Edited version of private advice

Authorisation Number: 1052397055893

Date of advice: 19 May 2025

Ruling

Subject: Income tax exemption

Question 1

Is the Association exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a community service organisation under item 2.1 of the table in section 50-10 of the ITAA 1997?

Answer

No.

Question 2

Will the Association be eligible for a discount capital gain under section 115-10 of the ITAA 1997 for the proceeds from the sale of its XX room in the 20YY-YY financial year?

Answer

No.

Question 3

Was the Association a base rate entity under section 23AA of the Income Tax Rates Act 1986 (ITRA 1986) in the 20YY-YY financial year?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

The Association is a registered association incorporated under the relevant legislation in the state in which it is located.

The Association is structured as a non-profit entity.

The Association is not registered as a charity for the purposes of the ITAA 1997.

The objects of the Association are to provide facilities, activities, and events for members and guests originating or descending from those of a specified foreign region. These facilities, activities, and events are to promote and support the cultural pursuits of members, facilitate social engagement among those members, and encourage interest in the culture of the specified foreign region.

The Association constitution prohibits the association from using its income and property for the private pecuniary gain, apart from remuneration or services at market rates, for its members.

Under the provisions of the Association constitution the association must distribute its surplus assets to prescribed charities.

Membership of the Association is open to members of the public who are over 18 and agree to be bound by the rules of the association.

Members are required to pay an annual subscription fee.

The Association is governed by a management committee in accordance with the provisions of its constitution.

Under the provisions of the constitution the management committee has all the powers necessary to make management decisions for and administer the day-to-day business of the association.

In accordance with the Association constitutional provisions the elected treasurer must ensure all accounts are systematically maintained, monthly financial statements are prepared for the committee, and an annual statement of the financial affairs of the association are presented to the engaged auditors prior to annual general meetings.

Annual general meetings of the association are held on a date specified in the constitution.

The association's annual turnover is typically less than $30,000.

The Association's income is derived from the sales of food, drinks, tickets, and membership fees. Most of the income is used to pay the running costs of the Association.

Surplus funds generated by the Association are banked and allocated towards ongoing operational expenses such as rates, insurance, and the maintenance, repair, and replacement of equipment and other essential items.

Activities undertaken by the Association in recent years include:

•                     monthly lunches

•                     annual charity lunches

•                     special event functions such as those commemorating celebratory occasions or the role of recognised institutions in the affairs of the foreign region named in the association objects.

•                     promotion of the culture and traditions of the foreign region through publication of a regular newsletter

In the 3 financial years up to and including the relevant financial year the Association has hosted fewer than 10 events a year. In these years Association events have been attended by 2 to 3 many times non-members as members.

Both members and non-members are required to pay a fee to participate in these activities.

These events are advertised through a number of mediums, including social media, posters and flyers, and through word of mouth and member networks.

Activities undertaken by the Association benefit the community by preserving and promoting the cultural heritage of the foreign region named in the constitution, fostering social connections, and supporting charitable initiatives.

The activities cater to individuals with an interest in the culture and traditions of that region including the expatriate diaspora and other members of the community who are interested in the culture and traditions of that region.

Examples of the benefits provided include:

•                     cultural experiences such as those provided through educational talks and exhibitions, showcasing arts, crafts, performances, and traditional events associated with the foreign region

•                     social engagement and community support by providing a gathering space for affordable lunches, including at cost meals for pensioners, and other events

•                     the provision of a regular gathering space that encourages social connection

•                     fundraising to support community initiatives and individuals in need through an annual charity lunch.

Once a year money is donated to a registered charity. This donation is usually linked to an event being run by the association.

Association activities in the 3 financial years up to and including the relevant financial year have been conducted in and around the state in which the Association is located.

The Association's income in the relevant financial year was under $2 million.

Expenses incurred by the Association in this period have primarily related to clubroom operations, events, advertising and communications, and administration. These expenses were incurred principally in Australia.

More than 90% of the Association's expenses in the 3 financial years up to and including the relevant financial year were attributable to the ongoing administration of the Association, maintenance of the Association facilities, and member services, activities, and events.

The Association made a charity donation of $X,000 to $X,000 in each of the 3 financial years up to and including the relevant financial year.

The Association sold a property and made a capital gain in the relevant financial year.

