Private ruling: Income tax exemption
Date of advice: 21 October 2015
Published: October 2015
Ruling period: Income year ended 30 June 2012 | Income year ended 30 June 2013 | Income year ended 30 June 2014 | Income year ended 30 June 2015 | Income year ending 30 June 2016 | Income year ending 30 June 2017 | Income year ending 30 June 2018 | Income year ending 30 June 2019
Date scheme commenced: 1 July 2011

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') pursuant to item 2.1 of the table in section 50-10 of the ITAA 1997? | A1: No.

Relevant facts and circumstances: The hotel The entity operates a hotel accommodation business in a small community in Australia. Its business activities include the provision of hotel motel accommodation, restaurant, social amenities and entertainment venues. The entity's facilities include the following: • Hotel motel accommodation • A function room. Further details are provided in later paragraphs in this document. • Restaurants • Social amenities The hotel has a range of guest accommodation. It is able to accommodate complex events. The hotel is the biggest non-Government employer in the town. The entity has wholly owned subsidiaries which operate commercial enterprise in Australia. The entity's main source of income is from the operation of restaurants, social amenities and the provision of motel accommodation. Copies of the Financial Reports and Financial Accounts of the entity for the recent income years were provided. The Constitution governs the objectives and operations of the entity. The former Constitution - referred from this point onwards as the "Former Constitution". The Former Constitution states the following object: • to carry on the business and the doing of all such other things as are incidental or conducive to the attainment of such object. The current Constitution The Constitution includes the following objects: • To carry on the business; • To fund charitable and benevolent work in the area and to improve public and community organisations in the institutions in the area. The entity's Constitution contains a not for profit clause and a winding up clause. Membership There are two classes of membership which are Voting Members and Social Members. Hotel history The hotel was originally established many years ago as the first and only public house in the town. The entity was established to enable the local community to purchase the freehold premises, because such a venue was essential to the livelihood of the small isolated community. Since the entity purchased the Hotel, significant upgrades to the Hotel have been made. The town The town is a small community in Australia. The town is a significant spot for tourism with a large number of tourists passing through the town each year. The hotel's facilities and accommodation are essential for the tourism industry in the town. The hotel is the largest venue in the town, and the only combined-services venue that offers food, drink and accommodation. The hotel is able to accommodate complex events, including public meetings, sporting and recreational club meetings, community events, business meetings and private functions. There are a number of other public venues in the area, but none that provides the same integrated service, has the same trading hours or can provide the staff trained in holding events. The applicant states that the nearby facility, although a large venue, does not have all of the facilities required for significant community events. Further, the applicant states the smaller venues within the area and outlying communities are largely staffed by volunteers, offer limited facilities and services, and are only open for a few days per week or otherwise operate on a seasonal basis. There is a nearby neighbouring hotel. Other hotels are located at a substantial long distance away from the town. The nearest comparable hotel or community centre is located at a substantial long distance away from the town. Community assistance Grants and Donations Every year the entity donates money to the community for such purposes as equipment for the local hospital, junior sporting bodies, and upgrading facilities to community buildings. The recipient and purpose of the donations is decided on an annual basis by the Board. Many grants and donations have been made by the entity to a range of causes within the local district every year. Support and funding for community services and interests The entity provides ongoing support for a wide range of community events and groups with a focus on providing services within the district for residents to keep residents within the district. For example, the entity provides services for junior sporting organisations in the district by running coaching clinics. The entity is required to assist on an event-by-event basis, with the tasks varying and including managing and co-ordinating the event, supervising the event, serving and preparing food and drinks, cleaning and providing a transport service. The entity also supports the local district health service which runs the local hospital and afterhours care. The entity's donations in relation to local health mainly centre around health education for residents of the district. The focus of the entity's sponsorship has been deliberately aligned with community need rather than with any particular target group of current or potential hotel patrons. The entity sponsors a local festival of a particular industry which is held annually in the area. The entity has been instrumental in developing and implementing a voluntary licensing code to address issues with alcohol abuse. The entity regularly provides accommodation and other services free-of-charge to visiting sporting groups and organisations. The function room at the hotel is provided to community groups free of charge on a regular (at least annual) basis for holding meetings, conferences, presentations and training. This is in addition to the use of the room for other general purposes. Some community events have everything provided free of charge, whereas at other events, the food and beverage is provided at a discounted rate.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 50-1 | Section 50-10 | Section 50-70

