EDITED VERSION OF NOTICE OF PRIVATE RULING

Authorisation Number: 34367

This Ruling is a 'Private Ruling' for the purposes of Part IVAA of the Taxation Administration Act 1953.

YEAR(S) OF INCOME TO WHICH THIS RULING APPLIES:

Year ended 31 March 2004

Year ended 31 March 2005

Year ended 31 March 2006

TAX LAW:

Fringe Benefits Tax Assessment Act 1986 subsection 57A(1).

WHAT THIS RULING IS ABOUT:

(1) Are the benefits provided to employees exempt from fringe benefits tax under subsection 57A(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) on the basis that you are a Public Benevolent Institution?

(2) If the answer to Question (1) is yes, then is the exemption limited to a cap of $30,000 grossed up taxable value per employee, per Fringe Benefits Tax year, in accordance with subsection 5B(1E) of the FBTAA?

THE SUBJECT OF THE RULING:

You are an incorporated association.

Objects

Your Constitution states that you have been set up to provide hostels where the aged and disabled can reside and to provide within a determined district.

Non - Profit Clause

You have a suitable non-profit clause.

Dissolution Clause

Your dissolution clause specifies that upon winding up, any surplus assets shall be distributed to a charity that has a similar purpose to you. However it does not state that that entity must be a public benevolent institution.

Visions, Mission and Value Statements

To provide both self-care units (for those classified as Concessional) as well as resident funded units (for those who can afford to pay an ongoing contribution) thereby providing accommodation for all Aged persons across the social and economic spectrum.

Activities

You operate two separate aged care hostels, Site A and Site B.

Site A

These are self-care units designed for retirees.

To be admitted a person has to present a medical certificate from a doctor stating that he/she is fully capable of self care.

Residents are provided with advice as to how to look after themselves, for example, how to obtain home care and meals on wheels. You do not provide assistance to people in the form of feeding them, cleaning them or transport.

Residents are admitted on a self care basis. This means that they will be responsible for the cleaning of their units, the cooking of meals and their own grocery shopping.

The units each have a lounge, dining area, kitchen, either one or two bedrooms, laundry facilities and a bathroom.

In the form of common facilities, residents have access to a meeting hall that has tea and coffee making facilities and toilets.

Site B

Prior to entry an assessment of any potential residents is made. To gain entry, the person must be assessed as needing low care to be able to meet the criteria to enter the hostel. Residents who require assistance with feeding are considered high care and need nursing home care and therefore would not be admitted. Residents must also be able to bear their own weight to gain assistance, that is, there is no lifting of residents.

Hostel rooms are contained with their own en-suite and patio. Built-in wardrobe, sink, single bed, bedside cupboard, floor coverings and curtains are supplied. Rooms do not have their own kitchens or laundry facilities. All bed linen, blankets, quilts, pillows and towels are supplied and linen is changed weekly, towels twice weekly. Residents may bring their own television, small refrigerator and other items to make themselves comfortable.

Common areas provided include communal lounge rooms which contain tea and coffee making facilities, small laundries for resident's own use, covered courtyard and gardens and communal dining facilities.

A registered nurse is on-site during weekdays for a few hours.

Fees

To enter either residences at Sites A or B, residents are charged an upfront bond, part of which is refunded to a person or the person's estate upon vacation. A weekly rental fee is then also charged.

For concessional residents, the amount of upfront bond is decreased. However there is a proportionate increase in the weekly rental.

You have less than 50 percent of concessional residents residing at both Sites A and B.

RULING:

(1) Are the benefits provided to employees exempt from fringe benefits tax under subsection 57A(1) of the FBTAA on the basis that you are a Public Benevolent Institution?

No

(2) If the answer to Question (1) is yes, then is the exemption limited to a cap of $30,000 grossed up taxable value per employee, per Fringe Benefits Tax year, in accordance with subsection 5B(1E) of the FBTAA?

N/A

EXPLANATION: (This does not form part of the Notice of Private Ruling)

1. Fringe benefits provided by a public benevolent institution are classed as exempt benefits under subsection 57A(1) of the FBTAA.

2. Taxation Ruling TR 2003/5 - Income tax and fringe benefits tax: public benevolent institutions - provides that an organisation which:

will be a public benevolent institution.

