Edited version of your written advice

Authorisation Number: 1051466750022

Date of advice: 13 December 2018

Ruling

Subject: Income tax - exempt entities - community service

Question

Is the Entity a ‘society, association or club established for community service purposes (except political or lobbying purposes)’ as per item 2.1 of the table in section 50-10 of the Income Tax Assessment Act 1997 ( ITAA 1997), thereby qualifying for income tax exemption pursuant to section 50-1 of the ITAA 1997?

Answer

Yes

Relevant facts and circumstances

1. The Entity was established as an incorporated association under the Associations Incorporation Reform Act 2012.

2. The Entity has five members. These members are principally responsible for initiating and directing the operations and activities offered by the Entity.

3. The Entity’s governing rules are largely provided by the Consumer Affairs model rules (Model Rules).

4. The Model Rules provide the purposes for which the Entity is established.

5. The Model Rules provide that the Association may only exercise its powers and use its income and assets (including any surplus) for the purposes it was established for.

6. The Model Rules include a not-for-profit clause.

7. The Model Rules include a winding up and cancellation clause which states that:

(1) The Association may be wound up voluntarily by special resolution.

(2) In the event of the winding up or the cancellation of the incorporation of the Association, the surplus assets of the Association must not be distributed to any members or former members of the Association.

(3) Subject to the Act and any court order made under section 133 of the Act, the surplus assets must be given to a body that has similar purposes to the Association and which is not carried on for the profit or gain of its individual members.

(4) The body to which the surplus assets are to be given must be decided by special resolution.

8. Activities regularly undertaken by the Entity include:

● The publication of guides and handbooks which assist individuals and workplaces to develop in ways that increase women's workplace participation in a particular profession.

● Ongoing monitoring of women's participation in the profession through statistical analysis. A strong online editorial program, which provides opinion, discussion and advice.

● An online register of women active in the profession, to ensure that women are visible and well represented in the public discussion.

● National event program, open to all.

● Strong social media presence.

9. All of the Entity’s activities aim to support women in a profession, which is traditionally male dominated. This serves many and helps to build a strong community of committed and engaged individuals who are dedicated to creating change. The Entity also provides important tools and resources at no cost, to help facilitate that change.

10. The community that benefits from the Entity's resources and activities includes many thousands of people. This reach is demonstrated by the numbers of people who access resources, attend events, subscribe to and contribute to the website, and engage on social media.

11. The Entity’s activities are funded through two key avenues: sponsorship arrangements and donations. Money raised is spent on a range of activities and tools, all of which seek to support women in Australian in this profession, and enable many people to advocate and work towards a more equitable and inclusive profession that is better able to serve the needs of the Australian community.

12. The Entity aims to provide almost all of its material, practical resources and events at no cost to the community. This ensures that the work is accessible to all, and significantly reduces barriers to participation.

13. The Entity is a Not for Profit Organisation and is not a registered charity with the Australian Charities and Not-for-profits Commission.

14. The Entity was not established for political or lobbying purposes and does not engage in any political or lobbying activities.

15. The Entity is not carried on for the purpose of profit or gain of its individual members. At all relevant times, the Entity has not made any cash distributions or paid any dividends (or the like) to its members or directors.

16. Neither the Entity’s objectives, nor its operations and activities support either a purpose of advancing the common interests of its members.

17. The Entity is located solely in Australia, and incurs its expenditure and pursues its objectives in Australia.

18. For the relevant income years:

● The Entity has applied its income and assets solely to providing for the welfare, benefit and support of the community, for the purpose for which it was established.

● The Entity has always complied with all the substantive requirements in its governing rules.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 section 50-10

Income Tax Assessment Act 1997 section 50-70

Income Tax Assessment Act 1997 subsection 50-70(1)

Income Tax Assessment Act 1997 paragraph 50-70(1)(a)

Income Tax Assessment Act 1997 subsection 50-70(2)

Income Tax Assessment Act 1936 subparagraph 23(g)(v)

Income Tax Assessment Act 1936 section 161

Reasons for decision

Question

Summary

The Entity satisfies the requirements to be an association established for community service purposes (except political or lobbying purposes) as per item 2.1 of the table in section 50-10 of the ITAA 1997 and thereby qualifies for income tax exemption pursuant to section 50-1 of the ITAA 1997.

Detailed reasoning

Section 50-1 of the ITAA 1997 exempts from income tax the total ordinary and statutory income of an entity covered by item 2.1 of the table in section 50-10 of the ITAA 1997. An entity is covered by item 2.1 of the table in section 50-10 of the ITAA 1997 where:

1. it is a society, association or club;

2. it is established for community service purposes (except for political or lobbying purposes); and

3. it meets the special conditions of section 50-70 of the ITAA 1997.

