Private ruling: Income tax exemption
Date of advice: 5 March 2024
Published: 15 April 2024
Ruling period: Income Tax year ending 30 June 20XX | Income Tax year ending 30 June 20XX | Income Tax year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is XX exempt from taxation under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is an exempt entity under Item 8.2 in the table in section 50-40 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect, and you cannot rely on it. The fact sheet has more information about relying on your private ruling. XX was incorporated on XX as an Australian public company limited by guarantee. From its time of incorporation, XX has been a non-profit association that holds biennial exhibitions in Australia. The XX Exhibition alternates between locations. Exhibitors can purchase floor space or stand packages of various sizes and prices to display their products and market their success. XX also runs a technical seminar series at the show. Attendees are from a range of industries and organisations. Content includes information on the latest legislative and technology changes affecting the industry and case studies from national and international speakers. An awards dinner is also arranged as part of the exhibition to recognise achievements in the industry. Exhibitors generally include small, medium and large local, national, international and multi-national manufacturers, importers, wholesalers, distributors and agents in the industry. Attendees generally include industry consultants, contractors, architects, agents, builders, designers, developers, distributors, educators, engineers, (consulting, design, hospital, hotel & plant), engineering companies, equipment sellers (trade and retail), facility managers, government departments and agencies, manufacturers, maintenance companies, managers/owners, mechanics, property managers, plumbers, project managers, processors, self-employed operators, specifiers, students, technicians, principal purchasers, business operators, decision makers and product end users. The main reasons for attendance as per the Exhibition Show Report were to promote company/brand image, generate new business, demonstrate products/services, communicate with current customer base, maintain presence in the industry, promote customer product awareness and training and develop distribution and/or agency networks. In addition to the exhibitions, XX provides monetary support to other organisations aimed at furthering the industry in Australia. XX previously obtained a private binding ruling from the ATO confirming its status as an income tax-exempt entity for the purposes of section 50-40 and section 50-12 of the ITAA 1997. Since obtaining the ruling in 20XX, XX has continued to self-assess as an income tax exempt entity.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 50-1 | Income Tax Assessment Act 1997 section 50-40 | Income Tax Assessment Act 1997 Item 8.1 of section 50-40 | Income Tax Assessment Act 1997 Item 8.2 of section 50-40 | Income Tax Assessment Act 1997 Item 8.3 of section 50-40 | Income Tax Assessment Act 1997 section 50-47 | Australian Charities and Not-for-profits Commission Act 2012 subsection 25-5(5)

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. XX is exempt from taxation under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is an exempt entity under Item 8.2 in the table in section 50-40 of the ITAA 1997 as a non-profit association established for the purpose of promoting the development of Australian industrial and manufacturing resources. Detailed reasoning The statutory conditions that must be met before being entitled to exemption from income tax are set out in section 50-1 and section 50-40 of the ITAA 1997. Section 50-1 of the ITAA 1997 exempts from income tax the total ordinary and statutory income of an entity covered by section 50-40 of the ITAA 1997. Item 8.2 of the table in section 50-40 of the ITAA 1997 covers non-profit societies or associations established for the purpose of promoting the development of Australian agricultural, horticultural, industrial, manufacturing, pastoral, viticultural, aquacultural or fishing resources. The matters to be satisfied under section 50-40 of the ITAA 1997 are: • the organisation is a non-profit association or society; and • the dominant or principal purpose for which the organisation is established is promoting resource development; and • the resources whose development is being promoted are within the umbrella of resources specified in the relevant section; and • the resources, are resources of Australia. | Detailed Reasoning - Society or Association: The terms association and society are not defined and therefore take on their ordinary meaning. The Macquarie Dictionary defines 'association' as 'an organisation of people with a common purpose and having a formal structure.' 'Society' has an equivalent meaning ( Pro-campo Ltd v. Commr of Land Tax (NSW) 81 ATC 4270 at 4279; (1981) 12 ATR 26 at 35). An association may be incorporated or unincorporated. XX is: • an Australian public company limited by guarantee and registered with the Australian Securities and Investments Commission (ASIC) effective from XX April 19XX, and • an organised body of members instituted for the purposes of its constitution. It is accepted that XX is a 'society or association' for the purposes of section 50-40 of the ITAA 1997. | Detailed Reasoning - Non-profit: In order to constitute an entity, exempt from income tax, an association must also meet the special condition in Item 8.2 of section 50-40 of the ITAA 1997 that it is: "not carried on for the profit or gain of its individual members". If an association operates principally to confer benefits on its members, it is unlikely to be predominantly for promoting resource development and thus not exempt. However, it is necessary