KL Beddoe SM
Administrative Appeals Tribunal
K.L. Beddoe (Senior Member)
The question to be decided in this application is the determination of the tax rate applicable to a building unit plan's taxable income.
2. The applicant is objecting to a decision of the Commissioner of Taxation that it is not a non-profit company and thus should be taxed at the company rate of tax.
3. Section 6(4) (1983) and sec. 5 (1982 and 1984) of the Income Tax (Companies, Corporate Unit Trusts and Superannuation Funds) Act 1982-1984 (``the Rating Act'') states that a non-profit company means -
``(a) a company that is not carried on for the purposes of profit or gain to its individual members and is, by the terms of the company's constituent document, prohibited from making any distribution whether in money, property or otherwise, to its members; or
4. The consequence of a company being a non-profit company within the meaning of the Rating Act is that its liability for income tax will be calculated pursuant to sec. 6(5) of the Rating Act, which provides that:
``Where the taxable income of a non-profit company, not being a registered organisation, does not exceed $2,542, the amount of tax payable by the company shall not exceed 55% of the amount by which the taxable income exceeds $416 less any rebate or credit to which the company is entitled.''
5. This is in contrast to the situation where the applicant is a company and income tax will be levied at the rate of 46% as provided for in sec. 6(2) of the Rating Act.
6. The parties agreed the following facts:
- (a) The applicant is and was at all material times a building units plan incorporated pursuant to sec. 27 of the Building Units and Group Titles Act 1980 (Qld).
- (b) The applicant is and was at all material times a company within the meaning of sec. 6(1) of the Income Tax Assessment Act 1936.
- (c) The taxable income of the applicant for the relevant years of income was:
$ Year ended 30 June 1983 475 Year ended 30 June 1984 479 Year ended 30 June 1985 451
- (d) The taxable income of the applicant in the relevant years of income comprised interest earned on moneys held in bank deposit accounts.
7. The definition of a non-profit company, as defined in sec. 3(1) of the Rating Act, has four essential aspects:
- (1) that the taxpayer is a company;
- (2) the taxpayer company is not carried on for the purpose of profit or gain to its individual members; and
- (3) that there is a constituent document;
- (4) that the taxpayer company is prohibited by the terms of that constituent document from making any distribution to its members, whether in money, property or otherwise.
8. In relation to the first aspect, sec. 6(1) of the Income Tax Assessment Act 1936 (``the Act'') defines company to include all bodies or associations corporate or unincorporate and so includes the body corporate in this application. (Section 4 of the Rating Act states that the Act is to be incorporated and read as one with the Rating Act.) In Case U57,
87 ATC 370, this Tribunal decided that a strata title body corporate was a company as defined in sec. 6(1) of the Act.
9. The second requirement is that the taxpayer company is not carried on for the purpose of profit or gain to its individual members. Under the Queensland Building Units and Group Titles Act 1980 (``the Titles Act''), a body corporate is required for the purpose of administration of the registered plan, the common property and the individual lots created pursuant to that Act. I am prepared to infer that the taxpayer company here is not carried on for the purpose of profit or gain to its individual members.
10. The third question to arise is that of the constituent documents of the body corporate - these being the registered plan and the body corporate by-laws. The representatives of both the applicant and the respondent submitted that the Titles Act is also a constituent document. The registered plan and the by-laws are made pursuant to that Act but that does not make the Act itself a constituent document and I so find. Even if I am wrong in this finding so that the Act is a constituent document, the Act does not specifically prohibit a body corporate making a distribution to its members. The result is therefore the same.
11. The fourth aspect of the definition is that the applicant be prohibited by the terms of its constituent document from making any distribution to its members, whether in money, property or otherwise. On examination of both constituent documents, there is no reference to any such prohibition. The body corporate has power to incur liabilities and pay them when they are in connection with maintaining the units etc. but no other reference is made to distribution of, for example, surplus funds to members.
12. The wording of the definition in the Rating Act indicates the need for an express prohibition of distributions to members being found in the constituent documents. This condition is not satisfied within either the registered plan or the by-laws and therefore the body corporate does not fall within the definition of a non-profit company in the Rating Act and is thus liable to be taxed at the rate applicable to companies under subsec. 6(2) of the Rating Act.
13. The objection decision under review is affirmed.