Private ruling: Income tax exempt entities
Date of advice: 29 September 2021
Published: December 2021
Ruling period: Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ending 30 June 20XX | Income year ending 30 June 20XX | Income year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does the Society meet the requirements of a not-for-profit scientific organisation that is income tax exempt? | A1: Yes

Relevant facts and circumstances: The scheme The Society was incorporated. The Society is a state branch of the National body, which represents members of a profession. Objects The Constitution of the Society (the Constitution) provides the Objects of the Society which show mixed purposes. The Society is in the process of updating the Constitution. A draft of the updated Constitution (the updated Constitution), includes changes to the Objects which also show mixed purposes. A new Object is provided in the updated Constitution. Activities The Society provided details of meetings, events and other activities delivered by the Society since 1 July 20XX and certain proposed future activities. The Society intends to continue providing the meetings, events and other activities each year. These meetings will be similar in content to previous meetings. However, the uncertainty caused by the Coronavirus disease 2019 pandemic has severely limited the Society's ability to plan meetings in advance. The Society's meetings and events are typically open to members, non-members and students. The National body conducts the majority of activities relating to professional objects as these issues affect members nation-wide. Income and expenses The Society provided its financial statements since 1 July 20XX detailing its income and expenses. Not-for-profit clauses The Constitution included appropriate not-for-profit clauses. The Society complied with all the substantive requirements of its governing documents. The Society applied its income and assets solely for the purposes for which it is established.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 50-A | section 50-1 | section 50-5 | section 50-47 | section 50-70 | Australian Charities and Not-for-profits Commission Act 2012 subsection 25-5(5) | Charities Act 2013 section 5 | section 12

