Edited version of private advice

Authorisation Number: 1052266877285

Date of advice: 16 August 2024

Ruling

Subject: Income tax exemption - association established for promotion of development

Question

Is the association 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 an Australian agricultural resources pursuant to item 8.2(a) of the table in section 50-40 of the ITAA 1997?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

The association was founded to promote the keeping of primary production stock as a hobby.

Members engage in tending stock for environmental reasons and because it is an enjoyable pastime.

Members of the association are amateurs and do not engage in the activity for gain.

The association has state registration as an incorporated association.

The association is bound in its conduct by the relevant state act and regulations.

The association has a constitution that addresses each of the matters required by the relevant legislation.

The association does not conduct any activities outside Australia.

The association is not a charity.

The object of the association is to help members develop their knowledge and skills as keepers of the relevant stock, and to promote the importance of this stock and the benefits of this stock as a hobby.

The association is bound by its objects to provide benefits to members, operate a centralised membership register, and represent members interests in industry and government forums. The association is also bound by these objects to support affiliate clubs and members by providing insurance, grants for activities, membership support services, promotional materials and publications, and information technologies for use by the affiliated clubs.

Under the association constitution natural persons who are members of related organisations and their membership of those organisations requires payment of fees to the association.

The association constitution is bound by its constitution to only use its funds and assets to further the objects of the association and must not provide any monetary gain for members.

The constitution of the association mandates passing of surplus property to another organisation that has similar objects and is not carried on for profit in the event of the association winding up.

The association is a member of an industry based council and a state sponsored biosecurity committee dedicated to the health of the stock being kept and the safety of consumable produce of the stock.

The industry based council is a national representative body for the industry concerned with the long term viability and prosperity of the industry. The role of the biosecurity committee is to raise awareness of biosecurity risks and encourage adoption of improved biosecurity practices across industry and the general population.

The association biosecurity officer attended a number of meetings of the industry council and several meetings of the state sponsored biosecurity committee in the relevant financial year. You take part in these activities to represent the interests of recreational stock keepers.

The association provides the IT platform, insurance, and fee collection services to affiliated associations and members, and produces and/or delivers training materials. The association also facilitates the formation of new affiliate clubs and provides support in line with the objectives of the association as outlined in the association constitution.

Activities undertaken in the relevant financial year by the association have included participation in survey research on disease prevalence by the relevant state government department, contribution to the development of a state sponsored biosecurity council disease minimisation strategy, a field day for members, distribution to members of sampling kits for specific diseases and logbooks aimed at raising awareness of the disease and improved record keeping by association members, and development of biosecurity training materials for use by affiliated associations.

The lectures and demonstrations given as part of your field day included biosecurity concerns and various other topics related to your hobby.

Most of your expenses in the relevant financial year can be attributed to member services including provision of membership services, information technology, insurance, and training materials, including member packs, for your members and the software to provide these services.

Any surplus funds remain as retained member funds and are used for the ongoing operation of the association.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 50

Income Tax Assessment Act 1936 subsection 23(h)

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 section 50-40

Income Tax Assessment Act 1997 section 50-40 item 8.2(a)

Income Tax Assessment Act 1997 section 50-47

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1936 subsection 23(h)

Australian Charities and Non-for-profits Commission Act 2012 section 25-5

Charities Act 2013 section 12

Reasons for decision

Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states:

The total ordinary income and statutory income of the entities covered by the following tables is exempt from income tax. In some cases, the exemption is subject to special conditions.

The tables referred to in section 50-1 are contained in sections 50-5 to 50-45. A society or association established for the purpose of promoting the development of Australian agricultural resources is listed at item 8.2(a) in the table in section 50-40. The society or association must meet the special conditions detailed at item 8.2 in the table in section 50-40, namely it not being carried on for the profit or gain of its individual members.

Further, the exemption is subject to the special condition in section 50-47 of the ITAA 1997, that where an entity is covered by an exempt entity category but also meets the description of an 'ACNC type entity', it will not be exempt from income tax unless it is registered as a charity with the ACNC and endorsed by the ATO.

