Private ruling: Income tax exempt entities – Promotion of development of Australian resources agricultural resources
Date of advice: 8 March 2018
Published: June 2018
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: DDMMYY

Ruling: Q1: Is the Association exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 by virtue of item 8.2(c) of the table in section 50-40 as an association established for the purposes of promoting the development of Australian agricultural resources? | A1: Yes

Relevant facts and circumstances: The Association was incorporated in 200X. The Association’s Constitution provides the purposes and aims of the association. The Association undertakes various activities in respect of primary production in Australia. The Association’s Constitution includes appropriate not-for-profit clauses. The Association complies with the substantive requirements of the Constitution and applies its income and assets solely for the purpose of which it is established.

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

Reasons for decision: Summary: Detailed reasoning Section 50-1 of the ITAA 1997 provides that the total ordinary income and statutory income of entities covered by tables in Subdivision 50-A (which includes section 50-40) is exempt from income tax. Section 50-40 of the ITAA 1997, item 8.2, deals with societies or associations established for the purpose of promoting the development 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. In considering whether item 8.2 of section 50-40 of the ITAA 1997 applies to a particular organisation it is necessary to consider whether: ● the dominant or principal purpose for which the organisation is established is promoting resource development; and ● the resources whose development is being promoted are within the umbrella of the relevant resources specified in the item; and ● the resources are resources of Australia. Promoting resource development Item 8.2 of section 50-40 of the ITAA 1997 does not refer to the promotion of the specified resources. It is directed to the promotion of the development of the specified resources – to advancing, encouraging or furthering the resources’ development. The Macquarie Dictionary (online) defines 'develop' to mean: 1. to bring out the capabilities or possibilities of; bring to a more advanced or effective state. 2. to cause to grow or expand. The term ‘development’ refers to all the elements which must be taken into account to ensure that the specified resources are best used. The promotion of development of the specified resources 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. or, indirectly promoted by: ● improved marketing methods, ● cooperative buying and selling, ● solution of labour disputes, or ● petitioning for improved legislation. It need not be on a large scale or use commercial means. However, not all activities connected with a resource will necessarily be for its development. Determining the dominant purpose will be largely a matter of fact and degree. An association must be established principally or predominantly for the purpose of promoting resource development. It is not sufficient that one of an association's purposes satisfies section 50-40, nor is it enough that resource development is incidental to, involved with, or a consequence of an association's purposes. The term 'established' is not used in a narrow sense. It is necessary to consider an association's constituent documents and its operations and activities since establishment. Resources within the umbrella of item 8.2 of section 50-40 of the ITAA 1997 Definitions are not provided in the ITAA 1997 in relation to the types of resources listed in item 8.2 of section 50-40 and so they take their ordinary meaning. ‘Agricultural resources’ are resources of, or relating to, agriculture. The Macquarie Dictionary (online) defines ‘agriculture’ to mean ‘the cultivation of land, including crop-raising, forestry, stock-raising, etc’. Resources or their elements include infrastructure, plant and equipment, livestock, personnel, skills, knowledge, and expertise. An industry's businesses and their assets may be resources. 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. The test is not met where an association is established for the purpose of promoting the development of a foreign resource, or both Australian and foreign resources. Special conditions There are two special conditions which must be satisfied for section 50-40 of the ITAA 1997 to apply: ● That the society or association is not carried on for the profit or gain of its individual members, and ● That if the entity is a charity, it is registered under the Australian Charities and Not-for-profits Commission Act 2012 (the ACNC Act). The Association is established for the purpose of promoting the development of Australian agricultural resources and satisfies the special conditions in section 50-40 of the ITAA, it is entitled to the income tax exemption under section 50-1.