the exemption to associations whose activities are directed towards Australian resources.

The Association promotes the development of 'Australian' resources.

Promoting the development of Australian industrial resources

The term 'development' is used in section 50-40 of the ITAA 1997 in a commercial or business sense. It comprehends all the elements which must be taken into account to ensure that the specified resources are best used.

The meaning of 'development' was examined by the High Court in the case of
FC of T v. Broken Hill Pty Co. Ltd 69 ATC 4028; 1 ATR 40 where, in considering the phrase 'development of mining property' the majority of the High Court accepted the interpretation of Kitto J:

In its ordinary English sense the word 'development' when used in relation to a property refers to the unfolding, the bringing out, of some latent capability of that property…It covers I think, any preparation, adaption or equipment of the property for the exploration of an inherent potentiality which cannot be exploited or fully exploited, without some such preliminary treatment.

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

The concept of industrial resources is considered in Taxation Ruling IT 2415 Income Tax: Associations Promoting Development of Australian Resources. At paragraph 6 of IT 2415 it is stated:

..... the Court concluded that the expression "industrial resources" in paragraph 23(h) refers to resources such as those of the building, mining, quarrying, shipping and transport industries - it does not extend to business or commercial resources or resources of the kind promoted by the Association.

Resources or their elements include infrastructure, plant and equipment, livestock, personnel, knowledge, expertise and skills. An industry's businesses and their assets may be resources. Sheppard J said in Australian Insurance Association at 79 ATC 4573; 10 ATR 337: '... the undertakings of the Australian insurance companies, viewed as a whole, are a resource of Australia. I use the word "undertakings" in the broadest sense. I include within it not only the businesses of the various companies but also their assets and the knowledge and skill of their staffs.'

The objects as stated in its Constitution at clause 3 are:

(a) To promote and develop the industry and undertake its activities to serve the best interests of the industry on behalf of its Members and the community;

(b) To promote and increase understanding of the role and contribution of the industry and its Members to the economy, and the community;

(c) To inform and represent the Industry and its Members with respect to public policy, legislative or regulatory proposals, arrangements and measures which affect or are likely to affect the industry in any respect;

(d) To communicate industry positions and formulate relevant policies by providing Members with an industry forum for debate, discussion and assessment of issues effecting the industry;

(e) To co-ordinate relevant research, development, analysis information and education programs, projects or studies related to issues affecting its Members including policy, regulatory and technology matters.

(f) To promote safety, quality, environmental and technical standards and practices in activities for the benefit of its Members.

(g) To encourage industry professional development by coordinating, promoting or participating in communication, information, training, and conference programs for its Members;

(h) To undertake relevant activities including research and policy analysis specific to the industry

(i) To foster closer relations and co-operation in the industry within Australia as well as internationally. `

(j) To liaise with, co-operate with, or engage in relevant information exchange with organisations involved in energy related matters within Australia as well as internationally; and

(k) To enter into co-operative agreements, arrangements or collaborative projects with other organisations in pursuit of the objectives and the operation of the Company

The objects are for the purpose of developing and supporting the industry. This is achieved by representation of its member organisations, promoting and developing the interests, role and contribution of the industry, co-ordinating research, development, analysis, information and education programs, promoting safety standards and practices, professional development, information exchange and various cooperative arrangements.

It is accepted that the entity's involvement in distribution would come within the meaning of an industrial resource. It has a purpose to promote the development of Australian industrial resources as reflected in the objects of its constitution and its activities.

To qualify for exemption under item 8.2(c) of the table in section 50-40 of the ITAA 1997, that purpose must be the dominant purpose for which the association was established. Therefore, both the entity's dominant objects as per its Constitution and its dominant activity must be for this purpose.

Dominant purpose

To be exempt under section 50-40 of the ITAA 1997, an association must be established principally or predominantly for the purpose of promoting the development of one or more of the specified resources in item 8.2 of section 50-40 ITAA 1997: Australian Insurance Association at 79 ATC 4576; 10 ATR 341; Boating Industries Association of New South Wales at 85 ATC 4228-9; 16 ATR 388.

Determining the dominant purpose of an association will largely be a matter of fact and degree, and will involve the weighing up of various elements such as its objects, activities, history and proposed directions (Boating Industries Association of New South Wales v F C of T 85 ATC 4224; (1985) 16 ATR 383).

If an association operates principally to confer benefits on its members jointly or as a group, it is unlikely to be predominantly for promoting resources development and thus will not be exempt under section 50-40 of the ITAA 1997.

Paragraph 7 of Taxation Ruling IT 2415 states:

The reasoning in the decision in the Australian Insurance Association case highlights the matters that need to be satisfied in any case before exemption under [Section 50-40] applies:

(a) Promotion of the specified resources must be the predominant purpose for which a particular body is established.

(b) The resources, the development of which is being promoted, must come within the umbrella of the specified resources.

Therefore, on an analysis of the current activities and the objectives contained in the constitution, it is apparent that the Association is established with the dominant purpose of promoting the development of Australian industrial resources.

Special conditions- 'not carried on for the profit or gain of its individual members'

Section 50-40 of the ITAA 1997 requires that an association is not is not carried on for the profit or gain of its individual members (non-profit). An organisation is accepted as being 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. The organisation's actions must also be consistent with this requirement.

The entity's constitution state that the company must not be carried on for the purpose of profit or gain of any member and prohibits the distribution of profits or assets to any member both while in operation and upon winding-up.

It is considered that while there are some member benefits, the entity does not exist principally to confer benefits on its members.

It is therefore accepted that the Association is not carried on for the profit or gain to its individual members.

Conclusion

On analysis of its objectives and current activities it is accepted that the Association is established for the purpose of promoting the development of Australian industrial resources pursuant to section 50-40 of the ITAA 1997, and is not carried on for the profit or gain of its individual members.

The total ordinary and statutory income of the entity is therefore exempt from income tax pursuant to section 50-1 of the ITAA 1997.