Reasons for decision: Summary: The entity is not exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 ('ITAA 1997') as it is not a society, association or club established for community service purposes within item 2.1 of the table in section 50-10 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 50-1 of the ITAA 1997 exempts from income tax the total ordinary and statutory income of an entity covered by section 50-10 of the ITAA 1997. Item 2.1 of the table in section 50-10 of the ITAA 1997 states that a society, association or club established for community service purposes (except political or lobbying purposes) shall be exempt from income tax, subject to the special conditions in section 50-70 of the ITAA 1997. Special conditions in section 50-70 of ITAA 1997 The income tax exemption provided under section 50-10 of the ITAA 1997 is subject to the special conditions listed in section 50-70 which have been amended for income years starting on or after 30 June 2013 and further necessitate that an entity complies with all the substantive requirements in its governing rules and applies its income and assets solely for the purpose for which the entity is established. The special conditions in section 50-70 are: | Detailed Reasoning - 50-70(1): An entity covered by item 1.7, 2.1, 9.1 or 9.2 is not exempt from tax unless the entity is a society, association or club that is not carried on for the purpose of profit or gain of its individual members and that: (a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or (b) is a society, association or club that meets the description and requirements in item 1 of the table in section 30-15; or (c) is a prescribed society, association or club which is located outside Australia and is exempt from income tax in the country in which it is resident; and the entity satisfies the conditions in subsection (2). | Detailed Reasoning - 50-70(2): The entity must: (a) comply with all the substantive requirements in its governing rules; and (b) apply its income and assets solely for the purpose for which the entity is established. | Detailed Reasoning - Non-profit requirement as a society, association or a club: The entity is an incorporated entity with membership made up of individuals who fall within the criteria for membership as stated in the Former Constitution and in current Constitution. Classes of membership of the entity comprises of voting members and social members. As such it is accepted the entity fits the description of "society, association" for the purposes of the operation of section 50-10 of ITAA 1997. The entity must not be carried on for the purposes of profit or gain of its individual members. Its constituent document must contain clauses that prevent it from distributing its profits or assets among members on a daily operational basis and on its winding up. This provision must also be reflected in its activities. On the basis of the information provided, including financial statements and the not-for-profit and winding up clauses of its constitution which prohibit distribution, payment or transfer of income or property to a member whilst the entity is functional and upon its winding up, it is accepted that the entity operates as a not for profit entity. | Detailed Reasoning - Established for community service purposes, except for political or lobbying purposes: The term "community service purposes" is discussed in Taxation Determination TD 93/190 Income tax: what is the scope of the exemption from income tax provided by subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 ? " (TD 93/190) TD 93/190 states at paragraph 2 that in relation to former subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 (ITAA 1936), which preceded item 2.1 of the table in section 50-10 of the ITAA 1997, that - the purpose of enacting subparagraph 23(g)(v) was to create a category of exemption for community bodies whose activities are not accepted as being charitable ... but which, nevertheless, conduct activities of benefit to the community. [emphasis added] TD 93/190 further states at paragraphs 3 to 5: 3. There are four heads of charitable purpose, one of which is other purposes beneficial to the community; but this is limited by the common law to those purposes which are also charitable within the meaning of the Statute, 43 Elizabeth, Ch. 4. The term 'community service purposes' has a broader meaning than other purposes beneficial to the community which are also charitable. The Explanatory Memorandum to subparagraph 23(g)(v) confirms that the words 'community service purposes' are to be given a wide interpretation. Those words extend to a range of altruistic purposes that are not otherwise charitable, such as promoting, providing or carrying out activities, facilities or projects for the benefit or welfare of the community or any members of the community who have a particular need by reason of youth, age, infirmity or disablement, poverty, or social or economic circumstances. 