Reasons for decision: Summary: Based on the facts, the Society is a society established for the encouragement of science, covered by item 1.7 of the table in section 50-5 of the Income Tax Assessment Act 1997 (ITAA 1997), and satisfies the special conditions that are relevant to that item. As such, pursuant to section 50-1 of the ITAA 1997, the total of its ordinary income and statutory income is exempt from income tax during the ruling period. | Detailed Reasoning - Detailed reasoning: Section 50-1 of the ITAA 1997 provides that the total ordinary income and statutory income of an entity covered by tables in Subdivision 50-A, which includes section 50-5 is exempt from income tax. The table in section 50-5 includes: • scientific institutions (item 1.3), where the special conditions in section 50-55 are satisfied, and • societies, associations or clubs established for the encouragement of science (item 1.7), where the special conditions in section 50-70 are satisfied. The special condition in section 50-47 of the ITAA 1997 must be satisfied for all items in Subdivision 50-A. | Detailed Reasoning - Main or predominant purpose: The purpose or purposes for which an organisation is established are determined by reference to the objects set out in its governing documents, its activities and other relevant factors, including: • other elements in the governing documents such as its powers, rules, not for profit and winding up clauses, and clauses governing who can benefit from the institution's activities and in what ways; • how the institution is operated; • any legislation governing its operation; • the circumstances in which it was formed; • its history; and • its control (TR 2011/4, paragraph 32). If the objects and activities serve multiple purposes (for example scientific, professional and social purposes), the question of whether the organisation is established for the required purpose is decided according to the main or predominant purpose, leaving other purposes served only incidentally ( Royal Australian College of Surgeons v Federal Commissioner of Taxation (1943) 68 CLR 436; (1943) 7 ATD 289 ( Surgeons case )). | Detailed Reasoning - Scientific institutions: An 'institution' is 'an establishment, organisation or association, instituted for the promotion of an object, especially one of public or general utility' (Taxation Ruling TR 2011/4 Income tax and fringe benefits tax: charities (TR 2011/4), paragraph 24). 'Scientific institutions' are institutions established and operated primarily to advance science. As the terms 'science' and 'scientific' are not defined for tax purposes they take their ordinary meaning, and include physical, human and applied sciences. The term 'advance' has broad meaning. In Surgeons Case , Rich J explained advancement of surgery: "... By this I mean that its essential purpose is to enlarge and extend the boundaries or area of the science of surgery." From this, a scientific institutions main purpose must be enlarging and extending the boundaries of scientific knowledge through activities such as undertaking research, exploration, or experimentation; and publishing results and findings in scientific journals. | Detailed Reasoning - Societies, associations and clubs for the encouragement of science: The term 'society, association or club' is not defined in the ITAA 1997 so is construed according to the ordinary meaning of the words. An 'association' is a voluntary organisation having members associated together for a common or shared purpose ( Douglas & Ors v FCT 97 ATC 4722). The word 'society' has an equivalent meaning (Pro-Campo v Commissioner of Land Tax (NSW) 81 ATC 4270). According to the Macquarie Dictionary 'encouragement' means 'stimulation by assistance' (paragraph 11 of Taxation Ruling TR 97/22 Income tax: exempt sporting clubs (TR 97/22). Encouraging science may involve similar activities to 'advancing science'. Direct and indirect activities which may encourage science include: • co-ordinating activities of a scientific nature; • improving the scientific abilities and knowledge of participants; • encouraging increased and wider participation and improved performance; • initiating or facilitating scientific research and development (TR 97/22 paragraph 11). An organisation encouraging science would not ordinarily conduct or facilitate research and development of science as its main purpose or on a scale commensurate with a scientific institution. | Detailed Reasoning - Is the Society a scientific institution or a society established to encourage science?: The Objects set out in the Constitution of the Society include both scientific and professional purposes. The proposed changes to the Objects will not alter their mixed nature. The activities conducted by the Society, the meetings and events held each year, are predominantly focused on: • disseminating scientific information relating to the specialist field, such as expert knowledge, advances in the field, and comparisons of techniques and methods etc; and • providing opportunities for attendees to learn and experience new scientific techniques and technologies. The Society also donates a small percentage of its funds to reward excellent achievement of students at university. The activities and donations of the Society that contribute to growing or expanding the body of knowledge are of small scale and are not its main activities. The Society has carried out activities to protect the professional interests of its members, and other social activities for the members, however, it is considered that these are incidental when compared with the organisation's scientific activities. Based on the above, it is considered that the Society is a society established for the encouragement of science for the purpose of section 50-5 (item 1.7). | Detailed Reasoning - Special conditions for item 1.7 of the table in section 50-5 of the ITAA 1997: As discussed above, for the income of the Societyto be exempt from income tax, the special condition in section 50-47 and section 50-70 of the ITAA 1997 must be satisfied for an organisations income to be exempt under section 50-1. Section 50-47 of the ITAA 1997 states an entity that is covered by any item; and 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 (the ACNC Act). An 'ACNC type of entity' is defined in section 995-1 of the ITAA 1997 by reference to the type of entity in column 1 of the table in subsection 25-5(5) of ACNC Act', which is 'charity'. The meaning of 'charity' is taken from section 5 of the Charities Act 2013 (CA), which includes (among other things) an entity all of the purposes of which are: (a) charitable purposes that are for the public benefit; or (b) purposes that are incidental or ancillary to, and in furtherance or in aid of, purposes covered by paragraph (a). Section 12 of the CA provides various purposes that satisfy the meaning of 'charitable purpose', those of most relevance to the Societybeing 'advancing health' and 'advancing education'. It is considered that the purposes for which the Societyis established are not 'all' charitable purposes or in furtherance or aid of charitable purposes. As such, in the Commissioner's view, the Societyis not an ACNC type of entity and section 50-47 of the ITAA 1997 does not apply. Section 50-70 of the ITAA 1997 states that an entity covered by item 1.7 is not exempt from tax unless the entity: • is a society, association or club that is not carried on for the purpose of profit or gain of its individual members, and ­ has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or ­ is a society, association or club that meets the description and requirements in item 1 of the table in section 30-15; or ­ is a prescribed society, association or club which is located outside Australia and is exempt from income tax in the country in which it is resident; and • complies with all the substantive requirements in its governing rules; and • applies its income and assets solely for the purpose for which the entity is established. Based on the facts: • Clauses 30.1 and 48 of the Society's Constitution prohibit payment or transfer of funds, directly or indirectly by dividend, bonus or otherwise to any member, or distribution of Surplus Property to any member on winding up and identify the Societyas an entity not carried on for the purpose of profit or gain of its individual members. • The Society is physically located in Australia and incurs its expenditure and pursues its objectives principally in Australia. • Since establishment, the Societyhas complied with the substantive requirements of the Constitution and applied its income and assets solely for the purposes for which it is established. The Societywill continue to comply with the substantive rules and apply its income and assets solely for the purposes for which it is established throughout the ruling period. As such, the requirements of section 50-70 of the ITAA 1997 are satisfied. Is the Society 's ordinary income and statutory income exempt from income tax? Considering the above, the Societyis an entity covered by item 1.7 of the table in section 50-5 of the ITAA 1997 and satisfies the relevant special conditions for that item. As such, based on the facts, it is considered that the total of the Society's ordinary income and statutory income is exempt from income tax.

This ruling applies for the following period periods :