3. TR 2003/5 specifies that the main objective of the organisation must be the relieving of poverty, suffering, distress, misfortune, destitution or helplessness. As per Marriage Guidance Council of Victoria v. Commissioner of Pay-roll Tax (VIC) 90 ATC 4770; 21 ATR 1272 the hardship to be relieved must be of a degree that is normally not encountered in the ordinary human experience. As per Perpetual Trustees Case Co Ltd v. Federal Commissioner of Taxation 45 CLR 224 and Commissioner of Pay-roll Tax (VIC) v. Cairnmillar Institute 90 ATC 4752; 21 ATR 665 (the Cairnmillar Institute Case) the condition or misfortune that is relieved by a public benevolent society will be such as to arouse pity or compassion in the community. For an organisation to be a Public Benevolent Institution, it must have the necessary benevolent objectives in its constituent documents and then carry these out in practice. Furthermore, these activities must be a clear majority of the activities that the organisation carries out. Any non-benevolent activities must not be more than incidental or ancillary to the benevolent objectives.

4. TR 2003/5 provides a number of examples in respect of what is considered to be a public benevolent institution. In respect of aged care hostels, paragraph 134 of TR 2003/5 states:

5. You provide accommodation to aged persons who are able to fully look after themselves (Site A) or who can do so with minimal assistance (Site B). A doctor's certificate must be obtained to verify this prior to a person being able to gain entry. In the event that a person's condition deteriorates to such an extent that they are unable to substantially care for themselves, they will be required to seek accommodation elsewhere.

6. To be a public benevolent institution, an aged persons hostel needs to be there to alleviate the needs arising from necessitous circumstances or old age or provide accommodation to persons who would otherwise not be able to obtain reasonable accommodation.

7. You are giving aged persons the opportunity to live in close proximity to each other. In the case of Site B, it provides entertainment for them which helps to overcome loneliness and limited assistance with personal care. These factors would lean towards you being a public benevolent institution.

8. The persons that you are helping in this manner cannot be said to be suffering from old age, sickness or incapacity in that they are still able to largely care for themselves. Residents at Site A do their own cleaning, washing cooking and shopping. Residents at Site B, although provided with cooked meals and cleaning services, are still largely self-sufficient. Residents to a large extent are healthy and they would generally seek their own medical assistance where required. This is backed up by the fact that there are no medical staff at Site A and that there is only limited access to a nurse and doctor at the Site B. Therefore you are also not reducing the risk of these people being without prompt medical assistance. These factors lean towards you not being considered to being a public benevolent institution.

9. In weighing up the factors, it is considered that you are not predominantly assisting people in necessitous circumstances or relieving needs that arise from their old age or sickness. Therefore you cannot be considered to be a public benevolent institution on that basis.

10. You have put in place a system whereby residents who cannot pay the up-front bond can be accepted into either Site A or B. In return, these residents pay a higher rental per week than those who paid the full bond. For both sites, the number of concessional resident is less than 50 percent. Therefore it cannot be said that the provision of accommodation to the poor who could otherwise not afford it is one of your dominant purposes.

11. You also do not have any other benevolent purposes.

12. You are not providing assistance to persons in necessitous circumstances, relieving the needs of persons arising from old age, sickness or incapacity, providing accommodation to those who otherwise could not afford it, or carrying out any other benevolent purpose. You therefore do not have a benevolent purpose and therefore do not satisfy this criterion.

13. As per the Cairnmillar Institute Case and paragraphs 77 to 79 of TR 2003/5 a public benevolent institution must not be carried on for the purpose of making a gain or profit for any particular person or its members. Furthermore, in the event of being wound-up, any surplus assets should be given to a similar organisation that is a public benevolent institution. This criterion will be satisfied if the organisation has:

14. The non-profit clause of a Public Benevolent Institution must specify that that no income or property shall be directly or indirectly distributed to members of the organisation. The only exception to this is for services that they have performed on behalf of the organisation. In these cases payment can only be made for genuine out of pocket expenses, for services of a technical or professional nature provided to the organisation, for goods hired or lent to association or to employees of the organisation.

15. As your non-profit clause meets these conditions it is satisfactory.

(ii) A satisfactory dissolution clause

16. The dissolution clause of a Public Benevolent Institution must specify that upon winding up no surplus assets, property or money is distributed to members. Instead, it is necessary for these to be given to another organisation, association or institution which is as a Public Benevolent Institution.