to distinguish a purpose of providing benefits to members as a group from the incidental benefits which will often flow to members as a result of the activities with which they are involved. Organisations will not be exempt where they have a purpose to protect or promote the interests of members. The Australian Taxation Office (ATO) publication Income tax guide for non-profit organisations (QC 27150) available on the ATO's web site www.ato.gov.au states: • If the organisation's main purpose is merely to provide services to its members, it will not be exempt. This is the case even if the services result in better use of resources by those members. • We accept an organisation as 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. • Any profit made by the organisation goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members. To meet the non-profit requirement firstly, an entity's constituent documents must display a non-profit character and secondly, the entity's actions must be consistent with this non-profit character. Exhibitors and attendees to the exhibition are not limited to members of XX. Therefore, XX is providing a forum that benefits both members and non-members and is not carried on to primarily promote the interests of its members. Any benefits to members are in their capacity as members of the industry, not as individual members of XX. XX' actions are therefore consistent with its non-profit character. In addition, the sponsorships and grants contributed towards other organisations furthering the industry within Australia demonstrates the actions taken by XX to act in accordance with its constitution. On the basis that the constitution will be adopted as proposed, it is accepted that XX is not carried on for the profit or gain of its individual members. The Australian Charities and Not-for profits Commission (ACNC) does not prohibit charities (or organisations) from paying their Boards, so long as the payments to the Board Members are in the furtherance of the organisation's purpose, permissible under the rules of the organisation and properly authorised by the organisation. Likewise, there is no requirement in Item 8.2 of the table in section 50-40 that prohibits the payment of fees to Directors. Taking into account the considerations above, the payment of remuneration to the Director of XX does not change the conclusion reached above that XX is not carried on for the profit or gain of its individual members. The inclusion of the clause permitting the payment of fees to Directors appointed by XX does not affect the eligibility of XX for income tax exemption pursuant to section 50-40 of the ITAA 1997. | Detailed Reasoning - Australian resources: 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. Exemption is not limited to associations whose activities extend, or are intended to extend, throughout the whole of Australia. An association promoting the development of a particular region's resources may also be exempt. XX organises an industry trade show exhibition held every second year to showcase products of the building services industries. The Exhibition is held in Melbourne and Sydney. Encouraging international attendees to the exhibition does not necessarily mean that the activities of XX is not sufficiently directed to Australian resources. In fact, the exhibition acts to promote Australian manufacturers and other companies in the industry to customers in international markets. Likewise, allowing international companies to exhibit at the exhibition does not necessarily mean that XX is promoting the development of foreign resources. The exhibition is intended to be international in nature and content. This is with the aim of sharing information about new and emerging technologies, products and processes in the industry. Having international exhibitors exposes Australian manufacturers, engineers, and other industry members to innovations in their field being developed internationally. The international involvement in the exhibition is currently not to an extent that would be regarded as promoting foreign resources. The limited nature and purpose of international participation in the exhibition is consistent with a purpose of promoting Australian resources. | Detailed Reasoning - Manufacturing and industrial resources: The resources whose development is being promoted must fall within the umbrella of resources specified in item 8.2 of the table in section 50-40 of the ITAA 1997. XX is seeking income tax exemption on the basis that it is established for the purpose of promoting the development of manufacturing and industrial resources. These resources are not defined in the ITAA 1997 and so take on their ordinary meaning. The terms 'manufacturing resources' and 'industrial resources' are discussed in Australian Insurance Association v. FCT (1979)10 ATR 333; 79 ATC 4569. It was determined that manufacturing resources extend to 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. Furthermore, it was held that the term 'industrial resources' was intended to mean the building, mining, quarrying, shipping and transport industries and the resources which these industries have. The meaning does not include business or commercial resources. Attendees generally include industry consultants, contractors, architects, agents, builders, designers, developers, distributors, educators, engineers (consulting, design, hospital, hotel & plant), engineering companies, equipment sellers (trade and retail), facility managers, government departments and agencies, manufacturers, maintenance companies, managers/owners, mechanics, property managers, plumbers, project managers, processors, self-employed operators, specifiers, students, technicians, principal purchasers, business operators, decision makers and product end users. Exhibitors at the XX exhibition generally includes small, medium