Private ruling: Income tax exemption
Date of advice: 9 February 2023
Published: 27 March 2023
Ruling period: 01 July 20XX to 30 June 20XX

Ruling: Q1: Is the Entity exempt from income tax under section 50-1 and section 50-40 of the Income Tax Assessment Act 1997 ? | A1: Yes. | Q2: Is the Entity exempt from the requirement to lodge income tax returns under section 161 of the Income Tax Assessment Act 1936 for the income year ended 30 June 20XX? | A2: Yes unless the Entity is specifically required by the Commissioner to lodge an income tax return.

Relevant facts and circumstances: The Entity's is a public company limited by guarantee. It is a peak body of a particular industry. The Entity's membership includes businesses and employees of businesses that are engaged in this industry. The Entity's constitution contains a non-profit clause and winding up clause. The non-profit clause permits, among other things, payment of reasonable and proper rent of premises let by any member to the Entity. The Entity's activities include the provision of training services for those involved the industry. These training services are provided to both members and non-members alike. It also represents the industry on various forums and committees. It also undertakes advocacy work with certain bodies on behalf of members to put forward industry issues. Further, it provides industry information to members and assistance to members such as resolving member's queries and problems.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 50-1 | Income Tax Assessment Act 1997 Section 50-40 | Income Tax Assessment Act 1997 Item 8.1 of section 50-40 | Income Tax Assessment Act 1997 Item 8.2 of section 50-40 | Income Tax Assessment Act 1997 Item 8.3 of section 50-40 | Income Tax Assessment Act 1997 Section 50-47 | Australian Charities and Not-for-profits Commission Act 2012 Subsection 25-5(5)

Reasons for decision: Detailed Reasoning - Question 1 - Income Tax Exemption: Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides: The total ordinary income and statutory income of the entities covered by the following tables [in Division 50 of the ITAA 1997] is exempt from income tax. In some cases, the exemption is subject to special conditions. | Detailed Reasoning - Note 1:: ... | Detailed Reasoning - Note 2:: Even if you are an exempt entity, the Commissioner can still require you to lodge an income tax return or information under section 161 of the Income Tax Assessment Act 1936 . | Detailed Reasoning - Note 3:: In all cases the exemption is subject to the special condition in section 50-47 (about an entity that is an ACNC type of entity). The exempt entities listed in each item of the table in section 50-40 of the ITAA 1997 are as follows: • item 8.1 - a non-profit society or association established for the purpose to promote the development of: (a) aviation; or (b) tourism • item 8.2 - a non-profit society or association established for the purpose to promote the development of any of the following resource: (a) agricultural resources; (b) horticultural resources; (c) industrial resources; (d) manufacturing resources; (e) pastoral resources; (f) viticultural resources; (g) aquacultural resources; or (h) fishing resources • item 8.3 - a non-profit society or association established for the purpose to promote the development of the Australian information and communications technology resources The exemption is subject to a 'special condition' that an entity is not carried on for the profit or gain of its individual members. Additionally, the exemption is subject to section 50-47 of the ITAA 1997 (see Note 3 to section 50-1). Section 50-47 requires that an entity covered by any item and is an ACNC type of entity is not exempt unless an entity is registered under the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act) . Accordingly, to be an exempt income tax entity under section 50-1 and section 50-40 an entity must: • be a society or association • not carried on for the profit or gain of its individual members; • be established for the requisite purpose, as specified in a particular item; and • not be an ACNC type of entity or, if it is an ACNC type of entity, it is registered under the ACNC Act. Item 8.1, item 8.2 and item 8.3, each refer to a discrete eligible purpose. As explained below that eligible purpose must be the dominant purpose for which the organisation was established. It should be noted that it is not permissible to combine partial, incidental, ancillary or secondary purposes from each item in an attempt to claim that the necessary requirements for income tax exemption have been met in aggregate. Accordingly, the Entity's status as an income tax exempt entity will be considered against the individual requirements of item 8.1, item 8.2 and item 8.3. The Entity's status as an income tax exempt entity under item 8.2 will be discussed first, followed by the remaining items. | Detailed Reasoning - Society or Association: The terms 'association' and 'society' are not defined in the income tax provisions and therefore take on their ordinary meaning. The Macquarie Dictionary [online version] 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. It does not include a body formed and controlled by government and performing functions on behalf of government (see Taxation Determination TD 95/56 Fringe benefits tax: can a body which is formed by government, is