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An organisation is classified a mutual where there is a complete identity between the participants in the entity and its members, and where the entity's income is derived from members.


A mutual is a self-help organisation formed by individuals or businesses to provide a service to themselves. In Australia, mutuals come in many forms (trade unions, clubs, credit unions, industry superannuation funds), and are incorporated under a variety of legislation, both state and federal.

A co-operative is just one of a number of legal entities available for people and businesses to form a mutual enterprise. Other entities include companies and incorporated associations.

The Australian Taxation Office estimates that there are between 200,000 and 300,000 mutual businesses in Australia. (Source: Federal Minister for Revenue, Mutuality Principle to be Restored, Media Release, 30 May 2005)

Mutuality principle

The mutuality principle is a legal principle established by common law. It is based on the proposition that an organisation (commonly a legal entity) cannot derive an income from itself.

The principle provides that where a group of persons contribute to a fund created and controlled for a common purpose and for the mutual benefit of its members, any surplus arising from the use of that fund for the common purpose is not assessable as income, even if distributed to the contributors.

The principle is that taxable income must be derived by outside parties (a person cannot make a profit from him/herself). Typically, the principle has relevance with the activities between the entity and its members (mutual activities), but not to activities with non members for payment (trading activities).

Examples of mutuals

Credit unions are mutuals - only depositors can be members, all depositors must be members and income is derived from investing member deposits. Similarly, housing co-operatives are mutuals - only tenants may be members, all tenants must be members and income is derived from tenants.

Many Australian co-operatives are not mutuals because they provide services to both members and non-members. For example, a co-operative which runs a retail outlet is not a mutual if some of its customers are not members. Similarly, a health care co-operative would not be mutual if it provides health services to both member and non-member patients.

Public Service Mutuals

A Public Service Mutual is a government owned company which is contracted to deliver government services to the public.

Also known as public sector mutuals, PSM's are gaining popularity around the world as conservative governments seek to reduce public debt by outsourcing frontline staff. As a PSM is a separate legal entity, employees are not subject to the same wages and conditions as they would if directly employed by the government.

A key benefit to government is that as a mutual, a PSM is not subject to income tax, as the government is both the funder and owner of the mutual company.


The term "demutualisation" is often used in the broader community to describe changes in corporate form. For example, a change from a co-operative to a company limited by shares is often referred to as a demutualisation.

The process of demutualisation involves a change in organisation which results in members surrendering their rights to participate in any common fund that constitutes the organisation. Upon demutualisation, there is effectively a distribution or an allocation of any accumulated mutual surplus to shareholders.

Commonly, mutual enterprises that demutualise distribute the benefit of any accumulated surplus to members by issuing shares in the demutualised entity, or an equivalent cash payment from reserves or from the proceeds of the sale of demutualised shares, in exchange for giving up their membership interests. More information

  Love, Natalie The Relevance of the Mutuality Principle within the Nonprofit Sector Third Sector Review Vol 13(1) 2007
  Gill, Tony Demutualisation of co-operatives in Australia Co-operative Development Services Ltd 2003
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