Private ruling: Income tax exempt
Published: February 2015
Ruling period: 1 July 2011 - 30 June 2012 | 1 July 2012 - 30 June 2013 | 1 July 2013 - 30 June 2014 | 1 July 2014 - 30 June 2015 | 1 July 2015 - 30 June 2016 | 1 July 2016 - 30 June 2017 | 1 July 2017 - 30 June 2018 | 1 July 2018 - 30 June 2019 | 1 July 2019 - 30 June 2020 | 1 July 2020 - 30 June 2021
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the ordinary and statutory income of the association exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as an association established for the purpose of promoting the development of Australian industrial resources, pursuant to item 8.2(c) of section 50-40 of the ITAA 1997 | A1: Yes

Relevant facts and circumstances: The Association is the nationally recognised owner and manager of the System. The Association is not carried on for profit or gain of its individual members. The rules of the association contain clauses which prevent the distribution of any profits to its members while operating, or if applicable, on winding up. The System is designed to prevent major incidents and accidents at locations by providing a means to manage the safety aspects. Becoming a member of the association entitles an organisation to access, actively contribute to and use the highly regarded work permit process, ensuring only the highest safety standards are adopted across the industry.

Relevant legislative provisions: Section 50-1 of the Income Tax Assessment Act 1997 | Section 50-40 of the Income Tax Assessment Act 1997