controlled by government and performs functions on behalf of government be an 'association' for the purposes of section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) ?). The Entity is formed as an incorporated body. It is comprised by a number of members who have a common purpose. Therefore, it is accepted that the Entity is an 'association'. | Detailed Reasoning - Not carried on for the profit or gain of its individual members: As mentioned earlier in this document, section 50-40 of the ITAA 1997 requires that an association not be carried on for the profit or gain of its individual members (non-profit). An organisation will meet the non-profit requirement 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. This is notwithstanding that payments are made to members as bona fide compensation for services rendered or expenses incurred on behalf of the organisation - refer to the Example of a non-profit clause in the ATO website document 'What type of NFP is your organisation? [QC 52485]. The organisation's actions must be consistent with this requirement. In Federal Commissioner of Taxation v Co-operative Bulk Handling Ltd 2010 ATC 20-231, Mansfield and McKerracher JJ stated at paragraph 95, the following about the meaning of 'not be carried on for the profit or gain of its individual members': "In all cases of exemption, it must be the position that it is not open to the body to disburse any profits or dividends to members." In this case the Entity satisfies the non-profit requirement. | Detailed Reasoning - Established for the purpose of promoting the development of specified Australian resources: The meaning of this requirement has been considered in a number of court cases, including Australian Insurance Association v. Federal Court of Taxation 79 ATC 4569, 10 ATR 333 ( Australian Insurance case ) and Boating Industries Association of New South Wales v. Federal Commissioner of Taxation 85 ATC 4224, (1985) 16 ATR ( Boating case ). These cases indicate that in order for a non-profit association to satisfy this particular requirement, various conditions must be met. These conditions are summarised below. | Detailed Reasoning - Dominant Purpose: To be exempt from income tax pursuant to item 8.2 in the table in section 50-40 of the ITAA 1997, an association must be established for the dominant purpose of promoting the development of the relevant Australian resources - see paragraph 7 of Taxation Ruling IT 2415 Income tax: associations promoting development of Australia resources (IT 2415) which discusses former paragraph 23(h) of the Income Tax Assessment Act 1936 (ITAA 1936), now section 50-40. In Cronulla Sutherland Leagues Club Ltd v F.C. of T 90 ATC 4215 ( Cronulla Sutherland ) the court considered 'dominant purpose' and the process of reconciling 'multiple purposes' for the purpose. Whilst Cronulla Sutherland considered the operation of a different exempting provision to that currently under consideration, its comments about determining an organisation's purpose are equally applicable to this case. In Cronulla Sutherland , the court held, for an entity to qualify for the exemption, it must have as its main object or purpose, the purpose specified in the exempting provisions. This purpose need not be its only purpose. It may have other objects or purposes which are merely incidental or ancillary thereto or which are secondary and even unrelated to the main object or purpose without disqualifying the body from the exemption. But if it has two co-ordinate objects, one of which is outside the exemption, the exemption cannot apply because it would be impossible to say that one object is the main or predominant object. The term 'established' in the legislation is not used in a narrow sense, considering only the motives and objectives which led to the initial formation of an association ( Case W49 89 ATC 469 at 474; AAT Case 5127 (1989) 20 ATR 3597 at 3602-3). It is necessary to consider an association's constituent documents and also its history, operations and activities and use of funds to determine its principal or dominant purpose ( Boating case) . It is not sufficient that one of the association's purposes falls within section 50-40. It is also not enough that resource development is incidental to, involved with, or the consequences of an association's purposes. In the Boating case, Lusher J considered an association's income tax exempt status exempt under section 23(h) as a non-profit organisation established for the purpose of promoting the development of manufacturing resources of Australia. In discussing the purpose for which the association was established, Lusher J made the following comments: 'It is argued and accepted that although the basic fundamental objective or purpose is safe boating, safe boating in turn leads to sales which in turn require standards, particularly in manufacture so that there is a nexus between safe boating and sales through to manufacture so that in substance, the requirement of the section for promoting the development and manufacturing of resources of Australia is obtained. The requirement is 'established' not 'involved'... It does not follow that a body whose activities or involvement have the effect or result of promoting the development of manufacturing resources of Australia, who otherwise are within the section as to the disposition of income, is necessarily established