Private ruling: Exemption from income tax
Date of advice: 29 July 2016
Published: September 2016
Ruling period: 01 July 2015 to 30 June 2016 | 01 July 2016 to 30 June 2017 | 01 July 2017 to 30 June 2018
Date scheme commenced: 01 July 2015

Ruling: Q1: Is Association X 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 a manufacturing resource of Australia under item 8.2(d) of section 50-40 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: Association X is a not for profit company limited by guarantee. The Constitution provides the objects for which Association X was established. The Constitution contains a non-profit clause. Association X's main source of income is from Membership. Income is also received from attendees at events. Since an earlier ruling issued, Association X has used profits only to carry out its purposes; no profits have been or will be distributed to members. The Constitution contains a dissolution and winding up clause. The Constitution provides details of Membership. Each year from when it was established Association X has conducted activities that achieve its objects including: • holding annual: • Awards of Excellence • National Conventions • trade shows and expos; including delivery of educational workshops and seminars • coordinating and sending representatives to Australian Standards Committees, • representing directly to and affiliating with several professional bodies, • planning an Industry Training Program for members and the wider industry and; • being involved in a number of active committees. Association X will undertake the same activities up to 30 June 2018. Association X is not a charity registered under the Australian Charities and Not-for-profits Commission Act 2012 .

Relevant legislative provisions: Income Tax Assessment Act 1997 section 50-1 | Income Tax Assessment Act 1997 section 50-40

Reasons for decision: Summary: Association X is 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 a manufacturing resource of Australia under item 8.2(d) of section 50-40 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Under section 50-1 of Income Tax Assessment Act 1997 (ITAA 1997) the ordinary and statutory income of entities covered by the tables in sections 50-5 to 50-45 of the ITAA 1997 is exempt from income tax. Item 8.2(d) 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 manufacturing resources is an exempt entity. The special condition of this item is that the society or association is not carried on for the profit or gain of its individual members. | Detailed Reasoning - Society or association: The words 'society' or 'association' are not defined in the ITAA 1997 and have their ordinary meaning. The Macquarie Online Dictionary defines an association as 'an organisation of people with a common purpose and having a formal structure'. Association X meets the definition of an association because: • it's members have a common purpose; and • it has a formal structure as a company limited by guarantee. | Detailed Reasoning - Established for the purpose of promoting the development of Australian manufacturing resources: To be exempt, an association must be established principally or predominantly for the purpose of promoting development of an Australian resource. To remain exempt the association must continue to pursue that purpose by its present activities. Promoting development can be by various means including research, providing facilities, training, improving marketing methods, facilitating cooperation and similar activities (see Resource development organisations on the ATO website, ato.gov.au - search using quick code QC 46368). Manufacturing resources include infrastructure, plant and equipment of the businesses in the industry, personnel, knowledge and expertise, manufacturing skill and know-how. Item 8.2(d) of section 50-40 of the ITAA 1997 does not refer to promoting the specified Australian resources - it is directed to promoting their development. An association's constituent documents, activities, use of funds and history should be looked at to determine, and review, its principal or dominant purpose. Applying Association X's circumstances Association X's purpose expressed as objects in its Constitution is to promote the industry and associated industries and activities throughout Australia; further the standards, goodwill, ethics, reputation and development of the Industry and pursue issues of national concern relating to the Industry. While 'promoting the development of manufacturing resources in Australia' is not specifically mentioned, Association X has demonstrated that promoting the industry can only be achieved by promoting development of its manufacturing resources. Since the earlier ruling, Association X's activities have included: • holding annual Awards, National Conventions, trade shows and expos • representing directly to and affiliating with various professional bodies which regulate and set standards in the industry • delivering workshops and seminars • pursuing an Industry Training Program • being on committees concerned with safety and energy efficiency These activities promote development of a range of manufacturing resources of Association X's industry via a variety of acceptable means. Having regard to the objects and the activities collectively, we accept that Association X remains established principally for the purpose of promoting the development of an Australian manufacturing resource. | Detailed Reasoning - Special Condition: The special condition set by Item 8.2(d) of section 50-40 of the ITAA 1997 requires that the association not be carried on for the profit or gain of its individual members. This is known as the non-profit requirement. If an association's main purpose is merely to provide services to its members, it will not pass the non-profit test. Benefits which are received jointly as members and which are incidental to the pursuit of the association's objects, will not prevent it from passing the non-profit test. Applying Association X's circumstances Association X members benefit from improvement to their industry as a result of Association X's actions. They also benefit from increasing their industry knowledge and skill via trade shows, expos, training; and award functions. We accept however that these benefits are received jointly as members, that they benefit the industry as a whole and are incidental to Association X's pursuing its objectives. Association X's Constitution contains a non-profit clause that states that the income and property of Association X must be applied solely towards the promotion of its objects and no portion may be paid or transferred, directly or indirectly, by way of dividend, bonus or otherwise, to any Member. Further, Association X's Constitution contains a dissolution and winding up clause which directs that any property remaining is not to be paid or distributed among Members. Since an earlier ruling, Association X has used profits only to carry out its purposes; no profits have been or will be distributed to members. Based on the above, Association X is not carried on for the profit or gain of its individual members and therefore meets the special condition of Item 8.2(d) of section 50-40 of the ITAA 1997. | Detailed Reasoning - Conclusion: Association X is exempt from income tax under section 50-1 of the ITAA 1997 as an association established for the purpose of promoting the development of a manufacturing resource of Australia under item 8.2(d) of section 50-40 of the ITAA 1997 for the relevant income years. Exemption from lodging returns For the income years covered by this ruling, Association X is exempt from income tax and the requirement to lodge tax returns. However, as per Note 2 to section 50-1 of the ITAA 1997, 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 .