Edited version of private advice

Authorisation Number: 1052110129812

Date of advice: 20 April 2023

Ruling

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

Question

Is the Company exempt from income tax 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 Australia's industrial resources pursuant to Item 8.2 in Section 50-40 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following periods:

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 commenced on:

20XV

Relevant facts and circumstances

The company is involved in collaborating with stakeholders to achieve certain aims within an industry.

It is a not-for-profit company and is not registered as a charity with the Australian Charities and Not-for-Profits Commission (ACNC).

The Company has provided a copy of its constitution and details of its activities.

The Company has confirmed that it complies with all the substantive requirements of its governing rules and applies its income and assets solely for the purposes for which it was established.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 section 50-40 item 8.2

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 unless otherwise stated.

Summary

The company is exempt from income tax under section 50-1 as it is an association established for the purpose of promoting the development of Australia's industrial resources pursuant to Item 8.2 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.

Taxation Ruling No. IT 2415 Income tax: Associations promoting the development of Australian resources, addressed former paragraph 23(h) of the Income Tax Assessment Act 1936, the predecessor to item 8.2 of section 50-40.

In it the Commissioner considered the implications of Australian Insurance Association v. Federal Commissioner of Taxation (1979) 41 FLR 256; (1979) 10 ATR 333; 79 ATC 4569 (AIA case) in relation to industry training committees.

At paragraphs 7 and 8 of the IT 2415 it states:

7. The reasoning in the decision in the Australian Insurance Association case highlights the matters that need to be satisfied in any case before exemption under paragraph 23(h) applies:-

(a) Promotion of the specified resources must be the predominant purpose for which a particular body is established.

(b) The resources, the development of which is being promoted, must come within the umbrella of the specified resources.

8. It is important to note that paragraph 23(h) does not refer to the promotion of specified resources - it is directed to the promotion of the development of the specified resources. In the context of paragraph 23(h) the term "development" must be taken to be used in a commercial or business sense, i.e. 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. Reference might usefully be made to the observations of the High Court in F.C. of T. v. Broken Hill Pty. Co. Ltd., 69 ATC 4029; 1 ATR 40 on the meaning of the term "development" in relation to the development of a mining property.

Resources

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. Sheppard J said in the AIA case:

Of course, the critical question is whether, within the meaning of sec. 23(h) of the Act, the appellant was established for the purpose of promoting a resource of Australia - I omit, for the time being, the word ''industrial''. The objects which I have earlier quoted from cl. (1) of the appellant's Memorandum satisfy me that it was. But that would not be enough to bring the appellant within the section unless its activities were seen to be amongst those which it was established to pursue. In my opinion the evidence does show that the appellant is, and was during the relevant years of income, pursuing activities of the kinds specified in the various objects of its Memorandum which I have set out.

I am further satisfied that the undertakings of the Australian insurance companies, viewed as a whole, are a resource of Australia. I use the word ''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 skill of their staffs. I find also that one of the purposes for which the appellant was established was to foster generally underwriting skills on the part of Australians, whether they be employed in Australia by Australian or overseas companies. That is a matter referred to in para. (f) of the objects. It is plainly an important objective of the appellant; and insofar as underwriting skills are fostered in this way, so, in my opinion, a resource of Australia is promoted.

Considering the Company's objects and activities the resources the company is concerned with fall within the category of industrial resources.

Promotes 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 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 and activities involve the promotion of the development of industrial 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 IT 2415.

It is not sufficient that one of the association's purposes falls within the relevant provision. Nor is it sufficient that 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.

As evidenced by the company's objects and activities, the organisation is established principally for the purpose of promoting industrial resources. In doing so, some entities may receive a benefit, however any benefit is part of the company's purpose of developing industrial 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 the constitution prevents the distribution of income to members.

Therefore, it is considered that the company is not carried on for the profit or gain of its individual members. Consequently, the company satisfies this requirement.

Section 50-47

Section 50-47 provides that where an entity is an ACNC type of entity, it will not be exempt from income tax unless it is registered under the Australian Charities and Not-for profits Commission Act 2012 (ACNC Act).

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 therefore, it is not required to be registered.

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.