Private ruling: Income tax status
Date of advice: 12 October 2017
Published: March 2018
Ruling period: 1 July 2017 to 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Is the total ordinary and statutory income of the Taxpayer exempt from income tax, in accordance with section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) because it is an entity established for the purpose of promoting the development of Australian information and communications technology resources (ICT) pursuant to item 8.3 of section 50-40 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: The Taxpayer is an Australian company limited by guarantee. It is a not-for-profit organisation. It is a self-regulatory body for an entity established by a financial industry sector. The Taxpayer manages the integrity, security and effectiveness of a software network through a voluntary Memorandum of Understanding made with the Operators in the financial industry sector. It was established to ensure an efficient and cohesive network supporting the financial industry sector to meet its obligations. The Taxpayer’s Constitution provides that the Company is a not-for-profit organisation whose main purpose is to manage the integrity of the financial industry sector software network as contemplated under the Memorandum of Understanding. This may involve undertaking initiatives or taking steps to promote some or all of the following: (i) The efficiency and effectiveness of the financial industry sector software network; (ii) Compliance with financial industry sector governance arrangements including with the Memorandum of Understanding and the Standard as validly amended from time to time; (iii) Engagement with the financial industry sector as specified in access rules and criteria and the management of entry and exit of Operators; (iv) Security of the financial industry sector software network through the specification of minimum requirements set out in the Memorandum of Understanding and the Standard to be met by Operators and monitoring and enforcement of those requirements; (vi) Engagement with industry and government bodies in respect of any emerging legislative or technological changes that may impact the financial industry sector software network; (vii) Continuous improvement of the financial industry sector software network; and (viii) Management of an active stakeholder engagement model and regular consultation at strategic and operational levels. Its Constitution contains a non-profit clause which states that its income and property is to be used to further its aims and no income is to be given to its members except to reimburse them for expenses they incur on its behalf. The Constitution also contains an appropriate winding up clause which states that on winding up, its income and property is to be distributed to a similar type of organisation. The financial industry sector software network is governed by a Standard that specifies the minimum requirements for dealing with payments and information relating to certain transactions within the financial industry sector. The purpose of establishing the Standard is to further the interests of beneficiaries of the financial industry sector entities by improving the efficiency and productivity of the financial industry sector system as a whole. Achieving the above objective requires the specific information technology parameters of core transactions to be defined. The financial industry sector software network is a collaboration of individual Operators which are organisations that facilitate the transfer of electronic data messages between entities’. Operators route, switch and package data messages within the financial industry sector software network which enables this data exchange to occur in an efficient, reliable and secure manner. The Taxpayer provided the Standards which apply to all persons or entities which operate within the financial industry sector and which have voluntarily accepted these Standards by submitting an application to become a Gateway Operator under the Memorandum of Understanding. The key activities of the Taxpayer are aimed at providing governance and oversight of the financial industry sector software network.

Relevant legislative provisions: Section 50-1 of the Income Tax Assessment Act 1997 | Section 50-40 Item 8.3 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: The ordinary and statutory income of the Taxpayer is exempt from income tax in accordance with section 50-1 of the ITAA 1997 because it is an entity established for the purpose of promoting the development of Australian (ICT) resources pursuant to Item 8.3 of section 50-40 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 50-1 of the ITAA 1997 exempts the ordinary and statutory income of a non-profit society or association established for the purpose of promoting the development of Australian ICT resources as described in item 8.3 of section 50-40 of the ITAA 1997. To qualify for income tax exemption under the section, the entity must: • be established for the purpose of promoting the development of the particular resource, and • not be carried on for the profit or gain of its individual members. The terms 'information' and 'communications' technology resources are not defined in the legislation. The Assistant Treasurer in his Press Release of the 29 March 2001 announced that the amendments to the taxation laws would assist the development of Australia's information and communications technology industry. He also stated that: … the tax amendments will encourage industry-based initiative that will develop the resources required to help Australia's ICT industries expand further, but will be especially useful for boosting ICT training and skills development. It will help the Australian ICT sector strengthen its strong position on the world stage, and build on the innovative talent we have in this country. National Office Minute no. 96/3107-1 dated 3 July 1997, on the subject of Non-profit associations for the promotion of resource development, aviation or tourism states that ‘Resources or their elements include infrastructure, personnel, knowledge, expertise and skills’. Paragraph 7 of the National Office Minute, states that four (4) tests must be satisfied for an organisation to qualify for exemption as an association promoting a particular resource development listed in section 50-40 of the ITAA 1997. The tests are as follows: 1. organisation is a non-profit association or society; and 2. the dominant or principal purpose for which the organisation is established is promoting ICT resources; and 3. the resource whose development is being promoted is within the umbrella of a "particular" resources; and 4. the resources, are resources of Australia. In this instance the particular resource is ICT. | Detailed Reasoning - Non-profit association or society: The Australian Taxation Office accepts an organisation as non-profit where its constituent document prevents it from distributing profits or assets for the benefit of a particular people during the life of the organisation or on winding up. The Taxpayer has appropriate clauses in its constitution to satisfy this requirement. | Detailed Reasoning - Dominant purpose is promoting development: In the minute, 'promoting development' is discussed in paragraphs 44-52. It states that the term 'development' includes all the elements, which must be taken into account to ensure that the specified resources are best used. The minute states that development of resources can be promoted by facilitating the co-operation of businesses and instrumentalities. Taxation Ruling IT 2415 also includes under this heading the identification of programs to overcome labour needs and the establishment of systematic training schemes in particular industries. The National Office Minute, also states that 'promoting the development' may be direct, like research projects, education in particular methods, and introduction of new and improved products or it can be indirect, such as promotion by improved marketing methods, co-operative buying and selling, or solution of labour disputes. In this case, based on the information provided, it is considered that the Taxpayer was established for the dominant or principal purpose of promoting the development of Australian ICT resources. | Detailed Reasoning - ICT resource: The resource that the Taxpayer is promoting is ICT so this requirement is satisfied. | Detailed Reasoning - Resources of Australia: This requirement is also satisfied as it is an Australian resource. | Detailed Reasoning - Conclusion:: The Taxpayer is promoting the development of Australian ICT resources and therefore its income is exempt from income tax.