Edited version of private advice

Authorisation Number: 1052036328082

Date of advice: 4 October 2022

Ruling

Subject: Income tax - tax exempt

Question 1

Is the entity an income tax exempt entity pursuant to item 8.2 of the table in section 50-40 of the Income Tax Assessment Act 1997 (ITAA 1997), as a society or association established for the purpose of promoting the development of Australian industrial resources?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

In accordance with its Constitution, the entity is an incorporated entity formed under the Corporations Act 2001 and limited by guarantee.

Extracts from, and specific clauses in the Constitution of the entity have been noted for the purposes of making the ruling.

Governed by its Board of Directors in consultation with state bodies, the entity is concerned with promoting the development of the resources of a particular industry across all stages of the industry cycle.

The entity was established and operates to further the development of this industry, essentially developing the industrial resources of the sector. This purpose is reflected in the breadth of the organisation's vision and the directness of the organisation mission. It is further reflected in the entity's successive organisational strategies which set out broad initiatives that are designed to develop this sector. Likewise this purpose is expressed through the core activities.

The entity directly influences the sector through the production of the industry standard for promoting best practice. The entity frequently takes ideas for innovation, sustainability and development into training, forums, seminars and policy settings, often in direct partnership with governments, elected representatives and regulators.

The entity has non‐executive board positions on other bodies that influence the industry's efficiency, productivity and profitability.

The entity is not merely a service provider to the industry. It is an extension of the industry created to further its interests and develop its resources. The organisation is a fusion of a significant number of paid staff and industry volunteers. The thousands of individuals in members companies who contribute through a range of additional activities and consultations throughout each year.

In particular, committee and council work with the entity is an act of leadership role‐modelling, of public policy engagement and of personal leadership development that brings additional resources, skills and connectivity back into each member organisation. This leadership role‐modelling and personal capacity building helps grow individual leaders within the industry and attract talent to the industry and goes to the heart of the further development of the industry.

There are 2,200 industry volunteers sitting on the industry committees around Australia to advise on the development of advocacy, professional development and research programs around all sectors of the specific environment at Federal and State levels.

Promoting the development of the specific industrial resources of Australia is central to everything that the entity does. While the Constitution was not written with the current Income Tax Act in mind, the organisational Objectives set out in this are designed to promote the development of Australia's industrial resources in this sector.

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

Reasons for decision

Question 1

Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states that the ordinary income and statutory income of entities covered by subdivision 50-A of the ITAA 1997 is exempt from income tax. In some cases, the exemption is subject to special conditions.

If a society or association established for the purpose of promoting the development of industrial resources of Australia falls under item 8.2 of the table in section 50-40 of the ITAA 1997, its income is exempt from income tax.

The exemption is subject to the special condition also outlined in section 50-40 of the ITAA 1997 in that the entity is not carried on for the purpose of profit or gain of its individual members.

Section 50-47 of the ITAA 1997 also provides that if the entity is a charity, must be registered with the Australian Charities and Not-for-profits Commission.

Accordingly, to be exempt from taxation under 50-1 of the ITAA 1997, the entity must:

•         be a society or association

•         not be a charity

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

•         be established for the purpose of promoting the development of industrial resources of Australia.

Society or association

The term society or association is not defined in the legislation. The term is therefore construed according to the ordinary meaning of the words.

In Theosophical Foundation Pty Ltd v. Commissioner of Land Tax (1966) 67 SR (NSW) 70, 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"

In Pro-Campo Limited v. Commissioner of Land Tax (N.S.W.) 81 ATC 4270, Lee J stated at 4279:

The meaning of "society" as the Oxford English 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 organisations are called "associations", others are called "societies" but no meaningful difference can be detected between the two.

The term association is also discussed in paragraph 2 of Taxation Determination TD 95/56 Fringe benefits tax: can a body which is formed by government, is controlled by government and performs functions on behalf of government be an 'association' for the purposes of section 65J of the Fringe Benefits Tax Assessment At 1986 (FBTAA)? This discussion is also relevant here. TD 95/56 considers to the definition of 'association' as follows:

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 a public company limited by guarantee. We consider that it is an organisation of people with a common purpose (as per its objects in the constitution) and a formal structure and that it is a society or an association.

Not be a charity

A resource development organisation described in section 50-40 of the ITAA 1997 will not be exempt from income tax as such if it is an organisation that is also a charity.

The entity is not a charity and therefore satisfies this requirement.

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

A not-for-profit (NFP) organisation does not operate for the profit or gain of its individual members. This applies both while the organisation is operating and when it winds up. Its constituent or governing documents must prevent it from distributing profits or assets for the benefit of particular people - both while it is operating and when it winds up. A NFP organisation can still make a profit, but this profit must be used to carry out its purposes and must not be distributed to owners, members or other private people.

The NFP requirement is also explained in Draft Taxation Ruling TR 2021/D6 Income tax: the games and sports exemption. Whilst explained in relation to sporting clubs it is also applicable to other types of organisations. In addition to the above mentioned requirements, it provides that the entity must act consistently with the NFP restrictions in its constitution, and that benefits received by members communally as members and incidental to pursuit of entity's objects do not prevent the entity from passing the non-profit test, nor does the payment of reasonable remuneration to members for services they provide to the entity.

