Private ruling: Income tax exemption
Date of advice: 17 June 2021
Published: August 2021
Ruling period: 1 July 20XX to the income year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the ordinary and statutory income of the entity 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 resources as described in item 8.2 of the table in section 50-40 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: The entity is a public company limited by guarantee. The entity is established for the purposes set out in its Memorandum of Association. The primary objects are: a. To promote and encourage industrial and commercial relations between individuals, firms, corporations, institutions and associations of another country and Australia. b. To support, promote and encourage trade and investment between another country and Australia. The objects of the entity set out in its Constitution are to: c. represent the interests of members; d. promote bilateral economic and commercial relations between another country and Australia; e. represent the interests of another country's business and industry in Australia and the interests of Australian business and industry in another country. The primary activities undertaken by the entity to support its objects are: • Conducting conferences, meetings, forums and seminars to promote business, investment and trade interest in various industries in Australia, and to allow interactions between Australian participants and participants from another country; • Facilitating and/or encouraging investment in Australian markets; • Fostering collaboration between local and international markets by promoting Australian industries; • Providing market research and information on Australia; • Publishing annual business guides, market reports, papers on specific industries, and quarterly news where the focus is on providing information on Australia; and • Providing assistance where needed in the identification of trade partners. The entity has various industry focuses. The majority of the entity's events are held in Australia, with a small portion held online. Membership to the entity is open to members of the general public who are engaged or interested in industry, commerce or cultural relations between Australia and another country. The entity provides services for a fee to members and non-members that are interested in investing in Australian markets. The Constitution contains a suitable non-profit clause. The Constitution contains a suitable winding up clause. The entity asserts that at all times the entity has applied its income and property to promoting its objects and no part of the income or property has been paid or applied to its members.

Relevant legislative provisions: Section 50-1 of the Income Tax Assessment Act 1997 | Section 50-40 of the Income Tax Assessment Act 1997 | Section 50-47 of the Income Tax Assessment Act 1997 | Subsection 995-1(1) of the Income Tax Assessment Act 1997 | Subsection 25-5(5) of the Australian Charities and Not-for-profits Commission Act 2012 | Section 5 of the Charities Act 2013 | Section 12 of the Charities Act 2013

Reasons for decision: Summary: The ordinary and statutory income of an entity is exempt under section 50-1 of the ITAA 1997 where the entity falls within the following description contained in item 8.2 of section 50-40 of the ITAA 1997: A society or association established for the purpose of promoting the development of any of the following Australian resources: (a) agricultural resources (b) horticultural resources (c) industrial resources (d) manufacturing resources (e) pastoral resources (f) viticultural resources (g) aquacultural resources (h) fishing resources The exemption is subject to the special condition in item 8.2 of section 50-40 of the ITAA 1997, that the society or association is not carried on for the profit or gain of individual members. Further, the exemption is subject to the special condition in section 50-47 of the ITAA 1997, that where an entity is covered by an exempt entity category but also meets the description of an 'ACNC type entity', it will not be exempt from income tax unless it is registered as a charity with the ACNC and endorsed by the ATO. The matters to be satisfied before this exemption applies are: • the entity is a non-profit association or society; and • the dominant or principal purpose for which the entity 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; and • the resources are resources of Australia; and • the entity is not an 'ACNC type of entity'. If the association fails to satisfy these requirements, its income will not be exempt under this provision. | Detailed Reasoning - Special condition - 'ACNC type of entity': Section 50-47 of the ITAA 1997 provides a special condition that if an entity that is covered by one of the items in subdivision 50-A is an 'ACNC type of entity', they will not be exempt from income tax unless they are registered under the Australia Charities and Not-for-profits Commission Act 2012 . 'ACNC type of entity' is defined in subsection 995-1(1) of the ITAA 1997 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 Australian Charities and Not-for-profits Commission Act 2012 . Column 1 of the table in subsection 25-5(5) of the Australian Charities and Not-for-profits Commission Act 2012 describes a charity. The Charities Act 2013 provides a definition of 'charity' that applies to all Commonwealth laws. 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; or ii. 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 The entity is a not-for-profit entity. Section 12 of the Charities Act 2013 lists charitable purposes. The entity's purposes and objects in its Memorandum of Association and Constitution are not charitable purposes. Furthermore, one of the entity's purposes is to represent the interests of its members. Therefore, the entity is not an 'ACNC type of entity' and section 50-47 of the ITAA 1997 will not apply. | Detailed Reasoning - Society or association: The terms 'association' and 'society' are not defined and have 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). The entity is an association because as a company limited by guarantee, it has a formal structure. It also has a number of members and is established for a defined purpose. | Detailed Reasoning - Non-profit: Section 50-40 of the ITAA 1997 requires that the association not be carried on for the purposes of profit or gain to its individual members. This is known as the non-profit requirement. Evidence that an association operates on a non-profit basis can be found in its constituent documents which should contain a prohibition against distribution of profit and assets