4. However, the provision does not give exemption from income tax to a broad range of organisations that are established within the community, but whose purposes are not of an altruistic nature. Altruistic purposes are an essential element of even the widest interpretation of 'community service purposes'. 5. It is not accepted that common association as such is altruistic. Neither the purposes of members, nor the purposes of their organisation, are altruistic merely because the members form a non-profit organisation to advance their common interests. Members who seek to advance their common interests are not therefore motivated by an unselfish regard for others, and neither is their organisation. It follows that an organisation established for the purposes of its members is not therefore established for community service purposes. Only when the purposes of the organisation are altruistic can they be community service purposes. Paragraph 7 states: "The purposes for which an organisation is established are demonstrated by its current operations and activities, which may show different purposes to those suggested by a cursory reading of its constitution: cf Royal Australasian College of Surgeons v. Federal Commissioner of Taxation (1943) 68 CLR 436." In order for an organisation to be exempt under section 50-1 of the ITAA 1997 it must be a society, association or club established for community service purposes. TD 93/190 stresses the need for a community service organisation to have purposes that are of an altruistic nature. Organisations that seek to advance the common interests of their members are not altruistic, and so cannot be community service organisations. Where an organisation has mixed purposes, the approach in TD 93/190 is that it is the main or dominant purpose of the organisation that must be community service. The determination of the character of an organisation is made by examining its main or dominant purpose. "Main purposes" and "indicator of purposes" are discussed at paragraphs 41 to 46 of Taxation Ruling TR 97/22 Income tax: exempt sporting club . | Detailed Reasoning - Main purpose: "41. To be eligible for the exemption, the club's main purpose must be to encourage a game or sport. Difficulties can arise where the club conducts other activities, particularly social or commercial activities. 42. Where the other activities are merely ancillary or incidental, or secondary, to the encouragement of the game or sport we accept that the main purpose may be that encouragement. Lockhart J in Cronulla Sutherland Leagues Club Limited v. FC of T 90 ATC 4215 at 4225; (1990) 21 ATR 300 at 312 said: 'It [the club] 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.' 43. However, if the main purpose becomes the carrying out of those other activities, the club is not exempt. Nor is it exempt if it continues to be involved in the game or sport to a substantial degree but is equally involved with another purpose or purposes. As Lockhart J said at ATC 4225; ATR 312: '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.' 44. Therefore, the fact that a sporting club also encourages social and other activities does not, of itself, preclude the club from being exempt. The club is still exempt provided the encouragement of a game or sport is the club's main purpose. By contrast, where the club's main purpose is providing social amenities and licensed club facilities to its members, the exemption does not apply. 45. The effect of non-sporting activities is illustrated by the decision of the Full Federal Court in Cronulla Sutherland . The club had some 13,000 members and extensive social facilities. It was incorporated in 1957 and had as one of its objects the promotion and development of rugby league. In 1963, the Cronulla Sutherland District Rugby League Football Club was formed as a separate club to administer football activities. In time, the club supported the entry of a team into the first grade competition organised and administered by the NSW Rugby League (NSWRL). Thereafter, the football club was almost entirely dependent upon the leagues club for financial assistance in the form of grants, the provision of facilities and guarantees of expenditure. 46. The majority of the Full Federal Court in Cronulla Sutherland held that the leagues club's main object was the provision to its members of social amenities and licensed club facilities, not the encouragement of sport. Consequently, it was not entitled to exemption. Foster J, in dissenting, noted that the taxpayer had: ' ... rendered financial assistance to the sporting body to such an extent as to prevent it making expenditures on maintenance of club facilities which would otherwise have been deemed desirable.' (at ATC 4250; ATR 339). | Detailed Reasoning - Indicators of purpose: 47. The determination of a club's main purpose in the relevant year of income is a matter of fact and degree. In Cronulla Sutherland , Lockhart J in the Full Federal Court said, at ATC 4225; ATR 312: 'The material facts and circumstances which should be examined to characterise the main purpose of the relevant body include its constitution, its activities, its history and its control. These may alter from time to time and the purpose of establishment may correspondingly change. It is not sufficient to look to the formation of the body and to ascertain what was at that time the purpose of its formation. The statute gives a periodic operation to the words and directs the inquiry to a particular time, namely, the year of income so that consideration must be given not only to the purpose for which the society was established but also the purpose for which it is currently conducted.' 