Private ruling: Mutuality principle
Date of advice: 24 October 2025
Published: 8 December 2025
Ruling period: Income year ended 30 June 202X
Date scheme commenced: 1 July 202X

Ruling: Q1: Will the receipts from your members relating to returns of empty eligible container refunds be mutual receipts and therefore considered non-assessable non-exempt (NANE) income under section 59-35 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: The Entity is an unincorporated association. The Entity is located in Australia and pursues its objects at that location. The Entity is governed by a Constitution (Governing document). The objects of the Entity are set out in the Constitution. The Entity's Constitution includes: • not-for-profit clauses, • wind up, and dissolution of assets clauses prohibiting distribution to its members, and • relevant memberships clauses. The Entity conducts activities for the benefit of its own community. The Entity is operated and funded by your members, and it has its own bank account. The Entity operates as a not-for-profit organisation. It is not an endorsed charity that is registered with the Australian Charities and Not-for-Profits Commission, and it is not a gift-deductible entity. The Entity operates accommodation facilities including providing various activities to its members. Only the Entity members can use the facilities and participate in the various activities. Your members participate in a state recycling initiative whereby bottles and containers (eligible containers) purchased from your various hospitality offerings are recycled after consumption, and the proceeds refunded to your bank account for the benefit and funding of your members activities. The Entity uses its surplus funds generated from its activities to provide equipment and activities for its members.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 59-35

Reasons for decision: Detailed Reasoning - Principle of Mutuality: Section 6-15(3) states that if an amount is non-assessable non-exempt income, it is not assessable income. With reference to mutual receipts, section 59-35 states: An amount of * ordinary income of an entity is not assessable income and not * exempt income if: (a) the amount would be a mutual receipt, but for: (i) the entity's constituent document preventing the entity from making any * distribution, whether in money, property or otherwise, to its members; or (ii) the entity's constituent document providing for the entity to issue MCIs (within the meaning of the Corporations Act 2001) or to pay * dividends in respect of MCIs; or (iii) the entity having issued one or more MCIs (within the meaning of the Corporations Act 2001) or having paid dividends in respect of one or more MCIs; and (b) apart from this section, the amount would be assessable income only because of section 6-5. It follows that the mutuality principle applies to receipts derived from mutual dealings between you and your members. Therefore, these mutual receipts will be non-assessable, non-exempt income. Whether a mutual association exists between persons depends upon the nature of their relationship, transactions and dealings. Case law demonstrates that no single criterion is likely to be decisive in determining if mutuality applies and not all factors will be present in all cases. Anderson J in Royal Automobile Club of Victoria (RACV) v. Federal Commissioner of Taxation 73 ATC 4153 (RACV) at 4157 (citing the view of Lord Wilberforce in Fletcher v. Income Tax Commissioner [1971] 3 All ER 1185 (Fletcher), at 1190) states: Many criteria have been considered in the numerous cases where one or another criterion has been regarded as determining the issue [of mutuality]. Lord Wilberforce expressed the opinion that, except in the simplest cases, no single criterion was likely to be decisive. By way of summary of the various legal principles established by case law surrounding the mutuality principle, the ATO's publication titled ' Mutuality and taxable income for not-for-profits ' guide on the ATO's website provides a summary of the typical characteristics of organisations that can access mutuality. The relevant content regarding membership in relation to application of the mutuality principle is discussed below. | Detailed Reasoning - Membership: In a mutual arrangement there must also be complete identity between contributors and participants as a class, not individually, in the surplus of the common funds. The members collectively contribute and collectively benefit from the common fund. For the purpose of mutuality, we accept that a person is a member of an organisation where the person has: • applied for membership (which may entail being nominated and paying the appropriate nomination fee); • been accepted by the organisation (for example by the Board of Directors); and • paid the appropriate membership subscription. Once a person has applied for membership and has been accepted by the organisation as a member, they are bound by the organisation's constitution and any rules or by-laws of the organisation. Members need not have voting rights, but those who do not must be eligible to the other rights and privileges of membership. This would include knowing that they are a member, receiving the appropriate membership identification (for example, a card or badge) and receiving the organisation's newsletters and publications. Various terms are used to describe members - for example, temporary, honorary, social and reciprocal members. As the meanings of these terms can differ between organisations, the use of a particular term does not determine whether a person is a member or non-member for tax purposes. The general principle is that temporary, honorary or social members who have not been through the above membership process are visitors for tax purposes. This also applies to reciprocal members - that is, members of another organisation sharing reciprocal arrangements. The mutuality principle was described succinctly by McTiernan J in Revesby Credit Union Cooperative Ltd v Federal Commissioner of Taxation (1965) 112 CLR 564 ( Revesby Credit Union ) at 574-575: The principle of mutuality seems to me to be settled. Where a number of people contribute to a fund created and controlled by them for a common purpose any surplus paid to the contributors after the use of the fund for the common purpose is not income but is to be regarded as a mere repayment of the contributor's own money ... Incorporation of the fund is not relevant ... What is required is that the fund must have been created for the common purpose and owned or controlled wholly by the contributors. If it is owned or controlled by anyone else the principle cannot apply...Furthermore any contributions to the fund derived from sources other than the contributors' payments, such as interest from the investment of part of the fund, or income from a business activity conducted by the members, cannot be taken into account in computing the surplus ... Also the cases establish that the principle cannot apply unless at any given point in time the contributors to the fund are identical with the beneficiaries of the distribution of the surplus. | Detailed Reasoning - Application to your circumstances: Your Constitution provides that on dissolution any surplus property must be given to an entity with similar objects. Section 59-35 of the ITAA 1997 will operate to prevent the member receipts as being treated as assessable income and will cause the member receipts to be treated as NANE. The contributions of members relating to the return of containers receipts are contributions for the common purpose and are NANE income of yours. The eligible containers are purchased by members from the activities to align with being from a source of mutual dealings and mutual income. As such, the member receipts will not be included in the assessable income of the entity under sections 6-5 or 6-10 of the ITAA 1997.