Edited version of your written advice

Authorisation Number: 1051415893841

Date of advice: 20 August 2018

Ruling

Subject: Exempt entities: Not for profit and mutual organisations: Primary and secondary resources: Industrial resources

Question and answer

Will you be exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) because you a society or an association which meets the requirements of item 8.2 of the table in section 50-40 of the ITAA 1997?

Yes.

This ruling applies for the following periods:

1 July 2018 to June 2019

1 July 2019 to June 2020

1 July 2020 to June 2021

1 July 2021 to June 2022

1 July 2022 to June 2023

1 July 2023 to June 2024

1 July 2024 to June 2025

1 July 2025 to June 2026

1 July 2026 to June 2027

1 July 2027 to June 2028

The scheme commences on:

1 July 2018

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

1. You are a company limited by guarantee.

2. Your constitution contains a clause preventing the distribution of profit or gain to members.

3. Your constitution contains a clause directing surpluses to a similar entity with the same prohibition on the distribution of profits or gains as yours upon your dissolution.

4. Your constitution states your objects as being in accordance with section 50-40 of the ITAA 1997.

5. Your actions are consistent with your stated purpose.

6. You are not an ACNC type entity.

Assumptions

Nil

Relevant legislative provisions

Section 50-1 of the Income Tax Assessment Act 1997

Section 50-40 of the Income Tax Assessment Act 1997

Section 50-47 of the Income Tax Assessment Act 1997

Section 960-100 of the Income Tax Assessment Act 1997

Reasons for Decision

These reasons for decision accompany the Notice of private ruling for the organisation.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary

Section 50-1 of ITAA 1997 exempts the ordinary and statutory income of an entity that:

● is a society or association established for the purpose of promoting the development of specified Australian resources (item 8.2 of the table in section 50-40 of the ITAA 1997);

● is not carried out for the profit or gain of its individual members; and

● is not an ACNC type of entity.

Detailed reasoning

Entity

The term 'entity' is defined in section 960-100 of the ITAA 1997 to include a body corporate. The organisation is a company limited by guarantee and satisfies this definition.

Society or Association

The terms association or society are not defined in the ITAA 1997 and, therefore, have their ordinary meaning.

In Taxation Determination TD 95/56 Fringe benefits tax: can a body which is formed by government, is controlled by government and performs functions on behalf of government be an 'association' for the purposes of section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?, the ATO considers the meaning of association as follows at paragraph 2:

…. The Shorter Oxford Dictionary defines the term 'association' to be a 'body of persons associated for a common purpose, the organisation formed to effect that purpose.' The Macquarie Dictionary defines 'association' as being 'an organisation of people with a common purpose and having a formal structure.'

Olsson J, in Quinton v. South Australian Psychological Board (1985) 38 SASR 523, also stated that the term 'association' has come to be regarded as attaching to a body of persons associated for a common purpose.

In Pro-campo Ltd v. Commr of Land Tax (NSW) (1981) 12 ATR 26 at 35 Lee J said:

The meaning of 'society' as the Oxford English Dictionary definition shows can be the equivalent of 'association' and I do not think that any relevant distinction in nature exists between the two. It merely seems to have happened that some organisations are called 'associations', others are called 'societies' but no meaningful difference can be detected between the two.

As a company limited by guarantee you are a body of members organised for the common purpose as set out in its objects. As such, you can be classified as a society or association for the purposes of item 8.2 of section 50-40 of the ITAA 1997.

Non profit

Section 50-40 of the ITAA 1997 requires that the society or association not be carried on for the purpose of profit or gain to its individual members.

Generally we will accept an association as being non-profit where, by operation of law or by its constituent document; the association is prevented from distributing its profits or assets among members while the association is operating and on its wind-up. The association’s actions must, of course, be consistent with the prohibition.

Your Constitution contains appropriate prohibitions from making distributions to your members during operation and upon wind-up. There is nothing to indicate that your actions are not consistent with the prohibition. It is accepted that you are not carried on for the purpose of profit or gain to your individual members.