48. Section 50-45 looks to the year of income to determine whether each of its elements is satisfied. Evidence of the purpose for which the club was originally or later set up is helpful but the club must demonstrate by reference to its activities in the year of income that it has as its main purpose the encouragement of the game or sport. " The entity's objects The entity's objects include the following: • To carry on the business; • To fund charitable and benevolent work in the area and to improve public and community organisations in the institutions in the area. According to the Former Constitution, the entity's objects consisted of: • the carrying on the business and the doing of all such other things as are incidental or conducive to the attainment of such object. The entity's activities The entity operates the following commercial business activities in the town: • Providing motel accommodation. • Operating social and entertainment venues within the hotel. These include a function room, restaurants and social amenities. The entity also provides ongoing support and funding for a wide range of community events and groups which include: • Donations made and sponsorship provided to sporting clubs and bodies; community organisations and community events. • Providing accommodation and other services free of charge to visiting sporting groups and organisations. • Providing function room free of charge to sport and community based organisations. • Sponsoring and participating in community events and interest The entity is the sole shareholder in subsidiaries which operate commercial businesses. The conduct of commercial activities would not generally be regarded as for community service purpose, unless the commercial conduct is only an incidental and ancillary purpose of the organisation and the dominant purpose is for community service purposes. As it is stressed in TR 93/109 and the Explanation Memorandum, a positive requirement for a community service organisation is that the organisation's purposes must be mainly altruistic such that the service provided is a practical or tangible help or advantage conferred on the community or an identifiable section thereof. In our view the words of the Explanatory Memorandum make it clear that where the purposes are directed to the benefit or welfare of members of the community in particular need, the phrase community service purposes is limited by the circumstances of the recipients, that is, the recipients have to exhibit a particular need resulting from some sort of disadvantage. In FC of T v Wentworth District Capital Ltd 2011 ATC 20-253; 2010 ATC 20-202 (" Wentworth "), the application of section 50-1 and item 2.1 in section 50-10 of the ITAA 1997 was examined. The Federal Court held (and the Full Federal Court agreed) that the taxpayer's income was exempt. The provision of banking services to customers of a commercial bank could not be the provision of a community service, but that was not the service provided by the taxpayer. The service the taxpayer provided was the creation of circumstances that would make it possible for a commercial bank to operate in Wentworth. The main or dominant purpose for which the taxpayer was established, i.e. the facilitation of face-to-face banking services in the town, was a community service that provided a substantial benefit to the community of Wentworth that was both real and tangible. Importantly, however, the Court rejected the proposition that the facilitation of the commercial supply of services in a town, that would otherwise not be provided, would always be a community service [2011] FCAFC 42 at paragraph 40; [2010] FCA 862 at paragraph 63 states: "…It is not to be thought that the facilitation of the commercial supply of services which would otherwise not be provided is always a community service. Had WDCL been incorporated to facilitate the provision of a toy shop in Wentworth it might be doubted that the community was much thereby served. The question in each case is whether the facilitation of the service in question provides a real or tangible benefit to the community. If it does, then a community service is established. Naturally, questions of degree are involved. There may be a difference between facilitating the bringing of a doctor to an outlying district and the bringing of a florist. Other examples may lie closer to the line. Further, where the service already exists in the location in question the tangible benefit may be more difficult to discern." It is the ATO's view in a Decision Impact Statement that whether or not the facilitation of a particular commercial supply of services in a town that would not otherwise be provided will amount to a community service depending on the facts and circumstances of each case. The court did not go so far as to