ATO ID 2002/808: Capital gains tax: conversion from unincorporated association to incorporated association under Associations Incorporation Act 1981 (Qld)
Date of decision: 27 May 2002
Year of income: Year ending 30 June 2002
Business line: Private Groups and High Wealth Individuals

Issue
Does CGT event A1 (section 104-10 of the Income Tax Assessment Act 1997 ('ITAA 1997')) happen when an unincorporated association incorporates under the Associations Incorporation Act 1981 (Qld) (AIA (Qld))?

Decision
Yes. CGT event A1 (section 104-10 of the ITAA 1997) happens because the newly incorporated association is not the same entity as the unincorporated association resulting in a change in the ownership (ie a disposal) of the assets from the unincorporated association to the incorporated association upon incorporation.

Facts
An unincorporated association, a club, converts to an incorporated association under the AIA (Qld). The club is not an exempt entity under Division 50 of the ITAA 1997. Relevant provisions of the AIA (Qld) include: 14 Registration of association 22 Property for an association 23 Transfer of other assets, rights and liabilities 24 Duty to notify registrar of titles of land or interest in land etc.

Reasons for decision
Summary: An unincorporated association has no separate or distinct existence apart from its members. It is a voluntary combination of persons with some object or purpose in common (see Kibby v. Registrar of Titles and Another [1999] 1 VR 861; [1998] VSC 148). Hence, an unincorporated association is not an entity at general law. By comparison, an incorporated association is a body corporate and is an entity at law. Ford H. A. J., 1990, Principles of Company Law, 5th edn, Butterworths, Australia, p. 3. cites the following description of a body corporate from Kyd's, Treatise on the law of corporations (1793) Vol 1 p 13: 'a collection of individuals, united in one body, under a special denomination, having perpetual succession under an artificial form, and vested, by the policy of the law, with a capacity of acting, in several respects, as an individual, particularly of taking and granting property, of contracting obligations, of suing and being sued; of enjoying privileges and immunities in common, and of exercising a variety of political rights, more or less extensive, according to the design of it's institution, or powers conferred upon it, either at the time of its creation, or at any subsequent period of its existence.' For the purposes of the ITAA 1997, subsection 960-100(1) of the ITAA 1997 includes unincorporated associations and body corporates separately within the definition of 'entity'. They are also separately included within the definition of 'company' in section 995-1 of the ITAA 1997. The fact that the unincorporated association is a 'company' for income tax purposes and, after incorporation, the incorporated association is also a 'company' for income tax purposes does not make them the same 'company' for the purposes of the ITAA 1997. The legislation under which incorporation is effected (the AIA (Qld)) does not provide for the continuation of the same legal entity. These provisions merely provide for registration of the association (section 14 of the AIA (Qld)) and set out the effects of incorporation (sections 22, 23 and 24 of the AIA (Qld)). In particular, subsections 22(1), 23(1) and 24(1) of the AIA (Qld) indicate that property, assets, rights, land, etc, are transferred from the unincorporated association to the incorporated association. A change of ownership (ie, a disposal) will happen on the transfer of the assets from the unincorporated association to the incorporated association. The provisions also contain an express override of the stamp duties legislation so that it does not apply to the transfer of property to the incorporated association (subsection 22(3) of the AIA (Qld)). Therefore, as the incorporated association is not the same entity as the unincorporated association and there is a change in ownership of the assets upon incorporation, CGT event A1 (section 104-10 of the ITAA 1997) will happen to the assets of the unincorporated association on the conversion to an incorporated association.

Legislative references: Income Tax Assessment Act 1997 section 104-10 section 960-100(1) section 995-1
Case references: Kibby v. Register of Titles and Another [1999] 1 VR 861 [1998] VSC 148
Related ATO interpretative decisions: ATO ID 2002/809 | ATO ID 2003/254 | ATO ID 2004/750 (Withdrawn) | ATO ID 2004/811 | ATO ID 2010/72
Other references: Ford H. A. J., 1990, Principles of Company Law, 5th edn, Butterworths, Australia Kyd, Treatise on the Law of Corporations (1793)
Subject references: Association income Capital gains Capital gains tax CGT event A1 - disposal of CGT asset Companies Non Profit companies