Exemptions from State taxes guidance

Purpose 

If your incorporated association has charitable purposes and intends to seek exemptions from State taxes, your rules at a minimum must include a winding‑up clause that reflects public benefit.

The Department of Treasury and Finance has advised that Model Rule 71 “Distribution of surplus property on cancellation of incorporation or winding up” (Schedule 2 to the Associations Incorporation Regulations 2016 (the Regulations)), will not be sufficient to allow an exemption from State taxes as it does not identify the public benefit necessary for an exemption. 

This guidance has been developed to assist incorporated associations seeking the grant of an exemption from State taxes by providing suggested wording for a winding‑up clause that can be used to replace Model Rule 71.

Disclaimer:  Using the suggested wording set out below does not guarantee that your incorporated association will be granted an exemption from any State tax. Exemptions are assessed on a case-by-case basis, in accordance with relevant legislation and policy requirements. Independent legal advice should be obtained before adopting the suggested winding-up clause wording proposed in this guidance.

Act requirements – Distribution of surplus property

Under section 24(1) of the Associations Incorporation Act 2015 (Act), an incorporated association can only distribute surplus property to one or more of the following:

• an incorporated association
• a company limited by guarantee that is mentioned in section 150 of Corporations Act 2001 (Cth) (Corporations Act)
• a company holding a licence that continues in force under section 151 of the Corporations Act
• a body corporate that at the time of the distribution is the holder of a licence under the Charitable Collections Act 1946
• a body corporate that -
  • is a member of former member of the incorporated association and
  • at the time of the distribution of surplus property, has rules that prevent the distribution of property to its members
• a trustee for a body corporate
• a co‑operative registered under the Co‑operatives Act 2009 that, at the time of the distribution of surplus property, is a non‑distributing co‑operative (as defined in that Act)
• an association that is incorporated under an Act of another State or a Territory that corresponds to the Act
• an Aboriginal and Torres Strait Islander corporation as defined under section 16.5 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth)
• a religious organisation incorporated by or under a written law
• an entity endorsed by the Commissioner of Taxation of the Commonwealth under the Income Tax Assessment Act 1997 (Cth) as a deductible gift recipient. 

Suggested Wording 

If your incorporated association wishes to apply for tax exemptions, consider including the following clause in your rules:

1. “In this rule – 
   surplus property, in relation to the Association, means property remaining after satisfaction of –
   1. a. the debts and liabilities of the Association; and
   2. the costs, charges and expenses of winding up or cancelling the incorporation of the Association but does not include books relating to the management of the Association.
2. On the cancellation of the incorporation or the winding up of the Association, its surplus property must be distributed in accordance with the Act as determined by special resolution to another organisation of a type listed in section 24(1) of the Act that has similar charitable purposes which are not carried out for the purposes of profit or gain to its members.”

If an association is not incorporated with a charitable purpose and does not wish to obtain tax exemptions available by virtue of having a charitable purpose, the association can adopt model rule 71 without modification. 

When submitting an application

If you adopt the suggested wording or make any changes to Model Rule 71:

• You are not using the Act’s Model Rules. You are using Own Rules.
• When lodging Form 1 - Application for Incorporation or Form 5 - Notice of special resolution to change the rules
  • Select that the association has adopted or is using its “Own Rules” on the form.
  • Include a complete copy of your association’s rules showing the adopted clause.