Accordingly, to be exempt from income tax under item 8.2(a) of the table in section 50-40, the entity must:

•         be a society or association; and

•         be established for the purpose of promoting the development Australian agricultural resources; and

•         it is not carried on for the profit or gain of its individual members; and

•         the entity is not an 'ACNC type of entity'.

If the society or association fails to satisfy all of the above criteria, it will not be exempt from income tax under this provision.

As discussed in Taxation ruling TR 2005/22 Income tax: companies controlled by exempt entities exemptions from income tax under section 50-40 of the ITAA 1997 will be limited to the character and purpose of an entity and will not be based on the character or purpose of related entitles. Bodies corporate, clubs, and associations are included within the meaning of companies for the purposes of this ruling.

The association is registered as an incorporated association under the Associations Incorporation Act 2009 (NSW).

The association is a society, association, or club, is not carried on for the profit or gain of its individual members and is not an ACNC type of entity for the purposes of section 50-40 of the ITAA 1997.

Whether the association was established and is maintained for the purpose of promoting the development of Australian agricultural resources is considered under the following headings. The decision will only take the character and purpose of the association into account and will not consider the character and nature of any affiliated associations.

Established for the purpose of promoting the development of Australian agricultural resources

To be exempt under section 50-40 of the ITAA 1997, an association must be established principally or predominantly for the purpose of promoting development of the specified resources. Determining the dominant purpose will largely be a matter of fact and degree.

'Established' refers not only to the motives and objectives which lead to the formation of the association but also to its purpose since that time.

Taxation Ruling IT 2415 Income tax: associations promoting development of Australian resources states at paragraph 7:

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.

It is not sufficient that one of an association's purposes falls within section 50-40 of the ITAA 1997. Nor is it enough that resource development is incidental to, involved with, or a consequence of an association's purposes.

In Boating Industries Association of New South Wales v. FCT (1985) 16 ATR 383; 85 ATC 4224. Lusher J commented at ATR 388; ATC 4228:

The requirement is "established" not "involved"... It does not follow that a body whose activities or involvement have the effect or result of promoting the development of manufacturing resources of Australia, who otherwise are within the section as to the disposition of income, is necessarily established for that purpose. They could be established for another purpose altogether but still have the result mentioned.'

In dismissing the appeal Lusher J took the view that on the principles established the question was largely one of fact and degree and found that, on the whole of the material, the association was not established for the purpose of promoting the development of manufacturing resources of Australia.,

In determining the dominant purpose of an association it is necessary to consider an association's constituent documents, operations and activities.

Australian agricultural resources

The use of the word "Australian" applied to resources in section 50-40 limits the exemption to associations whose activities are directed towards Australian resources.

The shorter Oxford English Dictionary defines agriculture as 'the science and art of cultivating land; including the gathering in of the crops and the rearing of livestock; farming (in the widest sense)'. However as noted by Mansfield and McKerracher JJ in FC of T v Co-operative Bulk Handling LTD [2010] FCAFC 155 'the expression "agricultural resources" is broader than "agriculture"'. It may reasonably be understood to mean the range of resources available to facilitate and support agriculture.'

To this end both stock and the range of resources available to facilitate and support their contribution to the Australian economy are an Australian agricultural resource, and therefore fall within the meaning of that term as used in item 8.2(a) of the table in section 50-40 of the ITAA 1997.

Promoting the development

The meaning of promoting development is considered in IT 2415. In determining the eligibility of an entity for income tax exemption on the grounds that it is promoting the development of agricultural resources the term development must be used in a commercial or business sense. To this end it includes factors which must be considered in determining whether the resource is used in the best interests of Australia. It is also important to note that promoting the development of a resource is not just development of the resource but promoting the use of inherent capacity that would otherwise not be used.

Development of a resource may be promoted in a number of ways, including through research, by providing facilities or training, improving marketing methods, or facilitating cooperation and similar activities.

In representing the interests of amateur stock keepers in the industry and state sponsored bodies in the relevant financial year you have facilitated communication and cooperation on matters such as practice standards, hygiene, and disease prevention between amateur and commercial stock keepers, and government bodies responsible for these matters. Communication and cooperation on these matters encourages sharing of information, research, and the role of standards, allowing for the use of stock to their full capacity as an agricultural resource.

