Private ruling: Income tax - exemption
Published: April 2013
Ruling period: The relevant period
Date scheme commenced: 1 July 200X

Ruling: Q1: Is the Association exempt from income tax as a community service organisation pursuant to item 2.1 in the table in section 50-10 of the ITAA 1997? | A1: Yes, from XXXXX 2012 No, prior to XXXXX 2012

Relevant facts and circumstances: The applicant made a submission in support of the application in a letter which included the following statements: The Association was established for community service purposes. One of the company's principal objects, (set out at Article X) of the Constitution, is 'to further the teaching and promote the aims of yoga", which is for the benefit and welfare of the community. The Association provides social cultural and educational services and hosts a variety of national events such as workshops and conferences. Members can borrow from an extensive library of DVDs, videos, books and references on yoga. Article X of the Constitution provides that a principal object of the Association is "to carry out activities, facilities or projects for the benefit or welfare of the community". The Association is not a charity as its sole purpose is not charitable. The Association promotes Yoga in the community, for the benefit and welfare of the community, however the Association also has independent non-charitable purposes, such as overseeing regular teaching accreditation and protecting the use of the name throughout the community. The applicant provided the constitution in support of the application: The constitution includes the following pertinent clauses: X Objects The objects for which the company is established are: (a) as its principal objects, · to further the teaching and promote the aims …of yoga; · to establish and maintain guidelines for the certification of Teachers of … yoga; and · to act as liaison between members of the company and the Yoga Institute, overseas · to make donations to the … Trust to the extent set out in this constitution. · in furtherance of the principal objects set out above the company's further objects are: (1) to provide such social, cultural, administrative and educational services as are appropriate to the furtherance of the company's objects; (2) to prepare, establish and distribute a regular members newsletter in relation to the teaching and practice of … yoga; (3) to prepare and distribute educational material In furtherance of the company's objects; (4) to encourage and solicit the making of donations, gifts and testamentary dispositions to the company for the furtherance of the company's objects and obtain and disburse those funds in the furtherance of the company's objects; and (5) to conduct assessments for the purpose of teacher certification and to develop and maintain professional standards within the yoga teaching faculty. Y Conditions · The company must at all times have a physical presence in Australia and, to that extent, incur its expenditure and pursue its objects principally Australia. · The company must at all times be an association that is not carried on for the purpose of profit or gain of its individual members. No dividend The directors must not announce or pay any dividends. Z 1 Distribution of surplus Subject to this constitution and to the rights or restrictions attached to any class of membership, if the company is wound up and the property of the company available for distribution among the members is more than sufficient: (a) to pay all of the debts and liabilities of the company; and (b) the costs, charges and expenses of the winding up, the excess must be transferred to any company or association with similar purposes which is not carried on for the profit or gain of its individual members Z.2 Division of property (a) If the company is wound up, the liquidator may, with the sanction of a special resolution: (1) divide among the members the whole or any part of the property of the company; and (2) determine how the division is to be carried out as between the members or different classes of members. (b) Any division under rule Z.2(a) may be otherwise than in accordance with the legal rights of the members and, in particular, any class may be given preferential or special rights or maybe excluded altogether or in part. (c) Where a division under rule Z.2(a) is otherwise than in accordance with the legal rights of the members, a member is entitled to dissent and to exercise the same rights as if the special resolution sanctioning that division were a special resolution passed under section 507 of the Corporations Act. (d) If any of the property to be divided under rule Z.2(a) includes securities with a liability to calls, any person entitled under the division to any of the securities may within 10 days after the passing of the special resolution referred to in that rule by notice in writing direct the liquidator to sell the person's proportion of the securities and to account for the net proceeds and the liquidator must, if practicable, act accordingly. (e) Nothing in this rule Z.2 derogates from or affects any right to exercise any statutory or other power which would have existed if this rule were omitted. (f) Rule Z.1 applies, so far as it can and with such changes as are necessary, to a division by a liquidator under rule Z.2(a) as if references in rule Z.1 to the directors and to a distribution were references to the liquidator and to the division under rule Z.2(a) respectively. RECORD OF RESOLUTION OF THE DIRECTORS OF THE ASSOCIATION (1). That the following resolution be put to all of the members of the Company as a special resolution: That the constitution of the Company be amended as follows: (a) by inserting the following new Article xx to carry out activities, facilities or projects for the benefit or welfare of the community. (b) by inserting the following new Article yy The company must at all times have a physical presence in Australia and, to that extent, incur its expenditure and pursue its objects principally Australia. (c) by inserting the following new Article zz The company must at all times be an association that is not carried on for the purpose of profit or gain of its individual members. (2). Subject to the above resolution being passed as a special resolution that the Australian Taxation Office be notified of the amendments to the constitution of the Company pursuant to Article xxxx of the constitution of the Company. Further information provided: Teacher Assessment and certification Costs and amounts donated to the trust and Annual Reports A copy of the Annual General Meeting minutes recording the changes to the constitution had been passed.

