Private ruling: Income tax exemption
Published: April 2014
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 January 2014

Ruling: Q1: Is the Company 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: Yes.

Relevant facts and circumstances: 1. The entity is a company limited by guarantee. 2. The objects of the Company as stated in its constitution are as follows: (a) • to promote community relations and education; and to provide opportunities and organise events for communities, localities and neighbourhoods; and to promote, organise and enter into charitable fundraising, sponsorship and advertising; • including but not limited to in respect of any projects that benefit the community in connection with garage sales, environmental services, recycling and waste management and to do all such other things as are incidental or conducive to the attainment of the objects and exercise of the powers of the Company; and (b) • to carry out such other functions and purposes which are necessary or incidental to the other objects of the company.

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: Is the Company 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? | Detailed Reasoning - Detailed reasoning: 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 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). 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. 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 Company as stated in its constitution are as follows: (a) • to promote community relations and education; and to provide opportunities and organise events for communities, localities and neighbourhoods; and to promote, organise and enter into charitable fundraising, sponsorship and advertising; • including but not limited to in respect of any projects that benefit the community in connection with garage sales, environmental services, recycling and waste management and to do all such other things as are incidental or conducive to the attainment of the objects and exercise of the powers of the Company; and (b) • to carry out such other functions and purposes which are necessary or incidental to the other objects of the company. The organisation works with local and state governments to implement its program. The Company's financial statements are consistent with its activities and stated objects in the constitution. The main purpose of the Company is altruistic as opposed to seeking to advance the common interests of its members and therefore it is 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. The organisation's actions must be consistent with this requirement. The Company is limited by guarantee and contains a non-profit and winding up clause. We accept that the Company 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 Company is limited by guarantee in its particular state. It conducts its activities and incurs expenditure in Australia. The Company satisfies the physical presence in Australia test. The other tests do not need to be considered. The special conditions of section 50-70 of the ITAA1997 are satisfied. | Detailed Reasoning - Conclusion: The Company is exempt from income tax on the basis that it is a community service organisation. | Detailed Reasoning - Other Relevant Comments: If an organisation is a charity is cannot self-assess its entitlement to income tax exemption.