Your participation in state sponsored survey research on disease prevalence and contribution to the biosecurity disease minimisation strategy in the relevant financial year were activities promoting the development of stock as an agricultural resource. These programs contribute to improved use of the capacity of stock as an agricultural resource by preventing disease.

In encouraging best practice and awareness of the role of standards, hygiene, and disease prevention among your members you are also preventing the spread of disease from members stock to neighbouring stock populations engaged in agricultural production.

In each of these activities you were promoting the development of stock as an agricultural resource by assisting with the development and use of that resource to its full capacity.

Application to your circumstances

According to the objects of your association your purpose is threefold;

•         To help members develop their knowledge and skills as stock keepers,

•         to promote the general importance of the relevant stock, and

•         to promote the benefits of stock keeping as a hobby.

As your individual members are amateurs and you are promoting the benefits of stock keeping as a hobby these objects by themselves are largely directed to hobby stock keeping rather than promoting development of an agricultural resource in the first instance.

Activities undertaken by the association in the relevant financial year included representation of amateur stock keepers in industry and government bodies concerned with the viability and prosperity of the agricultural stock industry and training and communication on, and promotion of, improved biosecurity practices. The association does not conduct activities outside Australia.

In undertaking these activities, you have facilitated and supported the contribution of stock keeping to the Australian economy as an Australian agricultural resource.

In representing the interests of hobby stock keepers in the industry based council and the biosecurity in the relevant financial year you have facilitated communication and cooperation on matters such as practice standards, hygiene, and disease prevention between hobby and industry based stock keepers, and government bodies responsible for these matters. Communication and cooperation on these matters encourages sharing of information, research, and the role of standards, allowing for the use of stock to their full capacity as an agricultural resource.

Your participation in survey research on disease prevalence undertaken by the relevant state government department and contribution to a state sponsored disease minimisation strategy in the relevant financial year were activities promoting the development of stock as an agricultural resource. These programs contribute to improved use of the capacity of stock as an agricultural resource by preventing disease.

In encouraging best practice and awareness of the role of standards, hygiene, and disease prevention among your members you are also preventing the spread of disease from members stock to neighbouring stock populations engaged in agricultural production.

In each of these activities you were promoting the development of stock as an agricultural resource by assisting with the development and use of that resource to its full capacity.

The greater balance of your activity in the relevant financial year, however, has been to support members in their practice of stock keeping as a hobby. Activities which supported hobby stock keeping in this year included a field day, provision of an information technology platform, insurance, membership, and fee collection services to affiliated associations and members, and the production and delivery of training materials for use by your affiliated associations and individual members. The significance of these activities in achieving the objectives of your association as set out in your constitution is reflected in your expenditure in the relevant financial year. Well over half of your expenditure, including monies spent on insurance, software, and member pack production costs, in the financial year can be attributed to these activities.

The objects of your constitution and the greater balance of your activity in the relevant financial year have been directed to the benefit of your hobbyist members. This being the case the association was not established for the main or dominant purpose of promoting the development of agricultural resources.

The association therefore does not satisfy the requirements of section 50-40 of the ITAA 1997 for exemption from income tax.

Conclusion

The association would be eligible for exemption from taxation under section 50-1 of the ITAA 1997 if it were established for the purpose of promoting the development of Australian agricultural resources pursuant to item 8.2(a) of the table in section 50-40. While the relevant stock are an Australian agricultural resource, and several activities undertaken by the association do promote the development of that resource the association was not established or maintained for that purpose in the relevant financial year. The association was not carried on for the profit or gain of its individual members in that year.

The association was not established or maintained in the relevant financial year for the purpose of promoting Australian agricultural resources pursuant to item 8.2(a) of the table in section 50-40 of the ITAA and is not exempt from income tax under section 50-1. As your constitution and the activities you undertake may change from year to year you should evaluate your status on a regular basis and seek further advice on this matter if there are substantial changes in the nature or character of your association.