Private ruling: Income tax exemption
Date of advice: 4 September 2015
Published: September 2015
Ruling period: 1 July 2015 to 30 June 2021
Date scheme commenced: 1 July 2015

Ruling: Q1: Is the ordinary and statutory income of the organisation exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is a resource development organisation as described in item 8.2 of the table in section 50-40 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: • The entity is a public company limited by guarantee. • The objects are to: 2.1 facilitate trade and investment between Australia and another country through contacts, information and expertise 2.2 promote services and capabilities and strengthen the relationship with stakeholders and partners; 2.3 create a 2-year rolling program with corporate members for networking events; 2.3 improve promotion and awareness of existing and new services, particular of those being offered to Members; 2.5 continue successful communication strategies in order to improve existing and potential customer and Member relationships; 2.6 select and explore special industry sectors which are of interest to potential clients and Members; 2.7 provide tailor-made briefings to the Australian market, to other country company clients; and 2.8 such other activities as the entity may determine from time to time that are consistent with the objects, The entity advised that its principal object is to promote and encourage industrial and commercial relations between individuals, firms, corporations, institutions and associations of a country and Australia and to support, promote and encourage trade and investment between a country and Australia. To meet its objects, the entity: • conducts conferences, meetings forums and seminars in Australia to promote business, investments and trade interest on various industries in Australia and allow for interactions between Australian and other country participants • facilitates and/or encourages investment in Australian markets • fosters collaborations between local and international markets by promoting Australian industries • provide tailor-made briefings to the Australian market to other country company clients and members • publishes annual business guides, market reports, papers on industries, country-Australian business directory and country-Australian business news where the focus is on providing information on Australia; and • provides assistances in the identification of trade partners. Membership to the entity is open to members of the general public who are engaged or interested in industry or commerce or cultural relations between Australia and another country. The source of the entity's funding is from membership subscriptions, service fees, event revenue, publications and grants from a government. The entity uses its funds primarily for its key activities and projects.

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

Reasons for decision: Summary: The ordinary and statutory income of an entity is exempt under section 50-1 of the ITAA 1997 where the entity falls within the following description contained in item 8.2 of section 50-40 of the ITAA 1997: A society or association established for the purpose of promoting the development of any of the following Australian resources: (a) agricultural resources (b) horticultural resources (c) industrial resources (d) manufacturing resources (e) pastoral resources (f) viticultural resources (g) aquacultural resources (h) fishing resources The exemption is subject to a special condition that the society or association is not carried on for the profit or gain of individual members. The matters to be satisfied before this exemption applies are: • the entity is a non-profit association or society; and • the dominant or principal purpose for which the entity 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. If the association fails to satisfy these requirements, its income will not be exempt under this provision. | Detailed Reasoning - Society or association: The terms 'association' and 'society' are not defined and have 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). The entity is considered to be an association because as a company limited by guarantee it has a formal structure, it also has a number of members and is established for a defined purpose. | Detailed Reasoning - Non-profit: Section 50-40 of the ITAA 1997 requires that the association not be carried on for the purposes of profit or gain to its individual members. This is known as the non-profit requirement. Evidence that an association operates on a non-profit basis can be found in its constituent documents which should contain a prohibition against distribution of profit and assets among members while the association is functioning and on its winding up. The association's actions must also be consistent with this prohibition. The entity contains suitable non-profit clause and the constitution contains a suitable dissolution clause. The entity is accepted as being a non-profit association. | Detailed Reasoning - Resources: An association exempt under item 8.2 of the table in section 50-40 of the ITAA 1997 must promote the development of one or more of the specified resources. The specified resources are not defined in the legislation and take on their ordinary meaning. Resources or their elements include infrastructure, plant and equipment, livestock, personnel, knowledge, expertise and skills. The Macquarie Dictionary defines agriculture as: the cultivation of land, including crop-raising, forestry, stock-raising, etc.; farming. Pastoral is defined in the Macquarie Dictionary: 1. of or relating to the raising of stock, especially sheep or cattle, on rural properties: pastoral occupations ; pastoral leases. 2. used for pasture, as land. 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 cover such resources as those of the building, mining, quarrying, shipping and other transport industries. It did not cover business or commercial resources". It is accepted it is established for the purpose of promoting the development of Australian resources as required under item 8.2 of the table in section 50-40 of the ITAA 1997. | Detailed Reasoning - Resources of Australia: The words 'in Australia' limit the exemption to associations whose activities are directed to Australian resources. 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. Associations promoting trade between Australia and other countries may be exempt where it is clear that they are predominantly to promote Australia's resources. Such a conclusion may be drawn where the activities and membership are primarily Australian. For example the Australian committee of an international trade society might be exempt where the membership was of Australian companies and it concentrated on the promotion of Australian resources. On the other hand an association established primarily to promote or facilitate investment by Australians in another country may not be developing Australia's resources, even though it may generate profits for Australia. The entity promotes and encourages industrial and commercial relations between individuals, firms, corporations, institutions and associations of Australia and another country. Therefore it promotes Australian and another country's resources. It must be considered to what extent it promotes the other country's resources. It will satisfy this requirement only if it predominantly promotes Australian resources. The majority of the members are Australian companies and the majority of its conferences are held in Australia. Whilst technologies and services are introduced to Australian businesses their utilisation can further develop Australian resources and also fosters collaboration and cooperation between participants from both countries with the purpose of promoting industries that are relevant to the Australian society. The promotion of another country's resources is incidental to the dominant purpose of the promotion of the Australian resources. | Detailed Reasoning - Promoting Resource Development: It has already been established that the resources are of Australia. The exemption does not apply to entities that merely promote one or more of the specified resources of Australia. An entity must instead be established for the purposes of 'promoting development' of those resources. The term 'development' is used in section 50-40 of the ITAA 1997 in a commercial or business sense. The promotion of development may be direct or indirect. For example the development of agricultural resources might be directly promoted by research, experimental farms, control of pests, education in farming methods, or the introduction of new and improved classes of products. It might be indirectly promoted by improved marketing methods, cooperative buying and selling, solution of labour disputes, or ameliorative legislation. The meaning of 'development' was examined by the High Court in FC of T v. Broken Hill Pty Co. Ltd 69 ATC 4028; 1 ATR 40 where, in considering the phrase 'development of mining property', the majority of the High Court accepted the interpretation of Kitto J: In its ordinary English sense the word "development", when used in relation to a property, refers to the unfolding, the bringing out, of some latent capability of that property…It covers I think, any preparation, adaptation or equipment of the property for the exploitation of an inherent potentiality which cannot be exploited or fully exploited, without some such preliminary treatment. Development of resources can be promoted by facilitating the cooperation of businesses and instrumentalities. In this regard, the entity may be considered a resource development organisation. The key purpose and its key activity involve creating situations that will facilitate the cooperation of businesses in order for these businesses to further develop manufacturing, industrial and to a lesser extent agricultural and pastoral resources of Australia. These activities include the seminars, conferences and the publications its produces and research it undertakes to showcase the resources of Australia and to encourage overseas companies to bring their resources and technology to the businesses in Australia in order to further develop the Australian resources. It is accepted the entity promotes the development of resources specified in section 50-40 of the ITAA 1997. | Detailed Reasoning - Principal or dominant purpose: To be exempt under section 50-40 of the ITAA 1997, an association must be established principally or predominantly for the purpose of resource development (Australian Insurance Association v FC of T 79 ATC 4569; 10 ATR 333; (1979) 41 FLR 256). It is not sufficient that one of the association's purposes falls within section 50-40 of the ITAA 1997. It is also not enough that resource development is incidental to, involved with, or the consequences of an association's purposes. The term 'established' is not used in the narrow sense of considering only the motives and objectives which led to the formation of an association ( Case W49 at 89 ATC 474; 20 ATR 3602-3). It is necessary to consider an association's constituent documents, and also its history, operations and activities ( Boating Industries Association of New South Wales v F C of T at 85 ATC 4228-9; 16 ATR 388). As the Tribunal pointed out in Case W49 at ATC 474; 20 ATR 3603 it is necessary to consider: '…whether during the period under review the organisation was in existence and was operated and maintained in an established or stable condition as an organisation having as its principal or dominant purpose, one of the purposes provided for in the subsection.' Therefore, determining the dominant purpose of the association will be a question of fact and degree and will involve a weighing of the various elements which includes its objects, activities, history, proposed directions, etc ( Boating Industries Association of New South Wales v F C of T 85 ATC 4224; (1985) 16 ATR 383). Consequently, it will be necessary to consider each association on the merits of its particular circumstances. Also, because those circumstances may change, an association's tax status may change over time. The objects of the entity and its primary activities predominantly focus on Australian resources and its actions are consistent with this purpose. | Detailed Reasoning - Special condition - benefits to members: If an association operates principally to confer benefits on its members jointly or as a group, it is unlikely to be predominantly for the purpose of promoting resource development and thus not exempt under section 50-40 of the ITAA 1997. As the following cases illustrate, it is necessary to distinguish a dominant purpose of providing benefits to members as a group, from the incidental benefits which will often flow to members from activities promoting the development of resources with which they are involved. In Case 46/94 94 ATC 412; (1994) 29 ATR 1102 at ATC 417; 29 ATR 1108 the Tribunal found, as an alternative ground, that the association was not exempt under 23(h) of the Income Tax Assessment Act 1936 , because it was found to be principally for the promotion of the interests of its members. It operated to look after the needs of consulting surveyors in such matters as public liability insurance, professional development, training of employees, assuring quality client service, publishing business practice and technical material, and lobbying to obtain work for members particularly from government. (The association was accepted as non-profit.) In Commissioner of Taxation v Co-operative Bulk Handling Limited [2010] FCAFC 155, a majority of the Full Court (Mansfield, McKerracher JJ, Siopis J dissenting) confirmed the decision of Gilmour J that the activities of Co-operative Bulk Handling Limited (CBH) regarded as a whole are directed primarily to "promoting the development of agricultural resources of Australia" being the grain growing industry in WA. They concluded that "promoting the development of agricultural resources" in the expression extends beyond what is done on the farm or nearby. The expression includes developing the range of resources available to facilitate and support agriculture. The purpose for which CBH was established must be determined by considering globally all activities of CBH against the whole legislative expression. The membership is open to any entity that is interested in the commerce or cultural affairs between another country and Australia. There is no limitation to who can be a member. The entity provides some services to its members and non-member's for a fee however these activities are considered incidental to the pursuit of its purpose. Part of facilitating the cooperation between companies involves activities such as those referred to above. It is apparent that the entity is not operating with the dominant purpose of providing a benefit to its members. Any entity can be a member and be in receipt of their services and the services carried out by the entity are merely in the course of pursuing their purpose. | Detailed Reasoning - Conclusion: It is accepted that the association that is not carried on for the profit or gain of its individual members, and is established for the purpose of the development of Australian resources that come within the umbrella of specified Australian resources under the table in item 8.2 of section 50-40 of ITAA 1997.