Edited version of private advice

Authorisation Number: 1052075547194

Date of advice: 12 January 2023

Ruling

Subject: Income tax exemption

Question 1

Is the entity exempt from income tax under section 50-1 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 pursuant to item 8.2(c) of section 50-40 of the ITAA 1997?

Answer

Yes

Question 2

Is the entity a rebatable employer pursuant to section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) for the purpose of promoting the development of Australian industrial resources under item 9(a)(iii) in subsection 65J of the FBTAA?

Answer

Yes

This ruling applies for the following period:

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The entity is a company limited by guarantee.

The entity is not currently registered with the Australian Charities and Not-for-Profits Commission.

The entity is the peak association for various clubs.

None of the interests or rights of members are beneficially owned by the Commonwealth, a State and Territory, or any authority or institution of the Commonwealth, a State or Territory.

The entity has appropriate non-profit and winding up clauses.

The entity has objects in its constitution and undertakes activities that promote the development of an industrial resource.

Relevant legislative provisions

Section 50-1 of the Income Tax Assessment Act 1997

Section 50-40 of the Income Tax Assessment Act 1997

Section 50-47 of the Income Tax Assessment Act 1997

Section 65J of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision

Question 1

Summary

The entity is exempt from income tax under section 50-1 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 pursuant to item 8.2(c) of section 50-40 of the ITAA 1997.

Detailed reasoning

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 item 8.2(c) of the table in section 50-40 of the ITAA 1997 an entity must be a society or association established for the purpose of promoting the development of Australian industrial resources. 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 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...

The entity is a company limited by guarantee. The members voluntarily associate together for the purposes and objects of the entity, which undertakes activities in furtherance of its objects.

The entity is considered to be a society or association.

Australian industrial resources

The expression 'industrial resources' is not defined in the ITAA 1997. In Australian Insurance Association v Federal Commissioner of Taxation 79 ATC 4569 (Australian Insurance Association), Sheppard J considered the meaning of 'industrial resources' for the purposes of paragraph 23(h) of the Income Tax Assessment Act 1936 (the predecessor to section 50-40 of the ITAA 1997):

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 these various expressions does not suggest that the draftsman intended to give the word "industrial" any wide meaning intended to embrace business or commercial resources... (at 4574)

The building, mining and quarrying industries, and the resources which these industries have... are industries in the accepted sense of the word. ... Thus a reference to the resources of those industries as the industrial resources of Australia does not impose upon the language any strain... (at 4575)

Sheppard J also stated that 'industrial resources' include the businesses and their assets of an industry:

... the undertakings of the Australian insurance companies, viewed as a whole, are resources of Australia. I use the "undertakings" in the broadest sense. I include within it not only the businesses of the various companies but also their assets and the knowledge and skills of their staffs. (at 4573).

'Resources' or their elements also include infrastructure, personnel, knowledge, expertise and skill.

Taxation Ruling IT 2415 Income tax: associations promoting development of Australian resources states at paragraph 6 that 'industrial resources include transport industries.

The objects of the entity as stated in its constitution falls within promoting the development of an industrial resource.

Established for the purpose of promoting development

The term 'development' is used in section 50-40 of the ITAA 1997 in a commercial or business sense. It comprehends all the elements which must be taken into account to ensure that the specified resources are used in the best interests of Australia.

In Co-operative Bulk Handling Ltd v Federal Commissioner of Taxation [2010] FCA 508, Gilmour J (at first instance) accepted that 'promoting the development of resources' under section 50-40 of the ITAA 1997 entails 'unlocking, exploiting or bringing out the inherent potentialities and latent capabilities' of the resources. (at paragraph 80)

This reflects the meaning of 'development' given by Kitto J in Federal Commissioner of Taxation v Broken Hill Proprietary Company (1969) 120 CLR 240 in the phrase 'development of mining property' used in section 122 of the Income Tax and Social Services Contribution Assessment Act 1936-1964 (Cth):

In its ordinary English sense the word "development", when used in relation to a property, refers to the unfolding, the bringing out, of some latent capability of the property... It covers, I think, any preparation, adaption or equipment of the property for the exploitation of an inherent potentiality which cannot be exploited, or fully exploited, without some such preliminary treatment. (at 247)

The promotion of development may be direct or indirect (direct promotion includes research, education, and new or improved products, and indirect promotion includes marketing), and may be promoted by facilitating the cooperation of businesses and instrumentalities.

In Federal Commissioner of Taxation v Co-operative Bulk Handling Ltd [2010] FCAFC 155 Mansfield and McKerracher JJ made the following comments on the meaning of 'established' and 'purpose' in section 50-40 of the ITAA 1997:

Two aspects, at least, of s 50-40 may be disposed of at the outset as they are common ground.

First, "established" means maintained at the time at which qualification under the section is at issue...