for that purpose. They could be established for another purpose altogether but still have the result mentioned.' | Detailed Reasoning - Promoting development: Item 8.2 in the table in section 50-40 is directed to the promotion of the development of the specified resources and not to the promotion of the various resources themselves. The term 'development' is used in a commercial or business sense. It comprehends all the elements which must be taken into account to ensure that the specified resources are used in the best interests of Australia - paragraph 8 of IT 2415. A similar approach to 'development' is used in Federal Commissioner of Taxation v. Broken Hill Pty Co Ltd (1969) 120 CLR 240; 69 ATC 4028; (1969) 1 ATR 40. In considering the phrase 'development of the mining property' the majority of the High Court accepted the interpretation of Kitto J; 'It covers, I think, any preparation, adaption, or equipment of the property for the exploitation of an inherent potentiality which cannot be exploited, or fully exploited without some preliminary treatment.' Development entails increase in operations, unlocking of potentialities, advancement of activity; not just conduct of ongoing activity ( FC of T v. Broken Hill Pty Co Ltd (1969) 120 CLR 240 per Kitto J at page 248). Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating co-operation and similar activities (refer to ATO guide - 'Resource Development Organisations' QC 46338). | Detailed Reasoning - Resources of Australia: Item 8.2 of the table in section 50-40 refers to the promotion of the development of 'Australian' resources. The word 'Australian' limits 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 both Australian and foreign resource, the test for exemption is not met. In Case U70 87 ATC 440 which dealt with tax exempt status of a horse breeding association, the associations' constituent documents included the words 'in Australia and elsewhere' in its purpose. The Tribunal found that expression 'and elsewhere' did not prevent exemption because in practical terms the principal activities of the association were all concerned with Australia and not with 'elsewhere'. Case W49 89 ATC 469 (at 473) said, in relation to importing chemicals materials and allied materials from foreign jurisdictions: '... what is exported is ordinarily the product of Australian industry; and that what is imported is not a finished product... but rather materials for use in Australian primary and secondary industry. It is a matter of fact and degree whether an association is predominantly for the purpose of promoting Australian resources. | Detailed Reasoning - Specified resources: Item 8.2 of the table requires that the entity is established to promote the development of any of the specified resources, as listed earlier in this document. The terms agricultural, horticultural, industrial, manufacturing, pastoral, viticultural aquacultural or fishing resources are not defined in the legislation and have their ordinary meaning. For difficult cases assistance is provided by dictionaries and by court and tribunal decisions on former paragraph 23(h). In the ATO guide, Resource Development Organisations it states as an example, in terms of pastoral resources, what is meant by resources. The example refers to infrastructure, facilities, plant and equipment, personnel, knowledge, expertise and skills. In relation to manufacturing resources, these extend to 'plant and equipment, manpower, skill and know-how in manufacturing such articles as steel products, clothing and furniture, and such non-tangible commodities as gas and electricity': Australian Insurance case . The expression 'industrial resources' was considered in the Australian Insurance case. An industry's businesses and their assets may be resources. Sheppard J said in Australian Insurance Association case : '... the undertakings of the Australian insurance companies, viewed as a whole, are a resource of Australia. I use the word "undertakings" in the broadest sense. I include within it not only the businesses of the various companies but also their assets and the knowledge and skill of their staffs.' Additionally, in the Australian Insurance case Sheppard J considered that the word 'industrial' was to have been used in its traditional or conventional sense'. His Honour observed that: 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. Industries in a similar category are the shipping and transport industries. However, whilst the expression 'industrial resources' refers to resources such as those of the building, mining, quarrying, shipping and transport industries, it does not extend to business or commercial resources such as insurance, and services, such as surveying. ( Australian Insurance case , paragraph 6 of IT 2415 and ATO guide Resource Development Organisations ) In the Australian Insurance case , although the Court accepted that an insurance association promoted an Australian resource. The resource promoted, namely, the business of Australian insurance companies could not be described as an 'industrial resource' of Australia within the meaning of sec. 23(h). The term 'industrial resource' did not cover business or commercial resources and resources of the kind promoted by the taxpayer. The decision in the Australian Insurance case was applied in Case 46/94 (1994) 29 ATR 1102; (1994) 94 ATC 412 (Case 46/94). In rejecting an