Edited version of private advice

Authorisation Number: 1051655202273

Date of advice: 08 April 2020

Ruling

Subject: Income tax exemption

Question 1:

Is the entity exempt from income tax, in accordance with section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) because it is an entity established for the purpose of promoting the development of Australian manufacturing resources pursuant to item 8.2(d) of section 50-40 of the ITAA 1997?

Answer:

Yes

Question 2:

Is the entity entitled to the fringe benefits tax (FBT) rebate under the provisions of the Fringe Benefits Tax Assessment Act 1986?

Answer:

Yes

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commenced on

1 July 20XX

Relevant facts and circumstances

1. The entity is a public company limited by guarantee.

2. The entity is not a registered charity.

3. The entity's activities have not changed since 20XX.

4. The objects for which the Company is established are consistent with promoting the development of a manufacturing resource.

5. The entity has a suitable income and property clause and winding up clause in its constitution.

6. The membership clauses in the Constitution satisfy the requirements for income tax exemption under s50-40 of the ITAA 1997.

7. The principal activities and objects of the entity are consistent with the promotion of the development of manufacturing resources.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 50-1,

Income Tax Assessment Act 1997 Section 50-40

Income Tax Assessment Act 1997 Section 50-47

Income Tax Assessment Act 1936 Paragraph 23(h)

Fringe Benefits Tax Act 1986 Subsection 65J(1)

Reasons for decision

Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the ordinary and statutory income of the entities covered by the tables in Division 50 is exempt from income tax.

To be an exempt entity under section 50-40 of the ITAA 1997 an entity must be a society or association established for the purpose of promoting the development of an Australian resource. The society or association must also not be carried on for the profit or gain of its individual members, and must satisfy the special condition in section 50-47 of the ITAA 1997.

Society or Association

The words 'society' and 'association' are not defined in the ITAA 1997 and therefore take their ordinary meaning.

Guidance on the terms 'society' and 'association' can be found in Pro-campo Ltd. v. Commr of Land Tax (NSW) 81 ATC 4270; (1981) 12 ATR 26. In that case 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...

The Court also confirmed that the status of the entity's incorporation does not have any bearing on whether the entity is considered a society or an association:

The interpretations of 'society' and 'association' as described above, emphasise a 'body of persons' and 'an organisation of people' with a 'common purpose'. The entity is a public company limited by guarantee. It is an organisation of people with a formal structure, formed to pursue a common purpose as stated in its constitution. The entity is a society or association.

Established principally or predominantly for the purpose of promoting the development of specified Australian resources

Resources of Australia

The words 'of Australia' limit the exemption to associations whose activities are directed to Australian resources, thereby excluding associations whose activities are directed to the resources of places beyond Australia. Where an association is established for the purpose of promoting the development of a foreign resource, or of both Australian and foreign resources the test for exemption is not met.

As the principal activities of the entity are directed to Australian resources and conducted in Australia, this requirement is satisfied.

Manufacturing Resource item 8.2(d) of section 50-40

The resources whose development is being promoted must fall within the umbrella of resources specified in item 8.2 of the table in section 50-40 of the ITAA 1997.

The term 'manufacturing resource' is not defined in the legislation. It takes its ordinary meaning.

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.

Manufacturing resources extend to 'plant and equipment, manpower, skill and know-how in manufacturing such articles as steel products, clothing and furniture, and such non-tangible commodities as gas and electricity': Australian Insurance Association at 79 ATC 4574; 10 ATR 339. The meaning does not include business or commercial resources.

The activities of the entity are concerned with the manufacture and would come within the meaning of manufacturing resources.

Promoting Development

'Promoting development' can be by various means, including research, providing facilities, training, improving marketing methods, facilitating co-operation, and similar activities.

The term 'development' is used in section 50-40 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.

'Promoting the development' may be direct or indirect. It need not be on a large scale or use commercial means. However, not all activities connected with a resource will necessarily be for its development.

