Private ruling: Income tax exemption - community service organisation
Date of advice: 14 October 2015
Published: October 2015
Ruling period: 1 July 2014 to 30 June 2015 | 1 July 2015 to 30 June 2016 | 1 July 2016 to 30 June 2017 | 1 July 2017 to 30 June 2018
Date scheme commenced: 1 July 2013.

Ruling: Q1: Is the entity exempt from income tax as a community service organisation under Item 2.1 of the table in section 50-10 of the Income Tax Assessment Act 1997? | A1: Yes.

Relevant facts and circumstances: The entity is an animal obedience club and is seeking income tax exemption as a community service organisation under Item 2.1 of the table in section 50-10 of the Income Tax Assessment Act 1997. The entity's Constitution contains the following relevant clauses: Aims and objects 3 The aims and objectives for which the Association is established are (in no particular order): (i) to promote responsible animal ownership and the general welfare of animals; (ii) to teach members to train their animals, of whatever breed, in animal obedience and other related canine skills, using motivational training methods; (iii) to promote participation and training in a range of animal sports; (iv) to promote and participate in animal training and other activities associated with animal training; (v) to support the rights of animal owners, provided that such ownership is conducted in a responsible manner; (vi) to actively promote community interaction with animals; (vii) to provide facilities necessary or convenient for its activities; (viii) to promote positive relationships between owners and animals; (ix) to enhance the development of social skills of animals. Income and property 5 The income and property of the Association shall be applied solely to the promotion of its objects and no part thereof shall be paid or transferred directly or indirectly by the way of dividend, bonus, or otherwise by way of pecuniary profit to the members, provided that remuneration may be paid in good faith to officers and servants of the Association or other persons in return for services rendered to the Association. Dissolution of Association 36(a) The Association may be wound up at a Special General Meeting called for that purpose by a resolution passed by at least three quarters of the members present and voting thereon. 36(b) The Committee shall thereupon, or at such future date as shall be specified in such resolution, proceed to realise the property of the Association as far as is necessary to discharge all liabilities. 36(c) The remaining property of the Association, either in kind or converted into money, as the Committee thinks fit, shall be given to and vested in such organisations, institutions, clubs or associations in Australia which have as, or include in their objectives, the promotion of similar aims and objects to those of the Association. 36(d) Upon the completion of the distribution of the property as provided by this clause the Association shall be dissolved. The entity has been in operation for over 50 years and was the first club to promote positive motivational training techniques. The entity believes that it benefits the whole community not just those that have a companion animal. The entity promotes responsible animal ownership and actively promotes community interaction with animals in line with public sentiment and community expectations. The entity's main objective is to promote responsible animal ownership through the numerous activities that it conducts. The entity provides training classes to the wider community on the handling and training of animals in obedience and related activities. At any one time the entity has a membership of approximately 1,000 members and it takes on new members throughout the year. The entity promotes and teaches members how to handle and work with their particular animal so that animals are well socialised and well behave in all situations. The entity promotes and teaches social responsibility of owning and looking after a animal from picking up after it to ensuring the safety and wellbeing of the animal and the broader community. The entity also carries out activities such as 'Pets as Therapy' where animals visit the elderly and sick provides a great service to the community. Volunteers and their animals visit health care facilities and homes to offer the wonderful benefits of pet therapy.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 50-1 | Income Tax Assessment Act 1997 Section 50-10 | Income Tax Assessment Act 1997 Section 50-70.