Secondly, "for the purpose" means "for the sole or dominant purpose" of conducting the relevant activity... In Boating Industries it was held that the requirement of s 23(h), a predecessor of s 50-40, was that the relevant organisation be "established" for, and not merely "involved" in, the purpose stated... The focus must be upon the periodic or recurrent purposes of the body in the year of income... (at paragraphs 13-15).

The entities activities directly and indirectly promote the development of industrial resources.

The purposes of the entity will have benefits for its members however, such benefits are considered incidental to the purpose of promoting the development of industrial 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 (supra) 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 governing documents of the entity prohibit it from applying its income and assets for the benefit of individual members while it operates and on winding-up. There is no evidence that the entity acts contrary to this prohibition.

The entity is not carried on or the profit or gain of its individual members.

Dominant or principal purpose of promoting the development of tourism

The promotion of tourism in Australia is mentioned under clause 5 of the Constitution, so for completeness, the category for the purpose of promoting the development of tourism under item 8.1(b) in section 50-40 of the ITAA 1997 has also been considered below.

Tourism is not defined in the ITAA 1997 and has its ordinary meaning.

The Macquarie Dictionary defines the term tourism as the practice of touring, especially for pleasure; the occupation of providing local services, as entertainment, lodging, food, etc, for tourists.

Promotion of Development

Item 8.1(b) of the table in section 50-40 does not refer to the promotion of tourism. It is directed to the promotion of the development of tourism.

Dominant Purpose

The purpose of the association must be promoting the development of the relevant resources. Any other purpose of the organisation must be incidental, ancillary or secondary to promoting development of the relevant resources.

This means that to be exempt under item 8.1(b) in the table of section 50-40 of the ITAA 1997, an association must be established principally or predominantly for the purpose of promoting the development of tourism.

An association may have a purpose and conduct activities that are ancillary or incidental to its main purpose. In that regard, Lockhart J in Cronulla Sutherland Leagues Club Limited v FC of T (1990) 23 FCR 82; 90 ATC 4215 at 4255; (1990) 21 ATR 300 at 312 said:

It [the club] may have other objects or purposes which are merely incidental or ancillary thereto or which are secondary and even unrelated to the main object or purpose without disqualifying the body from exemption.

The objects of the entity as stated in its constitution mention promoting the development of tourism, however this is not the entity's dominant purpose. The objects and activities of the entity have the dominant purpose of promoting the development of industrial resources and this category has been considered above.

Section 50-47 of the ITAA 1997

Section 50-47 of the ITAA 1997 provides a special condition for all entities covered by section 50-1 of the ITAA 1997, it states:

An entity that:

(a) is covered by any item; and

(b) is an ACNC type of entity;

is not exempt from income tax unless the entity is registered under the Australian Charities and Not-for profits Commission Act 2012.

Broadly, an entity that can be registered as a charity is an Australian Charities and not-for profits Commission (ACNC) type of entity. The Charities Act 2013 (CA) sets out the requirements to be a charity. Section 5 of the CA provides that a charity is a not-for-profit entity with purposes that are only charitable purposes for the benefit of the public, or purposes that are incidental or ancillary to charitable purposes. Section 12 of the CA provides the meaning of charitable purpose, and includes advancing education, advancing social and public welfare, and advancing the security or safety of Australia or the Australian Public.

Purposes concerned with promoting the development of businesses of an Australian industry are not charitable purposes. As such, the entity is not capable of being a registered charity and is not an ACNC type of entity.

Section 50-47 of the ITAA 1997 does not apply to the entity.

Question 2 - FBT Rebate

Paragraph 65J(1)(a) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) states 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 listed at paragraph 65J(1)(b).

Item 9 in the table refers to a society or association established for the purpose of promoting the development of Australian industry resources and the entity must be covered by an item of the table in section 50-40 of the ITAA 1997.

A special condition on item 9 of the table refers to an exemption at subsection 65J(5) of the FBTAA which provides that an entity is not covered by item 9 if it is:

• 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

-       the Commonwealth, a State or a Territory

-       an authority or institution of the Commonwealth, a State or a Territory.

As discussed in the answer to question one, the entity meets the requirements of an exempt entity under an item of the table in section 50-40 of the ITAA 1997 as an association established for the purpose of promoting the development of an Australian industry resource and is not carried on for the profit or gain of its individual members.

The entity is a company limited by guarantee. None of its members are the Commonwealth, a State or a Territory; or an authority or institution of the Commonwealth, a State or a Territory.

Accordingly, the entity will satisfy the requirements to be a rebatable employer and can access the FBT rebate.

Conclusion

The entity is considered to be a society or association established for the purpose of promoting the development of Australian industrial resources as required under item 8.2(c) of section 50-40 of the ITAA 1997. As such, the income of the entity is exempt from income tax under section 50-1 of the ITAA 1997 and meets the special conditions in subsection 65J(5) of the FBTAA. As it satisfies all the necessary conditions to be considered a rebatable employer under subsection 65J(1) of the FBTAA.