hold that every community bank will qualify as providing a community service within item 2.1 of section 50-10 of ITAA 1997. It will be necessary to examine the purpose for which the relevant entity is established and a consideration of the circumstances of the relevant community to determine if the facilitation of the provision of face to face banking activities provides sufficient real and tangible benefit to the community to qualify as a community service. This is to be determined on a year to year basis and will turn on the facts of each case. The term "community service" is considered in Navy Health Ltd v DFC of T - Federal Court citation: [2007] FCA 931 (" Navy Health ") which states: "…The essence of "community service" was that a service was provided to the community, or a section of the community. Here the word "service" was used in the sense of "help, benefit or advantage", particularly the action of serving, helping or benefiting, conduct tending to the welfare or advantage of another. The sale of a product at normal market rates was inconsistent with this understanding of the word "service". The taxpayer's operations during the years in question, therefore, should not be regarded as the provision of a "service" to its contributors. Neither was there any other person, or group of persons, with respect to whom those operations might have been regarded as the provision of a service. …Those who actually received the taxpayer's services in the years in question were not a section of the community - they were those who, by their own consumer choices, purchased the taxpayer's products. " Relevantly in Wentworth , the Federal Court said that the provision of banking services to customers of a commercial bank could not be the provision of a community service. The purpose of the taxpayer was not to provide a banking service in the town and it did not do so. The taxpayer was incorporated to provide a solution to the problem of the absence of a face to face banking service in the town. The facilitation of such a service provided substantial benefits to the community. The entity's circumstances are distinguishable from Wentworth , the entity in this instance, carries on a business as hotel operator providing social facilities and motel accommodation to customers, namely, the tourists, the general public and members of the entity. The carrying on a business is not an altruistic purpose and neither is social interaction. The purpose of running the hotel is predominantly to serve the needs of its local population and tourists visiting the town which is a significant spot for tourism. In this regard, a large number of tourists pass through the town each year. In Wentworth , the Federal Court held that the provision of banking services to customers of a commercial bank could not be the provision of a community service. The purpose of the taxpayer was not to provide a banking service in the town and it did not do so. The taxpayer was incorporated to provide a solution to the problem of the absence of a face to face banking service in the town. That absence had far reaching implication for the town of Wentworth. The facilitation of such a service provided substantial benefits to the community. The fact that the entity operates the largest hotel in a small isolated town and has the largest well equipped function venue available for community events, would not change the commercial character of the entity as a hotel operator nor would it change the purposes for which the business are served, that is, mainly for the tourists and the general public at large. As in Navy Health such a service is the provision of an ordinary retail service, for reward, to customers and hence, is not for community service purposes. Accordingly, it is considered that the conduct of a commercial enterprise by the entity does not fall within the description of the term 'community service purposes' as contemplated in item 2.1 of the table in section 50-10 of ITAA 1997. The entity's activities also consist of the provision of support and funding for a wide range of community events and groups, including the provision of grants, in-kind accommodation and meals, use of hotel meeting amenity for community events, sponsoring and participating in community events and running youth sport clinics, etc. Thereby, the entity has mixed purposes. The consequence of these community activities can, to a certain extent, benefit the community in the region. However, mere beneficial consequence for the community is not sufficient to say that the entity is established for community service purposes. The required 'community service purposes' must be the entity's 'main or predominant purposes' as it is stressed in TD 93/190 and the relevant case law. As we have determined above, the entity's commercial operation does not point to a community service purpose. The business comprises of a hotel venue with social and entertainment facilities and motel accommodation. It is carried out in accordance with the entity's formal objects in its Former Constitution and current Constitution. In this regard, the Former Constitution stated as its object: • carrying on the business and the doing of all such other things as are incidental or conducive to the attainment of such object." The objects of the current Constitution includes amongst others, the object of carrying on the business and the doing of all other things incidental