Edited version of your written advice

Authorisation Number: 1013128956662

Date of advice: 23 November 2016

Ruling

Subject: Income tax status

Question 1

Is the total ordinary and statutory income of the Taxpayer exempt from income tax, in accordance with section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) because it is an entity established for the purpose of promoting the development of Australian information and communications technology resources (ICT) pursuant to item 8.3 of section 50-40 of the ITAA 1997?

Answer

Yes

This ruling applies for the following period:

1 July 20XX to 30 June 20YY

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Taxpayer has applied for a private ruling on whether it is exempt from income tax pursuant to section 50 - 1 being an entity referred to in item 8.3 of the table in section 50 - 40 of the ITAA 1997 as a society or association established for the purpose of promoting the development of Australian ICT resources.

It is a company limited by guarantee which was established for the purpose of promoting the development of Australian ICT resources by generating ICT related business and commercial efficiencies for businesses in the business industry.

The Taxpayer's Constitution contains a non-profit clause which states that its income and property is to be used to further its aims and no income is to be given to its members except to reimburse them for expenses they incur on its behalf.

The Constitution also contains an appropriate winding up clause which states that on winding up, its income and property is to be distributed to a similar type of organisation.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 50-1 and

Income Tax Assessment Act 1997 Section 50-40

Reasons for decision

Summary

The ordinary and statutory income of the taxpayer is exempt from income tax in accordance with section 50-1 of the ITAA 1997 because it is an entity established for the purpose of promoting the development of Australian information and communications technology (ICT) resources pursuant to Item 8.3 of section 50-40 of the ITAA 1997.

Detailed reasoning

Section 50-1 of the ITAA 1997 exempts the ordinary and statutory income of a non-profit society or association established for the purpose of promoting the development of Australian ICT resources as described in item 8.3 of section 50-40 of the ITAA 1997.

To qualify for income tax exemption under the section, the entity must:

● be established for the purpose of promoting the development of the particular resource, and

● not be carried on for the profit or gain of its individual members.

The terms 'information' and 'communications' technology resources are not defined in the legislation.

The Assistant Treasurer in his Press Release of 29 March 2001 announced that the amendments to the taxation laws would assist the development of Australia's information and communications technology industry. He also stated that:

the tax amendments will encourage industry-based initiative that will develop the resources required to help Australia's ICT industries expand further, but will be especially useful for boosting ICT training and skills development. It will help the Australian ICT sector strengthen its strong position on the world stage, and build on the innovative talent we have in this country.

National Office Minute no. 96/3107-1 dated 3 July 1997, on the subject of Non-profit associations for the promotion of resource development, aviation or tourism states that 'Resources or their elements include infrastructure, personnel, knowledge, expertise and skills'.

Paragraph 7 of the National Office Minute, states that four (4) tests must be satisfied for an organisation to qualify for exemption as an association promoting a particular resource development listed in section 50-40 of the ITAA 1997. The tests are as follows:

1. the organisation is a non-profit association or society; and

2. the dominant or principal purpose for which the organisation is established is promoting ICT resources; and

3. the resource whose development is being promoted is within the umbrella of a "particular" resources; and

4. the resources, are resources of Australia.

In this instance the particular resource is ICT.

Non-profit association or society

The Australian Taxation Office accepts an organisation as non-profit where its constituent document prevents it from distributing profits or assets for the benefit of a particular people during the life of the organisation or on winding up.

The taxpayer has appropriate clauses in its constitution to satisfy this requirement.

Dominant purpose is promoting development

In the National Office Minute referred to above, 'promoting development' is discussed in paragraphs 44-52. It states that the term 'development' includes all the elements, which must be taken into account to ensure that the specified resources are best used.

The National Office Minute states that development of resources can be promoted by facilitating the co-operation of businesses and instrumentalities. Taxation Ruling IT 2415 also includes under this heading the identification of programs to overcome labour needs and the establishment of systematic training schemes in particular industries.

The National Office Minute also states that 'promoting the development' may be direct, like research projects, education in particular methods, and introduction of new and improved products or it can be indirect, such as promotion by improved marketing methods, co-operative buying and selling, or solution of labour disputes.

In this case it is considered that the dominant purpose of the taxpayer is promoting development in the ICT industry.

ICT resource

The resource that the taxpayer is promoting is ICT so this requirement is satisfied.

Resources of Australia

This requirement is also satisfied as it is an Australian resource.

Conclusion:

The taxpayer is promoting the development of Australian ICT resources and therefore its income is exempt from income tax.