Private ruling: Public Educational Institution
Published: August 2014
Ruling period: 1 July 2013 to 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is your organisation exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a public educational institution as described in item 1.4 of section 50-5 of the ITAA 1997? | A1: No

Relevant facts and circumstances: • You have a physical presence in Australia. You pursue your objectives and incur expenditure principally in Australia. You operate within Australia, having a few physical offices. • You ensure that in carrying out all of your functions you comply with your Constitution. Members are also required to comply with other governing documents including the Code of Conduct. • Your income and property is applied solely towards promoting the objects and no portion of the income or the property is paid or transferred to Members, as set out in the governing documents. • Your association is committed to raising industry standards and competencies amongst members and stakeholders. Your core focus is to raise the standard of advice provided by all professionals in your industry and the association is committed to promoting a high standard of education among industry professionals and stakeholders assisting them to work within the regulatory framework. This, in turn, will help the industry to self-regulate and promote best practice. • You provide education to the industry via a number of means. You have developed education standards, education course guidelines, best practice guidelines and resources, quality professional networks and supporting educational tools such as diagnostic evaluations and centralised education hubs. • You offer a comprehensive webinar program, master classes, day courses, online courses and live small group technical sessions as well as providing a number of other tools to help professionals determine their educational requirements. You organise state based technical conferences and a national conference. • You are a peak body within Australia and represent members, stakeholders, the consumer and other communities within your industry sector. • You have established accreditation procedures and programs for professionals in your industry to increase the competency levels of these professionals. • You have an extensive website. The website outlines your focus as an association committed to raising industry standards and looking after the needs of industry professionals across Australia. Your core focus is to raise the standard of advice provided by all professionals to the industry. The association is committed to promoting a high standard of education among industry professionals and assisting them to work within the regulatory framework. This, in turn, will help the industry to self-regulate and promote best practice. • You are a public nonprofit company, limited by guarantee. Objects as set out in the Schedule to the Constitution: To do all things that a natural person can and may do in relation to the X industry and for Stakeholders of the X industry. Without limiting the generality of the foregoing, the objects are: a) to do all things necessary to promote the advancement and integrity of the X industry and Stakeholders of the X industry, b) to provide a centre for the professional representation of Stakeholders; c) to assist in setting and maintaining a higher level of professional standards for Stakeholders of the X industry, d) to provide a forum for all professional advisors and relevant Stakeholders in the industry of X for: i. the exchange of information, best practice and compliance of issues; ii. the dissemination of changes in the law or in practice; iii. the collation and provision of information of interest or relevance, including matters connected with the provision in other countries of X industry (including parliamentary and government departmental reports and official and other papers dealing with such information); and iv. the establishment, maintenance and conduct (or to provide assistance with the establishment, maintenance and conduct) of libraries for any of the purposes stated in these Objects; e) to assist in setting and maintaining a higher level of professional standards for all professional advisors to and all relevant other Stakeholders in the X industry; f) to establish accreditation procedures and programs for professionals and all other relevant Stakeholders in the X industry; g) to liaise with and provide advice to relevant Stakeholders. including government and any regulatory authority concerning policy, regulations, best practice, education, accreditation and all other like issues relating to X h) to create a networking forum for all professionals and all other relevant stakeholders involved and concerned with X issues; i) whether undertaken with or without other participants, to promote. organise, conduct and/or participate in meetings, lectures, seminars, study groups, conferences, education, training and counselling courses for the purposes of increasing and advancing the knowledge and understanding of all facets and issues affecting or related to X and relevant Stakeholders in the X industry; and j) to establish and maintain a self-regulatory role for advisors and all other relevant Stakeholders in X and to foster high standards of competence in X advice.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 50-5 Item 1.4 | Income Tax Assessment Act 1997 Section 50-1