Relevant legislative provisions: Division 50 of the Income Tax Assessment Act 1997 | Section 50-10 of the Income Tax Assessment Act 1997

Reasons for decision: Detailed Reasoning - Subject: income tax: The income tax law under Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that certain types of clubs, societies and associations are exempt from paying income tax. For ordinary and statutory income of an organisation to be exempt from income tax under Division 50 that organisation must be an entity covered by the tables of exempt entities contained in subdivision 50-A. Section 50-10 of the ITAA 1997 describes Community Service as a non-profit society, association or club established for community service purposes except political or lobbying purposes. For the Association to fall within item 2.1 of section 50-10 of the ITAA 1997, it needs to: 1. be a society, association or club; 2. be established for community service purposes and meet the special conditions of section 50-70 | Detailed Reasoning - (1) Society or association: The words 'society' and 'association' are not defined in the ITAA 1997. An association is a voluntary organisation having members associated together for a common or shared purpose ( Douglas & Ors v FCT 97 ATC 4722) ( Douglas ). Society has an equivalent meaning ( Pro-Campo v Commissioner of Land Tax (NSW) 81 ATC 4270). An association may be incorporated or unincorporated. The Association was incorporated as a Company Limited by Guarantee. The Association is an organised body of members associated for a common purpose. It is accepted that the entity is an association. | Detailed Reasoning - (2) Community service purposes: The Association needs to be established for community service purposes. 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 , provides the ATO view on the circumstances under which a society, association or club is regarded as being established for community services purposes. TD 93/190 states in paragraphs 3, 4 and 5 that: 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 4 of TD 93/190 states that having altruistic purposes is an essential element of even the widest interpretation of community service purposes. Paragraph 5 of TD 93/190 states that a common association such as members advancing their common interests is not altruistic as it is considered that such an entity is formed for the purposes of its members. Non-profit yoga classes have health benefits and it is considered that the health benefits arising from such activities are of sufficient importance for it to qualify for income tax exemption particularly where an Association is primarily teaching and providing accreditation and assessment. The approach in TD93/190 and in Douglas is that it is the main purpose of the organisation that must be community service. Neither accepts that mere consequences of other purposes will suffice. The Association's purpose as stated in its objects is: as its principal objects, · to further the teaching and promote the aims of yoga; · to establish and maintain guidelines for the certification of Teachers of …yoga · to act as liaison between members of the company and an overseas Yoga Institute · to make donations to a Trust to the extent set out in this constitution. · to carry out activities, facilities or projects for the benefit or welfare of the community . in furtherance of the principal objects set out above the company's further objects are: (1) to provide such social, cultural, administrative and educational services as are appropriate to the furtherance of the company's objects; (2) to prepare, establish and distribute a regular members newsletter In relation to the teaching and practice of the method of yoga; (3) to prepare and distribute educational material In furtherance of the company's objects; (4) to encourage and solicit the making of donations, gifts and testamentary dispositions to the company far the furtherance of the company's objects and obtain and disburse those funds in the furtherance of the company's objects; and (5) to conduct assessments for the purpose of teacher certification and to develop and maintain professional standards within the yoga teaching faculty. A resolution was made by the Directors on certain date in the recent year which was passed at an annual general meeting on the certain date in the recent year to include the following amendment in the constitution: … to carry out activities, facilities, or projects for the benefit or welfare of the community It is considered that the Association is now established for the benefit of the community for the following reasons: The Association's principal purpose is to further the teaching of yoga, promote the aims of yoga and to establish and maintain guidelines for certification of teachers of yoga. The Association's website indicates that a number of retreats and workshops are available and a significant amount of time and expenditure is devoted to teacher assessment and certification. It is implicit that the altruism contemplated is for the benefit of the community or some section of it. From the principal objects, it is considered that the people (participants of Yoga) are a section of the community. Individuals are intended to benefit in their health, relaxation, centred-ness, connection with nature, etc and this need not be inconsistent with altruism. In the same way that a purpose of advancing education usually works by educating particular students, full participation in the intended benefits of Yoga are likely to come only in the person who fully embraces its practice and 'philosophy'. The altruistic character comes, at least in part, from trying to open these possibilities to as many members of the community as want to avail themselves of the services and ideas and ideals provided. As regards 'service' - the purposes have to be community service purposes there could be different opinions about whether Yoga and its application by the Association would, in fact, provide any actual service to the community. However, given that what is intended is directed to the community's benefit, it is not against law or public policy, it is within the range of things accepted by many people in the present Australian society, it concerns aspects of the person that are generally valued (health, wholeness, integrity, etc), it is considered that the Association provides services to the community. It is accepted based on the principal objects and activities of this organisation, in particular its teaching and accreditation function, that the Association is established principally for the benefit of the community in general since the resolution to amend the constitution was passed at an annual general meeting. | Detailed Reasoning - Non-profit: Clause x of the constitution prevents the distribution of income and assets to its members while it is operating. Clause z.1 of the constitution prevents the distribution of surplus assets and property to its members upon winding up. A resolution made by the Directors was passed at the Annual General Meeting and amended the constitution as follows: By inserting the following new Article zz The company must at all times be an association that is not carried on for the purpose of profit or gain of its individual members. Prior to the amendment clause Z.2 relating to the powers of the liquidator stated that if the company is wound up the clause permits division among members with the sanction of a special resolution relating to the division of property. This clause detracted from the non profit requirement and on this basis it is not accepted that the Association is non-profit prior to amending its constitution. The non profit requirement is met from the date the Association amended its constitution. | Detailed Reasoning - In Australia: The Association is incorporated in New South Wales and the information provided by the Applicant supports that the Association has a physical presence in Australia and undertakes its activities in predominantly in Australia. While some income has been sent overseas to a Trust the donations in 2010 and 2011 were $10,000 per annum and no donation was made in 2012. It is considered that the Association incurs its expenditure and pursues its objects principally in Australia. The 'in Australia' requirement is met.