Private ruling: Income tax exempt entity
Published: October 2013
Ruling period: § Year ending 30 June 2013 | § Year ending 30 June 2014 | § Year ending 30 June 2015
Date scheme commenced: Year ending 30 June 1999

Ruling: Q1: Is the Company exempt from taxation under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is an exempt entity under Item 8.2 in the table in section 50-40 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: 1. The Company was incorporated as an Australian public company limited by guarantee. 2. The Company organises an industry trade show exhibition to showcase the products of various industries. 3. The objects of the Company are stated in the company constitution. 4. The initial members of the Company are listed in the company constitution. 5. The company constitution contains clauses regarding its non-profit nature during operations and on winding-up. 6. Membership is restricted to entities engaged in the various industries. 7. The Company constitution empowers the Board to provide grants to further its objects. 8. The Company has provided various grants. The exhibition 9. The exhibition is a trade exhibition. 10. Exhibitors can purchase floor space or stand packages of various sizes and prices to display their products and market their business. 11. The Company also runs a technical seminar series at the show. Attendees are from a range of industries and organisations. Content includes information on the latest legislative and technology changes affecting the industry and case studies from national and international speakers. 12. An awards dinner is also arranged as part of the exhibition to recognise achievements in the industry. 13. Exhibitors generally include small, medium and large local, national, international and multi-national manufacturers, importers, wholesalers, distributors and agents in the industry. 14. Attendees generally include persons from a variety of roles and professions from within and outside the industry. 15. The main reasons given by exhibitors for exhibiting were to promote company brand/image, generate new business, communicate with current customer base, demonstrate products/services, maintain presence in the industry, promote new products/services, customer product awareness and training, and to develop distribution or agency network/s.

