Edited version of your private ruling

Authorisation Number: 1012482280968

Ruling

Subject: Rebatable Employer

Question 1

For the years of tax ended 31 March 20XX to 31 March 20YY was the entity a rebatable employer for the purposes of subsection 65J(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

This ruling applies for the following periods:

· Year ended 31 March 2010

· Year ended 31 March 2011

· Year ended 31 March 2012

· Year ended 31 March 2013

The scheme commences on:

1 April 200Z

Relevant facts and circumstances

The Entity is established under a State Act, which provides for the Entity's:

· Establishment

· Functions

· Membership

· Council

· Perpetual succession

While the State Act allows the Entity to make it own rules the rules have no effect unless the Minister notifies them (the notice is subordinate legislation).

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 65J

Fringe Benefits Tax Assessment Act 1986 Paragraph 65J(1)(j)

Fringe Benefits Tax Assessment Act 1986 Subsection 65J(5)

Fringe Benefits Tax Assessment Act 1986 Subsection 65J(2A)

Income Tax Assessment Act 1997 Section 50-25

Australian Charities and Not-for profits Commission Act 2012

Legal Professional Act 2007

Financial Accountability Act 2009

Statutory Bodies Financial Arrangements Act 1982

Reasons for decision

Section 65J of the FBTAA provides a rebate for certain non-profit employers, known as 'rebatable employers'.

Subsection 65J(1) of the FBTAA states:

65J(1) Rebatable employer. For the purposes of this section, an employer is a rebatable employer for a year of tax if the employer is not a registered public benevolent institution, is not a registered health promotion charity, and is covered by any of the following paragraphs at any time during the year of tax:

(aa) a non-profit scientific institution that:

(i) is engaged solely in research into the causes prevention or care of diseases in humans; and

(ii) is established by a law of the Commonwealth, a State or a Territory; and

(iii) is not conducted by or on behalf of the Commonwealth, a State or a Territory;

(b) a scientific or public educational institution (other than an institution of the Commonwealth, a State or a Territory);

(baa) a registered charity;

(ba) a school (including a pre-school but not including a tertiary institution) that:

(i) although established by or under a law of the Commonwealth, a State or a Territory, is not conducted for or on behalf of the Commonwealth, a State or a Territory; and

(ii) is not conducted for the purpose of profit or gain to the persons or body of persons conducting it;

(e) a trade union;

(f) 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;

(g) a non-profit society, non-profit association, or non-profit club, established for musical purposes, or for the encouragement of music, art, science or literature;

(h) a non-profit society, non-profit association, or non-profit club, established for the encouragement or promotion of a game or sport;

(i) a non-profit society, non-profit association, or non-profit club, established for the encouragement or promotion of animal races;

(j) a non-profit society, non-profit association, or non-profit club, established for community service purposes (not being political purposes or lobbying purposes);

k) a non-profit society, or non-profit association, established for the purpose of promoting the development of aviation or tourism;

(ka) a non-profit society, or non-profit association, established for the purpose of promoting the development of Australian information and communications technology resources;

(l) a non-profit society, or non-profit association, established for the purpose of promoting the development of the agricultural, pastoral, horticultural, viticultural, aquacultural, fishing, manufacturing or industrial resources of Australia

Therefore, in order to satisfy the requirements of subsection 65J(1) of the FBTAA, an employer must be neither a public benevolent institution nor a registered health promotion charity, and secondly, must be covered by at least one of the paragraphs within the subsection.

The ATO view of what is a public benevolent institution can be found in Taxation Ruling TR 2003/5 Income tax and fringe benefits tax: public benevolent institutions. Paragraph 7 of TR 2003/5 states:

A public benevolent institution is a non-profit institution organised for the direct relief of such poverty, sickness, suffering, distress, misfortune, disability, destitution or helplessness as arouses compassion in the community.

The Entity has not been organised for the purposes outlined in paragraph 7 of TR 2003/5 and therefore is not a public benevolent institution.

A 'registered health promotion charity' is defined in subsection 136(1) of the FBTAA as follows:

registered health promotion charity means an institution that is:

(a) a registered charity; and

(b) registered under the Australian Charities and Not-for profits Commission Act 2012 as the subtype of entity mentioned in column 2 of item 5 of the table in subsection 25-5(5) of that Act.