Reasons for decision: Detailed Reasoning - Detailed reasoning: For an entity to be exempt from income tax pursuant to section 50-1 of the ITAA 1997 as a public educational institution, an entity must: • be a public educational institution under item 1.4 of the table in section 50-5 of the ITAA 1997; and • meet the special conditions in section 50-55 of the ITAA 1997. 'Public educational institution' is not a phrase defined in the legislation. The phrase is a composite term and it is necessary to give full effect to all the component parts. In considering each of the component parts in 'public educational institution', the following characteristics arise as stated in the Income Tax Guide for non - profit organisations : • The sole purpose is to provide education and any other purpose must be incidental or ancillary. • Education is for the public or a section of it. • There is an institutional character. • The entity is non-profit. Each of these aspects will be considered in turn. | Detailed Reasoning - The sole purpose is to provide education: A public educational institution is an institution that is available or open to the public or a section of the public and whose dominant purpose is providing education. Any other purpose of the organisation must be incidental or ancillary to providing public education. Education in this context does not extend to merely providing information or lobbying. In Chesterman v FC of T (1923) 32 CLR 362, where the phrase, "public educational purposes", was considered, it was held that the phrase implied either mental or bodily teaching or training. Isaacs J, said: "Such public legislative recognitions of the words `educational' and `public education' as I have mentioned are only confirmatory of the general understanding of these words as connoting the sense of imparting knowledge or assisting and guiding the development of body or mind. Within that orbit the field is wide, and extends from elementary instruction in primary schools to the highest technical scientific teaching in the Universities." The meaning of 'public educational institution' is not limited to a body engaged in systematic or formal education and may include a pony club controlling body : AAT Case 5109 (1989) 20 ATR 3582; Case W43 89 ATC 417. The AAT found that the association was a 'public educational institution' under section 23 of the Income Tax Assessment Act 1936 (ITAA 1936) and therefore exempt from tax. Significant factors in reaching this conclusion were the absence in the organisers of a concern to advance their own financial interest, their commitment to advance the wellbeing of their pupils, to promote the skills of horsemanship and the planned and regular system of instruction . In Barry v. Hughes (1973) 1 All ER 537, Pennycuick VC stated at p543 that 'an educational establishment must be an establishment whose primary function is that of education.' This principle was applied in Case M12 80 ATC 78; (1980) 23 CTBR (NS) Case 97. In that case the objects of that Institute were: to advance the theory and practice of accountancy in all its aspects, including in particular auditing and financial management; to recruit, educate and train a body of members….. skilled in these arts; to preserve at all times the professional independence of accountants in whatever capacities they may be serving, to maintain high standards of practice and professional conduct by all its members; and to all such things as may advance the profession of accountancy. At page 82 LC Voumard found that: On any view of this statement it could not be said that education is the Institute's primary function… | Detailed Reasoning - How this applies to you: Your dominant function is not to provide education but rather to raise industry standards and look after the needs of X professionals across Australia. As stated in your objects you do all things to promote the advancement in relation to the X industry. You provide professional representation, set and maintain high levels of professional standards, exchange information to members, and you provide advice to stakeholders concerning policy, regulation and best practice. You offer webinars, classes, programs and courses; however most of the courses and educational programs are developed and delivered by an external provider. This would be seen to be merely providing information and assisting to maintain high standards of practice and professional conduct. You provide the educators with industry recognition and a range of benefits to help promote programs. You indicate that your focus is to raise the standard of advice provided by all professionals within the X industry. It has established standards, guidelines and resources as well as tools to enable professionals to determine their educational needs. Your association is committed to promoting high standards among X professionals and to assisting them to work within the regulatory framework. You are involved in some activities that come under the concept of education. However, to be a public education institution, your dominant purpose must be to provide education and all other purposes must be incidental or ancillary. Your dominant purpose is not to provide education but to do all things necessary to promote the X industry. For these reasons, you do not meet this requirement. Meaning of 'public or a section of it' The meaning of the word 'public' was considered by Macfarlane J in [1930] VLR 211, where a benevolent asylum to which only Freemasons and their wives were eligible for admission was not a 'public benevolent institution'. The meaning of 'section of the public' was also considered in re Income Tax Acts (No 1)(1930) VLR 211 and in In re Scarisbrick; Cockshott v. Public Trustee (1951) Ch 622: A "section of the public" is any group to which any member of the public could belong. Such