or conducive to the carrying on of that business. The entity's main source of income is from the operation of restaurants, social amenities, and the provision of motel accommodation. The entity's commercial operation is extensive based on the scale of the operation. This can be shown in the Financial Accounts for the relevant years. The entity's total income, expenditure and surplus for the relevant income years are shown in the entity's Financial Accounts. In recent years, the entity provided financial grants to a number of sporting and community organisations in the town. The Chairman's reports provide the amounts expended in sponsorships in the relevant income years. Relative to the resources it applies to the operation of its hotel and associated social and entertainment functions, the financial assistance made to community organisations and events could not be described as intensive or extensive. The scale of the sponsorships does not indicate that the dominant purpose of the entity is for community services. Significantly, in Cronulla where the Club only provided financial support to football club the Full Federal Court determined that the leagues club was not entitled to the exemption. In Cronulla the encouragement of sport was limited to financial support. This financial support was found to be significant and the evidence made it clear that in the absence of that support the football club could not have continued to operate. Despite these findings, on the facts the majority in Cronulla found that the club was not entitled to the exemption. The Court considered that, notwithstanding the financial support to the football club, the main purpose of the leagues club was to provide licensed social facilities for its members and guests. Where the activities of an organisation are limited in the main to the provision of financial assistance and facilities for meetings for the purposes of other organisations, and are not directly involved in co-ordinating and conducting community work, in this sense the activities are not directly related to the provision of community services. In National Council of Women of Tasmania v FC of T 98 ATC 2124 (" National Council of Women of Tasmania") ; (1998) 38 ATR 1174 the Administrative Appeals Tribunal (AAT) was concerned solely with the application of subparagraph 23(g)(v) of the ITAA 1936 to the Council. The National Council of Women of Tasmania (the Council) was an unincorporated association which was established in 1899. Its specific objects included the advancement of the interests of women and children and of humanity in general. The Council also acted as an umbrella organisation bringing together representatives of other women's organisations (including the promotion of their activities and projects which were directed at the welfare of the community). The Council unsuccessfully objected against an adverse private ruling which had concluded that in terms of s 23(g)(v), the Council was not established for community service purposes or, alternatively, that it was established for political and/or lobbying purposes for the years in question. The application was allowed. The AAT held: (1) The words "established for community service purposes" does not require consideration of the purposes for which the Council was established when it first came into existence, rather it requires consideration of the nature of its primary or dominant objects, having regard to its activities during the period for which the ruling was requested. Brookton Co-operative Society Ltd v FCT (1981) 147 CLR 441; 11 ATR 880; 81 ATC 4346; Cronulla Sutherland Leagues Club Ltd v FCT (1990) 23 FCR 82; 81 ATR 300; 90 ATC 4215; Royal Australian College of Surgeons v FCT (1943) 68 CLR 436; 2 AITR 490; 7 ATD 289, applied. (2) It was very significant that, in terms of the relevant explanatory memorandum , the intended meaning of the words 'community service purpose' refers not only to the carrying out of activities for the benefit or welfare of the community, but also to the promoting of such activities. In this respect, the Council is very much a promoter of activities and projects which were clearly for the benefit or welfare of the community. (3) The Council's predominant purpose was not that of a social club or discussion group. In addition, its political and lobbying activities had been minimal. (4) The Council played an active role in its community service activities, and not a passive one. The support of the community work in National Council of Women of Tasmania was extended to active involvement in the projects of its member organisations. The AAT found that most, if not all of the promoted activities, facilities and projects of the member organisation were very clearly for the benefit or welfare of the community. In looking at the activities to characterise the organisation the AAT, the National Council of Women of Tasmania stated: "we find that the predominant purpose of the meetings involves the co-ordination of community service work, and the provision and exchange of information for the purpose of facilitating community service work." In the present case, having regard to the facts presented, the entity does involve and participate in community functions and events, however, not all activities are regarded as community service purposes. For example, the sponsor and involvement in the local annual festival of the particular industry is