Private ruling: Income tax exempt organisations - resource development organisations
Date of advice: 12 February 2021
Published: March 2021
Ruling period: Year ending 30 June XXXX | Year ending 30 June YYYY
Date scheme commenced: Year ending 30 June XXXX

Ruling: Q1: Is the Company 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 under items 8.2(a) or 8.2(e) of the table in section 50-40 of the ITAA1997? | A1: Yes

Relevant facts and circumstances: The Company is an unlisted Australian public company limited by guarantee which was incorporated in the year ending 30 June XXXX. It is stated in the Company's private ruling application that the organisation satisfies the requirements of the following: • not for profit organisation • not a charity • has a physical presence in Australia • complies with all requirements in [its] governing rules, and • applies its income and assets for purpose for which established. The Company's website provides up to date information about the organisation's objectives and activities. The Company's purpose is summarised in its statement of its Mission in its promotional document. The Company sets out its objects in the First Schedule of its constitution. Clause X of the Company's constitution states: X. Application of Income The derived income and property of the Company will be applied solely towards the promotion of the objects of the Company as set forth in this Constitution. No proportion thereof will be paid or transferred, directly or indirectly by way of dividend, bonus or otherwise to Members provided that: a) Nothing contained in this Constitution will prevent the payment in good faith of remuneration to any Officer, employee or Member of the Company (including any firm or corporation in which any such Officer, employee or Member has an interest) in return for any services actually rendered or for any goods supplied to the Company in the ordinary and usual way of business, nor prevent the payment of interest, in good faith, on money borrowed by the Company from any Member, or reasonable and proper rent for the premises let by any Member to the Company; For the avoidance of doubt, any amount to be paid or transferred to the Company to a Director in accordance with this clause 5 must be approved by a resolution of the Directors. Clause Y of the Company's constitution states: Y. No Distribution of Property If upon the winding up or dissolution of the Company there remains, after satisfaction of all debts and liabilities, any property whatsoever, the same will not be paid or distributed among the Members of the Company, but will be given or transferred to some other institution or institutions having objects similar to the objects of the Company, and whose constitution or rules prohibit the distribution of its or their income and property among its or their Members to an extent at least as great as imposed on the Company under this Constitution, such institution or institutions to be determined by the Members of the Company at or before the time of the dissolution and in default thereof by application to such court as may have or acquire jurisdiction in the matter. Subclause Z.1 of the Company's constitution states: Z.1. Members The Subscribers and such other persons as the Directors shall admit to membership of the Company in accordance with this Constitution will be Members of the Company In the Company's promotional document, it describes the industry knowledge and expertise of its Directors and their role on other industry associations. The Company applied to the Australian Charities and Not-for-profits Commission (ACNC) to be registered as a charity under the Australian Charities and Not-for-profits Commission Act 2012. In response, the ACNC issued the Company with a notice of intention to refuse their charity registration application and requested further information. Upon receiving further information from the Company, the ACNC issued the Company with a notice advising that the ACNC may refuse their charity registration application. The Company subsequently withdrew their charity registration application. The following documents provided with the private ruling application are to be read with and form part of the description of the scheme: • The Company's constitution; • The Company's current promotional document.

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 | Income Tax Assessment Act 1997 section 960-100

