Private ruling: Tax exempt entity
Date of advice: 10 August 2018
Published: October 2018
Ruling period: 1 July 2019 to 30 June 2020 | 1 July 2020 to 30 June 2021 | 1 July 2021 to 30 June 2022 | 1 July 2022 to 30 June 2023 | 1 July 2023 to 30 June 2024 | 1 July 2024 to 30 June 2025
Date scheme commenced: 1 July 2019

Ruling: Q1: Will the taxpayer remain exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) because it is an exempt entity as described in item 8.1(b) of the table in section 50-40 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: The taxpayer has previously applied for two private rulings (Authorisation numbers: 1011232958530 and 1012744749539) which applied to certain periods. The private rulings confirmed that the taxpayer’s ordinary and statutory income is exempt from income tax under section 50-1 of the ITAA 1997 as a result of the taxpayer being a society or association established for the purpose of promoting the development of tourism. The taxpayer has requested an extension to the period to the previous private ruling on the basis that the operational activities of the taxpayer have not changed. The taxpayer is a public company limited by guarantee. The objects in the taxpayer’s constitution relate to promoting tourism. The taxpayer’s constitution contains clauses which prevent the distribution of profits to members while operating and winding up. The taxpayer undertakes the following activities: ● the taxpayer continues to maintain a website that is available to the general public and disseminates information regarding touring. The website also provides an up to date schedule of upcoming events. ● the taxpayer continues to publish and distribute at no cost, high quality magazines containing touring information. ● the taxpayer continues to maintain an interactive online database, plotting points of interest. ● the taxpayer has chapters and special interest groups. There are groups of members within an area who will meet for social activities, events and outings. ● to ensure the sustainable growth of tourism, the taxpayer continues to promote environmental awareness for tourists through a variety of means and initiatives. ● The taxpayer continues to be perceived by the media to be representative of the growing tourism. It is often called upon by media to comment on issues regarding this demographic segment. ● The taxpayer attends Local Government annual conferences in all States to raise awareness of and promote the interests of tourists. ● Regular member activities continue to be held in locations across Australia to explore the lesser travelled localities. ● The taxpayer has been formally acknowledged several times by State and Local Government departments, for the taxpayer’s contribution to the promotion of tourism in a particular area.

Relevant legislative provisions: section 50-1 of the ITAA 1997 | section 50-40 of the ITAA 1997

