Edited version of your written advice

Authorisation Number: 1012741359446

Ruling

Subject: Income tax exemption and FBT rebate

Question 1

Is the entity exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is an exempt entity as described in item 8.2 of the table in section 50-40 of the ITAA 1997?

Answer

Yes

Question 2

Can the entity claim a rebate under subsection 65J(2A) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) on the basis that it is a rebatable employer as described in section 65J(1) of the FBTAA 1986?

Answer

Yes

This ruling applies for the following periods:

Income year ending 30 June 2016

Income year ending 30 June 2017

Income year ending 30 June 2018

Income year ending 30 June 2019

FBT year ended 31 March 2016

FBT year ended 31 March 2017

FBT year ended 31 March 2018

FBT year ended 31 March 2019

The scheme commences on:

In the year ending 30 June 2000

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

1. The entity is an Australian public company limited by guarantee.

2. The entity acts as a marketing and logistics company which undertakes bulk exports. It provides services to the industry such as export marketing services, quality management, storage and handling, operation of bulk terminals, financial risk management, sales, shipping, and payments of funds to owners.

3. The entity has a number of members from the industry.

4. The objects of the entity are stated in its constitution.

5. The entity constitution contains clauses regarding the application of income and property during operation and on winding up which demonstrate a non-profit character.

6. The constitution has not changed since the previous ruling was made.

7. Although formed by Government, the entity is not controlled by Government nor performs function in behalf of Government.

8. The entity enters into agreements with various entities in the industry.

9. The entity has signed a new sub-lease agreement with the intention to continue as the long-term operator of six terminals.

10. The entity purchased non-Australian source resources to supplement reduced supplies of Australian resources as a result of adverse conditions. The entity will continue to source other non-Australian source resources to meet contractual obligations where a suitable return for the industry can be made. The primary reason for purchasing other non-Australian source resources is to manage risk and maintain its key supplier position in the market.

11. The entity is a member of the appointed peak body industry. The constitution directs the entity board to consult with the peak body on issues of relevance to the entity's marketing activities.

12. As part of the entity's commitment to working closely with the peak body, the entity provides resources in connection with the activities of the peak body.

13. The entity works closely with the industry, the Australian Government and colleagues by improving market access around the world.

14. The entity regularly collates data and shares information and research with industry bodies.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 section 50-40

Fringe Benefits Tax Assessment Act 1986 section 65J

Fringe Benefits Tax Assessment Act 1986 subsection 65J(1)

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

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

Reasons for decision

Summary

The entity is exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is a non-profit association established for the purpose of promoting the development of Australian resources as described in item 8.2 of the table in section 50-40 of the ITAA 1997.

Detailed reasoning

The statutory conditions that must be met before being entitled to exemption from income tax are set out in sections 50-1 and 50-40 of the ITAA 1997.

Section 50-1 of the ITAA 1997 exempts from income tax the total ordinary and statutory income of an entity described in section 50-40 of the ITAA 1997.

Item 8.2 of the table in section 50-40 of the ITAA 1997 describes non-profit societies or associations established for the purpose of promoting the development of Australian agricultural, horticultural, industrial, manufacturing, pastoral, viticultural, aquacultural or fishing resources.

The requirements to be satisfied under section 50-40 of the ITAA 1997 are:

• the organisation is a non-profit association or society,

• the dominant or principal purpose for which the organisation is established is promoting resource development,

• the resources whose development is being promoted are within the umbrella of resources specified in the relevant section,

• the resources are resources of Australia.

Purpose

To be exempt under section 50-40 of the ITAA 1997 an association must be established principally or predominantly for the purpose of promoting development of the specified resources.

Section 50-40 of the ITAA 1997 does not refer to the promotion of the specified resources. It is directed to the promotion of the development of the specified resources.

As established in FC of T v Co-Operative Bulk Handling Ltd [2010] FCAFC 155; 2010 ATC 20-231; 81 ATR 312, the expression "promoting the development of agricultural resources of Australia" must be considered as a whole. It is a composite expression with a broader application than the component words. Thus it is not limited to promoting the activities on the 'farm side of the farm gate' but requires a global view of the activities of the relevant entity to determine the principal or dominant purpose for which it is established.

Taxation Ruling IT 2415 Income tax: Associations promoting the development of Australian resources states the following on the meaning of development:

The term "development" must be taken to be used in a commercial or business sense, i.e. it comprehends all elements which must be taken into account to ensure that the specified resources are used in the best interests of Australia.

Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating cooperation and similar activities.

The development of marketing techniques may also be relevant to the development of resources. As the Tribunal pointed out in Case W49 at 89 ATC 474; 20 ATR 3602:

'The enlargement of the market is one of the objectives of "promoting the development" of any relevant industry.'

Determining the dominant purpose will be largely a matter of fact and degree. It is necessary to consider an association's constituent documents, operations and activities.

The relevant resource is an Australian industry and the purpose for which the entity is established is to promote the development of that industry. The stated objects of the entity and activities outlined in its charter clearly demonstrate that the entity has such a purpose.

The entity carries out various activities in pursuit of this purpose such as the provision of access to markets, encouraging innovation, consultation with industry bodies, fostering of export market relationships, managing terminals and other marketing activities. These activities support the entities in the industry and seek to achieve the best outcome in the market ensuring that the industry continues to develop in the best interests of Australia.

It is acknowledged that the industry is undergoing changes. These changes are considered changes to the external environment the entity operates in and while they may impact on the way the entity achieves its objectives it does not change the overall purpose of the entity.

In consideration of its purpose and activities, it is accepted that the entity has been established to promote the development of agricultural resources of Australia.

Australian resources

Section 50-40 of the ITAA 1997 limits the exemption to associations whose activities are directed to 'Australian resources', thereby excluding associations whose activities are directed to the resources of places beyond Australia. Where an association is established for the purpose of promoting the development of a foreign resource, or of both Australian and foreign resources, the test for exemption is not met.

The entity primarily supports Australian industry. It is noted that the entity also at times purchases non-Australian source resources to supply customers. This is done in circumstances where the demand for resources cannot be met by Australian supply due to adverse conditions. The supply is supplemented with additional non-Australian source resources to meet contractual commitments and maintain its key supplier position with long-established customers.

The entity will continue to source non-Australian source resources to meet customer needs if a suitable return for the industry can be made and primarily to manage risk.

At this stage the supply of non-Australian source resources is limited and the entity does not actively promote foreign resources. Rather this practice is done with the purpose of benefiting Australian industry by protecting their position in the global market and mitigating external risks. Therefore we can accept that this practice is incidental to the main purpose of promoting the development of the Australian industry.

We are satisfied that the entity meets this requirement.

Non-profit Association

In order to constitute an entity exempt from income tax, an association must also meet the special condition in Item 8.2 of section 50-40 of the ITAA 1997 that it is: "not carried on for the profit or gain of its individual members".

Income tax guide for non-profit organisations (QC 27150) provides the following explanation of this requirement:

If the organisation's main purpose is merely to provide services to its members, it will not be exempt. This is the case even if the services result in better use of resources by those 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. …The organisation's actions must be consistent with this requirement.

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.

To meet the non-profit requirement firstly, an entity's constituent documents must display a non-profit character and secondly, the entity's actions must be consistent with this non-profit character.

The entity's constitution contains clauses regarding the application of income and property during operation and on winding up which demonstrate a non-profit character.

The entity conducts activities and provides services for the benefit of both members and non-members. The entity's purpose is the promotion of the development of Australian resources and not merely to provide services to members. Any benefits to members are primarily as a result of being part of the industry rather than as individual members of the entity.

It is accepted that the entity is an association that is not carried on for the profit or gain of its individual members.

Question 2

Summary

The entity is entitled to the FBT rebate under subsection 65J(2A) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) on the basis that it is a rebatable employer as described in paragraph 65(J)(1) of the FBTAA 1986.

Detailed reasoning

For the purposes of section 65J of the FBTAA 1986, an employer is a rebatable employer for a year of tax if it is exempt from income tax as a non-profit association established for the purpose of promoting the development of the resources of Australia covered by item 8.2 of the table in section 50-40 of the ITAA 1997.

Additionally, the special conditions in Subsection 65(J)(5) of the FBTAA 1986 must also be met, namely, where the entity is an incorporated company limited by guarantee the interests and rights of the members in or in relation to the company and not beneficially owned by the Government or a Government authority.

It has been determined that the entity is exempt from income tax as a non-profit association established for the purpose of promoting the development of Australian resources covered by item 8.2 in section 50-40 of the ITAA 1997.

Although formed by Government, the entity is not controlled by Government nor performs function in behalf of Government.

Accordingly, the entity is a rebatable employer as described in subsection 65J(1) of the FBTAA 1986 and is entitled to the FBT rebate.

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