As the Tribunal pointed out in Case W49 at 89 ATC 474; 20 ATR 3602: 'The enlargement of the market is one of the objectives of "promoting the development" of any relevant industry.'

It is not sufficient that one of an Association's purposes falls within section 50-40 of the ITAA 1997. Nor is it enough that resource development is incidental to, involved with or a consequence of an Association's purposes. The Association must be established for the required purposes. The term 'established' is not used in a narrow sense. It is necessary to consider an Association's constituent documents, operations and activities.

Not all activities connected with a resource will necessarily be for its development. For example, the improvement of marketing will ground an exemption only where it is undertaken as a means of promoting development of the particular resources. If the marketing or other purported means is not sufficiently connected or integrated with resource development, it will not be for the purpose of promoting development of those resources. It is not enough that a consequence of the activities may be resource development.

The entity's activities have not changed since 20XX. The supporting information provided shows that the entity is concerned with the manufacturing industry.

It is accepted that the entity does promote the development of manufacturing.

Dominant Purpose

The entity's dominant purpose is promoting the development of manufacturing as per item 8.2(d).

Benefits to members

If an association operates principally to confer benefits on its members jointly or as a group, it is unlikely to be predominantly for promoting resource development and thus not exempt under section 50-40 of the ITAA 1997.

In Case 46/94 at 94 ATC 417; 29 ATR 1108 the tribunal found, as an alternative ground, that the association was not exempt under 23(h) because it was principally to promote the interests of its members. It operated to look after the needs of consulting surveyors through such activities as public liability insurance, professional development, training of employees, assuring quality client service, publishing business practice and technical material, and lobbying to obtain work for members particularly from government.

In Australian Insurance Association v. Federal Commissioner of Taxation (1979) 10 ATR 333 (1979) 41 FLR 256, the Association comprised the majority of general insurance companies carrying on business in Australia. At issue was inter alia, whether it primarily promoted the interests of its members, or whether the benefits to members were incidental to the purpose of being established to develop a particular resource. Sheppard J in concluding said, at ATC 4572:

In my opinion the difference between the parties in the way that each views the evidence is one of emphasis. The very nature of the appellant's undertaking is such that it must further the more selfish interests of its members by engaging in the various activities which it does and in any event itself leads to a situation pursuant to which the appellant's endeavours do have the overall effect of promoting the protection and furtherance of Australian Insurance business.

An organisation must be able to demonstrate that it has a predominant purpose of promoting development of the resource, rather than the interests of its own members.

While benefits flow to the entity's members as a consequence of membership, they are in the nature of incidental benefits which will often flow to members from activities promoting the development of resources with which they are involved. Non-members also benefit from the activities of the organisation. The entity does demonstrate a wider purpose which is to promote the entire industry in Australia and thus the broader development of Australian resources.

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

In Federal Commissioner of Taxation v Co-operative Bulk Handling Ltd 2010] FCAFC 155; 2010 ATC 20-231 Mansfield and McKerracher JJ stated the following about the meaning of 'not be carried on for the profit or gain of its individual members':

In all cases of exemption, it must be the position that it is not open to the body to disburse any profits or dividends to members. (at paragraph 95)

The current governing documents and previous constitutions of the entity do prohibit it from applying its assets for the benefit of individuals while it operates and on winding-up.

We accept that the entity is not carried on for the profit or gain of its individual members.

ACNC type entity condition

Section 50-47 of the ITAA 1997 provides a special condition that if an entity that is covered by one of the items in subdivision 50-A is an 'ACNC type of entity', they will not be exempt from income tax unless they are registered under the Australia Charities and Not-for-profits Commission Act 2012.

'ACNC type of entity' is defined in subsection 995-1(1) of the ITAA 1997 as an entity that meets the description of a type of entity in column 1 of the table in subsection 25-5(5) of the Australian Charities and Not-for-profits Commission Act 2012. Column 1 of the table in subsection 25-5(5) of the Australian Charities and Not-for-profits Commission Act 2012 describes a charity. The Charities Act 2013 provides a definition of 'charity' that applies to all Commonwealth laws.

