Private ruling: Income tax exempt entities
Date of advice: 17 October 2024
Published: 25 November 2024
Ruling period: Year ended 30 June 2024
Date scheme commenced: 1 July 2023

Ruling: Q1: Is the Association exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a society or association established for the purpose of promoting the development of aviation under item 8.1(a) in section 50-40 of the ITAA 1997? | A1: Yes.

Relevant facts and circumstances: The Association was established to promote aircraft of all kinds. It is not an ACNC type of entity. The Association has regular meetings with an aviation topic focus. It also arranges activities that are focused on aviation, or that include flying aircraft. Its activities are promoted at airshows and other public events that they are represented at. It has provided its Constitution, and details of its activities. Its objectives are related to the development of aviation in Australia. The Constitution includes clauses that prohibit the distribution of income and assets to its members or on winding up of the association. A clause of the constitution defines 'membership' as any person that the governing body allows at its discretion. The Association is run by a group of a certain number of members.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 50-1 | Income Tax Assessment Act 1997 section50 - 45 | Income Tax Assessment Act 1997 section 50-47 | Income Tax Assessment Act 1997 section 995-1 | Australian Charities and Non-for-profits Commission Act 2012 section 25-5 | Charities Act 2013 section 12 Summary | The Association is considered to be a society or association established for the purpose of promoting the development of aviation as required under item 8.1(a) of section 50-40 of the ITAA 1997. As such, the income of the association is exempt from income tax under section 50-1 of the ITAA 1997. The association is not for the profit or gain of its individual members. | 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. | (* as defined in section 995-1 of the ITAA 1997) | 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 or association established for the purpose of promoting the development of aviation is listed at item 8.1(a) in the table in section 50-40 of the ITAA 1997. The society or association must meet the special condition in section 50-47 of the ITAA 1997. | Section 50-1 of the ITAA 1997 exempts the ordinary and statutory income of an entity that: | • is a society or association established for the purpose of promoting the development of aviation (item 8.1(a) of the table in section 50-40 of the ITAA 1997) | • is not carried out for the profit or gain of its individual members | • is not an ACNC type of entity. | An entity is exempt from income tax as a society or association established for the purpose of promoting the development of aviation if it: | • is a society or association | • is established for the purpose of promoting the development of aviation, and | • satisfies the special condition. | Society or association | The term society or association is not defined in the ITAA 1997. The term is construed according to the ordinary meaning of the words. | In Taxation Determination TD 95/56 Fringe benefits tax: can a body which is formed by government, is controlled by government and performs functions on behalf of government be an 'association' for the purposes of section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?, the ATO considers the meaning of association as follows at paragraph 2: .... The Shorter Oxford Dictionary defines the term 'association' to be a 'body of persons associated for a common purpose, the organisation formed to effect that purpose.' The Macquarie Dictionary defines 'association' as being 'an organisation of people with a common purpose and having a formal structure. | In Pro-campo Ltd. v Commr of Land Tax (NSW) 81 ATC 4270 the court considered the meaning of 'society' and '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 or association as described above, emphasises a 'body of persons' with a 'common purpose'. | Application to your circumstance | The Association is run by its governing body. Its members pursue a common purpose and are governed by the rules outlined in its Constitution. | The Association is a society or association for the purposes of section 50-40 of the ITAA 1997. | Established for the purpose of promoting the development of aviation | Promote the development of aviation | To qualify for exemption from income tax under item 8.1(a) of section 50-40 of the ITAA 1997, the principal or dominant purpose of the association must be to promote the development of aviation. | The term 'aviation' is not defined in the ITAA 1997 and, therefore, has its ordinary meaning. | The Macquarie English dictionary defines 'aviation' as: | The act, art, or science of flying by mechanical means, especially with heavier- than- air craft. | It then relevantly defines 'development' as: | 1. the act, process or result of developing. | 2. a developed state, form, or product. | 3. evolution, growth, expansion. | 4. a fact or circumstance bringing about a new situation. .... | The ATO website states that promoting development can be by: | • research | • providing facilities | • training | • improving marketing methods | • facilitating cooperation and similar activities. | From the Macquarie meanings of 'aviation' and 'development', promoting the development of 'aviation' can include the expansion or growth of the skill of flying. In that sense promoting the development of aviation is distinct from the