inconsistent with community service purposes within the intent of the legislation. The annual event is a commercial activity for the benefit of the particular industry and may have an effect of attracting locals and tourists to the area. The purpose of the event is not for community services. Apart from the broad general community sector, it is not a provision of service to those persons who have a particular need as described in the explanatory memorandum. Nevertheless, the entity's participation in the community service activities are insignificant when compare to the scale of its commercial activity. In determining the dominant purpose for which the entity is established, we consider that the activities in operating the hotel venues and other associated business are much more significant than the activities relating to community assistance. In this regard, the entity operates a significant commercial activity for the benefit of its members and the general public. The entity's involvement in community service activities itself and the provision of free facilities and associated benefits to the community groups are not considered to be significant activities supporting the entity's claim to exemption as a community service organisation. In Wentworth , the Court noted that the taxpayer had other purposes, which included the distribution of generated profits through the community grants programme; providing additional services to the elderly in the form of a weekly visit by a staff member to the aged care facility and the provision of banking visits to school. The collated benefit was considered by the Court as an incidental benefit of the taxpayer's organisation rather than the principal purpose of the taxpayer. Similarly, the benefits to the community in the present case cannot be seen as a central purpose of the entity but rather as an incidental benefit of its operation. While it is accepted that the operation of the hotel is the means by which the entity finances its support of the local organisations it cannot be concluded from the purposes themselves that the operation of the hotel and other associated business is only an incidental and ancillary purpose. The entity refers to McGarvie Smith Institute v Campbelltown Municipal Council (1965) (" McGarvie ") and claims that the circumstances of the entity are the same as in McGarvie . It is claimed that the business conducted by the entity serves a community purpose because the real benefit to the community is in the continued operation of the hotel; and that the objects of the entity ensure that any profits from the business conducted by the entity are applied for the benefit of the community. The McGarvie case concerned with the rates status of the Institute, whether it was a 'Public Charity" and thereby exempt from rates. In McGarvie, the appellant Institute was incorporated by statute and carried on the business of veterinary research, developing vaccines for the prevention and cure of various diseases in sheep, cattle and poultry. Surplus vaccines were sold to pastoral agencies and pastoralists. From these sales the Institute derived profits, part of which it devoted to bodies also engaged in veterinary research and part of which it used to finance and expand its own activities. The objects of the Institute were a mixture of commercial and research objects which were designed to enable the Institute to confer a benefit on the public by providing and encouraging means of preventing diseases in livestock. The Court held that the Institute was a "public charity" and was, as such, exempt from rates. Further, the fact that it derived commercial profits from its transactions did not deprive it of its charitable nature. We do not accept the entity's circumstances conform with McGarvie . As previously concluded, the main purpose of the entity is the operation of a hotel enterprise and such a business operation does not fall within the scope of community service purposes. The entity predominantly provides hotel accommodation and social facilities for reward to customers in accordance with its objects. This is also reflected in the entity's income and expenditure as set out in its Financial Accounts for the relevant income years. This is unlike in McGarvie , where any gain from the trading operations had to be used to further the purposes of the Institute in promoting and advancing veterinary science and particularly research into diseases in livestock and poultry, including the formulation of vaccines for such diseases. The activities of the Institute included the preparation and sale of vaccines were altogether for the benefit of the public. In conclusion, we consider that the entity's main or dominant purpose is the operation of a commercial enterprise including hotel keeper and the associated social and entertainment venues. The business operation by its nature is a venue for social and recreational interaction that serves the needs of tourists in the area, members of the entity and the general public, this does not constitute a community service purpose. Accordingly, the entity is not a society, association or club established for community service purposes within item 2.1 of the table in section 50-10 of the ITAA 1997. Consequently, the ordinary and statutory income of the entity is not exempt from income tax under section 50-1 of the ITAA 1997.

The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions.