Private ruling: Income tax exemption
Date of advice: 3 July 2017
Published: November 2017
Ruling period: 1 July 2017 to 30 June 2018 | 1 July 2018 to 30 June 2019 | 1 July 2019 to 30 June 2020
Date scheme commenced: 1 July 2017

Ruling: Q1: Is The Club a not-for profit (NFP) organisation? | A1: Yes | Q2: Is the ordinary and statutory income of The Club exempt from income tax under section 50-1 of the Income Tax Assessment Act (1997)? | A2: No

Relevant facts and circumstances: The Club operates under a constitution. The club has never been incorporated and does not have an ABN or TFN. In the Private Ruling Application, The Club Treasurer stated: 'We are considering incorporating the club … '. Employees of The Company can choose to become members of The Club. Members of The Club are required to pay a monthly membership fee. This fee is deducted from their post-tax income by their employer The Company. The Company provide an equivalent contribution for each member. The total membership amount is paid to The Club directly from The Company on a monthly basis. The Club make a small profit selling chips, chocolates and drinks to all employees of The Company (including non-members). Events are run at a discounted rate for members. The organiser of the event is paid a bonus by The Club for organising the event. Expenses incurred by The Club include: - Bank fees on the associated account; - Lunches for committee members at committee meetings; - Lunches for all members attending the AGM. Relevant Rules of The Club Constitution: Rule 3 (1) states that: the objects of the Club are to improve the productivity of The Company employees through improved working relationships by holding social functions subsidised by The Club members and The Company. Rule 3 (2) states that: the property and income of the Club shall be applied solely towards the promotion of the objects of the Club and no part of that property or income may be paid or otherwise distributed, directly or indirectly, to members, except in good faith in the promotion of those objects. Rule 24 states that: If, on the winding up of the Club, any property of the Club remains after satisfaction of the debts and liabilities of the Club and the costs, charges and expenses of that winding up , the property shall be distributed:- (a) To another incorporated Club incorporated under the Act. or (b) For charitable or benevolent purposes, which incorporated Club or purposes, as the case requires shall be determined by resolution of the members when authorizing and directing the Committee under section 33(3) of the Act to prepare a distribution plan for the distribution of the surplus property of the Club.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 50-1 | Income Tax Assessment Act 1997 Subdivision 50-A Further issues for you to consider | Mutuality and taxable income | The Club has dealings with both members and non-members. Receipts derived from mutual dealings with members of your organisation are called mutual receipts. Mutual receipts are not subject to income tax because they are not assessable income. | Examples of mutual receipts include: | ● member subscriptions and levies | ● drinks and food sold by the organisation to members | ● amounts members pay to attend dinners, parties, dances or social functions arranged by the organisation | ● the sale of items, such as souvenirs, to members. | Amounts paid by The Company to subsidise employee membership fees are treated as membership fees paid directly from the member. | Assessable income includes receipts from trading with non-members and entities outside the organisation. Examples of assessable receipts include: | ● food and drinks sold to non-members | ● amounts non-members pay to attend dinners, parties, dances or social functions arranged by the organisation | Some of the revenue of The Club is from both members and non-members, such as the sale of 'Chips, Chocolates and Drinks’, this should be apportioned between assessable and non-assessable income. | Revenue that may need to be apportioned includes: | ● drinks sold at the bar to members and non-members | ● amounts members and non-members pay to attend dinners, parties, dances or social functions arranged by the organisation | ● member and non-member proceeds from a raffle | Your organisation must choose a method of apportionment. The method (or methods) your organisation chooses must reasonably and accurately reflect its revenue and expenses. | Further information can be found on the ATO website by searching for 'Mutuality and taxable income’ (Quick search code: QC 23099).

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | Summary: Yes. The Club is a not-for-profit organisation, as the rules contained in the Constitution of The Club prevent it from distributing profits or assets to particular people, whilst operating and upon wind up. | Detailed Reasoning - Detailed reasoning: A NFP organisation does not operate for the profit or gain of its individual members, whether these gains would have been direct or indirect. An organisation is considered to be NPF 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. The Club’s constitution contains the following valid non-profit and wind-up clauses: Rule 3 (2) “the property and income of the Club shall be applied solely towards the promotion of the objects of the Club and no part of that property or income may be paid or otherwise distributed, directly or indirectly, to members, except in good faith in the promotion of those objects.” Rule 24 “If, on the winding up of the Club, any property of the Club remains after satisfaction of the debts and liabilities of the Club and the costs, charges and expenses of that winding up , the property shall be distributed:- (a) To another incorporated Club incorporated under the Act. or (b) For charitable or benevolent purposes, which incorporated Club or purposes, as the case requires shall be determined by resolution of the members when authorizing and directing the Committee under section 33(3) of the Act to prepare a distribution plan for the distribution of the surplus property of the Club. The presence of these clauses satisfies the requirements of a non-profit organisation. | Summary: No. The ordinary and statutory income of The Club does not meet the qualifying criteria of the various exempt entities covered by the tables in subdivision 50-A of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: To be exempt from income tax, a non-profit organisation must meet the requirements for one of the types of exempt entities in the tax law. Section 50-1 of the ITAA 1997 states that the ordinary income and statutory income of entities covered by the tables in Subdivision 50-A of the ITAA 1997 is exempt from income tax. These entities fall into the following categories: - Charity, education and science - Community service - Employees and employers - Funds contributing to other funds - Government - Health - Mining - Primary and secondary resources, and tourism - Sports, culture and recreation As your non-profit organisation does not meet the requirements of one of the types of exempt entity, it cannot be exempt. Some not-for profit (NFP) clubs, societies and associations are taxable organisations, that is, they are not exempt from income tax. Examples of taxable NFP organisations include social clubs, certain business and professional associations, clubs whose main purpose is providing hospitality services for members, and political parties.

Reasons for decision: These reasons for decision accompany the Notice of private ruling for The Club.