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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1012827525093

Date of advice: 2 July 2015

Ruling

Subject: Income tax exemption and rebatable employer

Question 1

Does the ordinary income and statutory income of the Taxpayer qualify for exemption from income tax under the provisions of section 50 of the Income Tax Assessment Act 1997, in particular under subsection 50-15, item 3.1(b) - an employer association registered or recognised under the Fair Work (Registered Organisations) Act 2009 or an Australian Law relating to the settlement of industrial disputes and is located in Australia, and incurs its expenditure and pursues its objectives principally in Australia?

Answer

Yes

Question 2

Does the Taxpayer qualify as a rebatable employer under the provisions of section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), in particular, under paragraph 65J(1) Item 6 as an association of employers or employees registered or recognised under the Fair Work (Registered Organisations) Act 2009 or a law of the Commonwealth, State or a Territory relating to the settlement of industrial disputes?

Answer

Yes

This ruling applies for the following periods:

Income Tax:

1 July 2015 to 30 June 2016

1 July 2016 to 30 June 2017

1 July 2017 to 30 June 2018

1 July 2018 to 30 June 2019

1 July 2019 to 30 June 2020

For Fringe Benefits Tax:

1 April 2016 to 31 March 2017

1 April 2017 to 31 March 2018

1 April 2018 to 31 March 2019

1 April 2019 to 31 March 2020

1 April 2020 to 31 March 2021

Relevant facts and circumstances

The entity has applied for a private ruling to determine if it is exempt from income tax under the provisions of section 50 of the Income Tax Assessment Act 1997 (ITAA 1997) under the following provisions:

The primary purpose of the entity is that of a registered Industrial Association of Employers.

The entity is established in connection with the building, construction and trade industries and services connecting directly or indirectly with them.

Activities

The entity is dedicated to helping and protecting its members through the provision of an extensive range of services. The entities core services include industrial relations, occupational health and safety advice, housing matters and training and education of its members.

The entity represents its members who engage employees under relevant State reformed awards.

Non-Employment Related

The non-employment related activity is tied to a not for profit function of promoting member and industry interests as well as promoting and fostering the highest professional, technical and business standards of its members. This function, while important are not a primary functions. The non-employment activities undertaken by the entity include: the establishment of special interest groups.

The entity is a registered training organisation and offers a wide range of relevant industry specific training programs which are available to members and non-members. The entity is aware that there is always a need for the development of new skills, new management techniques and for an understanding of changes to legislation and codes of practice. As a consequence, as new issues emerge in the building industry, the entity responds with new information, seminars and workshops.

Membership

The entity has the following classes of membership:

Expenditure

The entity principally incurs its expenditure in Australia. Financial statements for the past two years reveal that more than 75% of its expenditure is in the form of salaries and employee related expenses.

Dissolution

In the event of the dissolution or winding up of the entity, the disposition of any assets of the entity after satisfaction of all debts and liabilities is to be decided by a general meeting of the entity. The remaining assets of the entity may not be transferred to an organisation whose objects are consistent with those of the entity although it need not be a registered industrial organisation.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 50-15 Item 3.1(b)

Fringe Benefits Tax Assessment Act 1986 section 65J(1) Item 6

Reasons for decision

Issue 1

Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides for exemption of ordinary income and statutory income from income tax of entities covered by the various tables in Subdivision 50-A. In some cases, the exemption is subject to special conditions.

The type of entity in question is:

APPLICATION OF THE LAW

Section 50-15 item 3.1(b) - employer association

Entities will be exempt from income tax pursuant to this section if they:

1. Employer Association

The term 'employer association' is not further defined in the ITAA 1997 or within other taxation legislation.

The definition of an employer association was considered in Associated Newsagents Co-operative Ltd v. Federal Commissioner of Taxation (1970) 1 ATR 609; 44 ALJR 147; 70 ATC 4030, where Owen J held that:

To determine whether an entity is in fact "a combination of persons who associate in their capacity as employers of labour" it is necessary to establish:

Membership Structure

The entity is registered as a State Industrial Organisation of Employers.

Purpose of Associating

The entity's primary purpose is that of a registered Industrial Association of Employers:

Legal, Industrial and Contractual Assistance

To act as an industrial association of employers.

To provide legal, industrial relations, training and contractual assistance and services for members and others and to set appropriate charges regarding such provision.