among members while the association is functioning, and on its winding up. The association's actions must also be consistent with this prohibition. The entity's Constitution contains a suitable non-profit clause and a suitable dissolution clause. The entity asserts that at all times it has applied its income and property to promoting its objects and no part of the income or property has been paid or applied to its members. The entity is accepted as being a non-profit association. | Detailed Reasoning - Specified Resources: Taxation Ruling No IT 2415 Income tax: associations promoting development of Australian resources (IT 2415) at paragraph 7 provides that the resources, the development of which is being promoted, must come within the umbrella of the specified resources in the table in section 50-40 of the ITAA 1997. The specified resources are not defined in the legislation and take on their ordinary meaning. Resources or their elements include infrastructure, plant and equipment, livestock, personnel, knowledge, expertise and skills. The Macquarie Dictionary defines agriculture as: the cultivation of land, including crop-raising, forestry, stock-raising, etc.; farming. The terms 'manufacturing resources' and 'industrial resources' are discussed in Australian Insurance Association v FCT (1979) 10 ATR 333; 79 ATC 4569. It was determined that manufacturing resources 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." Furthermore, it was held that "the term 'industrial resources' was intended to cover such resources as those of the building, mining, quarrying, shipping and other transport industries. It did not cover business or commercial resources". The entity has various industry focuses. It is accepted that the resources the entity is focused on are industrial resources and manufacturing resources under items 8.2(c) and 8.2(d) of the table in section 50-40 of the ITAA 1997, and to a lesser extent agricultural resources under item 8.2(a) of the table in section 50-40 of the ITAA 1997. | Detailed Reasoning - Australian Resources: The words 'in Australia' limit the exemption to associations whose activities are directed to Australian resources. 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 is not met. In Case U70 87 ATC 440, 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 were all concerned with Australia and not with 'elsewhere'. Associations promoting trade between Australia and other countries may be exempt where it is clear that they are predominantly to promote Australia's resources. Such a conclusion will be assisted where the activities and membership are primarily Australian. For example, the Australian committee of an international trade society might be exempt where the membership was of Australian companies and it concentrated on the promotion of Australian resources. On the other hand an association established primarily to promote or facilitate investment by Australians in another country may not be developing Australia's resources, even though it may generate profits for Australia. The entity's objects include the promotion of bilateral economic and commercial relations between another country and Australia, and the representation of the interests of another country's business and industry in Australia and the interests of Australian business and industry in another country. As the entity promotes trade between another country and Australia, it must be established that the entity predominantly promotes Australian resources. The large majority of the entity's membership continues to be held by Australian entities, and the majority of its events are held in Australia, with a small proportion being held online. The activities of the entity are geared towards educating industry participants and providing a forum for collaboration of businesses from Australia and another country. A number of the activities of the entity concentrate on presenting opportunities and insights into the Australian market in the entity's focus industries. The activities of the entity also present resources and technologies from another country, but it is accepted that this is necessary to promote trade and collaboration, and incidental to the main purpose of promoting Australia's resources. Other country's technology, services and investment are also beneficial to the development of industrial and manufacturing resources of Australia. Therefore, it is accepted that the entity's activities are predominantly directed towards Australian resources. | Detailed Reasoning - Promotion of Development: IT 2415 at paragraph 8 provides that the exemption does not apply to entities that merely promote one or more of the specified resources of Australia. An entity must instead be established for the purposes of 'promoting development' of those resources. The term 'development' is used in section 50-40 of the ITAA 1997 in a commercial or business sense, meaning that it comprehends all the elements which must be taken into account to ensure the specified resources are used in the best interests of Australia. The promotion of development may be direct or indirect. For example, the development of agricultural resources might be directly promoted by research, experimental farms, control of pests, education in farming methods, or the introduction of new and improved classes of products. It might be indirectly promoted by improved marketing methods, cooperative buying and selling, solution of labour disputes, or ameliorative legislation. The meaning of 'development' was examined by the High Court in FC of T v. Broken Hill Pty Co. Ltd 69 ATC 4028; 1 ATR 40 where, in considering the phrase 'development of mining property', the majority of the High Court accepted the interpretation of Kitto J: In its ordinary English sense the word "development", when used in relation to a property, refers to the unfolding, the bringing out, of some latent capability of that property...It covers I think, any preparation, adaptation or equipment of the property for the exploitation of an inherent potentiality which cannot be exploited or fully exploited, without some such preliminary treatment. Furthermore, as the Tribunal pointed out in Case W49 at 89 ATC 474; 20 ATR 3602: 'The enlargement of the market is one of the objectives of "promoting the development" of any relevant industry.' And, development of resources can be promoted by facilitating the cooperation of businesses and instrumentalities. In this regard, a chamber of commerce may be considered a resource development organisation. The entity conducts various activities in pursuit of its objects to promote bilateral relations between another country and Australia. Many