association of surveyors claim for exemption under former section 23(h), Beddoe SM said at 416-417: 'His Honour [in the Australian Insurance case] said that 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. Industries in a similar category are the shipping and transport industries... I am not satisfied, in the light of what was said by Sheppard J, that surveying comes within the meaning of "industrial resources" of Australia because the association promotes what can only be described as a service industry. It is undoubtedly true that all forms of industry in Australia will have a need for the services of a surveyor from time to time, although certain industries will clearly have a much greater demand for the work of surveyors than others. It is also equally clear, on the material before me, that persons who are not in business will also have a demand for the use of surveyors... I cannot see, in the light of what his Honour said in the Australian Insurance Association case how it can be said that the surveying industry itself or, perhaps more correctly describing it the surveying profession, can be said to be an industrial resource of Australia...' Application of law to facts From the information provided about the Entity's objects, actual activities and its operations, it is considered that the Entity is directed to advancing the interests of this particular industry in Australia and promoting the professional development of those engaged in this industry. The Entity achieves this principally by: • Providing education and training opportunities for its members, and also non-members. • Representing this industry on various forums. • Undertaking advocacy work on behalf of its members. • Providing industry information to members and assistance to its members on certain matters. Item 8.2 - Promotion of the development of industrial resources As explained earlier in this report, it was accepted in the Australian Insurance case that the words 'industrial' in the context of the term 'industrial resources' was to be used in a traditional or conventional sense; and that the resources covered included the resources of industries such as building, mining, quarrying industries, and also the transport and shipping industries. The words 'transport' and 'shipping' are defined, as follows, in the Macquarie Dictionary [online version] to mean: transport verb ( t ) 1. to carry or convey from one place to another. ... noun 5. the act or method of transporting or conveying; conveyance. - adjective 14. relating to means, systems, or the personnel or equipment of transport: transport workers ; transport ship Shipping noun 1. the act of someone who ships goods, etc. 2. the action or business of sending or transporting goods, etc., by ship, rail, etc. 3. ships collectively, or their aggregate tonnage. In the Oxford dictionary of English[online edition] the word ' shipping' is defined as follow: noun ... • the transport of goods by sea or some other means: the shipping of his works abroad | wine shipping | [as modifier ]: a shipping company . The Entity promotes the development of an industrial resource. It undertakes activities such as providing training to its members and the industry, undertaking advocacy activities and representing the industry on various forums and committees. | Detailed Reasoning - Benefits to Members: If an association operates principally to confer benefits on its members jointly or as a group, it is unlikely to be predominantly for promoting resource development and thus not exempt under section 50-40. However, it is necessary to distinguish a dominant purpose of providing benefits to members as a group from the incidental benefits which will often flow to members from activities promoting the development of resources with which they are involved. In relation to the issue of whether benefits to members were incidental to the purpose of being established to develop a particular resource, Shepherd J in Australian Insurance case said the following: "In my opinion the difference between the parties in the way that each views the evidence is one of emphasis. The very nature of the appellant's undertaking is such that it must further the more selfish interests of its members by engaging in the various activities which it does and in any event itself leads to a situation pursuant to which the appellant's endeavours do have the overall effect of promoting the protection and furtherance of Australian Insurance business." An organisation must be able to demonstrate that it has a predominant purpose of promoting resource development of the resource rather than the interests of its own members. The Entity does confer some benefits to members as a group by providing certain member services such as advice services, representational activities on forums or member advocacy services. However, it is considered that most of the benefits provided to members are directed to furthering this industry. Additionally, the Entity confers benefits on its members by providing training services. However, these training services are open to this industry generally and are, therefore considered to benefit this industry as a whole. Consequently, the benefits received by members as a group are considered to be incidental benefits which flow to members from activities promoting the development of Australian industrial resources. The resources promoted by the