To initiate, defend or bring an industrial dispute or claim relating to industrial matters before the appropriate tribunal established under Commonwealth or State Law and to represent the interests of employers in all sections of the Industry or an industry auxiliary or special to the Industry before Courts, Boards, Conciliation Committees, other tribunals or other bodies and at conferences with organisations of employers and other bodies of employers or employees.

To make agreements with members' employees and/or their representatives, organisations, associations or unions relative to the terms and/or conditions of employment.

To assist and/or represent members in dealing with any body, organisation or authority whether established under statute or otherwise, which regulates any aspect of the building and constructions industry'.

Notwithstanding this primary purpose, a number of other Rules are broad enough to encompass, employment related purposes namely:

Safeguarding Interests of Members

To safeguard by all lawful and proper means the interests of the members of the Entity in their regular business in the (industry); to protect members of the Entity against injustice or oppression in the fair and proper execution of such works as they may carry out from time to time;…….

Legislative Measures

By all lawful and proper means to promote support or oppose legislative or other measures affecting (members).

Statistics

To collect and circulate statistics and other information relating to (industry) operations

Dispute Resolution

To arrange and promote the adoption of equitable forms of contracts and other documents used in the said industry and to encourage the settlement of disputes by arbitration, mediation or other such methods as may be appropriate and to act as nominated arbitrators or other suitably qualified dispute resolution facilitators…'

The remaining objects relate to public movement, charitable purposes, borrowing powers and fees, charges and levies.

It is apparent that the objects include a material role in employment related matters for and on behalf of its members. However, written objectives alone do not define the purpose of an entity. It is also necessary to look at the activities it undertakes.

The entity is also a direct respondent to a number of industrial awards.

The entity's non-employment related activity is tied to the not for profit function of promoting member and industry interests. This function, while important, is not a primary function. Activities include:

From the activities of the association it is apparent that the predominant functions are employment related performed on behalf of its members. It is considered that the reason for the members associating is not merely because they pursue the same calling. Rather, they are employers from numerous callings within the same industry associating primarily for employment related purposes.

It is considered that the association is an association of employers as its members are predominantly employers and it was established for employment related purposes and acts accordingly.

2. Registered under an Australian law relating to the settlement of industrial disputes

The entity is registered as a State Industrial Organisation of Employers under a state law.

It is considered that this requirement is satisfied.

3. Located in Australia

The entity is located in Australia.

It is considered that this requirement is satisfied.

4. Pursues objectives principally in Australia

The Rules of the entity define its principal area of operation as being within a specific area of a state.

It is considered that this requirement is satisfied.

5. Incurs its expenditure principally in Australia

The principal expenditure of the entity (over 95%) is on salary and employee expenses and expenses from ordinary activity. As the association is located in Australia and pursues it activities through the support of its members in a specific area of Australia it is acknowledged that this expenditure is also in Australia.

It is considered that this requirement is satisfied.

6. Comply with requirements of governing rules

The entity has complied with its governing rules as outlined in the following areas:

It is considered that this requirement is satisfied.

7. Apply income and assets solely for the purpose for which the association is established

The purpose of the Association is outlined at 1. above. There has been no change in the purpose for which the entity was established..

The audit report and management letter confirms compliance with the administration of funds requirements.

Therefore, it is considered that this requirement is satisfied.

As the Association meets all the requirements of section 50-15 Item 3.1(b) of the ITAA 1997 it is considered that it is exempt from income tax under section 50-1 of the ITAA 1997.

Issue 2

Paragraph 65J(1) Item 6 of the FBTAA - employer association

An entity will be considered a rebatable employer under this paragraph if they:

The words used in paragraph 65J(1) Item 6 of the FBTAA mirror those used in section 50-15, item 3.1(b) of the ITAA 1997.

Chapter 1.11 of the Australian Taxation Office publication Fringe Benefits Tax: A Guide For Employers (NAT 1054-12.2000) states "Organisations that qualify for this rebate include: …trade unions and employer associations".

Therefore, the entity is an association of employers registered under a law of the Commonwealth, a State or a Territory relating to the settlement of industrial disputes for the purposes of paragraph 65J(1) Item 6 of the FBTAA for the same reasons it satisfies section 50-15, item 3.1(b) the ITAA 1997. Those detailed reasons are provided under the heading "Employer Association" in Issue 1 of this ruling.

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