Private ruling: Income tax exemption
Date of advice: 17 July 2015
Published: July 2015
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021
Date scheme commenced: The scheme has commenced

Ruling: Q1: Is Company X 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 Australian resources as listed under the table in item 8.2 of section 50-40 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: Company X is an incorporated association. Company X's constitution provided for the following purposes and operation: 1/ It is established for altruistic purposes; 2/ It operates to assist and benefit the entire community; 3/ It's purpose is to promote the development of all industry, trade and commerce including agricultural, pastoral, forestry, horticultural, viticultural, agricultural, fishing, manufacturing, industrial, tourism, information and technology resources of Australia; 4/ It is non-profit, the constitution contains suitable non-profit clauses Company X's activities include: (a) Representation on various government and community boards and committees. (b) Compilation of an annual business and community directory. (c) Presenting annual business awards across a diverse range of business and industry segments. (d) Providing seminars, workshops and supporting training programs.

Relevant legislative provisions: Income Tax Assessment Act 1997 - section 50-1 | Income Tax Assessment Act 1997 - section 50-40

Reasons for decision: Summary: Section 50-1 of the ITAA 1997 provides that the ordinary and statutory income of the entities described in the tables which follow that section are exempt from income tax. Included in the tables is item 8.2 of section 50-40 which refers to a society or association established for the purpose of promoting the development of any of the following Australian resources: (a) Agricultural resources; (b) Horticultural resources; (c) Industrial resources; (d) Manufacturing resources; (e) Pastoral resources; (f) Viticultural resources; (g) Aquacultural resources; (h) Fishing resources. The special condition imposed on the society or association by section 50-40 of the ITAA 1997 for the exemptions to apply is that it is not carried on for the profit or gain of its individual members. Accordingly the issues that need to be addressed to ascertain an organisation's income tax status under item 8.2 of section 50-40 of the ITAA 1997 is determining whether: • the organisation is an non-profit association or society; • the dominant or principal purpose for which the organisation is established is promoting resource development; • the resources whose development are being promoted are within the umbrella of resources specified under 8.2; • the resources are resources of Australia | Detailed Reasoning - Association or society: The terms 'association' and 'society' are not defined and have their ordinary meaning. An association may be incorporated or unincorporated. However, it does not include a body formed and controlled by government and performing functions on behalf of government (see Taxation Determination TD 95/56 (TD 95/56)). Paragraph 2 of TD 95/56 states: …The Shorter Oxford Dictionary defines the term 'association' to be a 'body of persons associated for a common purpose; the organisation formed to effect their purpose'. The Macquarie Dictionary defines 'association' as being 'an organisation of people with a common purpose and having a formal structure'. Olsson J, in Quinton v. South Australian Psychological Board (1985) 38 SASR 523, also stated that the term 'association' has come to be regarded as attaching to a body of persons associated for a common purpose. Company X is an incorporated entity brought into existence by its members to pursue a common purpose as stated in its constitution. It is not a body controlled or formed by government or performing functions on behalf of government. It is accepted that Company X is an association. | Detailed Reasoning - Non-profit: In order to constitute an entity exempt from income tax, an association must also meet the special condition in item 8.2 of section 50-40 of the ITAA 1997 that it is 'not carried on for the profit or gain of its individual members'. Income tax guide for non-profit organisations (QC 27150) provides the following explanation of this requirement: A non-profit organisation is an organisation that is not operating for the profit or gain of its individual members, whether these gains would have been direct or indirect. This applies both while the organisation is operating and when it winds up. Any profit made by the organisation goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members. We accept an organisation as non-profit where its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people - both while it is operating and when it winds up. These documents should contain acceptable clauses showing the organisation's non-profit character. The organisation's actions must be consistent with this requirement. To meet the non-profit requirement firstly, an entity's constituent documents must display a non-profit character and secondly, the entity's actions must be consistent with this non-profit character. Company X's constitution prevents it from distributing its profits or assets among members while it is operating or on its winding up. Company X has not undertaken any actions inconsistent with the required non-profit character. It is accepted that Company X is a non-profit association. | Detailed Reasoning - Australian resources: The use of the word 'Australian' applied to resources in section 50-40 of the ITAA 1997 limits the exemption to associations whose activities are directed towards Australian resources. Macquarie dictionary provides the following definition of 'resource': 'a source of supply, support, or aid.' Company X's primary object is to promote the development of Australian resources. This is supported by Company X's activities which are applied to the achievement of its purposes. Therefore, Company X satisfies this requirement as it promotes the development of an 'Australian' resource. | Detailed Reasoning - Promotion of development: Taxation Ruling No. IT 2415 Income tax: associations promoting development of Australian resources (IT 2415) at paragraph 8 provides that [section 50-40 of the ITAA 1997] does not refer to the promotion of the specified resource. It is directed to the promotion of the development of the specified resource. The term 'development' is used in section 50-40 of the ITAA 1997 in a commercial or business sense. It comprehends all the elements which must be taken into account to ensure that the specified resources are best used. 'Promoting the development' may be direct or indirect. It need not be on a large scale or use commercial means. For example, the development of agricultural resources might be directly promoted by research, experimental farms, control of pests, education in farming methods, or the introduction of new and improved classes of products. It might be indirectly promoted by improved marketing methods, cooperative buying and selling, solution of labour disputes, or ameliorative legislation. Development of resources can be promoted by facilitating the cooperation of business and instrumentalities. Chambers of commerce and regional development bodies may help promote resource development in these ways. Paragraph 9 of IT 2415 provides that resource development might also be promoted by the identification of, and programs to overcome, labour needs and the establishment of systematic training schemes in particular industries. Although the connection may not be readily apparent, the development of marketing techniques may also be relevant to the development of resources. The ATO publication Income tax guide for non-profit organisations (QC 27150) states: Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating cooperation and similar activities. It is accepted that Company X's objects provide for the purpose of the promotion of the development of resources that come within the umbrella of specified Australian resources under item 8.2 of section 50-40 of the ITAA 1997. | Detailed Reasoning - Dominant purpose: To be exempt under section 50-40 of the ITAA 1997, an association must be established principally or predominantly for the purpose of promoting the development of one or more of the specified resources in item 8.2 of section 50-40 ITAA 1997. Determining the dominant purpose of an association will largely be a matter of fact and degree, and will involve the weighing up of various elements such as its objects, activities, history and proposed future innovations. If an association operates principally to confer benefits on its members jointly or as a group, it is unlikely to be predominantly for promoting resources development and thus will not be exempt under section 50-40 of the ITAA 1997. Company X's current operations and activities fall within the parameters of their objects, providing for the promoting of the development of resources in Australia. Therefore, it is accepted that Company X is promoting the development of Australian resources as listed under the table in item 8.2 of section 50-40 of the ITAA 1997. | Detailed Reasoning - Special condition: Company X is not an ACNC type of entity as defined in subsection 995-1(1) of the ITAA 1997 which would be subject to the special conditions under section 50-47 of the ITAA 1997. | Detailed Reasoning - Conclusion: After analysis of its objectives and current activities it is accepted that Company X is an association that is not carried on for the profit or gain of its individual members, and is established for the principal purpose of development of resources that come within the umbrella of specified Australian resources under the table in item 8.2 of section 50-40 of the ITAA 1997. Therefore, the income of Company X is exempt from income tax pursuant to section 50-1 of the ITAA 1997.