ATO Interpretative Decision

ATO ID 2003/721 (Withdrawn)

Income Tax

• This ATO ID is withdrawn. Guidance on the issue contained in this ATO ID can be found at Community service organisations (QC 46312).
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is an industry ombudsman entity exempt from income tax under section 50-10 of the Income Tax Assessment Act 1997 (ITAA 1997) and section 65J of the Fringe Benefit Tax Assessment Act 1986 (FBTAA), where it is established by its members, pursuant to a requirement of a State/Territory statute, to provide a free ombudsman service to all domestic and small business consumers of an industry?

Decision

Yes. An industry ombudsman is an exempt entity under section 50-10 of the ITAA 1997 and section 65J of the FBTAA where it is established at the direction of Government for consumer protection purposes and is available free of charge to all domestic and small business consumers of that industry.

Facts

Various public utility service providers (for example, electricity, gas, water), being licence holders under a State/Territory statute, are required as a condition of their licence, to be a member of an industry ombudsman scheme approved by the relevant Minister of State. The stated purposes of the Government in requiring the establishment of the ombudsman scheme is to provide protection for domestic and small business consumers in the event of disputes with service providers.

The industry ombudsman entity is usually established as a company limited by guarantee, with appropriate non-profit and dissolution clauses. The principal objects typically encompass such matters as to assist in the avoidance of complaints and disputes in the provision of services to domestic and small business customers; and to receive, investigate and facilitate the resolution of such complaints and disputes.

The members of the ombudsman entity are responsible for the funding of the Ombudsman and maintaining the independence of the Ombudsman. The Ombudsman provides its services free of charge to all domestic and small business customers.

Under these schemes, the member service providers must comply with any decision of the Ombudsman.

Reasons for Decision/Explanation

Item 2.1 of the table in section 50-10 of the ITAA 1997, in conjunction with section 50-1 of the ITAA 1997, specifies that the total ordinary income and statutory income of a 'society, association or club established for community service purposes (except political or lobbying purposes)' is exempt from income tax. The special conditions in section 50-70 of the ITAA 1997, relevantly require that the entity is 'not carried on for the purpose of profit or gain of its individual members'.

The required 'community service purposes' must be the entity's 'main or predominant purposes' (Royal Australian College of Surgeons v. FCT [1943] ALR 377; [1943] HCA 34; (1943) 68 CLR 436; (1943) 7 ATD 289, Cronulla Sutherland Leagues Club Limited v. FCT [1990] FCA 90; (1990) 23 FCR 82; 90 ATC 4215; (1990) 21 ATR 300). It is a question of fact in each case as to whether any benefits derived by members are merely incidental to a main community service purpose of the industry ombudsman entity.

Taxation Determination TD 93/190 states that in relation to former subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 (ITAA 1936), which is the same as item 2.1 of the table in section 50-10 of the ITAA 1997, that -

(t)he purpose of enacting subparagraph 23(g)(v) was to create a category of exemption for community bodies whose activities are not accepted as being charitable ... but which, nevertheless, conduct activities of benefit to the community. [emphasis added]

A question that needs to be answered in this regard is whether it is a section of the community or a closed and restricted class of persons that receives benefits from the industry ombudsman entity. This is a question of degree (Dingle v. Turner [1972] AC 601; per Lord Cross of Chelsea at 624).

In the case of industry ombudsman entities, the arguments in favour of a finding that it is a section of the community that is benefited are based upon the proposition that 'ordinary consumers of an industry's services' is a section of the community, and that the availability of the Ombudsman's services is not too nebulous or remote to be regarded as a benefit to the community.

Where membership of the ombudsman entity is effectively compulsory for all industry service providers, it is illusory to say that 'customers of members' is a restricted class.

It is considered that where the industry ombudsman entity is established to make its Ombudsman's services available to ordinary industry consumers, without barring some and not others on the basis of their relationship with ombudsman entity members, it can reasonably be said that these entities are 'established for community service purposes' in a wide sense. They are 'altruistic' to the extent that they provide their service for the benefit of the community free of charge.

Taxation Determination TD 95/56 will not operate to preclude Industry Ombudsman entities from being rebatable employers under paragraph 65J(1)(j) FBTAA where they are not bodies that are directly formed by government or controlled by government, even though they may be seen to perform functions on behalf of government.

Amendment History

Year of income:  Year ended 30 June 2001 Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1936
   paragraph 23(g)(v)

Case References:
Royal Australian College of Surgeons v. FCT
   [1943] ALR 377
   [1943] HCA 34
   (1943) 68 CLR 436
   (1943) 7 ATD 289

Related Public Rulings (including Determinations)
Taxation Determination TD 93/190
Taxation Determination TD 95/56

Keywords
Income tax general exemption
Ombudsman
Community services organisations
FBT rebatable employers

Business Line:  Small Business/Individual Taxpayers

Date of publication:  15 August 2003

ISSN: 1445-2782