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

Reasons for decision: Summary: The Company is exempt from taxation under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is an exempt entity under Item 8.2 in the table in section 50-40 of the ITAA 1997 as a non-profit association established for the purpose of promoting the development of Australian industrial and manufacturing resources. | Detailed Reasoning - Detailed reasoning: The statutory conditions that must be met before being entitled to exemption from income tax are set out in section 50-1 and section 50-40 of the ITAA 1997 as follows: Section 50-1 of the ITAA 1997 exempts from income tax the total ordinary and statutory income of an entity covered by section 50-40 of the ITAA 1997. Item 8.2 of the table in section 50-40 of the ITAA 1997 covers non-profit societies or associations established for the purpose of promoting the development of Australian agricultural, horticultural, industrial, manufacturing, pastoral, viticultural, aquacultural or fishing resources. The matters to be satisfied under section 50-40 of the ITAA 1997 are: § the organisation is a non-profit association or society; and § the dominant or principal purpose for which the organisation 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. Society or Association The terms association and society are not defined and therefore take on 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). An association may be incorporated or unincorporated. The Company is: § an Australian public company limited by guarantee and registered with the Australian Securities and Investments Commission (ASIC) and § an organised body of members instituted for the purposes of its constitution. It is accepted that the Company is a 'society or association' for the purposes of section 50-40 of the ITAA 1997. Non profit In order to constitute an entity exempt from income tax, an association must also meet the special condition in Item 8.2 of section 50-40 of the ITAA 1997 that it is: "not carried on for the profit or gain of its individual members". If an association operates principally to confer benefits on its members, it is unlikely to be predominantly for promoting resource development and thus not exempt. However, it is necessary to distinguish a purpose of providing benefits to members as a group from the incidental benefits which will often flow to members as a result of the activities with which they are involved. Organisations will not be exempt where they have a purpose to protect or promote the interests of members. The Australian Taxation Office (ATO) publication Income tax guide for non profit organisations (QC 27150) available on the ATO's web site www.ato.gov.au states: If the organisation's main purpose is merely to provide services to its members, it will not be exempt. This is the case even if the services result in better use of resources by those members. We accept an organisation as non-profit 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. These documents should contain acceptable clauses showing the organisation's non-profit character. …The organisation's actions must be consistent with this requirement. Any profit made by the organisation goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members. To meet the non-profit requirement firstly, an entity's constituent documents must display a non-profit character and secondly, the entity's actions must be consistent with this non-profit character. In this case, we accept that the Company constitution demonstrates a non-profit character. Exhibitors and attendees to the exhibition are not limited to members of the Company. Therefore, the Company is providing a forum that benefits both members and non-members and is not carried on to primarily promote the interests of its members. Any benefits to members are in their capacity as members of the industry, not as individual members of the Company. The Company's actions are therefore consistent with its non profit character. It is accepted that the Company is not carried on for the profit or gain of its individual members. Australian 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 purpose of promoting the development of a foreign resource, or of both Australian and foreign resources, the test for exemption is not met. Exemption is not limited to associations whose activities extend, or are intended to extend, throughout the whole of Australia. An association promoting the development of a particular region's resources may also be exempt. The Company organises an industry trade show exhibition to showcase the products of the industries. Encouraging international attendees to the exhibition does not necessarily mean that the activities of the Company are not sufficiently directed to Australian resources. In fact, the exhibition acts to promote Australian manufacturers and other companies in the industry to customers in international markets. Likewise, allowing international companies to exhibit at the exhibition does not necessarily mean that the Company is promoting the development of foreign resources. The exhibition is purposely intended to be international in nature and content. This is with the aim of sharing information about new and emerging technologies, products and processes in the industry. Having international exhibitors exposes Australian manufacturers, engineers, and other industry members to innovations in their field being developed internationally. The international involvement in the exhibition is currently not to an extent that would be regarded as promoting foreign resources. The limited nature and purpose of international participation in the exhibition is consistent with a purpose of promoting Australian resources. | Detailed Reasoning - Manufacturing and industrial resources: The resources whose development is being promoted must fall within the umbrella of resources specified in item 8.2 of the table in section 50-40 of the ITAA 1997. The Company is seeking income tax exemption on the basis that it is established for the purpose of promoting the development of manufacturing and industrial resources. These resources are not defined in the ITAA 1997 and so take on their ordinary meaning. 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 mean the building, mining, quarrying, shipping and transport industries and the resources which these industries have. The meaning does not include business or commercial resources. Within the meaning given in the above case, the industries encompass both industrial and manufacturing resources. This is reflected by the range of attendees and exhibitors at the exhibition. Additionally, manufacturing resources extends to the plant and equipment, skill and know-how involved in manufacturing products and the exhibition seems to include these elements as the primary focus at each exhibition is the promotion of new technologies, processes and products in the industry. It is recognised that due to the varied participants in the exhibition there may be some overlap into both manufacturing and industrial resources. It is therefore considered that the Company's activities are directed to resources falling under both 'manufacturing resources' and 'industrial resources' as specified in item 8.2 of the table in section 50-40 of the ITAA 1997. Established for the purpose of promoting development To be exempt under section 50-40 of the ITAA 1997, an association must be established principally or predominantly for the purpose of promoting development of the specified resources. Section 50-40 of the ITAA 1997 does not refer to the promotion of the specified resources. It is directed to the promotion of the development of the specified resources. Taxation Ruling IT 2415 Income tax: Associations promoting the development of Australian resources states the following on the meaning of development: The term "development" must be taken to be used in a commercial or business sense, i.e. it comprehends all elements which must be taken into account to ensure that the specified resources are used in the best interests of Australia. Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating cooperation and similar activities. Although the connection may not be as readily apparent, the development of marketing techniques may also be relevant to the development of resources. It could be said that there is little point in developing resources if the products of the resources cannot be sold. 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.' It is not sufficient that one of an association's purposes falls within section 50-40 of the ITAA 1997. Nor is it enough that resource development is incidental to, involved with, or a consequence of an association's purposes. In Boating Industries Association of New South Wales v. FCT (1985) 16 ATR 383; 85 ATC 4224. Lusher J commented at ATR 388; ATC 4228: 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. In dismissing the appeal Lusher J took the view that on the principles established the question was largely one of fact and degree and found that, on the whole of the material, the association was not established for the purpose of promoting the development of manufacturing resources of Australia, at ATR 389; ATC 4229 he said: The exhibitions and shows which were staged were directed, as I find, substantially towards promotion of sales of boats rather than the manufacture other than in a remote and indirect result of such sales. Mr Greaves accepted that the major activity of the association Boat Show was for the purpose of providing a major sales venue of members' products wherever manufactured. Similarly, there were activities and aspects of sales education and promotion. Determining the dominant purpose will be largely a matter of fact and degree. It is necessary to consider an association's constituent documents, operations and activities. The main object of the Company is to organise an exhibition and associated conferences and meetings. By means of the exhibition and associated conferences, the Company also promotes training, education and health and safety issues within the industry and promotes the industry as a whole. The Company achieves its objectives by organising an industry trade show exhibition every second year to showcase the products of the industries. As part of the exhibition the Company also runs a technical seminar series. Content includes information on the latest legislative and technology changes affecting the industry and case studies from national and international speakers. An awards dinner is also arranged as part of the exhibition to recognise achievements in the industry. The exhibition provides exhibitors with the opportunity to promote their company brand/image, generate new business, communicate with current customer base, demonstrate products/services, maintain presence in the industry, promote new products/services, create customer product awareness and training, and to develop distribution or agency networks. It provides both exhibitors and attendees the opportunity to learn about new technologies, processes and products in the industry as well as educate themselves about emerging issues and industry specific topics. The objects and activities of the Company certainly promote the industry, both directly and indirectly. It is more difficult to conclude that these activities promote the development of Australian industrial and manufacturing resources. The only activity of the Company is to organise the exhibition and associated seminars. Therefore, the extent of the promotion of development of resources begins and ends with the exhibition. The Company does not conduct any other significant activities, besides offering occasional grants to industry entities in promotion of its objects. The majority of grants have been provided to members in relation to the exhibition. Other grants have been provided in relation to industry training programs. Considering that exhibitors and attendees at the exhibition are not limited to members of the Company, but is limited to members of the relevant industries, it is less likely that its purpose is to promote the interests of members rather than the industry as a whole. The exhibition would appear to have no other purpose than to provide industry members with a forum to educate themselves about new innovations in products and processes both locally and internationally, as well as various changes affecting the industry and also to promote their businesses and products to potential customers. The purposes of the exhibition go beyond merely generating 'sales' . The exhibition potentially contributes to the enlargement of the market for the relevant industries and builds on the skills and know-how within those industries. Weighing up the various factors, on the whole of the material, it is accepted that the Company has been established to promote the development of manufacturing and industrial resources of Australia, specifically in the industries involved.