Moe than 80% of the association's income in that relevant financial year is base rate passive entity income.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 section 50-10

Income Tax Assessment Act 1997 section 50-47

Income Tax Assessment Act 1997 section 50-70

Income Tax Assessment Act 1997 subsection 50-70(1)

Income Tax Assessment Act 1997 subsection 50-70(2)

Income Tax Assessment Act 1936 paragraph 23(g)

Income Tax Assessment Act 1936 subparagraph 23(g)(v)

Income Tax Assessment Act 1997 section 115-5

Income Tax Assessment Act 1997 section 115-10

Income Tax Rates Act 1986 section 23AA

Income Tax Rates Act 1986 subsection 23AB(1)

Reasons for decision

Question 1

Is the Association exempt from income tax under section 50-1 of the ITAA 1997 as a community service organisation under item 2.1 of the table in section 50-10 of the ITAA 1997?

Summary

The association was not established for altruistic purposes. The facilities, services, and activities provided by the Association are provided for members and interested members of the public and cannot be considered community services for the purposes of section 50-10 of the ITAA 1997.

Detailed reasoning

Section 50-1 of the 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 of the ITAA 1997 are contained in sections 50-5 to 50-45 of the ITAA 1997. A society, association or club established for community services (except political or lobbying purposes) is listed at item 2.1 in the table in section 50-10 of the ITAA 1997. As indicated in the table in section 50-10 of the ITAA 1997 the society, association or club must also meet the special conditions detailed in section 50-70 of the ITAA 1997 and section 50-47 of the ITAA to qualify for exemption from income tax.

An entity is therefore exempt from income tax as a society, association or club established for community services if it:

•                     is a society, association, or club,

•                     is established for community services (except political or lobbying purposes)

•                     satisfies the special conditions.

A Society, association, or club

The term 'society, association or club' is not defined in the ITAA 1997. The term is therefore construed according to the ordinary meaning of the words.

In Douglas v Federal Commissioner of Taxation 97 ATC 4722 reference was made by the court to the definitions contained in the Concise Oxford Dictionary for each of these terms. Society, association, or club was accepted by the court as referring to a voluntary organisation having members associated together for a common or shared purpose (at 4726).

In Pro-campo Ltd. v Commr of Land Tax (NSW) 81 ATC 4270 the court considered the meaning of 'society, club or association'. The court stated 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'...

The meaning of "society" as the Oxford English 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...Although clubs can in some respects and in some instances be seen to be distinguishable by reason of their purposes from societies or associations, they nevertheless fall squarely within the dictionary definition of "society" set out above. In short the three words are describing bodies made up of groups of persons who have come together to implement common purposes and objects...

The meaning of society, association, or club as described above, emphasises a 'body of persons' and 'an organisation of people' with a 'common purpose'.

Established for Community Services

The Commissioner's view on the meaning of community services, as the term is used in section 50-10 of the ITAA 1997, is discussed in Taxation Determination TD 93/190 Income tax: what is the scope of the exemption from income tax provided by subparagraph 23(g)(v) of the Income Tax Assessment Act 1936? While subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 (ITAA 1936) has been replaced by the equivalent section 50-10 of the ITAA 1997, the discussion in TD 93/190 is also relevant to the application of the newer provision.

For the purposes of section 50-10 of the ITAA 1997 this term is to be given a wide interpretation, but altruistic purposes are an essential element of this interpretation. As noted in paragraph 3 of TD 93/190:

Those words extend to a range of altruistic purposes that are not otherwise charitable, such as promoting, providing, or carrying out activities, facilities or projects for the benefit or welfare of the community or any members of the community who have a particular need by reason of youth, age, infirmity or disablement, poverty, or social or economic circumstances.

As discussed in paragraphs 4 and 5 of TD 93/190 the provision does not extend to organisations that are established within the community but do not have altruistic purposes or are not of an altruistic nature. Common association as such is not considered altruistic, or the non-profit nature of any such association. Only when the purposes of an association are altruistic can they considered community service purposes.

The Explanatory Memorandum to Taxation Laws Amendment Bill (No 2) 1990, the legislation introducing subparagraph 23(g)(v) into the ITAA 1936, provides further information on when an organisation's purposes can be considered community services:

When purposes are directed to the benefit or welfare of members of the community in particular need, that need must arise by reason of youth, age, infirmity or disablement, poverty or social or economic circumstances. These causes are of need are intended to be read broadly. Infirmity or disablement, for example, could be intellectual or physical, and could be congenital or the product of disease or of injury. Similarly, social or economic circumstances could include such varied matters are sex, living in a remote area, or inability to speak English.