categories in item 8.2, which promote the development of a resource, rather than a skill, and requires activities that include developing the latent potential of that resource. It is accepted that activities to promote the development of aviation can predominantly be marketing, education and training since they are all considered to promote the development, that is the expansion or growth, of the skill of flying. For the purposes of item 8.1(a), an organisation that promotes the development of 'aviation' can include an organisation, such as the association, that promotes the development of the skill of flying. | The objects of the Association in the Constitution are directed at promoting the development of aviation. | Additionally, a number of other of the Association's objects promote development indirectly through: | • providing facilities for the exchange of information and ideas relating to aircraft of all kinds | • assisting members in obtaining licences | • publishing information concerning aircraft of all kinds | • assisting in the establishing of groups of members with interest in the design, construction and operation of aircraft of all kinds. | Further, the Association markets its training activities to the broader community at major regional air shows with the intent of attracting more involvement. It also hosts barbecues at its hanger that people fly to. | Through its objects and actual activities the Association is considered a society or association established for the purpose of promoting the development of aviation as required by item 8.1(a) of the table in section 50-40 of the ITAA 1997. | Dominant purpose | To qualify as exempt from income tax under item 8.1(a) of section 50-40 of the ITAA 1997, an association must be established principally or predominantly for the purpose of aviation development. It is not sufficient that one of the association's purposes falls within the relevant provision; nor is it sufficient that aviation development is incidental to, involved with, or a consequence of an association's purpose. | Determining the dominant purpose is a question of fact and degree and may involve a weighing of the various elements such as objects, activities, history, proposed directions. | As evidenced by the association's objects and activities, it is considered that not only is the association established for a purpose of promoting the development of aviation, but further the organisation is established principally for that purpose. | Benefit to members | Where an association operates principally to confer benefits on its members jointly or as a group, it is unlikely to be predominantly for the promotion of aviation development and not exempt from income tax under item 8.1(a) of section 50-40 of ITAA 1997. Such a purpose is unlikely to be consistent with the purpose of promoting aviation development. It is necessary to distinguish from the dominant purpose of providing benefits to members as a group from the incidental benefit which will often flow to members from activities promoting the development of aviation with which they are involved. | While benefits may flow to the Association's members as a consequence of membership, these are in the nature of incidental benefits. The objectives of the organisation demonstrate a wider purpose concerned with the broader development of Australian aviation. It is considered that the Association does not exist primarily to confer benefits on its members. | Non-profit requirement | Section 50-40 of the ITAA 1997 requires that the society or association not be carried on for the purpose of profit or gain to its individual members. | Generally we will accept an association as being non-profit where, by operation of law or by its constituent document; the association is prevented from distributing its profits or assets among members while the association is operating and on its wind-up. The association's actions must, of course, be consistent with the prohibition. | Application to these circumstances | The Association's Constitution contains appropriate prohibitions from making distributions to its members during operation and upon wind-up. There is nothing to indicate that the actions of the association are not consistent with the prohibition. It is accepted that the association is not carried on for the purpose of profit or gain to its individual members. | Special condition | 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, it states: | An entity that: | (a) is covered by any item; and | (b) is an ACNC type of entity; | is not exempt from income tax unless the entity is registered under the Australian Charities and Not-for profits Commission Act 2012 . | Broadly, 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'. 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 education and advancing health. The promotion of sport is not a charitable purpose. Application to these circumstances | As the Association's objects indicate that it does not have charitable purposes, it is not an ACNC type of entity. It does not need to be registered under the ACNC Act. Section 50-47 of the ITAA 1997 does not apply to the Association. The Association satisfies the special condition in section 50-47 of the ITAA 1997. | Conclusion | It is considered that the Association is a non-profit association that meets the requirements of item 8.1 of the table in section 50-40 of the ITAA 1997 as its dominant purpose is to promote the development of aviation. As such, its ordinary and statutory income is exempt from income tax under section 50-1 of the ITAA 1997.