17. Your dissolution clause does not specify that upon you being wound up that any assets be transferred to another public benevolent institution. Therefore you do not meet this condition of criterion (b).

18. A public benefit need not be for the whole community; it may be for an appreciable section of the public. It must not be to provide merely private benefits. Placing limits on those to benefit generally is incompatible with an intention of benefiting the public if the limits are by reference to some personal ties (however, for a purpose of relieving poverty those to benefit need not be a section of the public). Limitations to large groups of the community eg residents of a particular geographic area or sufferers of a particular disability or condition (per In Re Income Tax Acts (No 1) [1930] VLR 211) are consistent with being for the public benefit unless the limits are incompatible with the nature of the benefit. It can be a matter of fact and degree whether a purpose is for a public benefit.

19. Your primary purpose is to provide hostel accommodated to the aged. In providing this accommodation you are bringing the aged together, to give them a chance to live together in a communal environment. Here they can reside with minimal assistance in an environment which is set up to meet and cater for their needs. The hostel accommodation is made available to all aged people who meet the primary entry requirement of being low care, i.e. they are able to fully look after their own needs (Site A) or look after their own needs with minimal assistance and being able to bear their own weight (Site B). Therefore there is a public benefit in that the aged members of the community are being given assistance to look after their needs. The benefit is also not restricted to a select group or a group of family members. Therefore there is a public benefit and as such this criterion is met.

20. As per In re Income Tax Acts (No 1) 1930 VLR 215 the benefit of the public benevolent institution must be available without discrimination to every member of the public or the section of the public that is being targeted.

21. From the information provided by you it is concluded that you do not discriminate against any member of the target group who wishes to enter either Site A or B. Any people who satisfy the entry conditions and where a place is available will be accepted. Therefore you satisfy this criterion.

22. As per Australian Council of Social Service Inc. & Anor v. Commissioner of Pay-roll Tax (NSW) 85 ATC 4235; 16 ATR 394; 1 NSWRL 567 and paragraphs 61 to 66 of TR 2003/5 it is not enough for an organisation to be concerned with the relief of hardship. Instead, to be a public benevolent institution, the organisation must directly assist its target group to overcome that hardship.

23. You yourself operate and give access to the rooms in the aged care hostels to your target group. Therefore you are directly providing the relief and as such meets this criterion.

24. In Mayor of Manchester v McAdam (1896) 3 TC 491 an institution was defined as 'the body called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle'. This definition was extended in Pamas Foundation Inc v Deputy Federal Commissioner of Taxation 92 ATC 4161; 23 ATR 189; (1992) 35 FCR 117; (1992) 106 ALR 229 where the word institution was held to have a wider meaning than a structure controlled and operated by family members and friends. This meaning of the term institution is acknowledged by the Commissioner in paragraphs 91 to 93 of TR 2003/5.

25. You are an incorporated association. You have been set up for the purpose of establishing and maintaining hostels and nursing homes for the aged and to promote and provide assistance for the aged and disabled in a determined geographic region. As you are an entity that is actively carrying out an instituted purpose you are an institution. Therefore you meet this criterion.

Conclusion

26. To be a public benevolent an organisation must satisfy all of the criteria as per TR 2003/5. You satisfy the criteria of providing a public benefit, provide the benefit without discrimination to all members of the target group, provide direct relief and are an institution. However you do not satisfy the criterion of being non-profit as you do not have an adequate dissolution clause and do not have a benevolent purpose. As a result of not satisfying all of the TR 2003/5 criteria, you will not be regarded as being a public benevolent institution. This means that you are not an exempt employer for fringe benefits tax purposes as a public benevolent institution under subsection 57A(1) of the FBTAA.

Disclaimer

The Register of Private Binding Advice is published as a public record of the binding advice issued by the ATO. Each piece of advice is based on a specific set of circumstances advised to the ATO and the law in force at the time of the advice, and is considered binding only in respect of the person/s or entity/ies on whose behalf the advice was sought. The Register is a historical record of advice provided, and is not updated to reflect changes in the law, withdrawal of advice or any other change in circumstance. Each piece of advice has been edited to avoid disclosing the identity of the person or entity on whose behalf advice was sought and published advice may therefore not disclose all the relevant facts or circumstances on which the advice was based. For these reasons, advice published in this Register cannot be relied upon as precedent for any other person or entity.