Edited version of your written advice

Authorisation Number: 1051427446823

Date of advice: 21 September 2018

Ruling

Subject: Income tax exemption

Question

Is the taxpayer an entity covered by item 8.3 of the table in section 50-40 of the Income Tax Assessment Act 1997 (ITAA 1997), so that its ordinary and statutory income is exempt from income tax under section 50-1 of the ITAA 1997?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2018

Year ending 30 June 2019

Year ending 30 June 2020

Year ending 30 June 2021

The scheme commences on:

1 July 2017

Relevant facts and circumstances

The taxpayer is an entity incorporated in Australia.

The objects of the taxpayer are stated to promote, facilitate and enhance the use and provision of information and communications technology in a specific industry in Australia, with the aim to provide a vehicle for consideration and development of information and communications technology in the industry.

The governing documents of the taxpayer prevent it from distributing profits or assets for the benefit of its members both while it is operating and when it winds up.

The taxpayer has no employees. Since its formation, it conducts activities and projects that are undertaken by volunteers who work permanently in the industry.

In carrying out its activities and projects, the taxpayer identifies issues that are presenting problems to the businesses and customers in the industry and arranges solutions to these problems by connecting with organisations that can provide and develop the information and communications technology to overcome these issues.

Funds in support of taxpayer’s activities and projects are from government research grants and income earned from annual industry information and technology conferences.

Relevant legislative provisions

Income Tax Assessment Act 1997

Reasons for decision

Pursuant to section 50-1 and item 8.3 of the table in section 50-40, the ordinary income and statutory income of a society or association established for the purpose of promoting the development of Australian information and communications technology resources is exempt from income tax provided the society or association is not carried on the for profit or gain of its individual members.

Accordingly, in order to qualify for exemption under section 50-1 as an entity covered by item 8.3 of the table in section 50-40, the taxpayer must satisfy the following conditions:

● it is a non-profit association or society;

● the dominant or principle purpose for which it is established is promoting resource development;

● the resources whose development is being promoted are within the umbrella of resources specified in the relevant section;

● the resources are resources of Australia.

Association or Society

The terms ‘association’ and ‘society’ are not defined and take their ordinary meaning.

The Shorter Oxford English Dictionary defines 'association' to be 'a body of persons associated for a common purpose; the organization formed to effect their purpose'. The Macquarie Dictionary defines it as 'an organisation of people with a common purpose and having a formal structure'.

On the facts, it is accepted that the taxpayer is an association.

Non Profit

Section 50-40 requires that the association must not be carried on for the purposes of profit or gain to its individual members. This is known as the non-profit requirement.

Generally it is accepted that an association operates on a non-profit basis 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 winding-up. The association's actions must, of course, be consistent with the prohibition.

In this case, taxpayer’s governing documents prevent it from distributing profits or assets for the benefit of its members both while its operating and when it winds up. This ensures that the funds and assets of the taxpayer are applied only to carry out its purposes and are not applied for the benefit of its members. Accordingly, the non-profit requirement is satisfied.

Information and communications technology resources

The purpose must be to promote the development of the resources specified in section 50-40.

The specific resource, in this case, is Australian information and communications technology at item 8.3 of the table in section 50-40.

The terms ‘information’, ‘communications’, ‘technology’ and ‘resources’ and the composite ‘information and communications technology resources’ are not defined in the legislation.

Ordinary meaning of the word ‘information’ is that, knowledge communicated or received concerning some fact or circumstance, or knowledge on various subjects, however acquired, or the act of informing, or the state of being informed: Macquarie Dictionary, [Online], viewed 07 July 2017, www.macquariedictionary.com.au.

Ordinary meaning of the word ‘communication’ is that, the act or fact of communicating; transmission, or the imparting or interchange of thoughts, opinions, or information by speech, writing, or signs, or that which is communicated or imparted, or a document or message imparting views, information, etc., or passage, opportunity of passage, or a means of passage between places, or (plural) the science or process of conveying information especially by electronic or mechanical means, or (plural) the means of transmitting information by telephone, radio, television, etc.: Macquarie Dictionary, [Online], viewed 07 July 2017, www.macquariedictionary.com.au.

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 v FC of T 79 ATC 4569; (1979) 10 ATR 333; (1979) 41 FLR 256:

... 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.

In this case, knowledge, expertise and skills of information and communications technology in the specific industry, together with businesses in the industry and their information and communications technology assets fall within the resource known as information and communications technology, and they are of Australia.

Promoting Development

The term ‘development’ is used in section 50-40 in a commercial or business sense.

The promotion of development may be direct or indirect. It might be indirectly promoted by improved marketing methods, cooperative buying and selling, solution of labour disputes, or ameliorative legislation.

Development of resources can be promoted by facilitating the cooperation of businesses and instrumentalities.

The meaning of ‘development’ was examined by the High Court in 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 the 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.

Taxation Ruling IT 2415 Income tax: associations promoting development of Australian resources (IT 2415) points out resource development might also be promoted by the identification of, and programs to overcome, labour needs and the establishment of systematic training schemes in particular industries. They are part and parcel of the development of the resources specified.

Dominant Purpose

To be exempt under section 50-40, an association must be established principally or predominantly for the purpose of resource development (Australian Insurance Association v FC of T 79 ATC 4569; (1979) 10 ATR 333; (1979) 41 FLR 256). It is not sufficient that one of the association’s purposes falls within section 50-40. It is also not enough that resource development is incidental to, involved with, or the consequences of an association’s purposes.

The term ‘established’ is not used in the narrow sense of considering only the motives and objectives which led to the formation of an association (Case W49 at 89 ATC 474; 20 ATR 3602-3). It is necessary to consider constituent documents and also its history, operations and activities (Boating Industries Association of New South Wales at 85 ATC 4228-9; 16 ATR 388).

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

Consequently, it will be necessary to consider each association on the merits of its particular circumstances. Also, because those circumstances may change, an association’s tax status may change over time.

In this case, the taxpayer was formed to promote, facilitate and enhance the use and provision of Australian information and communications technology in the specific industry, with an aim to provide a vehicle for consideration and development of information and communications technology opportunities within the industry.

Subsequent to its formation, the taxpayer undertakes a number of activities and projects, where it involves volunteers who have high-level expertise and connections in the industry. Through industry networks, the taxpayer identifies issues that are present in the industry and arranges solutions to overcome the issues by connecting with organisations that can provide and develop the relevant information and communications technology resources in critical need. Certain specific projects carried on by the taxpayer are sponsored by Government research grants with a clear view to develop information and communications technology in the industry.

These activities and projects promote and develop Australian information and communications technology resources in the industry in an indirect way, as well as they give effect to the taxpayer’s stated purpose.

It is accepted that the taxpayer was established principally for the purpose of promoting information and communications technology resources and it is operated in an established and stable condition as an organisation having as its principal purpose.

Consequently, the taxpayer is a non-profit entity and is established and operated in promoting the development of Australian information and communications technology resources in the specific industry; it satisfies all requirements of item 8.3 of the table in section 50-40, and accordingly it qualifies as an exempt under section 50-1.