As stated in paragraph 7 of TD 93/190 'the purposes for which an organisation is established are demonstrated by its current operations and activities, which may show different purposes to those suggested by a cursory reading of its constitution'.

Examples of organisations not considered to be exempt community services societies, associations, or clubs are given in TD 93/190. These examples include 'clubs that provide a social forum for expatriates of a particular country'.

Further guidance on determining the main purpose of an organisation when the stated objects serve more than one purpose can be found in case law. In considering this issue in Royal Australasian College of Surgeons v Federal Commissioner of Taxation68 CLR 436Latham CJ observed that:

... the question-difficult or easy to answer-must always be-what is the true nature and the objects and activities of the particular society? If these objects and activities are of a mixed character then the question must be decided according to the prevalent or main character.

On reviewing previous case law on the question, the court in this case adopted an approach that examined not only constitutional objects, but also the manner in which an organisation fulfills its objects, the sources of its income, and how that income was used. This allowed for the determination of a main purpose and subsidiary purposes and the relative weight to be given to given to these purposes in coming to a decision on this question.

In Navy Health Ltd v Deputy Commissioner of Taxation [2008] FCA 931 (Navy Health) the Federal Court considered the character of a non-profit company providing private health insurance for the families of members of the Australian Defence Forces. The company contended that in fulfilling its objects it was promoting the efficiency of the Australian Defence Forces and this benefited the community as a whole. This was held by the company to be grounds for recognition as an entity established for community service purposes. In finding that the company did not fit the requirements for subsection 23(g)(v) of the ITAA 1936 the Federal Court made a distinction between those services that might directly benefit the community or a segment of the community and those that tend to an indirect benefit to the community as a whole. In making this finding Jessup J. cited the purpose of subparagraph 23(g)(v) of the ITAA 1936 given in the explanatory memorandum and stated:

That brings me to the concept of "community". I accept, of course, that the word refers not only to the community as a whole but also to any identifiable section of the community, but it does not follow that the receipt of a service by any group of persons should be regarded as the receipt of that service by a section of the community.

With regard to the nature of the services provided Jessup J also noted that the legislation:

deals with "service" in a much more concrete setting, and requires, in my view, the community, or a section of the community, to benefit by way of the receipt of some identifiable help, benefit or advantage bestowed or provided directly by the putative benefactor. Such a requirement, I consider, is not satisfied merely because, in this case, the operations of the applicant had a tendency to promote the efficiency of the armed forces, thereby benefiting the community as a whole.

The court found that the company was not providing a service to any person or group of people, as the term service as it is used in the phrase community service would imply a need for the altruistic provision of help, benefit, or advantage. Navy Health fund members were considered to be consumers of health benefits paid for or subsidised by the fund, and in paying premiums for this insurance were choosing one from a number of available alternatives. While the welfare of those members and their families provided an indirect benefit to the broader community, this broader benefit was not of the tangible and real nature required for recognition under the legislation.

Other well-respected cases that have considered whether organisations can be recognised as serving community service purposes under section 50-10 of the ITAA 1997 include Victorian Women Lawyers' Association Inc [2008] FCA 983 (VWL)and FC of T v Wentworth District Capital Ltd [2011] FCAFC 42 (Wentworth).

In VWL the Federal Court found that the association was in fact a charitable organisation as described in section 50-5 of the ITAA 1997. The stated objectives of the association included encouraging and providing for entry of women into the legal profession, their advancement within that profession, and promoting understanding and support of women's legal and human rights, and achieving justice and equality for all women. Association activities included advocacy, representation and the taking of public positions on issues around the participation of women in the legal and broader workforce, and providing networking, social support, and mentoring that afforded participants increased opportunities for entry and progression within the legal profession.

In discussing the possibility of the association being recognised as a community service under section 50-10 of the ITAA 1997 French J recalled the judgement in Navy Health and noted:

In my opinion the concept of "community service" was intended to pick up a broader range of organisations than those covered by the concept of "charitable institution" and in particular that class of charitable institution falling within the rubric "beneficial to the community". However, an organisation may be beneficial to the community without delivering a "community service" in the sense contemplated by that term as explained in the Explanatory Memorandum.

