Private ruling: Tax exempt entity
Date of advice: 13 May 2019
Published: June 2019
Ruling period: 1 July 2014 – 30 June 2019
Date scheme commenced: 1 July 2014

Ruling: Q1: Is the entity exempt from income tax as it is a society or association established for the promotion of Australian Industrial resources in accordance with section 50-40 of the Income Tax Assessment Act 1997? | A1: Yes

Relevant facts and circumstances: The entity is an independent industry funded logistics organisation which uses efficient and reliable systems in planning, coordinating and scheduling the movement of industrial goods in Australia. The entity is a company limited by guarantee. The funding of the entity comes from members and various relevant industry bodies The expenditure of the entity is related to coordinating the movement of industrial goods. The main expenses are employee remuneration costs and related administration expenses. The entity delivers services directly for the benefits of its Members and indirectly to all others who their infrastructure for other purposes. The entity does not have any ownership or control any of its members or non-members. Other entities can become members by contributing to the entity. However, with the approval of its Members, the entity is able to provide benefits (such as access to information and other services) to non-members where it is determined that such access provides a benefit to the collective needs of the industry. The entity hosts international tours and site visits for domestic interested parties.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 50 | Income Tax Assessment Act 1997 subdivision 50-A | Income Tax Assessment Act 1997 section 50-1 | Income Tax Assessment Act 1997 section 50-40 | Income Tax Assessment Act 1997 section 50-47 | Income Tax Assessment Act 1997 Division 995 | Income Tax Assessment Act 1997 section 995-1 | Australian Charities and Not-for-Profits Commission Act 2012 subsection 25-5(5)

Reasons for decision: Detailed Reasoning - The Exemption: Section 50-1 provides that the ordinary and statutory income of entities listed in section 50-40 is exempt from tax. Section 50-40 at Item 8.2 states an exempt entity is: a society or association established for the purposes 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 * special condition: not carried on for the profit or gain of its individual members The exemption is subject to a special condition that the society or association is not carried on for the profit or gain of its individual members. Further, where an entity is covered by an exempt entity category but also meets the description of an “ACNC type entity” (that is, they are a charity), it will not be exempt from income tax unless it is registered as a charity with the ACNC (section 50-47) and endorsed by the ATO. Therefore, to be exempt from income tax under section 50-1, the entity must meet all of the following relevant conditions: ● it must be a society or association ● it must be established for the purpose of promoting the development of Australian industrial resources ● it must not be carried on for the profit or gain of its individual members ● it must not be an ‘ACNC type of entity’ (a charity). | Detailed Reasoning - Not an ‘ACNC type of entity’: As a result of section 50-47 any query about entitlement to income tax exemption under Division 50 (other than as a registered charity) must first consider whether the relevant entity meets the description of “ACNC type of entity”, before any consideration is given to whether the entity is exempt under another exempt category. The meaning of “ACNC type entity” is provided in Division 995. Section 995-1 refers to column 1 of the table in subsection 25-5(5) of the Australian Charities and Not-for-Profits Commission Act 2012. This subsection tells us that an ACNC type of entity is a charity; a non-profit entity with a solely charitable purpose. Subdivision 50-A sets out the categories of exempt entities whose ordinary and statutory income is exempt from income tax under section 50-1, including a registered charity. Section 50-47 provides that an “ACNC type of entity” (a charity), cannot be exempt from income tax unless the entity is registered under the Australian Charities and Not-for-Profits Commission Act 2012. It is considered the entity does not have has a solely charitable purpose. While it has a public benefit purpose it also has a distinct purpose to provide benefits to its members. Therefore, the entity is not an “ACNC type of entity” for the purposes of section 50-47. | Detailed Reasoning - Society or Association: The terms “society” or “association” are not defined in the Income Tax Assessment Act . Therefore, these terms are construed to their ordinary meaning. In Theosophical Foundation Pty Ltd v Commissioner of Land Tax (1966), Sugerman JA stated at 82: A society, in the relevant sense, is “a number of persons associated together by some common interest or purpose, united by a common vow, holding the same belief or opinion, following the same trade or profession, etc; an association” In Pro-Campo Limited v Commissioner of Land Tax , Lee J stated at 4279: The meaning of “society” as the Oxford English Dictionary definition shows can be the equivalent of “association” and I do not think that any relevant distinction in nature exists between the two. It merely seems to have happened that some organisations are called “associations”, others are called “societies”, but no meaningful difference can be detected between the two. Taxation Determination TD 95/56 at paragraph 2 considers the definition of “association” as follows: … the Shorter Oxford English Dictionary defines the term “association” to be a “body of persons associated for a common purpose; the organisation formed to affect their purpose”. The Macquarie Dictionary defines “association” as being “an organisation of people with a common purpose and having a formal structure”. Olsson J in Quinton v South Australian Psychological Board (1985) 38 SASR 523, also stated that the term “association” has come to be regarded as attaching to a body of persons associated for a common purpose. The entity is a company limited by guarantee. The Commissioner considers the entity is an organisation of people with a common purpose (as per its objects in the Constitution) which has a formal structure. Accordingly, the entity is considered to be a society or association. | Detailed Reasoning - Purpose of Promoting the Development of Australian Industrial Resources: Australian Industrial 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). The term ‘industrial resources’ does not however, extend to all resources connected with industry or described as industrial. Therefore, 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. An industry’s businesses and assets may be 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 purposes of promoting the development of a foreign resource, or of both Australian is not met. Promoting Development Item 8.2 of the table in section 50-40 is directed to the promotion of the development of the specified resources. 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 resources are best used (as discussed in paragraph 8 of Taxation Ruling IT 2415). The promotion of development may be direct or indirect. Methods of promoting development can be by various means including research, providing facilities, training, improving marketing methods, facilitating cooperation, and similar activities. The entity’s Constitution states its primary purpose which is aligned with the above objectives. The activities which the entity undertakes to promote the industry resource align with the above objectives. It is considered the entity provides a benefit to the industry as a whole by facilitating the co-ordination of the resources and working towards the most efficient way of transportation, thereby improving efficiency for the industry. Any international activities undertaken by the entity are in relation to demonstrating and furthering the Australian resource industry; for example, by hosting international tours. The entity promotes the development of the resource industry, and the resource is an industrial resource, through developing, implementing, monitoring and continually improving their transportation methods. | Detailed Reasoning - Dominant Purpose: To be exempt under Item 8.2(c) of the table in section 50-40, an association must be established principally or predominantly for the purpose of promoting the resource development. Determining the association’s dominant purpose will be largely a matter of fact and degree ( Boating Industries Association of New South Wales at 85 ATC 4229). It may involve a weighing up of the association’s objects, activities, history, operation, and the use of funds. Further, 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 flow to members from activities promoting the development of resources with which they are involved. In this case, it can be seen that most of the benefits provided by the entity to its members are designed to add to the member’s industry knowledge and to assist in the efficient transportation of their industrial resource. Accordingly, these benefits are received and flow to members jointly from the activities which promote the development of resource. Furthermore, the entity provides a benefit to the industry as a whole it is open to anyone to become a member. The dominant purpose of the entity is to promote the development of the industry in Australia through developing the most efficient method of transportation for participants in the industry. Any benefits that flow to members, that are not incidental to that purpose, are secondary to that purpose. | Detailed Reasoning - Not carried on for profit or gain by its individual members: Section 50-40 requires that the society or association not carried be carried on for the purpose of profit or gain to its individual members. Where members, in their individual capacity, are to receive benefits from an association, it will fail the non-profit test. However, benefits which are received by members jointly as members and are incidental to the pursuit of the association’s objects will not prevent it passing the non-profit test. Generally an association will be accepted as being non-profit where, by operation of law or by its constituent document, the association is prevented from distributing its profits or assets among members while the association is operating and on winding up. The association’s actions must be consistent with the prohibition. The Constitution of the entity contains appropriate prohibitions on making distributions to its members during operation and upon winding up. There is nothing to indicate that the actions of the entity have been inconsistent with the prohibition. There appears to be no clauses in the current constitution which would contradict clauses x and x and allow profits to be distributed to members. It is therefore accepted that the taxpayer is not carried on for the profit or gain of its individual members. | Detailed Reasoning - Conclusion: It is considered that the entity is a non-profit association that meets the requirements of Item 8.2(c) of the table in section 50-40. Accordingly, its ordinary and statutory income is exempt from income tax under section 50-1.