Entity are Australian resources. On the evidence provided, the Entity promotes the interests of this Australian industry and its staff. The Entity activities are limited to Australia. Accordingly, the Entity meets the requirement in item 8.2 that it be established for the purpose of promoting the development of Australian industrial resources. ACNC type of entity The final requirement to consider is whether the Entity is an ACNC type of entity. Where an entity is an ACNC type of entity, it will not be exempt from income tax unless it is a registered charity -see section 50-47. An 'ACNC type of entity' is defined in subsection 995-1(1) as an entity that meets the description of a type of entity in column 1 of the table in subsection 25-5(5) of the ACNC Act. Column 1 of the table in subsection 25-5(5) of ACNC Act describes a 'charity'. The definition of 'charity' in section 5 of the Charities Act 2013 provides that 'charity' means an entity: (a) that is a not-for-profit entity; and (b) all of the purposes of which are: (i) charitable purposes that are for the public benefit; (ii) or purposes that are incidental or ancillary to, and in furtherance or in aid of, purposes of the entity covered by subparagraph (i); and (c) none of the purposes of which are disqualifying purposes; and (d) that is not an individual, a political party or a government entity. It was previously concluded in this document that the Entity is a not-for-profit entity. Charitable purposes are listed in section 12 of the Charities Act 2013 . One of the purposes listed is the advancement of education. Conducting vocational training or for example an industry training organisation or short training courses, is considered to fall under the purpose of advancing education. In the present circumstances, the provision of training by the Entity to its members and some non-members is considered to be a charitable purpose as it squarely falls under the heading of advancing education. However, this purpose is insufficient for the Entity to qualify as a charity. The definition in section 5 requires that all of the purposes of a non-for-profit entity be charitable, and any other purposes be incidental and in furtherance of the charitable purpose. In the Entity's case, it has a mixture of purposes some of which do not fall under any of the headings of charitable purpose, for example the provision of support services to its members or industry representation on governmental and industry committees and forums. These purposes are not incidental and in furtherance of the Entity's purpose of delivering training. Consequently, the Entity will not be an 'ACNC type of entity'. Accordingly, section 50-47 of the ITAA 1997 will not apply. The Entity meets this requirement. In conclusion, the Entity has met all the requirements in item 8.2 of the table in section 50-40 and section 50-1. Therefore, the income of the Entity is exempt from income tax under section 50-1 as a society or association promoting the development of Australian industrial resources pursuant to item 8.2 of the table in section 50-40. Item 8.1 - Aviation or Tourism An entity will be exempt under item 8.1 of the table in section 50-40 where it is established for the purpose of promoting the development of aviation or tourism. Item 8.1 does not refer to the promotion of the development of the resources of these two industries. Therefore, to satisfy item 8.1 an association's dominant purpose and activities must be the promotion of the development of aviation or tourism. It was considered earlier in this report that the Entity's main purpose and activities was to advance a particular industry. This purpose is inconsistent with the purpose of promoting the development of aviation or tourism. Item 8.3 - Australian information and communications technology resources Item 8.3 provides for an exemption for an entity which is established for the purpose of promoting the development of Australian information and communications technology resources. To satisfy item 8.3, an association's dominant purpose and activities must be to promote the development of the specified resources. The Entity's main purpose and activities fall outside of this purpose, and therefore the Entity is not exempt under item 8.3. | Detailed Reasoning - Question 2 - Requirement to lodge for 20XX income year: Subsection 161(1) of the ITAA 1936 requires that every person must, if required by the Commissioner by legislative instrument, give to the Commissioner a return for a year of income. Pursuant to subsection 161(1A) of the ITAA 1936, particular classes of persons may be exempted by the Commissioner in that instrument from lodging an annual return, unless the Commissioner requires the person to do so. The relevant legislative instrument for the year ended 30 June 20XX is Legislative Instrument Notice of Requirement to Lodge a Return for the Income Year Ended 30 June 20XX ('Legislative Instrument 20XX'). Under Legislative Instrument 20XX, a person described in Table L is not required to lodge an income tax return. Table L includes an entity whose income is exempt from income tax under Division 50. [Legislative Instrument 20XX may be downloaded from the ATO website in the Legal Database] As the income of the Entity is exempt from income tax under section 50-1, the Entity will not be required to lodge an income tax return for the income year ended 30 June 20XX.