In Wentworth a committee was formed to consider future banking options for the district on the closure of the last local bank branch in the country town of Wentworth. Approaches were made to Bendigo Bank and a feasibility study on the possible opening of a local branch conducted, public meetings were held and pledges of about $200,000 were received. A company, WDCL, was incorporated to take over the initiative and to set up and manage a franchised branch of Bendigo Bank in the district.

The primary objective of WDCL was:

To do such things as may be necessary to re-establish for the Wentworth and district community a face-to-face banking service in view of the withdrawal of face-to-face banking services from the Wentworth district by all major banks.

As also stated in the company objectives, any profit from managing this branch was to be distributed to the community. Within a few years the bank branch was operating successfully, making a profit, and distributing that profit to community groups.

In considering whether the ordinary and statutory income of WDCL was exempt from tax as it was a community services organisation under section 50-10 of the ITAA 1997, the full Federal Court found that while Bendigo Bank franchise was conducting the banking business in question, the role of WDCL had been to facilitate the provision of this service. The facilitation of face-to-face banking services that were not otherwise available in this community was held to be a real and tangible benefit of the sort described in Navy Health. This being the case WDCL was held to have been established for community services and its income tax-exempt.

Application to your circumstances

In providing accommodation and entertainment for club members, monthly lunches, and other special events the Association has been fulfilling its stated objectives in the 3 financial years up to and including the relevant financial years. These objectives include the provision of club rooms and other conveniences for members and guests, promoting and supporting the cultural interests and pursuits of members, and promoting and facilitating discussion between persons of origin or descent from the foreign region specified in the Association constitution.

The Association has also held a charity event in each of these years, made corresponding charity donations of $X,000 to $X,000, and provided meals at cost for pensioners attending lunch activities.

Activities conducted by the Association have been attended by 2 to 3 many times non-members as members in the 3 financial years up to and including the relevant financial year.

Most of the Association's expenses in the 3 financial years up to and including the relevant financial year were attributable to the ongoing administration of the Association, maintenance of the Association facilities, and member services, activities, and events.

As can be seen from the proportion of the Association expenses attributable to maintaining the association, its facilities, services, and membership related events, the greater part of the Association's resources are dedicated to providing these things to members and those in the community who are interested in the culture of the foreign region specified in the constitution and social connection with others with similar interests.

As in Navy Health, the facilities, services, and activities you are providing are not directed to a community or segment of a community in need. Those attending Association activities are paying fees to attend those activities so they can pursue their interest in the culture of the foreign region specified in the constitution and a social forum for discussion on that topic. They cannot be characterised as sharing a need for the type of altruistic provision of help, benefit, or advantage discussed in TD 93/190 or the Explanatory Memorandum.

While the promotion of cultural values and customs the culture of the foreign region specified in the constitution may be of benefit to the community as a whole, this promotion will not equate to the type of concrete and tangible benefit contemplated by Jessup J in Navy Health. As noted by both Jessup J in Navy Health and French J in VWL it is entirely possible for an organisation to be of benefit to the community without delivering a community service.

The nature of the facilities, services, and activities you are providing and the segment of the community you are providing them to can be contrasted with those discussed in VWL and Wentworth. In VWL the services provided included activities that aimed to increase the opportunity for women to enter and advance within the legal profession, thus meeting the need for greater representation of persons in that profession.

In Wentworth the WDCL was responsible for facilitating the provision of face-to-face banking for the community in a country town where it would otherwise not be available. In each of these cases there was a real and tangible benefit provided to a community or a segment of a community that had a particular need of the type described in TD 93/190 and contemplated in the Explanatory Memorandum.

The annual charity events and corresponding donations made by the Association would fit the description of a community service, but this activity can only be considered as ancillary or incidental to the primary objectives and activities of the Association. Charitable donation is not listed as an objective of the Association in the Association constitution and the greater part of the Association resources and activities are directed to member facilities, services and events supporting and promoting the cultural interests of members.

While providing discounts for pensioners attending Association lunches might also fit the above description of a community service it is not the principal purpose for holding these events.

Summary

The principal purpose of the Association is to provide facilities and events that promote the cultural values and customs of the foreign region specified in the constitution, and a forum for social engagement, to members and other people who have in interest in these things. These are not the altruistic services providing benefits to those in need described in TD 93/190 as community services for the purposes of section 50-10 of the ITAA 1997. The broader benefits to the community as a whole of Association activities are intangible, and for that reason cannot be counted as community services for these purposes.

