Private ruling: Income Tax Exemption - Community Service Purpose
Published: December 2012
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 20 November 2012

Ruling: Q1: Whether the rulee is exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 as an entity established for community services purposes under section 50-10? | A1: Yes.

Relevant facts and circumstances: The rulee was previously advised by the Taxation Office that: …. the organisation is considered to be exempt from paying income tax on its income in terms of subsection 23(g)(v) of the Income Tax Assessment Act 1936 as an association established for community service purposes. Taken from the constitution 2 Objects The objects of the association shall be: To support and encourage activities on the site that will lead to fulfilment of the given undertaking that there will be provided on the site a "world class centre for aged care". i) To initiate, coordinate and monitor educational, physical and social activities on this site. ii) To have allocated buildings, accommodation and ground space to allow these activities to be offered on the site. iii) To obtain funds to ensure promotion of these activities. iv)To set up management and advisory systems to ensure continued effective operation. v) To ensure that the facilities are adequate to meet the physical, intellectual and social requirements of older people. vi)To enhance the lives of all seniors 55 yrs and over including those with disabilities. vii)To set up formal channels to advise the Minister and the Board of the Area Health Service. viii)To lobby local, state and federal politicians, on matters relating to our association. 12 Miscellaneous d) In the event that the association should be wound up or have its incorporation cancelled any surplus property shall be distributed in accordance with the provisions of the Associations Incorporation Act 1984. g) The income and property of the association shall be used only for promotion of the objects of the association and shall not be paid or transferred to members by way of dividend, bonus or profit Clause 53 of the Associations Incorporation Act 1984 states: Distribution of surplus property (1) In this section, a reference to the surplus property of an incorporated association is a reference to that property of the association remaining after satisfaction of the debts and liabilities of the association and the costs, charges and expenses of the winding up of the association. (2) In a winding up of an incorporated association, the surplus property of the association is to be distributed in accordance with a special resolution of the association. (2A) Any such distribution of surplus property: (a) must be approved by the Director-General, and (b) is not to be made to any member or former member of the association, or to any person to be held on trust for any member or former member of the association, unless the member or former member is an association (whether incorporated or unincorporated) that, at the time of the distribution, has rules preventing the distribution of property to its members, and List of activities taken from rulee's website includes: Physical Activities Other Activities Computer Arts and Crafts Languages

Relevant legislative provisions: Income Tax Assessment Act 1997.

Reasons for decision: Summary: Does the rulee satisfy the characteristics of a community service purposes entity as per item 2.1 of section 50-10 in the Income Tax Assessment 1997 (ITAA 1997) and is, therefore, exempt from income tax. Page 14 of Taxation Office publication, Income Tax Guide for non profit organisations NAT7967-03.2007 (ITGNPO) states that a community service purposes organisation has the following characteristics: · It is a non profit society, association or club; · It is established for community service purposes, except political or lobbying purposes; · It is not a charity; and · It meets one of three tests. | Detailed Reasoning - Society, association or club: Based on the information provided, it is accepted that the rulee is an association, thereby satisfying the first characteristic. | Detailed Reasoning - Non-profit: Its constitution prevents the distribution of income and assets to its members while it is operating and upon winding up. On this basis, it is accepted that the rulee is non-profit. | Detailed Reasoning - Community service purposes: In order to satisfy item 2.1 of section 50-10 in the ITAA 1997 the rulee must be established for community service purposes. Page 14 of the ITGNPO states: The main purpose of the organisation must be community service purposes. Any other purpose of the organisation must be incidental, ancillary or secondary to the community service purpose. Community service purposes are altruistic - that is, community service organisations are established and operated with regard to the wellbeing and benefit of others. Community service organisations promote, provide or carry out activities, facilities or projects for the benefit or welfare of the community or any members who have a particular need by reason of youth, age, infirmity or disablement, poverty or social or economic circumstances. In Douglas and others v Federal Commissioner of Taxation (1997) 36 ATR 532 97 ATC 4722, Olney J said: The absence of a statutory definition and the very broad ambit of the words "community service" justify resort to the explanatory memorandum to identify more precisely the legislative intention. The explanatory memorandum circulated by the then Treasurer upon the introduction of the Taxation Laws Amendment Bill (No 2) 1990 states at p 20-21 in dealing with cl 6 of the bill (which introduced what is now s 23(g)(v)): The words "for community service purposes" are not defined but are to be given a wide interpretation. The words are not limited to those purposes beneficial to the community which are also charitable. They extend to a range of altruistic purposes. Taxation Determination TD 93/190 further explains the meaning and scope of community service purposes. Paragraph 3 states that the term has a broader meaning than other purposes beneficial to the community which are also charitable. Paragraph 4 of TD 93/190 states: However, the provision does not give exemption from income tax to a broad range of organisations that are established within the community, but whose purposes are not of an altruistic nature. Altruistic purposes are an essential element of even the widest interpretation of 'community service purposes'. While community service purposes may be given a broader meaning, it will not apply to everything established by and for the community. The purposes of the community service entity must be altruistic. Altruistic is defined in the Macquarie Dictionary as regardful of others; having regard to the well-being or best interests of others. The purpose of the rulee is to provide a range of recreational activities to persons fifty-five and older at a centre that it operates. We are satisfied that these activities would fit with the meaning of community service organisation. | Detailed Reasoning - It is not a charity: Page 38 of the ITGNPO states the following example of a non-charity: Social, sporting and recreational bodies even when the majority of participants are aged people. As the majority of activities undertaken by the rulee are social or recreational in nature, the rulee is not eligible to be a charity. | Detailed Reasoning - Section 50-70 test: Section 50-70 of the ITAA 1997 states that an entity must satisfy one of three tests. The first one in subsection 50-70(a) is that the entity has a physical presence in Australia and incurs its expenditure and pursues its objectives principally in Australia. As the rulee is based and conducts its activities in Australia, it satisfies section 50-70(a) of the ITAA 1997. | Detailed Reasoning - Conclusion: The rulee qualifies as a body that is established for community service purposes and therefore, its income is exempt from income tax.

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