and large local, national, international and multi-national manufacturers, importers, wholesalers, distributors and agents in the industry. Additionally, manufacturing resources extends to the plant and equipment, skill and know-how involved in manufacturing products and the exhibition seems to include these elements, as the primary focus at each exhibition is the promotion of new technologies, processes and products in the industry. It is recognised that due to the varied participants in the exhibition and the connection to the building industry there may be some overlap into both manufacturing and industrial resources. It is therefore considered that XX' activities are directed to resources falling under both 'manufacturing resources' and 'industrial resources' as specified in item 8.2 of the table in section 50-40 of the ITAA 1997. | Detailed Reasoning - Established for the purpose of promoting development: 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. Section 50-40 of the ITAA 1997 does not refer to the promotion of the specified resources. It is directed to the promotion of the development of the specified resources. Taxation Ruling IT 2415 Income tax: Associations promoting the development of Australian resources states the following on the meaning of development: • The term "development" must be taken to be used in a commercial or business sense, i.e., it comprehends all elements which must be taken into account to ensure that the specified resources are used in the best interests of Australia. Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating cooperation and similar activities. 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. As the Tribunal pointed out in Case W49 at 89 ATC 474; 20 ATR 3602: • 'The enlargement of the market is one of the objectives of "promoting the development" of any relevant industry.' 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, at ATR 389; ATC 4229 he said: • The exhibitions and shows which were staged were directed, as I find, substantially towards promotion of sales of boats rather than the manufacture other than in a remote and indirect result of such sales. Mr Greaves accepted that the major activity of the association Boat Show was for the purpose of providing a major sales venue of members' products wherever manufactured. Similarly, there were activities and aspects of sales education and promotion. Determining the dominant purpose will be largely a matter of fact and degree. It is necessary to consider an association's constituent documents, operations and activities. The main object of XX is to organise an exhibition and associated conferences and meetings. By means of the exhibition and associated conferences, XX also promotes training, education and health and safety issues within the industry and promotes the industry as a whole. XX achieves its objectives by organising an industry trade show exhibition every second year to showcase the products of the building services industries. As part of the exhibition XX also runs a technical seminar series. Content includes information on the latest legislative and technology changes affecting the industry and case studies from national and international speakers. An awards dinner is also arranged as part of the exhibition to recognise achievements in the industry. The exhibition provides exhibitors with the opportunity to promote their company brand/image, generate new business, communicate with current customer base, demonstrate products/services, maintain presence in the industry, promote new products/services, create customer product awareness and training, and to develop distribution or agency networks. It provides both exhibitors and attendees the opportunity to learn about new technologies, processes and products in the industry as well as educate themselves about emerging issues and industry specific topics. The objects and activities of XX promote the industry, both directly and indirectly. It is more difficult to conclude that these activities promote the development of Australian industrial and manufacturing resources. The only activity of XX is to organise the exhibition and associated seminars. Therefore, the extent of the promotion of development of resources begins and ends with the exhibition. XX does not conduct any other significant activities, besides offering occasional grants to industry entities in promotion of its objects. The majority of grants have been provided to members in relation to the exhibition. Other grants have been provided in relation to industry training programs. Considering that exhibitors and attendees at the exhibition are not limited to members of XX, but is limited to members of the relevant industries, it is less likely that its purpose is to promote the interests of members rather than the industry as a whole. The exhibition would appear to have no other purpose than to provide industry members with a forum to educate themselves about new innovations in products and processes both locally and internationally, as well as various changes affecting the industry and also to promote their businesses and products to potential customers. The purposes of the exhibition go beyond merely generating sales for members . The exhibition potentially contributes to the enlargement of the market for the relevant industries and builds on the skills and know-how within those industries. Weighing up the various factors, it is accepted that XX has been established predominantly to promote the development of manufacturing and industrial resources of Australia, specifically in the industries involved. As the requirements of section 50-40 of the ITAA 1997 have been satisfied, XX will be exempt from taxation under section 50-1 of the ITAA 1997.

Reasons for decision: These reasons for decision accompany the Notice of private ruling for Company XX (XX).