Private ruling: Is the organisation a partnership?
Published: November 2011
Ruling period: 1 July 2010 to 30 June 2011 | 1 July 2011 to 30 June 2012
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the organisation a partnership as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997? | A1: Yes. | Q2: Is the organisation entitled to a tax file number? | A2: Yes. | Q3: Is the organisation a public benevolent institution whose income is exempt from income tax under Division 50 of the ITAA 1997? | A3: No.

Relevant facts and circumstances: The organisation was set up under a government program to assist individuals. The government body provided funding and other assistance The organisation set up a bank account to hold funds transferred to it. The bank account has accrued interest which is used by members to meet their expenses.

Relevant legislative provisions: Subsection 202B(1) of the Income Tax Assessment Act 1936 | Subsection 995-1(1) of the Income Tax Assessment Act 1997 | Division 50 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: The term partnership is defined in subsection 995-1(1) of the ITAA 1997 as: (a) an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly; or (b) a limited partnership. The organisation is not a limited partnership as defined in subsection 995-1(1) of the ITAA 1997. The term company is defined in subsection 995-1(1) of the ITAA 1997 as: (a) a body corporate; or (b) any other unincorporated association or body of persons; but does not include a partnership or a non-entity joint venture. Thus the definitions of partnership and company are mutually exclusive. The Macquarie dictionary defines an association as an organisation of people with a common purpose and having a formal structure . The organisation is not an association that is typical of unincorporated associations and clubs. Though the members have grouped for a common purpose, the group does not have a formal structure normally associated with an organisation described as an association; for example, members, rules and officer bearers. Instead the organisation is a group of persons bound by formal obligations. Each member has their own unique set of rights and obligations owed to others. Included in those rights is a right to their portion of the instalment funds held in the holding account established for all persons in the organisation. The funds are not held for the organisation as a whole. Instead each member has an entitlement which varies over time, depending on the member's circumstances. These characteristics do not favour classification of the organisation as a company . Interest is earned on the instalment funds in the account. Interest accumulates and with the other funds is available to all members of the organisation in proportion to the amounts standing, from time to time, in the account in the name of a member. All funds are available to members to be drawn down by them. The organisation is an association of persons in receipt of income jointly. The organisation is a partnership for the purpose of subsection 995-1(1) of the ITAA 1997. | Detailed Reasoning - Tax file number: A person may apply to the Commissioner for the issue of a tax file number (subsection 202B(1) of the Income Tax assessment Act 1936 ). Although it may not be compulsory to have a tax file number, a person who is unable to quote a tax file number, amongst other things, may have amounts withheld from interest bearing accounts with financial institutions. The organisation may apply to the Commissioner for the issue of a tax file number. NOTE: An individual does not need to lodge a partnership tax return where the only income derived jointly (or in common) with another was interest from a jointly held account. In this instance, each individual shows their share of the income. | Detailed Reasoning - Public benevolent institution: For an entity to be exempt from income tax under Division 50 of the ITAA 1997, the entity must be a charitable institution. An entity that is a public benevolent institution is an entity that is also a charitable institution. The concept of a public benevolent institution is discussed in TR 2003/5. A public benevolent institution is a non-profit institution organised for the direct relief of such poverty, sickness, suffering, distress, misfortune, disability, destitution, or helplessness as arouses compassion in the community. Needs might be caused by poverty or lack of financial resources. It is not sufficient that an organisation's actions are socially worthwhile or that it is fully funded by government. At the time a member joins the organisation, the member may have limited resources. That is, a member may require some financial assistance. On the other hand, a member must have sufficient resources to be able to show that they can repay, at some time in the future, any loans they take out now. This suggests that a member's resources are not so low as to cause serious hardship or disadvantage as compared to the rest of the community. It is unlikely that a member will arouse community pity or compassion or be suffering as a result of their circumstance. The organisation is not a benevolent institution as the circumstances of the persons towards whom their activities are directed are not seriously disadvantaged. Its income is not exempt from income tax under Division 50 of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.