Edited version of private advice

Authorisation Number: 1052077468790

Date of advice: 13 January 2023

Ruling

Subject: Income tax exempt - promotion of development of manufacturing resources

Question

Is the income of the Company exempt under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as an association established for the purpose of promoting the development of Australian manufacturing resources under item 8.2(d) of the table in section 50-40 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following periods:

Date X to 30 June 20XU

Year ended 30 June 20XV

Year ended 30 June 20XW

Year ended 30 June 20XX

Year ended 30 June 20XY

Year ended 30 June 20XZ

The scheme commences on:

20XU

Relevant facts and circumstances

The Company is a non-profit company limited by guarantee established to improve the competitiveness of manufacturing industry in Australia, through various initiatives.

There was a change in membership of the Company on Date X.

Details of the Company's objects and activities have been provided.

The Company's constitution includes clauses providing:

•         who is a member of the Company

•         that its income and property will only be applied towards the promotion of its objects, and that none of its income or property will be paid to of its members except for payments to a member as genuine compensation, and

•         that any surplus assets remain following the winding up of the Company, will not be paid to or distributed amongst members but will be given or transferred to another non-profit entity which has similar objects to the Company.

Part of the Company's activities is making available various resources and services to entities who are not members as defined in its constitution.

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

All references made in these reasons for decision are to the Income Tax Assessment Act 1997 (ITAA 1997)unless otherwise stated.

Summary

The income of the Company is exempt under section 50-1 as an association established for the purpose of promoting the development of Australian manufacturing resources under item 8.2(d) of the table in section 50-40.

Detailed reasoning

Section 50-1 provides that ordinary and statutory income is exempt for an entity that:

•         is a society or association established for the purpose of promoting the development of specified Australian resources (item 8.2 of the table in section 50-40)

•         is not carried out for the profit or gain of its individual members, and

•         is not an ACNC type of entity or, if it is an ACNC type of entity, it is registered under the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act).

Item 8.2 of the table in section 50-40

A society or association established for the purpose of promoting the development of any of the following Australian resources:

(a) agricultural resources;

(b) horticultural resources;

(c) industrial resources;

(d) manufacturing resources;

(e) pastoral resources;

(f) viticultural resources;

(g) aquacultural resources;

(h) fishing resources.

Special conditions - not carried on for the profit or gain of its members.

Section 50-47 Special condition for all items

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.

To qualify for exemption from income tax under item 8.2 of section 50-40, the principal or dominant purpose of the association must be to promote the development of one or more of the Australian resources specified under that item.

Resources of Australia

To qualify for exemption, the principal or dominant purpose for which an organisation is established must be to promote the development of one or more of those the resources listed in the table in section 50-40.

The Company has been established to improve the competitiveness of manufacturing within Australia.

Promote the development of

The term 'development' is used in section 50-40 in a commercial or business sense. It comprehends all the elements which must be considered to ensure that the specified resources are best used.

The meaning of 'development' was examined by the High Court in the case of Commissioner of Taxation v Broken Hill Pty Co Ltd [1968] HCA 16 where, in considering the phrase 'development of mining property' the majority of the High Court accepted the interpretation of Kitto J:

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 that property...It covers I think, any preparation, adaptation or equipment of the property for the exploitation of an inherent potentiality which cannot be exploited or fully exploited, without some such preliminary treatment.

The promotion of development may be direct or indirect provided it is within the scope of item 8.2 of section 50-40. Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, and facilitating cooperation and similar activities.

The Company's objects, as set out in the Constitution, are to improve the competitiveness of manufacturing through various initiatives. Its activities indicate it is involved in promoting the development of Australian manufacturing resources.

We consider that the Company promotes the development of manufacturing resources.

Dominant purpose

To qualify as exempt from income tax under item 8.2 of section 50-40, an association must be established predominantly for the purpose of resource development. (Paragraph 7 of Taxation Ruling IT 2415 Income tax: associations promoting development of Australian resources)

It is not sufficient that one of the association's purposes falls within the relevant provision. Nor is it sufficient that the promotion of resource development is incidental to, involved with, or a consequence of an association's purpose.

Determining the dominant purpose is a question of fact and degree and may involve a weighing of the various elements such as objects, activities, history, proposed directions, etc.

The Company's objects and activities indicate that its dominant purpose is the development of manufacturing resources.

The provision of any benefits to entities that are not members under the constitution is not an additional object, rather they are provided as part of the Company's purpose of developing manufacturing resources.

Special Conditions - 'Not carried on for the Profit or Gain of its individual Members'

The exemption under item 8.2 of section 50-40 is also subject to the special condition that the entity is not carried on for the purposes of profit or gain of its individual members. An association or society will fail the non-profit test if the members, in their individual capacity, are to receive any benefits.

The Commissioner considers that to qualify, the entity must be prevented by law or its constitution documents from distributing its profits or assets among members, either while the entity is functional or on its winding up, and it must act consistently with those restrictions.

The Company's constitution provides that its property and income is to be applied solely towards the promotion of its objectives and that it cannot be paid to members, except in good faith in the promotion of those objectives. The dissolution clause prevents the distribution of income to its members.

ACNC type of entity

The final requirement to consider is section 50-47 whether the Company is an ACNC type of entity. Where an entity is an ACNC type of entity, it will not be exempt from income tax unless it is a registered charity.

An 'ACNC type of entity' is defined in subsection 995-1(1) 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 ACNC Act. Column 1 of the table in subsection 25-5(5) of ACNC Act describes a charity.

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.

The Company is not an ACNC type of entity as it does not have charitable purposes.

As the Company has satisfied the requirements of section 50-40 and it is not an ACNC type of entity, its ordinary and statutory income will be exempt from income tax in accordance with section 50-1.