Reasons for decision: Detailed Reasoning - Detailed reasoning: The statutory conditions that the applicant must meet before being entitled to exemption from income tax are set out in sections 50-1 and 50-40 of the ITAA 1997 as follows: Section 50-1 of the ITAA 1997 exempts from income tax the total ordinary and statutory income of an entity covered by section 50-40 of the ITAA 1997. Item 8.2(c) of the table in section 50-40 of the ITAA 1997 provides that a society or association established for the purpose of promoting the development of Australian industrial resources shall be exempt from income tax subject to the special condition that it is not carried on for the profit or gain of its individual members. The matters to be satisfied under section 50-40 of the ITAA 1997 are: • the organisation is a society or association • the dominant or principal purpose for which the organisation is established is promoting resource development; and • the resources whose development is being promoted are within the umbrella of resources specified in the relevant section; • the resources, are resources of Australia, and • the organisation is not carried on for the profit or gain of its individual members | Detailed Reasoning - Society or Association: The terms association and society are not defined and therefore take on their ordinary meaning. The Macquarie Dictionary defines '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). An association may be incorporated or unincorporated. The Association is: • an incorporated association established in 20XX, and • an organised body of members instituted for the purposes of its constitution. It is accepted that the association is a 'society or association' for the purposes of section 50-40 of the ITAA 1997. | Detailed Reasoning - Principal purpose of promoting resource development: To be exempt under section 50-40 of the ITAA 1997 an association must be established principally or predominantly for the purpose of promoting resource development. It is not sufficient that one of an association's purposes falls within section 50-40. Nor is it enough that resource development is incidental to, involved with, or a consequence of an association's purposes. Determining the dominant purpose will be largely a matter of fact and degree. It is necessary to consider an association's constituent documents and operations and activities. Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating cooperation and similar activities. The association has been designed to prevent major incidents and accidents at locations. The System is able to manage safety aspects at one or multiple operations conducted at locations in a systematic, formalised and auditable manner. From a consideration of the objects and activities, it is accepted that the principle purpose of the system is to promote the development and safety standards within the industry, primarily by means of research, activities to monitor, improve and manage, as well as the promotion of education. | Detailed Reasoning - Australian Resources: The words 'of Australia' limit the exemption to associations whose activities are directed to Australian resources, thereby excluding associations whose activities are directed to the resources of places beyond Australia. Where an association is established for the purpose of promoting the development of a foreign resource, or of both Australian and foreign resources, the test for exemption are not met. Exemption is not limited to associations whose activities extend, or are intended to extend, throughout the whole of Australia. An association promoting the development of a particular region's resources may also be exempt. The ATO's Income tax guide for non-profit organisations (the Guide) states that: Industrial resources include building, mining, quarrying, shipping and transport, but do not include business and commercial resources, such as insurance, and services, such as surveying. The Income tax guide for non-profit organisations at page 22 provides that the various resources referred to in item 8.2 have their ordinary meaning. Resources or their elements include infrastructure, facilities, plant and equipment, personnel, knowledge, expertise and skills. An industry's businesses and their assets may be resources. Industrial resources 'cover such resources as those of the building industry or the mining or quarrying industries' and also the shipping and transport industries: Australian Insurance Association at 79 ATC 4574 and 4575; 10 ATR 339 and 340. Page 22 of the Income tax guide for non-profit organisations further states that the term 'industrial resources' does not include all resources connected with the industry or described as industrial. resources not covered include business and commercial resources such as insurance, and services such as surveying. The entity is considered to be promoting the development of Australian resources by aiding in the development of safety standards Based on its objects and activities as cited earlier, and other supporting information provided, it is considered that the association is involved in development of safety standards within the resource industry in Australia. | Detailed Reasoning - Special conditions - Non-profit: If an association is carried on for the profit or gain of its individual members, it will fail to be exempt for income tax under section 50-40 of the ITAA 1997. Such a purpose is inconsistent with a predominant purpose of promoting the development of Australian resources. However, it is necessary to distinguish a purpose of providing benefits to members from the incidental benefits which will often flow to members as a result of the activities with which they are involved. Organisations will not be exempt where they have a purpose to protect of promote the interests of members. The Guide states: If the organisation's main purpose is merely to provide services to its members, it will not be exempt. This is the case even if the services result in better use of resources by those members. We accept an organisation as 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. These documents should contain acceptable clauses showing the organisation's non-profit character. …The organisation's actions must be consistent with this requirement. Any profit made by the organisation goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members. To meet the non-profit requirement, firstly an entity's constituent documents must display a non-profit character, and secondly the entity's actions must be consistent with this non-profit character. Clause 12 of the association's rules prevents the distribution of income and profits to members during its operation, and Clause 13 applies this prohibition to surplus assets remaining upon winding up. | Detailed Reasoning - Conclusion: Based on the above, the total ordinary and statutory income of the association is exempt from income tax pursuant to section 50-1 of the ITAA 1997 as it is considered to be an association established for promoting the development of Australian industrial resources, pursuant to item 8.2(c) of the table in section 50-40 of the ITAA 1997. | Detailed Reasoning - Period of Ruling: The law does not require either the applicant or the Commissioner to specify the period applicable to a private ruling. However, our practice is to specify the years of income or periods to which the ruling applies, in the interests of providing certainty. Private rulings may be given for: • a past income year or period • the current income year or period • a future income year or period. Normally, a ruling will be for the period specified by the applicant. There may be occasions, however, where we consider that a ruling needs to cover a different period from that specified in the application. When this occurs, the ruling must specify the time it applies to the taxpayer. Following internal ATO consultation, the policy in relation to determining the period for which to provide a private ruling has changed. The previous guideline of issuing a ruling for not more than 3 to 4 years has been removed, and the appropriate length of time for which to rule is determined by the case officer and approving officer. In determining the appropriate length of time for which to rule, consideration has been made to: • the likelihood of a change to the law, and • the likelihood of changes to the facts of the scheme These considerations are balanced against the facts of the case. It is important to note that a private ruling will no longer apply, and the taxpayer will no longer be protected by it: • if the law changes • if the facts underlying the scheme change and the scheme is not implemented in the way set out in the private ruling • if it is overridden by a later ruling. In addition, a court may refuse to entertain a case based on a ruling if it considers that the facts or tax law are so likely to change that it would make the case of no legal consequence to either of the parties. The association has requested a ruling for a ten year period. The association is an incorporated association established in 20XX and has requested that the ruling be backdated to date of incorporation. The association has undertaken to notify the Commissioner of any significant change in its activities or rules to enable the Commissioner to review its Private Ruling. Due to the unlikely change to the facts and the lack of revenue risk it is considered reasonable to issue the ruling for a ten year period backdated until 20XX.