The Entity does not meet the above requirements and so is not a registered health promotion charity.

As the Entity is neither a public benevolent institution nor a registered health promotion charity they will be a rebatable employer if they meet the requirements of any of the paragraphs contained in 65J(1) of the FBTAA.

The only paragraph within subsection 65J(1) of the FBTAA that the entity may be covered by is paragraph 65J(1)(j) which applies to a non-profit society, non-profit association, or non-profit club, established for community service purposes (not being political purposes or lobbying purposes). It is under this item that the Entity has asked to be considered.

Is the Entity a non-profit society, non-profit association, or non-profit club, established for community services purposes (not being political or lobbying purposes)?

1. Non-profit society, non-profit association, or non-profit club

Subsection 65J(5) of the FBTAA provides the meaning of 'non-profit society', 'non-profit association' and 'non-profit club' for the purposes of section 65J of the FBTAA. Subsection 65J(5) of the FBTAA states:

65J(5)  [Meanings of "non-profit society", "non-profit association" and "non-profit club"]

For the purposes of this section, a society, association or club is a non-profit society, non-profit association or non-profit club, as the case may be, if, and only if:

a) the society, association or club is carried on otherwise than for the purposes of profit or gain to its individual members; and

b) the society, association or club is neither:

i) an incorporated company where all the stock or shares in the capital of the company is or are beneficially owned by:

1) the Commonwealth, a State or a Territory; or

2) an authority or institution of the Commonwealth, a State or a Territory; nor

ii) an incorporated company where the company is limited by guarantee and the interests and rights of the members in or in relation to the company are beneficially owned by:

1) the Commonwealth, a State or a Territory; or

2) an authority or institution of the Commonwealth, a State or a Territory.

(a) the society, association or club is carried on otherwise than for the purposes of profit or gain to its individual members;

The society, association or club…

The terms society, association and club are not defined in the taxation legislation.

In Pro-Campo Ltd v Commisioner of Land Tax (NSW) (1981) 81 ATC 4270; 12 ATR 26 (Pro-Campo Case) Lee J discusses the meaning of the words 'society, association and club' stating:

The three words "society, club or association'' are words in frequent use in our community and societies, clubs and associations are well-known entities. One knows that many organisations which give themselves the title society or association or club are as often incorporated as they are unincorporated. Small bodies having few members tend perhaps to remain unincorporated whilst the larger groups tend to become incorporated. Incorporation may be achieved under the Companies Act 1961 or some other Act, e.g. the Co-operation Act 1923 as amended.

And further that:

The meaning of ``society'' as the Oxford English Dictionary definition shows can be the equivalent of ``association'' and I do not think that any relevant distinction in nature exists between the two. It merely seems to have happened that some organisations are called ``associations'', others are called ``societies'' but no meaningful difference can be detected between the two….

Accordingly ATO views applying to associations will also be considered in determining whether the Entity satisfies requirement of being an association or society. Taxation Determination TD 95/56 Fringe Benefits Tax: can a body which is formed by government, is controlled by government and performs functions on behalf of government be an 'association' for the purposes of section 65J of the Fringe Benefits Assessment Act 1986 (FBTAA)? states in paragraphs 2 to 4 that:

2. Subsection 65J(1) of the FBTAA lists the categories of organisations which are rebatable employers. In paragraphs 65J(1)(f) to 65J(1)(l), 'association' is one of the terms used to describe the types of rebatable organisations. The Shorter Oxford English Dictionary defines the term 'association' to be 'a body of persons associated for a common purpose; the organisation formed to effect their purpose'. The Macquarie Dictionary defines 'association' as being 'an organisation of people with a common purpose and having a formal structure'. Olsson J, in Quinton v. South Australian Psychological Board (1985) 38 SASR 523, also stated that the term 'association' has come to be regarded as attaching to a body of persons associated for a common purpose.

3. A body which is formed by government, is controlled by government and performs functions on behalf of government is clearly not formed to effect the purposes of the members of that body but is formed to effect the purposes of government. Combined with the fact that the members do not create the body (or have the power to dissolve it) and that the members do not have ultimate control over the functions of the body, such a body cannot be said to be an association.

