Private ruling: Income tax exemption - non-profit association
Published: April 2014
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016.
Date scheme commenced: 1 April 2012.

Ruling: Q1: Is the Association 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 industrial resources under item 8.2(c) of section 50-40 of the ITAA 1997? | A1: Yes.

Relevant facts and circumstances: Tax Agent (TAG), submitted a request for a private ruling, on behalf of their client, to check whether the Association can claim exemption from income tax and therefore self-assess that exemption. In support of the application the TAG provided some background information and stated that the Association is established for the sole purpose of promoting the development of an industrial resource of Australia. The Association was set up as an incorporated association in certain state under the relevant Act. A copy of the constitution was enclosed and contained objects, membership, non-profit and dissolution clauses. The Association submitted a copy of their Membership Memorandum which sets out their aims. The Association has a website and it contains their mission statements. The Association is not a registered charity with the Australian Charities and Not-for-profit Commission (ACNC) as per their website www.acnc.gov.au.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 23(h); | Income Tax Assessment Act 1997 section 50-1; | Income Tax Assessment Act 1 997 section 50-40.

Reasons for decision: Summary: It is accepted that the Association is an association that is not carried on for the profit or gain of its individual members, and is established for the purpose of promoting the development of Australian industrial resource pursuant to section 50-40 of the ITAA 1997. The income of the entity is therefore exempt from income tax pursuant to section 50-1 of the ITAA 1997 on the basis that it is established for the purpose of promoting the development of Australian industrial resources under item 8.2(c) of section 50-40 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: In order for the Association to be able to self-assess under item 8.2 of the table in Section 50-40 ITAA 1997 it must satisfy certain requirements. The requirements are listed in the ATO publication Income Tax Guide For Non-Profit Organisations (NAT 7967) as below: Your organisation 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 or association • it is not a registered charity • it is established for the purposes of promoting the development of one of the following • aviation • tourism • agricultural resources of Australia • aquacultural resources of Australia • fishing resources of Australia • horticultural resources of Australia • industrial resources of Australia • manufacturing resources of Australia • pastoral resources of Australia • viticultural resources of Australia • Australian information and communications technology resources. | Detailed Reasoning - Non-profit: Section 50-40 of the ITAA 1997 requires that an association is not is not carried on for the profit or gain of its individual members (non-profit). An organisation is accepted as being 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. The organisation's actions must also be consistent with this requirement. Clause 45 of the Association's constitution clearly states that the association must not be carried on for the purpose of profit or gain of any member and clause 46 prohibits the distribution of profits or assets to any member upon winding-up. Benefits which are received by members are incidental to the pursuit of the association's objects and will not prevent it from passing the non-profit test. The principle aim of the Association is to educate, inform and lead the debate to ensure consumers, government and policy makers understand the solutions, benefits and possibilities of the Australian industrial resource. Despite the fact that members of the Association will inadvertently benefit, the benefits are incidental to the pursuit of the Association's principle objectives. It is therefore accepted that the Association is not carried on for the profit or gain to its individual members. | Detailed Reasoning - Society or association: The terms 'association' and 'society' are not defined in the ITAA 1997, therefore they should be interpreted according to their ordinary meaning. For the purposes of section 50-40 of the ITAA 1997, the terms 'society' and 'association' generally have the same meaning. The Macquarie Dictionary defines 'association' as an organisation of people with a common purpose and having a formal structure', with 'society' considered to have an equivalent meaning ( Pro-campo Ltd v Commr of Land Tax (NSW) 81 ATC 4270 at 4279; (1981) 12 ATR 26 at 35). An association may be incorporated or unincorporated. The Association is an incorporated association, its structure has not changed since its formation, and it is considered to be "an organisation of people with a common purpose" with a "formal structure" who have come together to promote the development of an Australian industrial resource. The Association satisfies this requirement. | Detailed Reasoning - Not a charity: The Association is not a registered charity as per the ACNC website. | 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.' The Association promotes the development of "Australian" resources. Their objects as listed in the constitution. This is supported by the Association's activities which are all applied to the achievement of its purposes. The Association holds meetings, organises committees, assists with government initiatives, and issues communications to accelerate progress. It is an important source of ideas, inspiration, and influence for any organisation involved in the same sector in Australia. Therefore, the Association satisfies this requirement as it promotes the development of an "Australian" resource. | Detailed Reasoning - Promoting the development of Australian Industrial Resources: Taxation ruling IT 2415 Income tax: Associations promoting the development of Australian resources at paragraph 8 states the following on the meaning of 'development': The term "development" must be taken to be used in a commercial or business sense, i.e. it comprehends all elements which must be taken into account to ensure that the specified resources are used in the best interests of Australia. The Macquarie dictionary provides the following definition of "industrial": 'of or relating to, of the nature of, or resulting from industry or productive labour' And the definition of "industry" is provided as: 1. a particular branch of trade or manufacture: 2. any large-scale business activity. In the Income Tax Assessment Act 1936 (ITAA 1936) section 23(h) was the section considered in Australian Insurance Association v FC of T 79 ATC 4569 where an insurance association set up primarily to protect and further the interests of Australian insurance companies was held not to be an association established for the purpose of promoting an industrial resource of Australia, namely, the Australian insurance industry. The following principle emerged from that decision: • the building, mining and quarrying industries, and the resources which these industries have, are not aptly described as manufacturing industries but they are industries in the accepted sense of the word, as are the shipping and transport industries. This enables the separate expressions "manufacturing resources" and "industrial resources" to stand alongside each other and each to be given meaning and effect. Paragraph 7 of IT 2415 states: 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. The promotion of development of an Australian industrial resource may be direct or indirect. Activities of the Association that directly promote the development of industrial resources are to educate, inform and lead the debate to ensure consumers, government and policy makers understand the solutions, benefits and possibilities of the Australian industrial resource. The objectives contained in the constitution, and the activities that the Association undertake, promote an improved industrial resource in Australia. Through promoting research, discussions and projects that develop enhanced ways to use the resource the Association will enhance and modernise the system in the best interests of Australia. Taking into consideration the Association's primary activities, and the objectives contained in their constitution, it is apparent that they would most appropriately be described as 'promoting the development of Australian industrial resources', as they are focused on the promoting, enhancing and modernising an Australian industrial resource. Therefore, it is accepted that the Association directly promotes the development of industrial resources in Australia. | 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. The Association is focused on the development of an Australian industrial resource. The Association's vision is for the industrial resource of the future - based on sound technical, operational and environmental principles. The objectives and the activities of the Association aim to enhance and modernise the industrial resource in Australia. The Association holds meetings, organises committees, assists with government initiatives, and issues communications to accelerate progress in the industry. Therefore, on an analysis of the Association it is clearly established with the dominant purpose of promoting the development of Australian industrial resources. | Detailed Reasoning - Conclusion: On an analysis of its objectives and current activities it is accepted that the Association 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 promoting the development of Australian industrial resource pursuant to section 50-40 of the ITAA 1997. The income of the entity is therefore exempt from income tax pursuant to section 50-1 of the ITAA 1997 on the basis that it is established for the purpose of promoting the development of Australian industrial resources under item 8.2(c) of section 50-40 of the ITAA 1997.