Edited version of private advice

Authorisation Number: 1051591888795

Date of advice: 9 October 2019

Ruling

Subject: Not for profit exemption

Question 1

Are you a society, association or club exempt from income tax under sub-division 50A of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

Question 2

Can you claim a deduction forexpenses incurred under paragraph 8-1(1)(a) of the ITAA 1997?

Answer

No

This ruling applies for the following period(s)

Year ending 30 June 20XX

The scheme commences on

1 July 20XX

Relevant facts and circumstances

You were founded.to gather and share viewpoints of the electorate to promote elected member representation that reflects contemporary values, beliefs and needs.

Your Activities include the hosting of community meetings, community surveys, informal education about the political process and encouragement and support members of the community to stand by electoral candidacy.

You support members of the community to stand for parliamentary election.

Candidates do not carry your name on electoral material or ballot forms.

You are not a political party registered with the Australian Electoral Commission (AEC).

You do not receive any AEC entitlements afforded to political parties.

You incurred expenses for media and communications advice.

You incurred expenses for Advertising Campaign Production fees.

Clause 2 of your constitution establishes the membership provisions:

(1)  A person is eligible to be a member of the association if:

(a)  The person is a natural person, and

(b)  The person has applied and been approved for membership of the association in accordance with clause 3.

(2)  a person is taken to be a member of the association if:

(a)  the person is a natural person, and

(b)  the person was

(i)    In the case of an unincorporated body that is registered as the association - a member of that unincorporated body immediately before the registration of the association, or

(ii) in the case of an association that is amalgamated to form the relevant association - a member of that other association immediately before that entity was registered as an association

(iii) in the case of a registrable corporation that is registered as an association - a member of the registrable corporation immediately before that entity was registered as an association under section 6 (1) (a) of the Act was made

(3)  A person is taken to be a member of the association if the person was one of the individuals on whose behalf an application for registration of the association under section 6 (1) (a) of the Act was made.

(1)  Each member is entitled to one vote.

(2)  You are managed by a committee. All members are eligible to be in the Committee. The Committee comprises of a President, Vice-Presidents, a Secretary, a Treasurer and three other members.

(3)  Clause 41 of your Constitution states:

·         Subject to the Act and Regulation, the association must apply its funds and assets solely in pursuance of the objects of the association and must not conduct its affairs so as to provide a pecuniary gain for any of its members.

(4)  Clause 42 of your Constitution of states:

·         Subject to the Act and the Regulations, in a winding up of the association, any surplus property of association is to be transferred to another organisation with similar objects and which is not carried on for the profit or gain of its individual members.

·         In this clause, a reference to the surplus property of an association is a reference to that property of the association remaining after satisfaction of the debts and liabilities of the association and the costs, charges and expenses on the winding up of the association.

Relevant legislative provisions

section 50-1 of the ITAA 1997

subsection 26-22(1) of the ITAA 1997

paragraph 8-1(1)(a) of the ITAA 1997

Reasons for decision

Summary

You are an assessable not for profit entity. You do not meet any of the criteria for exemption from income tax under Sub-division 50-A of the ITAA 1997. You cannot claim a deduction for a contribution or gift you makes in respect of an individual who is a candidate in a local government, State or Federal election.

Detailed reasoning

Section 50-1 of the ITAA 1997 provides that the ordinary income and statutory income of certain entities is exempt from income tax. The categories of exemption to which section 50-1 refers are as follows:

Section 50-5 of the ITAA 1997

Charity, education and science

·         Item 1.1 registered charity

·         Item 1.3 scientific institution

·         Item 1.4 public educational institution

·         Item 1.6 fund established to enable scientific research to be conducted by or in conjunction with a public university or public hospital

·         Item 1.7 society, association or club established for the encouragement of science

·         Global Carbon Capture and Storage Institute Ltd

Section 50-10 of the ITAA 1997

Community service

·         Item 2.1 society, association or club established for community service purposes(except political or lobbying purposes)

Section 50-15 of the ITAA 1997

Employees and employers

·         Item 3.1 employee association or employer association

·         Item 3.2 trade union

Section 50-20 of the ITAA 1997

Funds contributing to other funds

·         A fund that:

(a) is established by will or instrument of trust solely for a purpose referred to in paragraph (a) or (b) of the column headed "Recipient" in item 2 of the table in section 30-15; and

(b) is not a charity

Section 50-25 of the ITAA 1997

Government

·         Item 5.1 (a) a municipal corporation or

·         (b) a local governing body

·         Item 5.2 A public authority constituted under an Australian law

·         Item 5.3 a constitutionally protected fund

Section 50-30 of the ITAA 1997

Health

·         Item 6.1 public hospital

·         Item 6.2 hospital carried on by a society or association

·         Item 6.3 private health insurer within the meaning of the Private Health Insurance (Prudential Supervision) Act 2015.

Section 50 - 35 of the ITAA 1997

Mining

·         Item 7.2 the British Phosphate Commissioners Banaba Contingency Fund

Section 50-40 if the ITAA 1997

Primary and secondary resources, and tourism

·         Item 8.1 a society or association established for the purpose of promoting the development of

(a) aviation; or

(b) tourism

·         Item 8.2 a society or association established for the purpose of promoting the development of any of the following Australian resources:

(a) agricultural resources:

(b) horticultural resources;

(c ) industrial resources

(d) manufacturing resources;

(e) pastoral resources

(f) viticultural resources;

(g) aquacultural resources;

(h) fishing resources

·         Item 8.3 a society or association established for the purpose of promoting the development of Australian information and communications technology resources.

·         Item 8.4 Global Infrastructure Hub Ltd

Section 50-45 of the ITAA 1997

Sports, culture and recreation

·         Item 9.1 a society association or club established for the encouragement of

(a) animal racing; or

(b) art; or

(c) a game or sport; or

(d) literature; or

(e) music

·         Item 9.2 a society, association or club established for musical purposes

You do not meet any of these categories of exemption.

You have specifically asked the Commissioner to consider Item 2.1 of section 50-10 the ITAA 1997.

Item 2.1 of section 50-10 of the ITAA 1997 provides that a society, association or club established for community services purposes (except political or lobbying purposes) shall be an exempt entity, subject to special conditions in section 50-70 of the ITAA 1997.

Accordingly, to be an exempt entity described in item 2.1 of section 50-10 of the ITAA 1997, an entity must:

(a) be a society, association or club;

(b) be established for community services purposes (except political or lobbying purposes); and

(c) meet the special conditions specified in section 50-70 of the ITAA 1997.

Your purpose is "to gather and share viewpoints of the electorate and to promote elected member representation that reflects contemporary values, beliefs and needs."

Your activities include the hosting of community meetings, community surveys, informal education about the political process and encouraging and supporting members of the community to stand for electoral candidacy.as an independent (unendorsed) candidate.

These roles and activities are best characterised as political or lobbying purposes and therefore disqualify VOFI from satisfying the requirements of item 2.1of section 50-10 of the ITAA 1997.

Assessable not for profit organisation

For an organisation to be a not-for-profit company it must meet the 'not-for-profit requirement'. This means that:

·         it must be a company that is not carried on for the purposes of profit or gain to its individual members; and

·         its constituent documents must prohibit it from making any distribution, whether in money, property or otherwise, to its members.

An organisation can be a not-for-profit company and still make a profit. However, any profits it makes must be used to carry out its purposes. The profits must not be distributed to members.

Your constituent documents prohibit the distribution of profits to members. The funds must be used for the purposes of the organisation.

As you meet the above requirements you are an assessable not for profit organisation.

Deductions for expenses incurred by the organisation

Subsection 26-22(1) of the ITAA 1997 denies a deduction where an outgoing is in respect of an individual who is a candidate in a local, State or Federal election.

You incurred electoral material expenses for the 2019 federal election in respect of an independent candidate.

These outgoings are denied deductibility under subsection 26-22(1) of the ITAA 1997.

Conclusion

Based on the above, your total ordinary income and statutory income is not exempt from income tax pursuant to sub-division 50A of the ITAA 1997.

You are an assessable not for profit organisation.

You cannot claim a deduction for an outgoing you incur in respect of a candidate for a local government, State or Federal election.