Edited version of private advice

Authorisation Number: 1051889086807

Date of advice: 26 August 2021

Ruling

Subject: Income tax exempt status

Question

Are you exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as an entity described in item 2.1 of section 50-10 of the ITAA 1997?

Answer

No.

This ruling applies for the following period

Year ended 30 June XX

The scheme commences on:

XX

Relevant facts and circumstances

You were incorporated on X, and are a company limited by guarantee.

You operate as X.

You are not registered as a charity under the Australian Charities and Not-for-profits Commission Act 2012.

Clause X of your Constitution sets out the objects for which the Company is established.

Your resources include a total of X employees.

You undertake various activities and events.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 Item 2.1 of section 50-10

Income Tax Assessment Act 1997 section 50-10

Income Tax Assessment Act 1997 section 50-47

Income Tax Assessment Act 1997 section 50-70

Reasons for decision

All legislative references are to the ITAA 1997 unless otherwise stated.

Question 1

Are you exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as an entity described in item 2.1 of section 50-10 of the ITAA 1997?

Summary

No.

Detailed reasoning

Section 50-1 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:

•         it is a society, association or club

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

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

Additionally, section 50-47 provides that where an entity is covered by an exempt entity category, but also meets the description of an 'ACNC type of entity', it will not be exempt from income tax unless it is registered as a charity with the Australian Charities and Not-for-profits Commission and endorsed by the ATO.

Each of these requirements are considered below.

Society, association or club

The terms "society" and "association" are not defined in the ITAA 1997.

The meaning of "association" was considered by Olney J in Douglas & Ors v FCT 97 ATC 4722 in relation to former subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 (ITAA 1936) and the following was found:

As the section contains no definition of either 'society, association or club' or "community services purposes" it should be construed according to the ordinary meaning of the words used and, if necessary, after resort to the relevant explanatory memorandum and second reading speech.

Unassisted by authority I would construe the collation "society, association or club" to refer to a voluntary organisation having members associated together for a common or shared purpose. Such a description is consistent with various dictionary definitions of the several words used.

Clause X of your Constitution sets out the membership of the company. According to your Annual Report for 20XX as at 30 June 20XX you had X members.

Clause X of your Constitution sets out the objects for which you are established.

You satisfy the first requirement of being an association as you are a voluntary organisation having members associated together for a common or shared purpose.

Established for community service purposes

Taxation Determination TD 93/190 Income tax: what is the scope of the exemption from income tax provided by subparagraph 23(g)(v) of the Income Tax Assessment Act 1936? (TD 93/190) explains the scope of established for community purposes: Relevantly TD 93/190 states:

3....The Explanatory Memorandum to subparagraph 23(g)(v) confirms that the words 'community service purposes' are to be given a wide interpretation. Those words 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.

4. However, the provision 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'.

5. It is not accepted that common association as such is altruistic. Neither the purposes of members, nor the purposes of their organisation, are altruistic merely because the members form a non-profit organisation to advance their common interests. Members who seek to advance their common interests are not therefore motivated by an unselfish regard for others, and neither is their organisation. It follows that an organisation established for the purposes of its members is not therefore established for community service purposes. Only when the purposes of the organisation are altruistic can they be community service purposes....

7. 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 cursory reading of its constitution:

The objectives contained in your Constitution outline you are established to promote, develop and support X enterprises in your region, provide services to your members and represent your members interests.

These objectives are limited to benefiting a particular segment of the community, being X enterprises, rather than the broader community.

X enterprises are not considered to be a segment of the community that has a particular need by reason of youth, age, infirmity or disablement, poverty, or social or economic circumstances.

Associations established to advance the common interests of their members are not motivated by an unselfish regard for others and are not considered to be altruistic. It follows that an organisation established for the purposes of its members is not therefore established for community service purposes.

Accordingly, the main objectives set out in your constitution do not demonstrate that you are established for community purposes as per the meaning set out in TD 93/190.

The purposes of your organisation can also be established by your current operations and activities.

While your various events are open to members and non-members, the social networking focus of many of them is not considered to be altruistic. Any information or training provided at these events is limited to benefiting the particular segment of community of focus.

This particular segment of the community is not normally considered to be a be a segment of the community that have a particular need by reason of youth, age, infirmity or disablement, poverty, or social or economic circumstances.

The majority of your activities and resources are applied to activities and events which are not considered to be for community purposes. Accordingly, you do not meet the requirement of being established for community purposes as defined in TD 93/190.

As you are not established for community purposes, it is not necessary to consider the other requirements.

As you do not meet the requirement of item 2.1 of the table in section 50-10, you do not qualify for exemption from income tax as a community service organisation.