Private ruling: Income tax - exempt income - promotion of industrial resources
Date of advice: 12 December 2019
Published: February 2020
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 20XX

Ruling: Q1: Is the income of the company exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) pursuant to item 8.2(c) of section 50-40 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The Company is a company limited by guarantee. The governing documents for the company and details of activities have been provided.

Relevant legislative provisions: Income Tax Assessment Act 1997 , section 50-1 | Income Tax Assessment Act 1997 , section 50-40 | Income Tax Assessment Act 1997 , section 50-47

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. All references made in these reasons for decision are to the Income Tax Assessment Act 1997 (ITAA 1997)unless otherwise stated. The ordinary and statutory income of the Company is exempt from income tax in accordance with section 50-1 as it is a non-profit association established for the purpose of promoting the development of Australian industrial resources for the purposes of item 8.2(c) in the table in section 50-40. | Detailed Reasoning - Detailed reasoning: Section 50-1 provides that the ordinary and statutory income of certain entities is exempt from income tax. The entities are those listed in the tables contained in sections 50-5 to 50-45 of Subdivision 50-A. Item 8.2 (c) in the table in section 50-40 includes an entity that is a society or association established for the purpose of promoting the development of industrial resources. The special condition attached to this item is that it is not carried on for profit or gain of its individual members. Accordingly, to be exempt from taxation under section 50-1, the company must meet the relevant conditions of item 8.2(c) in the table in section 50-40. In relation to industrial resources the conditions are as follows: it must be a society or association it must not be carried on for the profit or gain of its individual members it must be established for the purpose of promoting the development of industrial resources of Australia. Section 50-47 provides a further condition that if an entity that is covered by one of the items in Subdivision 50-A is an ACNC type of entity, they will not be exempt from income tax unless they are registered under the Australia Charities and Not-for-profits Commission Act 2012 . Broadly, an entity that can be registered as a charity is an ACNC type of entity. This section does not apply to the company as it is not a charity. Society or association The term society or association is not defined in the legislation. The term is therefore construed according to the ordinary meaning of the words. In Theosophical Foundation Pty Ltd v. Commissioner of Land Tax (1966) 67 SR (NSW) 70, 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" In Pro-Campo Limited v. Commissioner of Land Tax (N.S.W.) 81 ATC 4270, Lee J stated at 4279: 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. The company is a public company limited by guarantee. We consider that it is an organisation of people with a common purpose (as per its objects in the constitution) and a formal structure and that it is a society or an association. Not carried on for the profit or gain of its individual members A not-for-profit (NFP) organisation does not operate for the profit or gain of its individual members. This applies both while the organisation is operating and when it winds up. Its constituent or governing documents must prevent it from distributing profits or assets for the benefit of particular people - both while it is operating and when it winds up. A NFP organisation can still make a profit, but this profit must be used to carry out its purposes and must not be distributed to owners, members or other private people. The NFP requirement is also explained in Taxation Ruling TR 97/ 22 Income tax: exempt sporting clubs and is also applicable to other types of organisations. It notes that in addition to the above mentioned requirements: · an organisation's actions must consistent with the NFP restrictions in its constitution, · that benefits received by members communally as members and incidental to pursuit of entity's objects do not prevent the entity from passing the non-profit test, · nor does the payment of reasonable remuneration to members for services they provide to the entity. We accept that the Company satisfies the non-profit test. Established for the purpose of promoting the development of industrial resources of Australia The meaning of 'established for the purpose of promoting the development of... Australian resources' has been considered in a number of court cases, including Australian Insurance Association v. Federal Court of Taxation 79 ATC 4569, 10 ATR 333 ( Australian Insurance ) and Boating Industries Association of New South Wales v. Federal Commissioner of Taxation 85 ATC 4224, (1985) 16 ATR 383 ( Boating ). To be exempt from income tax pursuant to item 8.2 in the table in section 50-40, an association must be established for the dominant purpose of promoting the development of the relevant Australian resources. This means that both the association's dominant object as per its constitution and its dominant activity must be for this purpose ( Australian Insurance and Boating) . Determining an association's dominant purpose is a matter of fact and degree ( Boating ). It involves considering the association's constituent documents, history, operation, activities and use of funds. Taxation Ruling IT 2415 Income tax: associations promoting development of Australia resources, discusses paragraph 23(h) of the Income Tax Assessment Act 1936 , now section 50-40, and provides the following at paragraphs 7 to 9: 7. The reasoning in the decision in the Australian Insurance Association case highlights the matters that need to be satisfied in any case before exemption under paragraph 23(h) applies:- (a) Promotion of the specified resources must be the predominant purpose for which a particular body is established. (b) The resources, the development of which is being promoted, must come within the umbrella of the specified resources. 8. It is important to note that paragraph 23(h) does not refer to the promotion of specified resources - it is directed to the promotion of the development of the specified resources. In the context of paragraph 23(h) the term "development" must be taken to be used in a commercial or business sense, i.e. it comprehends all the elements which must be taken into account to ensure that the specified resources are used in the best interests of Australia. Reference might usefully be made to the observations of the High Court in F.C. of T. v. Broken Hill Pty. Co. Ltd., 69 ATC 4029 ; 1 ATR 40 on the meaning of the term "development" in relation to the development of a mining property. 9. There can be little doubt that the identification of, and programmes to overcome, manpower needs and the establishment of systematic training schemes in a particular industry are necessary for the efficient operation of the industry - they are part and parcel of the development of the resources specified in paragraph 23(h)... The term industrial resource is not defined in the legislation. It takes its ordinary meaning. Based on paragraph 6 of IT 2415, the expression industrial resources in section 50-40, refers to resources such as those of the building, mining, quarrying, shipping and transport industries. It does not extend to business or commercial resources. Based on the objects of the Company as provided for in its governing document, and its activities the dominant purpose and activities are to promote the development of Australian industrial resources. The ordinary and statutory income of the Company is exempt from income tax in accordance with section 50-1 as it is a non-profit association established for the purpose of promoting the development of Australian industrial resources for the purposes of item 8.2(c) in the table in section 50-40.