Private ruling: Income tax exemption
Published: August 2013
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2013
Date scheme commenced: 14 June 2012

Ruling: Q1: Is the Association exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is a community service organisation as described in section 50-10 of the ITAA 1997? | A1: No

Relevant facts and circumstances: 1. The Association is an incorporated association. 2. The Association's constitution is derived from the Model Constitution under the Associations Incorporation Act 2009 (NSW). 3. The members of the Association are part of the same city. 4. The Association provides assistance to new and existing migrants to Australia who are part of the same city heritage through business and social introductions. 5. The objects of the Association are stated in its constitution. 6. The Association organises social activities and provides facilities for members from their office. 7. The Association also organises and coordinates birthday parties, weddings and funerals for members for free. 8. The Committee Members of the Association have confirmed that the migration assistance/translation service represents a small part of the Association's services. 9. The Association provides assistance and services to Association members only.

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

Reasons for decision: Summary: Section 50-1 of the ITAA 1997 provides an entity is exempt from income tax where it is a society, association or club established for community service purposes pursuant to item 2.1 of the table in section 50-10 of the ITAA 1997. An organisation will be exempt from income tax as a community service organisation if it meets all of the following requirements: · it is not a registered charity · it is established for community service purposes (except political or lobbying purposes) · it is a non-profit society, association or club · it satisfies the special conditions. | Detailed Reasoning - Registered Charity: If an organisation is a registered charity it must be endorsed to be exempt from income tax. The Association is not a registered charity. | Detailed Reasoning - Purposes: The main purpose of the organisation must be community service purposes. To determine an organisation's main purpose, consideration is given to the organisation's constituent documents, activities, use of funds and history. Any other purpose of the organisation must be incidental, ancillary or secondary to the community service purpose. The ATO view of what constitutes a community service organisation is expressed 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 and the Income tax guide for non profit organisations (QC 27150) available on our website www.ato.gov.au. Community service purposes are altruistic - that is, community service organisations are established and operated with regard to the wellbeing and benefit of others. Community service organisations promote, provide or carry out activities, facilities or projects for the benefit or welfare of the community or any members who have a particular need by reason of youth, age, infirmity or disablement, poverty or social or economic circumstances. Organisations that seek to advance the common interests of their members are not altruistic and so cannot be community service organisations. If an organisation's main purpose is lobbying or political, its income will not be exempt. TD 93/190 provides the following examples of community service organisations at paragraph 7: Traditional service clubs such as Apex, Rotary, Lions, Zonta, Quota and the like and community service organisations such as the Country Women's Association of Australia and its constituent Associations are considered to be exempt from income tax under 23(g)(v). Other examples of organisations that are considered to be exempt under this provision include: · associations of Justices of the Peace · associations of play groups · traditional service clubs · community service clubs · pensioner or senior citizens associations. Organisations that are not community service organisations include: · clubs that promote public speaking or debating · clubs that provide a social forum for retired or semi-retired business people, senior public servants and similar groups · clubs that provide a social forum for expatriates of a particular country · pensioner associations that conduct significant political or lobbying activities · military service unit organisations · social clubs for newcomers to a particular residential area. The objects of the Association are stated in its constitution. The Association provides assistance to new and existing migrants to Australia who are part of the same city through business and social introductions. The Association organises social activities and provides facilities for members from their office. The Association also organises and coordinates birthday parties, weddings and funerals for members for free. The Committee Members of the Association have confirmed that the migration assistance/translation service represents a small part of the Association's services. The Association provides assistance and services to Association members only. The members of the Association are part of the same county city. Considering the purposes and activities of the Association it is concluded that it seeks to advance the common interests of its members. In light of the fact that the migration assistance and translating services represent a small part of the Associations activities, the main purpose of the Association is social in nature and more akin to the activities of clubs that provide a social forum for expatriates of a particular country or social clubs for newcomers to a particular residential area. Accordingly, the Association is not altruistic and cannot be a community service organisation. | Detailed Reasoning - Non-profit requirement: A non-profit organisation is an organisation that is not operating for the profit or gain of its individual members, whether these gains would have been direct or indirect. This applies both while the organisation is operating and when it winds up. 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. 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. In limited circumstances, it may be accepted that an institution is not for private profit even if its constituent documents do not contain these clauses. Examples are where a corporation is formed by statute and its provisions make the not for private profit nature clear. The organisation's actions must be consistent with this requirement. The Association is incorporated under the Associations Incorporation Act 2009 (NSW) and its constitution is derived from the Model Constitution under that Act. The Association's constitution does not contain any non-profit or winding up clauses. However, sections 40, 65 and 75 of the Associations Incorporation Act 2009 (NSW) prohibit members from receiving any profit or gain from the Association, both during operation and upon winding-up. We accept that the Association has a non-profit character. | Detailed Reasoning - Special conditions: For a community service organisation that is not a registered charity to be exempt from income tax, it must pass one of the following tests outlined in section 50-70 of the ITAA 1997: · physical presence in Australia test · DGR test · prescribed by law test. An organisation that exists, operates and incurs its expenditure solely and entirely in Australia will meet the physical presence in Australia test. The Association is incorporated in NSW. It conducts its activities and incurs expenditure from its offices located in Australia. The Association satisfies the physical presence in Australia test. The other tests do not need to be considered. The Association satisfies the special conditions of section 50-70 of the ITAA1997.