Edited version of private advice

Authorisation Number: 1051623238770

Date of advice: 6 January 2020

Ruling

Subject: Exemption from income tax

Question/s and answer/s:

Is Company A entitled to exemption from income tax as a "society or association established for the purpose of promoting the development of" Australia's industrial resources in accordance with Item 8.2 (c) of the table in section 50-40 of the ITAA 1997?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2020

Year ending 30 June 2021

Year ending 30 June 2022

Year ending 30 June 2023

The scheme commences on:

31 October 2019

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.           Company A has applied for a private ruling to extend the period of a private ruling previously granted by the Commissioner of Taxation regarding its exemption from the payment of income tax.

2.           That ruling confirmed that Company A was an exempt entity under item 8.2(c) of section 50-40 of ITAA 1997 and extended the period of the pervious private ruling granted by the Commissioner of Taxation.

3.           Company A applied for a replacement private ruling to the earlier issued ruling, due to "minor differences between the current objects of the organisation" and the objects described in the previous ruling.

4.           Company A has advised that there has been no material change in the facts and circumstances as described in the previous ruling.

Previous Ruling

5.           The previous ruling application included the following documents:

1.     Company A's constitution;

2.     Funding Submission and Addendum;

3.     Contribution Deed

4.     Extension Deed

6.           In this ruling the Australian Taxation Office found Company A met the income tax exemption requirements under item 8.2(c) of section 50-40 of the ITAA 1997.

Current Ruling

7.           Company A has provided the following documents in support of this ruling application:

1.       Company A's constitution;

2.       Contribution Deed

3.       The Extension Deed

8.           The constitution contains an appropriate non-profit clause and winding-up clause

9.           The purpose and objects of Company A are concerned with investing in projects concerned with low emissions technology.

10.        The projects are undertaken by other agencies.

11.        To achieve its purpose Company A receives contributions which are used for research projects

12.        All members are required to pay contributions, and are contributors.

13.        The contributors can benefit from the technology.

Reasons for decision

Summary

Company A is an association established for the purpose of promoting the development of Australia's industrial resources in accordance with item 8.2(c) of the table in section 50-40 of the Income Tax Assessment Act 1997 (ITAA 1997).

Company A is therefore exempt from income tax under section 50-1 of the ITAA 1997.

Detailed reasoning

In its reasons for decision for the previous ruling it was concluded that:

·        Company A is an 'association or society' for the purposes of item 8.2(c) in section 50-40 of the ITAA 1997;

·        Company A meets the requirement of being established for a purpose of promoting the development of Australian industrial resources; and

·        Company A is not set up to primarily promote the interests of its members, but rather to further the development of the coal industry in Australia. Therefore Company A's constituent documents and activities are consistent with the requirement that it is not carried on for the profit and gain of its individual members.

Company A has applied for an extension of the original private ruling for income tax exemption under item 8.2(c) in the table in section 50-40 of the ITAA 1997 which states:

Accordingly to be exempt from income tax as an exempt entity under section 50-1 of the ITAA 1997, Company A must:

i.         be a society, or association;

ii.        be established for promoting the development of Australian industrial resources; and

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

Society or association

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

In Pro-campo Ltd. v. Commr of Land Tax (NSW) 81 ATC 4270; (1981) 12 ATR 26 the court made the following comments on the meaning of society and association (at 4279):

In Theosophical Foundation Pty Ltd v. Commr of Land Tax (NSW) [1966] 67 SR (NSW)... Sugerman JA stated at 82:

A society, in the relevant sense, is a number of persons associated together by some common interest or purpose, united by a common vow, holding the same belief or opinion, following the same trade or profession, etc; an association' (Oxford English Dictionary, 'Society'...

The meaning of "society" as the Oxford 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 organizations are called "associations", others are called "societies" but no meaningful difference can be detected between the two... In short the ... words are describing bodies made up of groups of persons who have come together to implement common purposes and objects...

Company A is a company limited by guarantee, and its members have associated for its purpose. It is accepted that Company A is a society or association.

Established for the purpose of promoting the development of Australian industrial resources

Scheme Outline

All members of Company A are required to pay contributions or levies to Company A for application to its objects. Accordingly it is concluded that members would also be contributors.

The projects are carried out by research agencies.

The members (and contributors) benefit from the knowledge of the technologies and obtain the rights to exploit intellectual property derived from the research. However, the main benefit to members (and contributors) is the potential expansion of the market for the resource as a result of the development of lower emission methods of the resource use.

It is considered that the resource, being the resource of which development is being promoted is within the meaning of industrial resources as described in Taxation Ruling IT 2415, that is, it is a resource of an industry.

Company A's constitution indicates its dominant purpose is the development and implementation of projects to facilitate substantial reductions in greenhouse gas emissions from the use of the resource in Australia.

Company A through promoting research and/or projects that develop ways to use the resource that results in lower emissions undertakes to ensure that the resource is used in a manner that is in the best interests of Australia. This as stated in paragraph 8 of IT 2415 comes within the meaning of promoting the development of a resource as required under item 8.2(c) in the table in section 50-40 of the ITAA 1997.

Accordingly Company A is accepted as meeting the requirement of being established for a purpose of promoting the development of Australian industrial resources.

Not be carried on for the profit or gain of its individual members

The Commissioner accepts an organisation is non-profit where its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people - both while it is operating and when it winds up. These documents should contain acceptable clauses showing the organisation's non- profit character. The organisation's actions must be consistent with this requirement.

A non-profit organisation can still make a profit, but this profit must be used to carry out its purposes. The profits must not be distributed to owners, members or other private people.

There are two requirements in the statement of non-profit character above. First, an entity's constituent documents must display a non-profit character. Second, the entity's actions must be consistent with this non-profit character.

The constitution of Company A contains acceptable clauses prohibiting the distribution of income and property to its members directly or indirectly during its operations and when it winds up. The constitution requires that the income and property of Company A will only be applied towards the promotion of the objects of the company.

The first requirement that constituent documents must display a non-profit character is therefore satisfied.

Company A's constitution requires that the members pay contributions or levies to the Company which will be applied towards the promotion of the objects of the Company. Therefore all members of Company make a financial contribution to Company A, and are contributors.

The contributions paid to Company A are property of Company A and no right or interest is given to a contributor in any assets of Company A.

Accordingly Company A is not set up to primarily promote the interests of its members, but rather to further the development of industry in Australia.

It is therefore concluded that Company A's constituent documents and activities are consistent with the requirement that it is not carried on for the profit and gain of its individual members.

Conclusion

Company A is an association established for the purpose of promoting the development of Australia's industrial resources in accordance with item 8.2(c) of the table in section 50-40 of the ITAA 1997.

Company A is therefore exempt from income tax under section 50-1 of the ITAA 1997.