ATO Interpretative Decision

ATO ID 2006/155

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the taxpayer, an association of contractors, an exempt entity that is an employer association under item 3.1(b) of the table in section 50-15 of the Income Tax assessment Act 1997 (ITAA 1997) and an association of employers for the purposes of paragraph 65J(1)(f) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision

No. The taxpayer is a combination of persons who associate in their capacity as contractors rather than as employers of labour and as such is neither an employer association nor an association of employers.

Facts

The taxpayer is an industry association whose membership is open to any person who is a contractor, and who is substantially engaged in the work usually performed by a contractor, within the industry. Employees are not eligible for membership.

The objects clause in the taxpayer's rules and constitution states that the taxpayer's object is to protect and further the interests of employers in the industry through a range of activities.

The taxpayer is registered under the state industrial relations legislation as an industrial union of employers and is able to represent its members in the state Industrial Commission.

The majority of the taxpayer's members are employers but a significant minority of members are contractors without employees. The taxpayer's revenue is from fees received proportionally from members. The majority of the taxpayer's expenditure relates to representing or assisting its members in respect of their roles as employers.

The material published by the taxpayer describes the taxpayer as an organisation that represents contractors. It provides services which are relevant to employers only but also provides other services, such as industry information and member discounts and services, that are relevant to members who are not employers.

Reasons for Decision

By virtue of section 50-1 of the ITAA 1997, an entity that is an 'employer association' for the purposes of item 3.1(b) of the table in section 50-15 of the ITAA 1997 is exempt from income tax on the total of its ordinary and statutory income providing it meets the following special conditions:

(a)

is registered or recognised under the Fair Work (Registered Organisations) Act 2009 or an *Australian law relating to the settlement of industrial disputes, and

(b)

is located in Australia, and incurs its expenditure and pursues its objectives principally in Australia.

An association will also be eligible for a rebate of fringe benefits tax if it meets the requirements of paragraph 65J(1)(f) of the FBTAA which states:

an association of employers or employees registered or recognised under the Fair Work (Registered Organisations) Act 2009 or a law of the Commonwealth, a State or a Territory relating to the settlement of industrial disputes;

Item 3.1(b) of the table in section 50-15 of the ITAA 1997 is a rewritten form of paragraph 23(f) of the Income Tax Assessment Act 1936 (ITAA 1936). Accordingly the terms employer association and association of employers have the same meaning.

The High Court has considered the meaning of association of employers for the purposes of paragraph 23(f) of the ITAA 1936 in Associated Newsagents Co-operative Limited v. FC of T 70 ATC 4030; (1970) 1 ATR 609 (Associated Newsagents Co-operative Case). Associated Newsagents Co-operative Limited was registered as an industrial union of employers under the relevant state legislation and was a party to an award and to certain industrial agreements relevant to the newsagents industry. Owen J said at ATC 4032; ATR 616:

Its members are associated not because they or some of them are employers of labour but because they carry on the occupation of newsagents. The words "association of employers" in s 23(f) are, in my opinion, confined to a combination of persons who associate in their capacity as employers of labour and do not cover an association of persons merely because they pursue the same calling.

To be an employer association it must consist of persons who are associated in their capacity as employers of labour. Factors indicating this include whether the association's membership consists of employers and whether the association's purposes are related to employment matters.

An employer association would normally be one whose membership consists solely of employers. However the inclusion of the words 'or some of them' by Owen J at ATC 4032; ATR 616 in the Associated Newsagents Co-operative Case suggests that an employer association may have members who are not employers.

Where a significant number of members of an association are not employers and a significant amount of the association's income is from membership fees from those members it would be reasonable to conclude that the members are associated in a capacity other than as employers.

In Taxation Ruling TR 97/22, the Commissioner has indicated that one of the tests for eligibility of an entity for income tax exemption under a particular provision is that its main purpose must relate to the subject of the exemption provision. TR 97/22 indicates the activities of an entity that are relevant to determining its main purpose and lists a number of factors that can be considered, including:

•

the objects of the entity as stated in its constituent documents

•

the activities conducted by the entity in the relevant period

•

the purposes for which a significant proportion of the entity's available resources are expended; and

•

the manner in which the entity presents itself to potential members and to the public.

The object of the taxpayer is to represent the interests of employers in the industry and the majority of the taxpayer's resources are used for that purpose. However the taxpayer's activities indicate that it has another purpose of providing a range of services to its members that are unrelated to their role as an employer. Whilst these activities may be an ancillary purpose for members who are employers, for members who are not employers that purpose would be the main reason for their membership.

The taxpayer's publications describe the taxpayer as an organisation that specifically represents the interests of contractors in the industry and support the conclusion the taxpayer's primary purpose is to represent contractors, rather than employers, in the industry.

Accordingly the taxpayer is not considered to be an association of persons who associate in their capacity as employers of labour. It is an association of persons who associate in their capacity as contractors within the industry.

The taxpayer is not an employer association for the purpose of item 3.1(b) of the table in section 50-15 of the ITAA 1997 nor is it an association of employers for the purpose of paragraph 65J(1)(f) of the FBTAA.

Year of income:  Year ended 30 June 2005 Year ended 30 June 2006 Year ended 30 June 2007

Legislative References:
Income Tax Assessment Act 1997
   section 50-1
   section 50-15
   section 50-15 item 3.1(b)

Case References:
Associated Newsagents Co-operative Limited v. FC of T
   70 ATC 4030
   (1970) 1 ATR 609

Related Public Rulings (including Determinations)
Taxation Ruling TR 97/22

Keywords
FBT rebatable employers
Tax exempt bodies

Siebel/TDMS Reference Number:  4825083

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  23 June 2006

ISSN: 1445-2782