The holding of charity events and donation of the proceeds of these events, along with providing at cost meals for pensioners attending Association lunches, are ancillary to the principal purposes of the Association and its activities.

The Association is not established for community service purposes in accordance with item 2.1 of the table in section 50-10 of the ITAA 1997.

Special conditions

Section 50-70 of the ITAA 1997

Subsection 50-70(1) of the ITAA 1997 states that an entity covered by item 2.1 is not exempt from income tax unless the entity is not carried on for the profit or gain of its members (not-for-profit requirement) and it has a physical presence in Australia and, to that extent it pursues its objectives and incurs its expenditure:

•                     principally in Australia; or

•                     it is a deductible gift recipient; or

•                     it is prescribed by law in the income tax regulations and it is located outside Australia and is exempt from income tax in its country of residence.

Non-profit requirement

In discussing whether an entity meets the not for profit requirement in subsection 50-70(1) TR 2022/2 Income tax: the games and sports exemption states the following:

11. ... The club must not be carried on for the purposes of individual members' profit or gain, either while the club is operating or on its winding up.

12. Club members may receive communal membership benefits, such as the use of the facilities, that are incidental to the club's objects. This will not prevent the club meeting the not-for-profit requirement. The club may also pay members reasonable remuneration for services they perform for the club.

13. Clubs can use various mechanisms to ensure they meet the not-for-profit requirement. 'Not-for-profit' clauses in governing documents are the most common way. These prevent the distribution of profits or assets for the benefit of particular persons while the club is operating and on winding up

Application to your circumstances

The Association constitution prohibits the association from using its income and property for private pecuniary gain. On dissolution of the Association surplus assets must be distributed to prescribed charities.

There is nothing to indicate that the Association does not, or will not, operate in accordance with the conditions in these clauses.

The Association satisfies the not-for-profit requirement.

Has a physical presence in Australia, and to that extent it pursues its objectives and incurs its expenditure principally in Australia

The meaning of physical presence in Australia for the purposes of section 50 if the ITAA 1997 is discussed in paragraph 53 of Taxation Ruling TR 2019/6 Income tax: the 'in Australia' requirement for certain deductible gift recipients and income tax entities. An entity is considered to have a physical presence in Australia when it employs its assets and or people in conducting its physical operations in Australia.

As discussed in paragraph 66 of TR 2019/6 an entity is considered to pursue its objectives in the place where it seeks to realise its purposes. In determining where an entity principally pursues its objectives the nature of the entity's activities must be established based on the facts of the case. An entity undertaking some of its activities in Australia is not necessarily pursuing its objectives in Australia.

The question of whether an entity incurs its expenditure principally in Australia is discussed in paragraphs 59 to 62 of TR 2019/6. An entity is considered to have incurred its expenditure in Australia where it makes its payments or disburses money, or is liable to do so, in Australia. This can often be established when the decision to make that payment is made in Australia and the payment is made through an account held with an Australian financial institution.

Application to your circumstances

The Association is a resident of and located in Australia. The Association carries on its activities in Australia and is pursuing its objectives and incurring its expenditure in Australia.

Subsection 50-70(2) of the ITAA 1997 provides that the Association 'must:

•                     comply with all the substantive requirements in its governing rules; and

•                     apply its income and assets solely for the purpose for which the entity is established'.

Complies with substantive requirements in its governing rules

Taxation Ruling TR 2015/1 Income tax: special conditions for various entities whose ordinary and statutory income is exempt provides guidance in respect of the conditions in subsection 50-70(2) of the ITAA 1997. Paragraph 9 of TR 2015/1 provides that an entity's 'governing rules' are those rules that authorise the policy, actions and affairs of the entity. Paragraphs 18 and 19 of TR 2015/1 explain that the substantive requirements in an entity's governing rules are those rules that define the rights and duties of the entity and:

include rules such as those that:

•                    give effect to the object or purpose of the entity

•                    relate to the non-profit status of the entity

•                    set out the powers and duties of directors and officers of the entity

•                    require financial statements to be prepared and retained

•                    set out the criteria for admission as a member of an entity

•                    require an entity to maintain a register of members, and

•                    relate to the winding-up of the entity.

Application to your circumstances

The Association complied with the governing rules set out in its constitution in its conduct of meetings in the 3 financial years up to and including the relevant financial year. There is no evidence of any activity undertaken by the Association that is inconsistent with these governing rules in these years.