Reasons for decision: Summary: A society or association established for the purpose of promoting the development of tourism that is not carried on for the profit or gain of its individual members as described under item 8.1(b) of the table in section 50-40 of the ITAA 1997 is exempt from income tax under section 50-1 of the ITAA 1997. Accordingly, the taxpayer will be exempt from income tax if it meets the following requirements: ● it must be a society or association; ● it must not be carried on for the profit or gain of its individuals members; and ● the society or association must be established for the purpose of promoting the development of tourism. | Detailed Reasoning - Society or Association: The terms "association" and "society" are not defined in the ITAA 1997 and therefore adopts its ordinary meaning. The Commissioner considers the meaning of the term "association" in Taxation Determination TD 95/56 which states in part at paragraph 2: … The Shorter Oxford English Dictionary defines the term 'association' to be 'a body of persons associated for a common purpose; the organisation formed to effect 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 taxpayer is a public company limited by guarantee which was established to pursue the objects stated in its constituent documents. It is accepted that the company is an association. | Detailed Reasoning - Not for profit: The special condition for an entity to be exempt pursuant to item 8.1 of the table in section 50-40 of the ITAA 1997 requires that the association does not carry on its activities for the profit or gain of its individual members. The taxpayer’s constitution prevents the distribution of profits to its members and prevent any property being distributed to members upon winding up. Accordingly, it is accepted that the taxpayer does not carry on its activities for the profit or gain of its individual members. | Detailed Reasoning - Established for the Purpose of Promoting the Development of Tourism: The taxpayer must be established for the purpose of promoting the development of tourism to qualify as an exempt entity pursuant to item 8.1(b) of the table in section 50-40 of the ITAA 1997. | Detailed Reasoning - Tourism: `Tourism' is not defined in the ITAA 1997. Accordingly, the term 'tourism' adopts its ordinary meaning. The Macquarie Dictionary defines the term 'tourism' to be: the practice of touring, especially for pleasure; the occupation of providing local services, as entertainment, lodging, food, etc., for tourists. The Shorter Oxford English Dictionary defines the term to mean: The theory and practice of touring; travelling for pleasure. and Butterworths Australian Legal Dictionary defines it to mean: The practice of travel and associated activities for the primary purpose of recreation. | Detailed Reasoning - Promoting development: The Tax Office publication Income Tax Guide for Non Profit Organisations provides that promoting development of a specified resource can be by various means, including research, providing facilities, training, improving marketing methods, facilitating cooperation and similar activities. | Detailed Reasoning - Main or dominant purpose: To be characterised as an entity under item 8.1(b) of the table in section 50-40 of the ITAA 1997, an association must be established principally or predominantly for the purpose of promoting the development of tourism. To determine an entity's purpose, regard must be had to the entity's constituent documents, activities, history and control ( Boating Industries Association of New South Wales v. FC of T (1985) 16 ATR 383). Any other purpose of the organisation must be incidental, ancillary or secondary to promoting development of the relevant resources. A review of the activities undertaken by the taxpayer support the contention that the taxpayer's dominant purpose is the promotion of the development of tourism. The taxpayer’s activities include: ● Development and implementation of initiatives and programs which contribute to the development of tourism. ● Organising events to promote tourism to various regional destinations. ● Disseminating information through the distribution of publications and maintenance of a website to provide advice on travel locations, events, points of interest and information on towns and the facilities and services available at those locations. ● Facilitating industry co-operation. ● Lobbying activities to represent the interests of travelers and to promote awareness on tourism. It is evident that the activities of the taxpayer are targeted at promoting either directly or indirectly the development of tourism. Having regard to the constitutional objectives and the actual activities undertaken by the taxpayer, it is accepted that the main purpose for which the taxpayer was established is the promotion touring within Australia. We accept that the entity is not carried on for the gain of individual members. Accordingly, as the taxpayer is a non-profit association established for the purpose of promoting the development of tourism, it is an exempt entity pursuant to item 8.1(b) of the table in section 50-40 of the ITAA 1997. The Commissioner must consider each new private ruling request on its merits, consideration has occurred on two prior occasions and the Commissioner ruled that the taxpayer is an exempt entity under item 8.1(b) of the table in section 50-40 of the ITAA 1997, an association established principally or predominantly for the purpose of promoting the development of tourism. | Detailed Reasoning - Period of Ruling: The law does not require either the applicant or the Commissioner to specify the period applicable to a private ruling. However, our practice is to specify the years of income or periods to which the ruling applies, in the interests of providing certainty. Private rulings may be given for: ● a past income year or period ● the current income year or period ● a future income year or period. Normally, a ruling will be for the period specified by the applicant. There may be occasions, however, where we consider that a ruling needs to cover a different period from that specified in the application. When this occurs, the ruling must specify the time it applies to the taxpayer. Following internal ATO consultation, the policy in relation to determining the period for which to provide a private ruling has changed. The previous guideline of issuing a ruling for not more than 3 to 4 years has been removed, and the appropriate length of time for which to rule is determined by the case officer and approving officer. In determining the appropriate length of time for which to rule, consideration has been made to: ● the likelihood of a change to the law, and ● the likelihood of changes to the facts of the scheme These considerations are balanced against the facts of the case. It is important to note that a private ruling will no longer apply, and the taxpayer will no longer be protected by it: ● if the law changes ● if the facts underlying the scheme change and the scheme is not implemented in the way set out in the private ruling ● if it is overridden by a later ruling. In addition, a court may refuse to entertain a case based on a ruling if it considers that the facts or tax law are so likely to change that it would make the case of no legal consequence to either of the parties. The taxpayer has requested a ruling for a six year period. The taxpayer has supported their request by stating a favourable ruling has been issued previously. The taxpayer’s constitution has not materially changed since the last ruling. It is expected of the taxpayer to notify the Commissioner of any significant change in its activities or constitution to enable the Commissioner to review its private ruling. As a result of the policy change, the unlikely change to the facts and the lack of revenue risk it is considered reasonable to issue the ruling for a six year period.