Private ruling: Income tax exemption for employee associations
Published: June 2014
Ruling period: Year ending 30 June 20YY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the ordinary and statutory income of the club exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as an employee association entity? | A1: Yes | Q2: If the answer to Question 1 is yes, does the club need to lodge an income tax return? | A2: No

Relevant facts and circumstances: The club was formed and has financial and non-financial members. The relevant governance, purpose and expectations of the club are set out in its constitution as follows: The mission of the club is to promote camaraderie and teamwork between the personnel of the company. The roles of the club are to: a) Organise, promote and conduct periodic social events for the benefit of the club's financial and non-financial members; b) Manage and operate a snacks bar and drinks facility within the premises of the company for the benefit of its members and their guests; and, c) Make available, and manage a range of merchandise which reflect the appropriate corporate image of the company, including approved designs to uniforms where appropriate; The assets and income of the club shall be applied solely in furtherance of its above-mentioned aims and no portion shall be distributed directly or indirectly to the members of the club except as bona fide compensation for services rendered or expenses incurred on behalf of the club. In addition to any implicit objectives necessary to achieve the stated roles of the club, and in addition to any objectives devised from time to time, by the club's elected management, there are a number of specific objectives of the club: a) Raise sufficient funds to finance subsidised mid and end of year functions each year; b) Organise other social functions throughout the year; c) Maintain a sustainable and efficient snack facility; d) Maintain a sustainable range of merchandise; e) Provide support via both staffing and funding, to events of significance to the company and the members of the club. Support may be provided at the discretion of the relevant committee upon request from the authorised person. The nature of the proposed event will determine the club's intent to support the activity as either a profitable, cost-neutral event or subsidised event; and, f) Setup and maintain the business and administrative processes of the club in such a fashion as to minimise the administrative burden and level of effort required of the relevant committee members for the management and operation of the club in order to reduce the impact on the company's core business. The club may be dissolved by a resolution carried at the appointed meetings of the club which is agreed to by XX% of the members present and voting. The authorised person may dissolve the club at any time. Upon disbandment, the relevant committee is to record in the minutes proposals for the disposal of the club property and funds. Unless otherwise approved by the authorised person, all club property and funds are to be transferred to the relevant committee for reallocation or disposal. The club will be funded financially by the financial members. It is the intent of the club to operate such that it remains solvent whilst fairly returning all profits to its members. Accordingly, all money obtained by the club through fund raising and allotment shall be spent within that term of the relevant committee being from the date of one appointed meeting to the next. The club must ensure that no less than $XX and no more than $YY in available cash are within the club account at the time of handover to facilitate the next relevant committee. Financial members are entitled to subsidised social functions, occasional free food and drink, a subsidised mid and end of year function and priority over non-financial members/non-members when numbers are limited to attend particular functions. Financial member entitlements will be approved by the relevant committee. Non-financial members are entitled to attend social functions organised by the club, although financial members will have priority whenever places are limited. Non-financial members are required to pay the full cost for any functions attended or any merchandise purchased unless otherwise approved by the relevant committee. Non-members may attend social functions organised by the club, although financial and non-financial members will have priority whenever places are limited. Non-members are required to pay full cost for any functions attended or merchandise purchased. The income and expenditure of the club in the 2014 income year covers the following items: • Member fees • Vending • Raffles • Zoo • Functions • Merchandise • Presents

Relevant legislative provisions: Income Tax Assessment Act 1997 section 50-1 and | Income Tax Assessment Act 1997 section 50-15

Reasons for decision: Summary: Section 50-1 of the ITAA 1997 provides that the total ordinary and statutory incomes of employee associations covered by item 3.1 under section 50-15 of the ITAA 1997 are exempt from income tax provided the association: a) is registered or recognised under the Fair Work (Registered Organisations) Act 2009 ; and b) is located in Australia, and incurs its expenditure and pursues its objectives principally in Australia; and c) complies with all the substantive requirements in its governing rules; and d) applies its income and assets solely for the purpose for which the association is established. NAT 7967: Income Tax Guide for Non-Profit Organisations helps non-profit organisations work out if they are exempt from income tax. You should use this guide if you are a treasurer, office bearer or employee involved in the administration of a non-profit organisation. If your non-profit organisation is exempt from income tax, it does not need to pay income tax or lodge income tax returns, unless we specifically ask it to. To be exempt from income tax, a non-profit organisation must meet the requirements for one of the types of exempt entities in the tax law. | Detailed Reasoning - Self-assessment: If your organisation is not a registered charity or an income tax exempt fund, it can self-assess if it is exempt from income tax. It does not need to be endorsed by us to be exempt. To self-assess if your organisation is exempt from income tax, you need to take the following steps: 1. Check the Types of income tax exempt entities to see if your organisation fits within any of the types listed. Entities that can self-assess their income tax status come from these broad groups: • Community service organisations • Cultural organisations • Educational organisations • Employment organisations • Health organisations • Resource development organisations • Scientific organisations • Sporting organisations 2. If you think your organisation fits within any of the types of exempt entities, check the requirements for that entity type to make sure your organisation meets them. 3. Complete the Income tax status review worksheet for self-assessing non-profit organisations (NAT 74141) as a record of your review. 4. If you work-out that your organisation is income tax exempt: • Your organisation does not need to pay income tax or lodge income tax returns, unless we specifically ask it to. • Your organisation does not need to get confirmation of its exemption from the ATO. • You should carry out a yearly review to check if your organisation is still exempt. You should also do this when there are major changes to your organisation's structure or activities. The worksheet will help you self-review. | Detailed Reasoning - Conclusion: The type of organisation the club is classified under would fall under employee associations covered by 3.1 under section 50-15 of the ITAA 1997. Your total ordinary and statutory incomes will be exempt from income tax under section 50-1 of the ITAA 1997 provided that you meet all the special conditions in 3.1 under section 50-15 of the ITAA 1997. If you work-out that your organisation is income tax exempt, your organisation does not need to pay income tax or lodge income tax returns, unless we specifically ask it to. Further, your organisation does not need to get confirmation of its exemption from the ATO. Lastly, you should carry out an annual review to check if your organisation is still exempt. You should also do this when there are major changes to your organisation's structure or activities. The worksheet (NAT 74141) will help you self-review.