groups are to be distinguished from others where there is some bar to membership. Where an association admits members of the public according to some arbitrary test, such an association exists for the benefit of its members and not as members of the public. | Detailed Reasoning - How this applies to you: You restrict membership to those persons meeting the criteria of the Board which are specified from time to time; is committed to the Objects; and has the ability and capacity to make a meaningful and constructive contribution to your organisation. The restrictions on who can be a member as outlined in your Constitution appear to be an arbitrary test in the words of Re Income Tax Acts (No. 1) (above) so you are not considered an organisation that is open to the public or a section of the public. | Detailed Reasoning - Institution: To qualify under subsection 50-5 ITAA 1997 item 1.4 an entity must not only be 'public' and 'educational'; but must be an 'institution'. There is no statutory definition of the word 'institution', and therefore its ordinary meaning must be considered. Taxation Ruling 2011/4 (TR20011/4) Income Tax and Fringe Benefits: Charities and Taxation Ruling 2003/5 (TR2003/5) Income Tax and Fringe Benefits: Public Benevolent Institutions consider the word 'institution', in relation to charitable institutions and public benevolent institutions. In those rulings, case law was considered in determining whether the entity was an 'institution'. In paragraph 165 and 168 of TR 2011/4, it states: 165. In Stratton v. Simpson (1970) 125 CLR 138, Gibbs J considered the meaning of 'institution' and said at 157-158: In its ordinary sense 'institution' means 'an establishment, organisation, or association instituted for the promotion of some object, especially one of public utility, religious charitable, educational etc' (The Shorter Oxford English Dictionary). It means, as was said in Mayor etc of Manchester v. McAdam , 'an undertaking formed to promote some defined purpose...' or 'the body (so to speak) called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle'. Although its meaning must depend on its context, it would not ordinarily connote a mere trust'. 168. A structure controlled and operated by family members and friends will not be accepted as an institution where it has a small and exclusive membership and undertakes limited activities: Pamas Foundation (Inc) v. Commissioner of Taxation (1992) 35 FCR 117; 92 ATC 4161; (1992) 23 ATR 189 ( Pamas ). In Pamas, a foundation incorporated by a doctor and operated and controlled by the doctor, his family and close friends was not accepted as a religious institution. In reaching its decision, the Court took into account the fact that the membership of the Foundation was small and exclusive and the scale of its activities was relatively small. A similar view on the meaning of 'institution' is taken at paragraph 91 of TR 2003/5 regarding public benevolent institutions. In both Taxation Rulings, whether an entity is an institution is determined by looking at the whole of the entity's circumstances. Relevant factors include an entity's activities, size, permanence and recognition. | Detailed Reasoning - How this applies to you: Your entity is a company limited by guarantee and it is recognised by the public and currently controlled and operated by a number of directors. Therefore, we conclude that the entity is greater than a structure controlled and operated by family and friends, and it is considered to be an institution. | Detailed Reasoning - Not for profit: For an entity to be exempt from income tax pursuant to subsection 50-1 of the ITAA 1997 requires that the association does not carry on its activities for the profit or gain of its individual members. | Detailed Reasoning - How this applies to you: Your constitution contains clauses which prevent the distribution of profits to your members and prevent any property being distributed to members upon winding up. The purposes for which you are established as well as the activities you conduct do not intend to confer merely private benefits. The fact that you are committed to raising industry standards and looking after the needs of X professionals across Australia would benefit its members and the public in general. It is acknowledged that by improving the quality of X professionals across Australia, the community is confident the information provided can be relied upon. Accordingly, we accept that you do not carry on your activities for the profit or gain of its individual members. | Detailed Reasoning - Special Conditions: An entity covered by item 1.4 in subsection 50-5 ITAA 1997 is not exempt from income tax unless the entity meets the special conditions in section 50-55 ITAA 1997: a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or b) is an institution that meets the description and requirements in item 1 of the table in section 30-15; or c) is prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident. | Detailed Reasoning - How this applies to you: You are established to carry on a business within Australia. Supporting documents also demonstrate that you carry on your activities and pursue your objects in Australia. Therefore, the special conditions in section 50-55 are satisfied. | Detailed Reasoning - Conclusion: Based on the information above, you are not a public educational institution pursuant to section 50-5 Item 1.4 of the ITAA 1997. Your dominant purpose is not providing education and you are not a public organisation. Consequently, your ordinary and statutory income is not exempt from income tax under section 50-1 of the ITAA 1997.