No.046
Monday, 30th May 2005
MUTUALITY PRINCIPLE TO BE RESTORED
The Government will amend the income tax law to ensure certain not-for-profit
organisations are not subject to tax on income as a result of a recent High
Court decision. The Government's actions will restore the long-standing
benefits of the 'mutuality principle'.
"This announcement honours the Government's commitment made during
the election. It addresses the concerns raised about the impact of judicial
decisions arising from litigation between Coleambally Irrigation Mutual Co-operative
Ltd and the Commissioner of Taxation," Minister for Revenue and Assistant
Treasurer, Mal Brough, said today.
Under the mutuality principle, which has been established under the general
law, membership subscriptions and receipts from other mutual dealings with members
are exempt from income tax. Not-for-profit organisations that benefit from the
mutuality principle include clubs, professional organisations and friendly societies.
On 27 May 2005, the High Court decided not to grant Coleambally Irrigation
Mutual Co-operative Ltd leave to appeal a decision that the principle of mutuality
cannot apply where the members of an organisation are prevented from obtaining
the value of the assets on its winding up.
The amendment to the Income Tax Assessment Act 1997 will provide that the mutuality
principle may apply to affected not-for-profit organisations even though the
organisation is precluded from distributing to members on winding up. On winding
up, any surplus would be required to be distributed to another not-for-profit
organisation. The Tax Office estimates that around 200,000 to 300,000 organisations
(largely RSL and social clubs) would potentially have become subject to tax
on receipts that the Tax Office had previously considered to be excluded from
assessable income under the mutuality principle.
The amendment will give legislative backing to the Tax Office practice that
applied to distribution clauses prior to the judicial decisions.
Media contact: Carlie Hogan - (02) 6277 7360