Society, association or club

The words 'society', 'association' or 'club' are not defined in the ITAA 1997 and are therefore construed according to the ordinary meaning of the words. This approach was taken in Douglas v. Federal Commissioner of Taxation 36 ATR 532; (1997) 77 FCR 112; 97 ATC 4722 whereby the court made reference to the definitions contained in the Concise Oxford Dictionary for each of these terms.

In Taxation Determination TD 95/56¹¹ the Commissioner similarly considers the definition of 'association' by reference to its ordinary meaning and states (at paragraph 2):

… The Shorter Oxford English Dictionary defines the term 'association' to be 'a body of persons associated for a common purpose; the organisation formed to effect their 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.

The Entity is an incorporated entity whose members are people associated for common purposes and interests, as stated in its Model Rules, and therefore meets the definition of an association.

Established for community service purposes

Taxation Determination TD 93/190²² (TD 93/190) sets out the circumstances under which a society, association or club is regarded as being established for community service purposes and explains (at paragraph 2) that the purpose of enacting subparagraph 23(g)(v) of the ITAA 1936 (being the predecessor to item 2.1 of the table in section 50-10 of the ITAA 1997) was to create a category of exemption for community bodies whose activities are not accepted as being charitable, but which nevertheless conduct activities of benefit to the community.

Paragraph 3 of TD 93/190, like the Explanatory Memorandum to subparagraph 23(g)(v) of the ITAA 1936, confirms that the words 'community service purposes' are to be given a wide interpretation, and

extend to a range of altruistic purposes that are not otherwise charitable, such as promoting, providing or carrying out activities, facilities or projects for the benefit or welfare of the community or any members of the community who have a particular need by reason of youth, age, infirmity or disablement, poverty, or social or economic circumstances.

However, paragraph 4 of TD 93/190 notes that subparagraph 23(g)(v) of the ITAA 1936

does not give exemption from income tax to a broad range of organisations that are established within the community, but whose purposes are not of an altruistic nature. Altruistic purposes are an essential element of even the widest interpretation of ‘community service purposes’.

Only when the purposes of the organisation are altruistic can they be community service purposes. This is in contradistinction to an organisation established for the purposes of advancing the common interests of its members (see paragraph 5 of TD 93/190). Where there is an incidental benefit derived by members of an organisation, it will not be a disqualifying attribute if it can be shown that the organisation is established mainly to provide benefits to the community.

The purposes for which an organisation is established are demonstrated by its current operations and activities, which may show different purposes to those suggested by a reading of its constitution: see Royal Australasian College of Surgeons v. Federal Commissioner of Taxation (1943) 68 CLR 436 (paragraph 7 of TD 93/190).

The purposes of a body must be examined in each income year to determine if it is ‘established’ for community service purposes: see FC of T v Wentworth District Capital Ltd 2011 ATC 20-253, 2010 ATC 20-202.

The Entity's constituent document provides a broad list of objectives and the Entity lists a wide range of activities that it undertakes to achieve those objectives. The activities undertaken and the services and facilities made available by the Entity predominantly have regard to the well-being and/or best interests of others in the community; particularly those women in a particular profession and that are therefore consistent with that of an altruistic purpose.

Neither the Entity’s stated objectives, nor its operations and activities for the period in respect of which this ruling relates, support either a purpose of advancing the common interests of its members.

It is therefore accepted that the Entity is established for community service purposes (none of which include political or lobbying purposes).

Section 50-70 of the ITAA 1997- Special conditions for item 2.1

Section 50-70 of the ITAA 1997 states:

50-70(1)

An entity covered by item 1.7, 2.1, 9.1 or 9.2 is not exempt from tax unless the entity is a society, association or club that is not carried on for the purpose of profit or gain of its individual members and that:

(a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or

(b) is a society, association or club that meets the description and requirements in item 1 of the table in section 30-15; or

(c) is a prescribed society, association or club which is located outside Australia and is exempt from income tax in the country in which it is resident;

and the entity satisfies the conditions in subsection (2).

50-70(2)

The entity must:

(a) comply with all the substantive requirements in its governing rules; and

(b) apply its income and assets solely for the purpose for which the entity is established.

The Entity satisfies the special condition in subsection 50-70(1) of the ITAA 1997 as:

● the Entity’s Model Rules contain suitable non-profit and winding up clauses which satisfy the requirement that the Entity is not carried on, as an association, for the purpose of profit or gain of its individual members; and

● for the purposes of paragraph 50-70(1)(a) of the ITAA 1997, the Entity is located solely in Australia, pursues its objectives, undertakes its activities and incurs its expenditure in Australia.

Further, the Entity satisfies the special condition in subsection 50-70(2) of the ITAA 1997 as:

● The Entity has always complied with all the substantive requirements in its governing rules and

● the Entity has always applied its income and assets solely for the purpose for which the Entity is established.

Conclusion

Based on the above, the Entity is covered by item 2.1 of the table in section 50-10 of the ITAA 1997 and is eligible for income tax exemption under section 50-1 of the ITAA 1997 for the relevant income years.

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