Edited version of private advice

Authorisation Number: 1052174142124

Date of advice: 28 September 2023

Ruling

Subject: Exemption from income tax

Question

Is the Company exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as an association not carried on for the purpose of profit or gain to the individual members, established for the purpose of promoting the development of a manufacturing resource of Australia under item 8.2(d) in section 50-40 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following periods:

Income year ending 30 June 2022

Income year ending 30 June 2023

Income year ending 30 June 2024

Income year ending 30 June 2025

Income year ending 30 June 2026

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

1.    The Company is a not-for-profit company limited by guarantee.

2.    The Company is an industry body. It is committed to advancing the health, integrity and sustainability of the industry at a national level, by promoting safety, professionalism and integrity of the industry to key stakeholders.

3.    The Company's charter is not simply to advocate and respond on national issues of importance to the industry, but also to proactively create and execute strategies to enhance the credibility and longevity of the industry.

4.    The objects of the Company are concerned with an Australian resource.

5.    The Company's constitution contains appropriate non-profit and winding-up clauses.

6.    The activities of the Company include holding events, conducting industry research, providing industry training, publishing industry magazines, and representing the industry.

7.    The Company is not a charity registered under the Australian Charities and Not-for-profits Commission Act 2012.

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

Reasons for decision

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(d) 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 manufacturing 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 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 organisations 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 Company is a company limited by guarantee whose members voluntarily associate for its purposes. The Company is a society or association.

Australian Manufacturing 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.

Manufacturing resources include plant and equipment, manpower, skill and know-how in manufacturing such articles as steel products, clothing and furniture, and such non-tangible commodities as gas and electricity (Australian Insurance Association v Federal Commissioner of Taxation 79 ATC 4569 at 4574).

The words 'of Australia' limit the exemption to associations whose activities are directed to Australian resources, thereby excluding associations whose activities are directed to the resources of places beyond Australia. Where an association is established for the purpose of promoting the development of a foreign resource, or of both Australian and foreign resources, the test for exemption is not met.

The objects of the Company are concerned with an Australian resource. To this end, the Company holds events, conducts industry research, provides industry training, publishes industry magazines, and represents the industry.

The Company is concerned with the manufacture of Australian resources and are promoting manufacturing resources of Australia.

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.

The enlargement of the market is one of the objectives of promoting the development of any relevant industry (Case W49 89 ATC 469 at 474).

Taxation Ruling IT 2415 Income Tax: Associations promoting development of Australian resources states the following on the meaning of 'established for the purpose of promoting development':

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 FCT 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.

9. There can be little doubt that the identification of, and programmes to overcome, manpower needs and the establishment of systematic training schemes in a particular industry are necessary for the efficient operation of the industry - they are part and parcel of the development of the resources specified in paragraph 23(h). although the connection may not be as readily apparent the development of marketing techniques may also be relevant to the development of resources - it could be said that there is little point in developing resources if the products of the resources cannot be sold...

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).

If an association operates principally to confer benefits on its members jointly or as a group, it is unlikely to be predominantly for promoting resource development and thus not exempt under section 50-40 of the ITAA 1997.

The objects of the Company are concerned with an Australian resource. To achieve its objects the Company holds events, conducts industry research, provides industry training, publishes industry magazines, and represents the industry.

The above shows that the Company is concerned with education, training, research and marketing of the industry, and is ensuring that the manufacturing resources are used in the best interests of Australia.

Members of the Company do benefit from the operations of the Company through its activities. However, the Company is an industry body, and the industry generally benefit from the activities. As such, any benefits to the Company's members are considered incidental or ancillary to its main purpose of promoting the development of manufacturing resources.

Accordingly, it is accepted that the Company is promoting the development of Australian manufacturing 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 2010 ATC 20-231, 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 Commissioner accepts an organisation is non-profit where its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people - both while it is operating and when it winds up. These documents should contain acceptable clauses showing the organisation's non- profit character. The organisation's actions must be consistent with this requirement.

A non-profit organisation can still make a profit, but this profit must be used to carry out its purposes. The profits must not be distributed to owners, members or other private people.

There are two requirements in the statement of non-profit character above. First, an entity's constituent documents must display a non-profit character. Second, the entity's actions must be consistent with this non-profit character.

The Company's constitution prohibits it from applying its income and property for the benefit of individuals while it operates and on winding-up.

There is no evidence that the Company acts contrary to this prohibition.

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 with the Australian Charities and Not-for profits Commission (ACNC) is an 'ACNC type of entity'. The Charities Act 2013 (CA) sets out the requirements to be a charity. Section 12 of the CA provides purposes that are 'charitable purpose', and includes purposes such as advancing education and advancing health.

The purposes of the Company are not charitable. As such, the Company is not capable of being registered as a charity, and is not an ACNC type of entity.

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

Conclusion

The Company is a society or association established for the purpose of promoting the development of Australian manufacturing resources, and is an exempt entity under item 8.2(d) of the table in section 50-40 of the ITAA 1997.

Therefore, the ordinary income and statutory income of the Company is exempt from income tax under section 50-1 of the ITAA 1997.