Dominant purpose is to promote the development of Australian resources

To qualify for exemption from income tax under item 8.2 of section 50-40 of the ITAA 1997, the principal or dominant purpose of the association must be to promote the ‘development’ of one or more of the resources specified in that section. Of relevance item 8.2 of the table in section 50-40 of the ITAA 1997 specifically includes the following:

a) agricultural resources

b) horticultural resources

c) industrial resources

d) manufacturing resources

e) pastoral resources

f) viticultural resources

g) aquacultural resources

h) fishing 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, adaptation or equipment of the property for the exploitation of an inherent potentiality which cannot be exploited or fully exploited, without some such preliminary treatment.

The promotion of development may be direct or indirect provided it is within the scope of item 8.2 of the ITAA 1997. Methods of promoting resources include marketing, training, research, education, introduction of new and improved classes of product and facilitation of cooperation, and similar activities.

It is accepted that through your objects and activities you are promoting the development of Australian resources.

Dominant purpose

To qualify as exempt from income tax under item 8.2 of section 50-40 of the ITAA 1997 an 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 the relevant provision. Nor is it sufficient that resource development is incidental to, involved with, or a consequence of an association's purpose.

Determining the dominant purpose is a question of fact and degree and may involve a weighing of the various elements such as objects, activities, history, proposed directions, etc.

As evidenced by your objects and activities, you are established principally for the purpose of promoting resource development.

Benefit to members

Where an association operates principally to confer benefits on its members jointly or as a group, it is unlikely to be predominantly for promotion of resource development and therefore not exempt from income tax under item 8.2 of section 50-40 of ITAA 1997. If an association is carried on for the profit or gain of its individual members, it will fail the non-profit requirement. Such a purpose is unlikely to be consistent with the purpose of promoting resource development. It is necessary to distinguish from the dominant purpose of providing benefits to members as a group from the incidental benefit which will often flow to members from activities promoting the development of resources with which they are involved.

Your objects and activities indicate that you are not established as a professional organisation to protect and promote the interests of your members. While benefits may flow to the organisation's members as a consequence of membership, these are in the nature of incidental benefits which often flow to members from activities promoting the development of resources in which they are involved. The Australian community in its entirety will benefit from the resource development that is a result of the organisation's activities. You demonstrate a wider purpose concerned with the broader development of Australian resources. It is considered that you do not exist principally to confer benefits on your members.

Not an ACNC type Entity

Section 50-47 of the ITAA 1997 provides a special condition for all entities covered by section 50-1 of the ITAA 1997, it states that:

An entity that:

(a) is covered by any item; and

(b) is an ACNC type of entity;

is not exempt from income tax unless the entity is registered under the Australian Charities and Not-for profits Commission Act 2012.

Broadly, an entity capable of being a registered charity is an ACNC type of entity. Thus if the organisation is capable of being a registered charity it will not be exempt from income tax unless it is registered as such under the Australian Charities and Not-for profits Commission Act 2012 (ACNC Act).

You have advised us that you have been informed by the ACNC that it was not entitled to be registered as a charity under the Australian Charities and Not-for profits Commission Act 2012. As such it is accepted that the organisation is not an ACNC type of entity meaning section 50-47 of the ITAA 1997 does not operate to deny them tax exemption under section 50-40 of the ITAA 1997.

Conclusion

It is considered that you are a non-profit association that meets the requirements of item 8.2 of the table in section 50-40 of the ITAA 1997 and you are not an ACNC type of entity. As such, your ordinary and statutory income is exempt from income tax under section 50-1 of the ITAA 1997.

ATO view documents

Taxation Determination TD 95/56 Fringe benefits tax: can a body which is formed by government, is controlled by government and performs functions on behalf of government be an 'association' for the purposes of section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Other references (non ATO view)

FC of T v. Broken Hill Pty Co. Ltd 69 ATC 4028; 1 ATR 40

Pro-campo Ltd v. Commr of Land Tax (NSW) (1981) 12 ATR 26

Quinton v. South Australian Psychological Board (1985) 38 SASR 523