Reasons for decision: Summary: Section 50-1 of ITAA 1997 exempts the ordinary and statutory income of an entity that: • is a society or association established for the purpose of promoting the development of specified Australian resources (item 8.2 of the table in section 50-40 of the ITAA 1997) • is not carried out for the profit or gain of its individual members, and • is not an ACNC type of entity. | Detailed Reasoning - Entity: The term entity is defined in section 960-100 of the ITAA 1997 to include a body corporate. The Company is a public company limited by guarantee incorporated in Australia and therefore satisfies the definition of an entity under section 960-100. | Detailed Reasoning - Society or Association: Section 50-40 of the ITAA 1997 requires that the entity be a society or association. The terms association and society are not defined in the ITAA 1997, and therefore have their ordinary meaning. The Macquarie Dictionary defines an association as an organisation of people with a common purpose and having a formal structure. Society has an equivalent meaning ( Pro-campo Ltd v. Commr of Land Tax (NSW) 81 ATC 4270 at 4279; (1981) 12 ATR 26 at 35). As a company limited by guarantee, the Company is a body of members organised for the common purpose, as set out in its Constitution (First Schedule). The Company's purpose as summarised in its statement of its Mission in its promotional document. It is accepted that the Company can be classified as a society or association for the purposes of item 8.2 of section 50-40 of the ITAA 1997. | Detailed Reasoning - Dominant purpose is to promote the development of Australian resources: To qualify for exemption from income tax under item 8.2 of section 50-40 of the ITAA 1997, the principal or dominant purpose of the association must be to promote the development of one or more of the Australian resources specified under that item. Of relevance, item 8.2 of the table in section 50-40 of the ITAA 1997 specifically includes: • agricultural resources - item 8.2 (a), and • pastoral resources - item 8.2 (e). | Detailed Reasoning - Resources: The Company is seeking income tax exemption on the basis that it is established for the purpose of promoting the development of agricultural and/or pastoral resources. The terms agricultural resources and pastoral resources are not defined in the ITAA 1997 and so take on their ordinary meaning. The Macquarie Dictionary defines agriculture as: the cultivation of land, including crop-raising, forestry, stock-raising, etc.; farming. The Macquarie Dictionary defines pastoral as: 1. of or relating to the raising of stock, especially sheep or cattle, on rural properties: pastoral occupations ; pastoral leases. 2. used for pasture, as land. Having regard to the facts, it is accepted that the Company is concerned with agricultural and pastoral resources for the purposes of item 8.2 of the table in section 50-40 of the ITAA 1997. Resources of Australia The words 'in Australia' limit the exemption to associations whose activities are directed to Australian resources. The Company aims to benefit specific sub-sectors of the relevant industries of Australia and it is accepted that it is concerned with Australian agricultural and pastoral resources. Promote the development of 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. The meaning of 'development' was examined by the High Court in the case of FC of T v. Broken Hill Pty Co. Ltd 69 ATC 4028; 1 ATR 40 where, in considering the phrase 'development of mining property' the majority of the High Court accepted the interpretation of Kitto J: In its ordinary English sense the word 'development' when used in relation to a property refers to the unfolding, the bringing out, of some latent capability of that property...It covers I think, any preparation, adaptation or equipment of the property for the exploitation of an inherent potentiality which cannot be exploited or fully exploited, without some such preliminary treatment. The promotion of development may be direct or indirect provided it is within the scope of item 8.2 of the ITAA 1997. The ATO website states that 'promoting development' can be by various means, including: research, providing facilities, training, improving marketing methods, and facilitating cooperation and similar activities (ATO website Resource development organisations / Purposes). The Company sets out its objects in the First Schedule of its constitution and the Company's stated purpose is summarised in its statement of its Mission in its current promotional document. The activities and objectives specified in the Company's constitution and road map document include providing fact based communication and education around Australian agricultural and pastoral resources, and supporting and promoting the local, national, regional and international agricultural trade of these resources. Therefore, it is accepted that the Company is concerned with promoting the development of Australian agricultural and pastoral resources (specified under item 8.2 of the table in section 50-40 of the ITAA 1997). | Detailed Reasoning - Dominant purpose: To qualify as exempt from income tax under item 8.2 of section 50-40 of the ITAA 1997, an association must be established principally, or predominantly for the purpose of resource development. It is not sufficient that one of the association's purposes falls within the relevant provision. Nor is it sufficient that resource development is incidental to, involved with, or a consequence of an association's purpose. Determining the dominant purpose is a question of fact and degree and may involve a weighing of the various elements such as objects, activities, history, proposed directions, etc. As evidenced by the Company's objects and activities, the organisation is established principally for the purpose of providing fact based communication and education around Australian agricultural and pastoral resources, and supporting and promoting the local, national, regional and international agricultural trade of these resources. Therefore, it is accepted that the Company was established principally or predominantly for the purpose of resource development for the purposes of item 8.2 of section 50-40 of the ITAA 1997. | Detailed Reasoning - Conclusion: It is accepted that the Company satisfies all of the criteria under 'exempt entity' in item 8.2 of the table in section 50-40 of the ITAA 1997 of an association established for the purpose of promoting the development of specified Australian resources. | Detailed Reasoning - Not carried on for the purpose of profit or gain to its individual members: Section 50-40 of the ITAA 1997 requires that the society or association not be carried on for the purpose of profit or gain to its individual members. Generally, we will accept an association will satisfy this criteria where, by operation of law or by its constituent document, the association is prevented from distributing its profits or assets among members while the association is operating and on its wind-up, and the association's actions are consistent with these prohibitions. The Company's constitution contains appropriate prohibitions from making distributions to its members during operation (clause X) and upon wind-up (clause Y). There is nothing to indicate that the actions of the Company are not consistent with the prohibitions. Therefore, it is accepted that the Company is not carried on for the purpose of profit or gain to its individual members. Not an Australian Charities and Not-for-profits Commission ( ACNC) type of entity Section 50-47 of the ITAA 1997 provides a special condition for all entities covered by section 50-1 of the ITAA 1997, it states that: | Detailed Reasoning - 50-47 Special condition for all items: An entity that: (a) is covered by any item; and (b) 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 . Broadly, an entity capable of being a registered charity is an ACNC type of entity. Thus, if the Company is capable of being a registered charity it will not be exempt from income tax unless it is registered as such under the Australian Charities and Not-for profits Commission Act 2012 (ACNC Act). It is stated in the Company's private ruling application that the Company is not a charity. The Company is not currently registered as a charity on the ACNC website - www.acnc.gov.au The Company applied to the Australian Charities and Not-for-profits Commission (ACNC) to be registered as a charity under the ACNC Act . In response, the ACNC issued the Company with a notice of intention to refuse their charity registration application and requested further information. Upon receiving further information from the Company, the ACNC issued the Company with a notice advising that the ACNC may refuse their charity registration application. The Company subsequently withdrew their charity registration application. Based on the information provided, it is accepted that the Company is not an ACNC type of entity for the purposes of section 50-47 of the ITAA 1997, and consequently section 50-47 does not operate to deny the Company income tax exemption under section 50-40 of the ITAA 1997. | Detailed Reasoning - Conclusion: It is considered that the Company is a society or association established for the purpose of promoting the development of specified Australian resources (under item 8.2 of the table in section 50-40 of the ITAA 1997), which is not carried out for the profit or gain of its individual members, and is not an ACNC type of entity. Therefore, its ordinary and statutory income is exempt from income tax under section 50-1 of the ITAA 1997.