of the entity's activities are directed towards facilitating the cooperation of entities for the development of Australian resources. The entity conducts activities which promote development by providing education and market information on its key industry focus areas in Australia, both in its publications, as well as in conferences, seminars, forums and webinars. These publications and events also present important networking opportunities. The entity facilitates the introduction of improved technologies from another country into various Australian industries, further promoting the development of Australian resources. The entity presents opportunities for Australian industry to export to another country, effectively enlarging the market. The entity is also involved in various alliances, working groups, and negotiations relevant to the development of Australian resources. It is accepted that the entity promotes the development of Australian resources specified in section 50-40 of the ITAA 1997. | Detailed Reasoning - Dominant purpose: To be exempt under section 50-40 of the ITAA 1997, an association must be establishedprincipally or predominantly for the purpose of promoting resource development (Australian Insurance Association v FC of T 79 ATC 4569; 10 ATR 333; (1979) 41 FLR 256). It is not sufficient that one of the association's purposes falls within section 50-40 of the ITAA 1997. It is also not enough that resource development is incidental to, involved with, or the consequences of an association's purposes. The term 'established' is not used in the narrow sense of considering only the motives and objectives which led to the formation of an association ( Case W49 at 89 ATC 474; 20 ATR 3602-3). It is necessary to consider an association's constituent documents, and also its history, operations and activities ( Boating Industries Association of New South Wales v F C of T at 85 ATC 4228-9; 16 ATR 388). As the Tribunal pointed out in Case W49 at ATC 474; 20 ATR 3603 it is necessary to consider: '...whether during the period under review the organisation was in existence and was operated and maintained in an established or stable condition as an organisation having as its principal or dominant purpose, one of the purposes provided for in the subsection.' Therefore, determining the dominant purpose of the association will be a question of fact and degree and will involve a weighing of the various elements which includes its objects, activities, history, proposed directions, etc ( Boating Industries Association of New South Wales v F C of T 85 ATC 4224; (1985) 16 ATR 383). Consequently, it will be necessary to consider each association on the merits of its particular circumstances. Also, because those circumstances may change, an association's tax status may change over time. The activities of the entity are consistently carried out in line with its objects in its Constitution. As outlined above, the activities of the entity are focussed on the development of Australian resources. However, if an association operates principally to confer benefits on its members jointly or as a group, it is unlikely to be predominantly for the purpose of promoting resource development and thus not exempt under section 50-40 of the ITAA 1997. As the following cases illustrate, 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 Commissioner of Taxation v Co-operative Bulk Handling Limited [2010] FCAFC 155, a majority of the Full Court stated that if as a consequence of pursuing the purposes of the association, the members derive a benefit or gain, that gain or benefit will not preclude exemption unless it is a gain produced only by reason of individual membership. In this case the members had to be customers of CBH. However, CBH's services were not restricted to members; non-members could also contract for CBH's bulk handling services. It was held that CBH made its facilities available to any grain trader or miller, whether or not they were members. Further, it was accepted that the benefits to members did not arise because they were members but because they were grain growers. In contrast, in Case 46/94 94 ATC 412; (1994) 29 ATR 1102 at ATC 417; 29 ATR 1108 the Tribunal found, as an alternative ground, that the association was not exempt under 23(h) of the Income Tax Assessment Act 1936 , because it was found to be principally for the promotion of the interests of its members. It operated to look after the needs of consulting surveyors in such matters as public liability insurance, professional development, training of employees, assuring quality client service, publishing business practice and technical material, and lobbying to obtain work for members particularly from government. Features which may help determine whether an association's main purpose is to benefit members are integration with other organisations that are clearly established for resource development, encouragement of broad membership, substantial funding from government and participation in benefits by non-members. Membership to the entity is open to members of the general public who are engaged or interested in industry, commerce or cultural relations between Australia and another country. It is not limited to any specific group. The entity's activities are generally not restricted to members. Many of the entity's events are open to members and non-members, and its publications are generally available online either free or for a fee. The entity also provides services which are available to members and non-members. The entity's activities including its conferences, publications and services do provide benefit to its members, but also to non-members. Further, the dominant purpose of the activities is promoting the development of Australian resources and the benefits to members are merely received in the course of achieving this dominant purpose. It is accepted that the proposed future directions of the entity continue to be in line with the entity's historical activity, and in turn the entity continues to be established predominantly for the purpose of promoting resource development. | Detailed Reasoning - Conclusion: It is accepted that the entity is not carried on for the profit or gain of its individual members, is not an 'ACNC type of entity', and is established for the purpose of the promotion of the development of Australian resources that come within the umbrella of specified Australian resources under the table in item 8.2 of section 50-40 of ITAA 1997. Therefore, the ordinary and statutory income of the entity is exempt from income tax under section 50-1 of the ITAA 1997.

This ruling applies for the following period: