Private ruling: Income tax exemption - Promoting development of manufacturing resources
Published: September 2017
Ruling period: 1 July 2016 to 30 June 2017 | 1 July 2017 to 30 June 2018 | 1 July 2018 to 30 June 2019 | 1 July 2019 to 30 June 2020 | 1 July 2020 to 30 June 2021
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the total ordinary income and statutory income of the entity exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as an association established for the purpose of promoting the development of a manufacturing resource of Australia under Item 8.2(d) of the table in section 50-40 of the ITAA 1997? | A1: Yes.

Relevant facts and circumstances: The entity is registered with the Australian Securities and Investments Commission as an Australian public company limited by guarantee. The company is not a registered charity and currently does not contemplate becoming a charity. The company is the peak industry voice representing a manufacturing industry in Australia. Member companies represent over 95% of the industry's manufacturing and production volume in Australia. The company undertakes a number of activities and has specific dedicated subdivisions to promote manufacturing in Australia. From a public policy perspective, the entity acts as the link or nexus between manufacturers and Governments, State and Federal, and their underlying Departments. In recent years, the company has led the way in aiding the development and implementation of several initiatives. The entity's principal area of operation is in Australia and its principal expenditure is on salary and employee expenses and expenses from ordinary activities. A copy of the entity's Constitution has been provided in support of the private ruling application. The Constitution includes the entity's objects. Its primary object is to operate as a not-for-profit association committed to the promotion, protection and growth of the industry in both Australia and where relevant, internationally. This is achieved by representation of its members and advancement of professional standards to ensure acceptable operational standards are met in the industry. The entity's Constitution includes a non-profit clause and a winding up or dissolution clause.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 50-1 | Income Tax Assessment Act 1997 section 50-40 | Income Tax Assessment Act 1997 section 50-47

Reasons for decision: Summary: Please note that all legislative references referred to below are in relation to the Income Tax Assessment Act 1997 unless otherwise specified. Section 50-1 provides that the ordinary and statutory income of certain entities is exempt from income tax. The entities are those listed in the tables contained in sections 50-5 to 50-45. The appropriate section for consideration in this ruling is section 50-40. Where an entity falls within the description contained in Item 8.2 of the table in section 50-40 its total ordinary income and statutory income will be exempt from income tax. Item 8.2 of the table in section 50-40 states: 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 its individual members. The entity has applied for consideration as a society or association established for the purpose of promoting the development of Australian manufacturing resources under Item 8.2(d) of the table in section 50-40. Accordingly, to be exempt from income tax under 50-1, the entity must meet all of the following relevant conditions: ● It must be a society or association; ● It must be established for the purpose of promoting the development of Australian manufacturing resources; ● It must not be carried on for the profit or gain of its individual members; and ● It must not be a charity. | Detailed Reasoning - Society or association: The terms 'society' and 'association' are not defined in the Income Tax Assessment Act 1997 . These terms are therefore construed according to their ordinary meaning. In Theosophical Foundation Pty Ltd v. Commissioner of Land Tax (1966) 67 SR (NSW) 70, Sugerman JA stated at 82: A society, in the relevant sense, is “a number of persons associated together by some common interest or purpose, united by a common vow, holding the same belief or opinion, following the same trade or profession, etc.; an association” In Pro-Campo Limited v. Commissioner of Land Tax (N.S.W.) 81 ATC 4270, Lee J stated at 4279: The meaning of "society" as the Oxford English Dictionary definition shows can be the equivalent of "association" and I do not think that any relevant distinction in nature exists between the two. It merely seems to have happened that some organisations are called "associations", others are called "societies" but no meaningful difference can be detected between the two. Taxation Determination TD 95/56 at paragraph 2 considers the definition of 'association' as follows: …The Shorter Oxford English Dictionary defines the term 'association' to be 'a body of persons associated for a common purpose; the organisation formed to effect their purpose'. The Macquarie Dictionary defines 'association' as being 'an organisation of people with a common purpose and having a formal structure'. Olsson J, in Quinton v. South Australian Psychological Board (1985) 38 SASR 523, also stated that the term 'association' has come to be regarded as attaching to a body of persons associated for a common purpose. The entity is a public company limited by guarantee. We consider that it is an organisation of people with a common purpose (as per its objects in the Constitution) which has a formal structure. Accordingly, it is considered to be a society or association. | Detailed Reasoning - Promoting development: Item 8.2 of the table in section 50-40 is directed to the promotion of the development of the specified resources. The term 'development' is used in a commercial or business sense. It comprehends all the elements which must be taken into account to ensure that the resources are best used (as discussed in paragraph 8 of Taxation Ruling IT 2415 Income tax: associations promoting development of Australian resources ). The promotion of development may be direct or indirect. Methods of promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating cooperation and similar activities. | Detailed Reasoning - Manufacturing resources: The term 'manufacturing resource' is not defined in the legislation. It takes its ordinary meaning. Resources or their elements include infrastructure, plant and equipment, livestock, personnel, knowledge, expertise and skills. An industry's businesses and their assets may be resources. 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': Australian Insurance Association at 79 ATC 4574; 10 ATR 339. | Detailed Reasoning - Resources of Australia: The words 'of Australia' limit the exemption to associations whose activities are directed to Australian resources, thereby excluding associations whose activities are directed to the resources of places beyond Australia. 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. | Detailed Reasoning - Dominant Purpose: To be exempt under Item 8.2(d) of the table in section 50-40, an association must be established principally or predominantly for the purpose of promoting the resource development. Determining the association's dominant purpose will be largely a matter of fact and degree ( Boating Industries Association of New South Wales at 85 ATC 4229; 16 ATR 399). It may involve a weighing up of the association's objects, activities, history, operation, and use of funds. | Detailed Reasoning - Application to the facts of this case:: As stated in the Constitution the primary object of the entity is to operate as a not for profit association committed to the promotion, protection and growth of the industry in both Australia and where relevant, internationally. This is achieved by representation of its members and advancement of professional standards to ensure acceptable operational standards are met in the industry. The activities which the entity undertakes to promote the industry and the manufacturing of products includes: ● Promotion and development of standards and provision of industry specific training. ● Technical support and assistance to industry members relating to regulatory and legislative changes that take place and the provision of professional development opportunities through specialist seminars. ● Provision guidance for training programs, seminars and hosts a biannual conference relating to professional development in the industry. ● Maintenance of a number of international affiliations with organisations to ensure Australian manufacturing is aligned with global standards and best practice. The entity acts as the link between manufacturers, State and Federal Governments and their underlying Departments. In addition, it is the peak body representing the collective interests of the industry and represents 95% of the industry's manufacturing and production volume in Australia. Based upon the above discussion, it is considered that the entity is established for the purpose of promoting the development of Australian manufacturing resources. | Detailed Reasoning - 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 promoting resource development and thus not exempt under section 50-40. However, 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 this case, it can be seen that the benefits provided by the entity to its members are designed to add to the member's industry knowledge and assist them to learn the latest industry trends and methods by way of training and development. Accordingly, these benefits are received jointly as members and are considered to be incidental benefits which flow to members from activities promoting the development of resources with which they are involved. | Detailed Reasoning - Not carried on for the profit or gain of its individual members: Section 50-40 requires that the society or association not be carried on for the purpose of profit or gain to its individual members. Where members, in their individual capacity, are to receive benefits from an association it will fail the non-profit test. However, benefits which are received by members jointly as members and are incidental to the pursuit of the association's objects will not prevent it passing the non-profit test. Generally an association will be accepted as being non-profit where, by operation of law or by its constituent document, the association is prevented from distributing its profits or assets among members while the association is operating and on its winding up. The association's actions must be consistent with the prohibition. The following example clauses would be acceptable to us, provided that other clauses within the Constitution do not contradict them. The entity's actions must be consistent with this requirement. Non-profit clause The assets and income of the organisation shall be applied solely in furtherance of its above-mentioned objects and no portion shall be distributed directly or indirectly to the members of the organisation except as bona fide compensation for services rendered or expenses incurred on behalf of the organisation. Dissolution clause In the event of the organisation being dissolved, the amount that remains after such dissolution and the satisfaction of all debts and liabilities shall be transferred to another organisation with similar purposes which is not carried on for the profit or gain of its individual members. Alternative words may be used provided the result is achieved that funds and assets of the association cannot find their way to members (or their associates or nominees). The entity's Constitution contains appropriate prohibitions on making distributions to its members during operation and upon winding up. There is nothing to indicate that the actions of the entity have been inconsistent with the prohibition. There appear to be no clauses in the current Constitution which would contradict this and allow profits to be distributed to members. It is therefore accepted that the entity is not carried on for the profit or gain of its individual members. | Detailed Reasoning - It must not be a charity: A resource development entity described in section 50-40 will not be exempt from income tax as such if it is an entity that is also a charity. The entity is not a charity and therefore satisfies this requirement. | Detailed Reasoning - Conclusion: It is considered that the entity is a non-profit association that meets the requirements of Item 8.2(d) of the table in section 50-40. Accordingly, its ordinary and statutory income is exempt from income tax under section 50-1.