4. Bodies which are formed by government, are controlled by government and perform functions on behalf of government would include:

· most bodies formed by the Federal, State or Territory Governments;

· most statutory authorities (including those set up to market, regulate or promote agricultural or other products);

· local government councils.

The State act establishes the Entity and states that the Entity is a statutory body for the purpose of certain other Acts.

The State Act lists the functions and powers of the Entity. The State Act provides that the Entity may make rules but defines the parameters under which they may be made, stating that these rules will have no effect unless the Minister notifies the making of the rules (the notice is subordinate legislation).

The State Act also provides membership and council rules for the Entity.

Accordingly although the Minister is not involved in the day to day running of the Entity its functions, membership requirements, council and rules are ultimately controlled by government.

Further, similar to that stated in paragraph 3 of TD 95/96 the members of the Entity do not create the body (or have the power to dissolve it) as the State Act provides for the Entity to continue in existence and to run in perpetual succession.

As stated in TD 95/96 as body that is formed by government, performs functions on behalf of government and is ultimately controlled by government the Entity is not formed to effect the purposes of the members. Rather it is formed to effect the purposes of government and as stated in paragraph 3 of TD 95/96 such a body cannot be said to be an association.

Therefore the Entity, as a body that is not an association and therefore similarly not a society, fails the requirements of section 65J(5) and accordingly section 65J(1).

Conclusion

As a body that is not an association, society or club the Entity cannot meet the requirements of paragraph 65J(1)(j) and therefore fails the requirements to be a rebatable employer under subsection 65J(1) on this point. However for completeness sake the remaining requirements will also be considered.

…is carried on otherwise than for the purposes of profit or gain to its individual members;

The ATO publication Income tax guide for non-profit organisations (NAT 7967) states that:

A non-profit organisation is an organisation that is not operating for the profit or gain of its individual members, whether these gains would have been direct or indirect. This applies both while the organisation is operating and when it winds up.

Any profit made by the organisation goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members.

We accept an organisation as non-profit where its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people - both while it is operating and when it winds up. These documents should contain acceptable clauses showing the organisation's non-profit character.

Neither the Entity's constituting Act, or it's rules contain any clauses to prevent a distribution of profits to members. Any winding up clause is precluded by the State Act which states that the Entity has perpetual succession.

The Entity contend that although it has no non-profit clause it should be accepted as a non-profit society on the basis that its objectives are aimed at providing services to the community rather than generating a profit.

However FBTAA in section 136 Interpretation states:

Company includes any body or association, corporate or unincorporate, but does not include a partnership.

And:

Non-profit company means 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.

Therefore the Entity being a society established by a State Act as a body corporate must be prohibited by the terms of it constituent document from making any distribution, whether in money, property or otherwise, to its members in order to be accepted under tax law as 'non-profit company'.

As the State Act and the Entity's rules contain no such clauses the Entity does not satisfy the non-profit requirement.

Conclusion

The Entity does not satisfy the requirements of subsections 65J(5)(a) and therefore for the purposes of section 65J of the FBTAA is not a non-profit society, non-profit association or non-profit club.

Is the Entity established for community service purposes (not being political purposes or lobbying purposes)?

As an organisation that is established to perform the function of government the Entity cannot be found to be formed to effect the purposes of its members. The Entity contends that it's function is not dissimilar to that of an industry ombudsman and therefore a body established for community services purpose consistent with the ATO interpretative Decision ATO ID 2003/721 Income tax exemption: community services purpose - Industry Ombudsman.

However ATO ID 2003/721 provides an ATO view specifically for the scenario when an Industry Ombudsman entity 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. ATO ID 2003/721 outlines its interaction with TD 95/56 stating:

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.

It is considered that the Entity is a body directly formed by government and controlled by government and therefore TD 95/56 is not precluded from applying.

As a society formed by government, controlled by government and performing functions of government the Entity cannot be appropriately characterised as a society established by its members for community service purposes.

Conclusion

The Entity cannot be appropriately characterised as a non-profit society, non-profit association, or a non profit club, established for community services purpose (not being political purposes or lobbying purposes) for the purposes of section 65(J) of the FBTAA as it:

· it is established to perform a function of government rather than the purposes of its members;

· is body formed and controlled by government and performing government functions and therefore cannot be an 'association' or 'society'; and

· does not meet the non-profit requirement.

Accordingly the Entity is found not to be a rebatable employer.

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