The definition of 'charity' in section 5 of the Charities Act 2013 provides that 'charity' means an entity:

a) That is a not-for-profit entity; and

b) All of the purposes of which are:

                      i.        Charitable purposes that are for the public benefit; or

                     ii.        Purposes that are incidental or ancillary to, and in furtherance or in aid of, purposes of the entity covered by subparagraph (i); and

c) None of the purposes of which are disqualifying purposes; and

d) That is not an individual, a political party or a government entity

It has been concluded that entity is a not-for-profit entity. Charitable purposes are listed in section 12 of the Charities Act 2013. It has also been concluded that the entity's purpose is to promote the development of manufacturing resources. This will not qualify as one of the charitable purposes listed and entity will not be an 'ACNC type of entity'.

Accordingly, section 50-47 of the ITAA 1997 will not apply.

CONCLUSION:

A review of the entity's application, supporting information and website demonstrates that it is a non-profit association that has been established principally or predominantly for the purpose of promoting development of the manufacturing industry. It is non-profit, it does promote development of industry particularly by hosting conferences, seminars and training workshops. The dominant purpose for which the entity is established is the promotion of the development of an Australian resource, being a manufacturing resource. It does qualify for income tax exemption under section 50-1 of the ITAA 1997 as an association established for the purpose of promoting the development of an Australian resource pursuant to item 8.2 in the table in section 50-40 of the ITAA 1997.

Question 2

Is the entity entitled to the fringe benefits tax (FBT) rebate under the provisions of the Fringe Benefits Tax Assessment Act 1986?

Relevant legislative provision

Subsection 65J(1) of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision

Subsection 65J(1) of the FBTAA provides that an employer will be a rebatable employer if it is exempt from income tax at any time during the year of tax under any of the provisions set out in the table and satisfies the special conditions (if any) also set out in the table.

Item 9 of the table states:

A society or association

(a)                  established for the purpose of promoting the development of any of the following Australian resources:

(i)            agricultural resources;

(ii)           horticultural resources;

(iii)          industrial resources;

(iv)         manufacturing resources;

(v)          pastoral resources;

(vi)         viticultural resources;

(vii)        aquacultural resources;

(viii)       fishing resources; and

(b)          covered by item 8.2 of the table in section 50-40 of the ITAA 1997.

Assessable income of a taxpayer is exempt under section 50-1 of the ITAA 1997 where the taxpayer falls within the description contained in item 8.2 of section 50-40 of the ITAA 1997.

The entity is a society or association that meets the requirements of item 8.2(d) manufacturing resources of the table in section 50-40 of the ITAA 1997 and its ordinary and statutory income is exempt from income tax under section 50-1 of the ITAA 1997.

Therefore, the Commissioner considers that the entity also meets the requirements of item 9 of the table in subsection 65J(1) of the FBTAA.

The special conditions for item 9 of the table are found in subsection 65J(5) of the FBTAA.

This subsection provides that a society, association or club is not covered by table item 9 for a year of tax if it is:

(i)            an incorporated company where all the stock or shares in the capital of the company is or are beneficially owned by:

(i)            the Commonwealth, a State or a Territory; or

(ii) an authority or institution of the Commonwealth, a State or a Territory; or

(ii)           an incorporated company where the company is limited by guarantee and the interests and rights of the members in or in relation to the company are beneficially owned by:

(i)            the Commonwealth, a State or a Territory; or

(ii)    an authority or institution of the Commonwealth, a State or a Territory.

The entity is not excluded by the special conditions as it is not an incorporated company owned by Commonwealth, State or Territory.

CONCLUSION

The entity meets the requirements of section 65J of the FBTAA, it is determined to be entitled to the Fringe Benefits Tax rebate.