Apply its income and assets solely for the purpose for which the entity is established

In discussing how to determine whether an entity has applied its income and assets solely for the purpose for which it is established TR 2015/1 describes the factors to be taken into account in determining that purpose. The main factors to be considered are the objects given in the entity's constituent documents and the activities of the entity. Other factors that may also be considered include policies and plans, administration, finances, history and control, and any legislation governing the operation of the entity.

Application to your circumstances

All the activities undertaken by the Association in the 3 financial years up to and including the relevant financial year implement or support the objects listed in its constitution. The expenses of the association were all directed to these ends in these years.

The Association has applied its income and assets solely for the purpose for which the entity is established.

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. 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'. Under section 50-47 of the ITAA 1997 ACNC type entities must be registered with the ACNC to be exempt from income tax.

The Charities Act 2013 (CA) sets out the requirements to be a charity. Section 12 of the CA provides purposes that are a 'charitable purpose' and includes purposes such as advancing health, education, social or public welfare, religion, and culture. Section 5 of the CA describes charitable purposes as those that are for the public benefit, or ancillary to or in aid of purposes that are for the public benefit.

Application to your circumstances

As discussed above the Association's facilities, services, and activities are not altruistic and are primarily directed to its members and members of the public who are prepared to pay to take part in Association events or activities. The Association is not an ACNC type of entity. Section 50-47 of the ITAA 1997 will not apply in this case.

Conclusion

The Association is a not-for-profit organisation but is not established for the altruistic or community services purposes required for exemption from tax under section 50-10 of the ITAA 1997. The Association complies with the substantive rules in its constitution and applies its income and assets solely for the purpose for which it is established. The Association is located in Australia and conducts it activities and incurs its expenditure in Australia. The Association is not an ACNC type of entity.

Question 2

Will the Association be eligible for a discount capital gain under section 115-10 of the ITAA 1997 for the proceeds from the sale of its club room in the relevant financial year?

Summary

The Association is an incorporated association and as such will not be eligible for the discount capital gain.

Detailed reasoning

Some entities can reduce their capital gain by a specified percentage under section 115-5 of the ITAA 1997. Capital gains that are eligible for reduction under this section of the ITAA 1997 are known as discount capital gains. The types of entities that are eligible to apply this discount to a capital gain they have made are listed in section 115-10 of the ITAA 1997 as:

•                     an individual; or

•                     a complying superannuation entity; or

•                     a trust; or

•                     a life insurance company in relation to a discount capital gain from a CGT event in respect of a CGT asset that is a complying superannuation asset.

The Association is structured as a non-profit entity and is registered as an incorporated association under the relevant legislation in the state in which it is located.

As incorporated associations are not included in the list of eligible entities in section 115-10 of the ITAA 1997 it will not be eligible for a discount capital gain on the sale of its club room in the relevant financial year.

Question 3

Was the Association a base rate entity under section 23AA of the ITRA 1986 in the relevant financial year?

Summary

More than 80% of the Association's income in the relevant financial year is passive income so it will not qualify as a base rate entity.

Detailed reasoning

An entity is defined as a base rate entity under section 23AA of the ITRA 1986 if:

(a)         no more than 80% of its assessable income for the year of income is base rate entity passive income; and

(b)         its aggregated turnover (within the meaning of the Income Tax Assessment Act 1997) for the year of income, worked out as at the end of that year is less than $50 million.

Subsection 23AB(1) of the ITRA 1986 goes on to define base rate entity passive income as assessable income that is:

•                     a distribution by a corporate tax entity other than a non-portfolio dividend

•                     an amount of a franking credit on such a distribution

•                     a non-share dividend issued by a company

•                     interest (or a payment in the nature of interest), royalties and rent

•                     a gain on a qualifying security

•                     a net capital gain

•                     an amount included in the assessable income of a partner in a partnership or of a beneficiary of a trust estate to the extent that the amount is referrable to another amount that is base rate entity passive income on any of the previous accounts.

If the company is a base rate entity from the 2021-22 income year onwards the rate of tax is 25%, otherwise it is 30% (subsection 23(2) of the ITRA 1986).

Conclusion

As more than 80% of the Association's income in the relevant financial year was base rate entity passive income it will not qualify as a base rate entity under section 23AA of the ITRA 1986.