Reasons for decision: Summary: Please note that all legislative references referred to below are in relation to the Income Tax Assessment Act 1997 unless otherwise specified. The entity is considered to be a community service organisation under Item 2.1 of the table in section 50-10 and satisfies the special conditions set out in section 50-70. Therefore the entity will be exempt from income tax. | Detailed Reasoning - Detailed reasoning: The ordinary and statutory income of non-profit societies, associations or clubs established for community service purposes is exempt from income tax under sections 50-1 and 50-10 if the special conditions set out in section 50-70 are satisfied. | Detailed Reasoning - Community service organisations: An entity will be exempt from income tax, and can self-assess its exemption, if it meets all of the following requirements: • it is a non-profit society, association or club • it is established for community service purposes (except political or lobbying purposes) • it is not a charity • it meets one of the three tests • it complies with all the substantive requirements in its governing rules • it applies its income and assets solely for the purpose for which it is established. | Detailed Reasoning - Non-profit society, association or club: It is considered that the entity is not carried on for the profit or gain of its individual members. In addition, it is considered that the entity complies with all the substantive requirements in its governing rules and applies its income and assets solely for the purpose for which the entity is established. This is evident by virtue of its Constitution and by the activities that it conducts. A 'society, association or club' is a voluntary organisation having members associated together for a common or shared purpose. The entity is such an organisation, having members associated for a common purpose. | Detailed Reasoning - Community service purposes: The main purpose of the organisation must be community service purposes. Any other purpose of the organisation must be incidental, ancillary or secondary to the community service purpose. Community service purposes are altruistic - that is, community service organisations are established and operated with regard to the wellbeing and benefit of others. Organisations that seek to advance the common interests of their members are not altruistic and so cannot be community service organisations. If an organisation's main purpose is lobbying or political, its income will not be exempt. Taxation Determination TD 93/190 (TD 93/190) provides that community service organisations promote, provide or carry out activities, facilities or projects for the benefit or welfare of the community or any members who have a particular need by reason of youth, age, infirmity or disablement, poverty or social or economic circumstances. These include associations of Justices of the Peace, associations of play groups, traditional service clubs, community service clubs and pensioner or senior citizens associations. Further, in paragraph 3 of TD 93/190, the Commissioner explains the application of subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 (replaced by Item 2.1 of the table in section 50-10) as follows: The term 'community service purposes' has a broader meaning than other purposes beneficial to the community which are also charitable. The Explanatory Memorandum to subparagraph 23(g)(v) confirms that the words 'community service purposes' are to be given a wide interpretation. The entity's main object is the promotion of responsible animal ownership and actively promoting community interaction with animals. It provides training classes to the wider community on the handling and training of animals in obedience and related activities. At any one time the entity has approximately 1,000 members and it takes on new members throughout the year. The entity promotes and teaches members how to handle and work with their particular animal so that animals are well socialised and well behave in all situations. It promotes and teaches social responsibility of owning and looking after an animal from picking up after it to ensuring the safety and wellbeing of the animal and the broader community. The main activity conducted by the entity is the obedience training classes. Subscriptions and training fees for these classes are the entity's main source of funding. These classes explain and show members how to train their animals by using positive motivational training methods. Other activities conducted by the entity include Agility, Flyball, Dances with Animals, Trialling, Tracking and Rally-O. Animals participate in these activities once they have reached a required level in obedience. Trials and competitions are also run for members with animals participating in Obedience, Agility, Tracking and Rally-O; trials are held where handlers and their animals compete for titles. Flyball and Dances with Animals hold competitions where handler animal team can be awarded titles. Another activity carried out by the entity is 'Pets as Therapy' where animals visit the elderly and sick. Volunteers and their animals provide a great service to the community by visiting health care facilities and homes to offer the wonderful benefits of pet therapy. Based on the entity's Constitution, activities, use of funds and history, it is accepted that it is established for community service purposes. | Detailed Reasoning - Charity: If your community service organisation is not a charity, it can self-assess its income tax status. The entity is not a registered charity and therefore satisfies this requirement. | Detailed Reasoning - Three tests: For a community service organisation that is not a charity to be exempt from income tax, it must pass one of the following tests: • physical presence in Australian test • DGR test • prescribed by law test. It is considered that the entity exists, operates and incurs its expenditure solely and entirely in Australia, and therefore meets the physical presence in Australia test. | Detailed Reasoning - Conclusion: The entity meets all the relevant requirements of a community service organisation. Therefore the entity will be exempt from income tax.