The entity's constitution prevents it from distributing its profits or other income to members.

The entity's constitution prevents it from distributing its profits and surplus assets among members on its winding up.

The entity's constitution, which is in relation to payment of reasonable remuneration to members for services they provide to it, does not prevent it from passing the non-profit test.

Accordingly, we accept that the entity satisfies the non-profit test.

Established for the purpose of promoting the development of industrial resources in Australia

The meaning of this requirement has been considered in a number of court cases, including Australian Insurance Association v. Federal Court of Taxation 79 ATC 4569, 10 ATR 333 (AIA Case) and Boating Industries Association of New South Wales v. Federal Commissioner of Taxation 85 ATC 4224, (1985) 16 ATR (Boating). These cases indicate that in order for a non-profit association to satisfy this particular requirement, various conditions must be met. These conditions are summarised below.

Dominant Purpose

To be exempt from income tax pursuant to item 8.2 in the table in section 50-40 of the ITAA 1997, an association must be established for the dominant purpose of promoting the development of the relevant Australian resources. This means that both the association's dominant object as per its constitution and its dominant activity must be for this purpose (Australian Insurance and Boating).

Determining an association's dominant purpose is a matter of fact and degree (Boating). It involves considering the association's constituent documents, history, operation, activities and use of funds.

Promoting development

Item 8.2 in the table in section 50-40 of the ITAA 1997 is directed to the promotion of the development of the specified resources and not to the promotion of the various resources themselves (Taxation Ruling IT 2415 Income tax: associations promoting development of Australia resources which discusses paragraph 23(h) of the Income Tax Assessment Act 1936, now section 50-40 of the ITAA 1997).

The term 'development' is used in a commercial or business sense. It comprehends all the elements which must be taken into account to ensure that the resources are best used (IT 2415).

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

Resources of Australia

The word 'Australia' limits the application of item 8.2 in the table in section 50-40 of the ITAA 1997 to associations whose activities are directed to Australian resources.

It is a matter of fact and degree whether an association is predominantly for the purpose of promoting Australian resources.

Industrial Resources

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

The expression 'industrial resources' in refers to resources such as those of the building, mining, quarrying, shipping and transport industries. It does not extend to business or commercial resources. (Paragraph 6 of IT 2415)

This information reflects the discussion and decision in the AIA case and other cases. In the AIA case, Sheppard J considered the meaning of the term 'industrial resources', as differentiated from manufacturing resources, both used in former section 23(h) of the Income Tax Assessment Act 1936, remade as section 50-40 of the ITAA 1997. In the AIA case (at 4574-4575) Sheppard J said:

'An analysis of the section discloses that the first group of resources dealt with (omitting from consideration that of aviation) are all of primary industry, namely, agricultural, pastoral, horticultural and viticultural. Next are the manufacturing resources. It would seem to have been the draftsman's intention to distinguish between separate resources and the final category of industrial resources. There is a question as to whether there are two separate and distinct categories, or whether there may not be some overlapping between the two. Whether that be so or not, one must reach a conclusion as to what type of resources were intended to be referred to as industrial resources as opposed to those which were embraced by the expression "manufacturing resources"...

In the submission of counsel for the Commissioner, the words "industrial resources" were inserted to cover such resources as those of the building industry or the mining or quarrying industries. The word "industrial" was thus said to have been used in its traditional or conventional sense.

Having reflected on the matter, I have reached the conclusion that the submission made by counsel for the Commissioner should be accepted. There is a degree of specificity in the words used in the section. It refers to aviation then to four resources of primary industry, then to manufacturing and finally to industrial resources. The use of various expressions does not suggest that the draftsman intended to give to the word "industrial" any wide meaning intended to embrace business or commercial resources...

Even if the word "industrial" had been used alone (that is, without the word "manufacturing") I think there would have been a question as to whether commercial or business resources were included.

The AIA case was applied the by Administrative Appeals Tribunal in case 46/94 (1994) 29 ATR 1102; (1994) 94 ATC 412 (Case 46/94), rejecting an association of surveyors claim for exemption under the section. In Case 46/94, at ATC 416-417, Beddow SM said:

'His Honour [in the AIA case] said that the building, mining and quarrying industries and the resources which these industries have are not aptly described as manufacturing industries, but they are industries in the accepted sense of the word. Industries in a similar category are the shipping and transport industries...

I am not satisfied, in the light of what was said by Sheppard J, that surveying comes within the meaning of "industrial resources" of Australia because the association promotes what can only be described as a service industry. It is undoubtedly true that all forms of industry in Australia will have a need for the services of a surveyor from time to time, although certain industries will clearly have a much greater demand for the work of surveyors than others. It is also equally clear, on the material before me, that persons who are not in business will also have a demand for the use of surveyors... I cannot see, in the light of what his Honour said in the AIA case how it can be said that the surveying industry itself or, perhaps more correctly describing it the surveying profession, can be said to be an industrial resource of Australia...'

The Commissioner accepts in this case the entity, the work it undertakes and its organisational objectives all demonstrate that it has been established to promote a specific industry in Australia. It therefore satisfies the criteria of a society or association established for the purpose of promoting the development of an Australian industrial resource.