Edited version of private ruling

Authorisation Number: 1011818817750

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Ruling

Subject: Car Parking Fringe Benefit

Question 1

Are you a scientific institution which will exempt you from paying fringe benefits tax on car parking fringe benefits under subsection 58G(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No.

This ruling applies for the following periods

1 April 2011 to 31 March 2012

1 April 2012 to 31 March 2013

1 April 2013 to 31 March 2014

The Scheme commenced on

1 April 2011

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.

You allow your employees to park their cars on your premises.

A commercial parking station that is located close to yuor premises and charges more than the car parking threshold commenced operating in the previous fringe benefits tax (FBT) year.

As a result of this commercial parking station opening, a car parking benefit as defined in subsection 39A(1) of the FBTAA will arise when an employee parks his or her car on your premises for more than four hours.

You are a corporation that is part of a government portfolio.

You were established under a Commonwealth Act.

You plan and invest in research and development (R&D) and related activities.

You are governed by a Board of Directors.

Your research partners include government bodies and private entities.

You have Corporate Strategies which are derived from your Corporate Objective.

You list objectives that your organisation has.

Your 2009-10 Annual Report details the outputs of your organisation:

You have a number of strategies to achieve these outputs:

Your 2009-10 Annual Report shows the allocation of expenditure to each output.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 39A(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 58G(2)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Question

Will the provision of parking to employees be an exempt benefit under subsection 58G(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

As a result of a nearby commercial parking station commencing operations a 'car parking benefit' as defined in subsection 39A(1) of the FBTAA will arise when an employee parks his or her car on your premises for more than four hours.

In accordance with the definition of 'fringe benefit' in subsection 136(1) of the FBTAA this benefit will not be a 'fringe benefit' if it is an exempt benefit.

The FBTAA provides that certain benefits will be exempt benefits. For the purpose of this ruling, the relevant provision to consider is subsection 58G(2) which provides that a car parking benefit will be an exempt benefit if the employer of the employee is one of the listed categories of institution.

Subsection 58G(2) states:

If the employer of an employee is:

If the employer of an employee is:

(a) a scientific institution (other than an institution carried on by a company, society or association for the purposes of profit or gain to its individual shareholders or members); or

(b) a religious institution; or

(c) a charitable institution; or

(d) a public educational institution;

the following benefits provided in respect of the employment of the employee are exempt benefits:

(e) an eligible car parking expense payment benefit;

(f) a car parking benefit.

For the purpose of this ruling the relevant paragraph to consider is paragraph (a) which provides that a car parking benefit provided by a scientific institution (other than an institution carried on by a company, society or association for the purposes of profit or gain to its individual shareholders or members) will be an exempt benefit. In considering whether this paragraph applies to the parking provided to your employees it is necessary to consider the following questions:

1. Are you an institution?

2. If you are an institution, are you a scientific institution?

3. If you are a scientific institution are you carried on by a company, society or association for the purposes of profit or gain to its individual shareholders or members?

2. Are you an institution?

As the term 'institution' is not defined within the FBTAA it is necessary to consider both its ordinary meaning and the meaning adopted by the courts.

These are summarised by paragraph 4 of Taxation Ruling TR 92/17 Income tax and fringe benefits tax: exemptions for 'religious institutions'. Paragraph 4 of TR 92/17 states:

A body is an 'institution' for the purposes of both the ITAA and the FBTAA if it is an establishment, organisation or association, instituted for the promotion of some object (especially one of public or general utility) that is religious, charitable, educational, etc. That definition was accepted by the High Court of Australia in YMCA of Melbourne v. FC of T (1926) 37 CLR 351 and later in Stratton v. Simpson (1970) 125 CLR 138.

Gibbs J in Stratton v Simpson quoted from Lord Macnaghten's judgement in Mayor of Manchester v McAdam (1896) 3 TC 491; AC 500 where his Lordship at 511 said:

It is a little difficult to define the meaning of the term 'institution' in the modern acceptation of the word. It means, I suppose, an undertaking formed to promote some defined purpose, having in view generally the instruction or education of the public. It is the object (so to speak) called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle.

In Pamas Foundation (Inc) v. Deputy Commissioner of Taxation 92 ATC 4161; 23 ATR 189 the Full Federal Court applied the decision of Christian Enterprises Ltd v. Comr of Land Tax (1968) 88 WN (Pt2) (NSW) 112 to conclude that the word institution is to be given a meaning greater than a structure controlled and operated by family members and friends. The fact that the foundation in that case was incorporated did not mean that it was also an institution. It was relevant that the foundation had a small and exclusive membership.

Another case involving an organisation that was held not to be an institution despite being incorporated was the Federal Court decision of The Trustees of the Allport Bequest v. FCT 88 ATC 4436; 19 ATR 1335. In that case, the organisation's sole activities were to manage trust property and apply the income in donations to such other charitable organisations and objects as it determined. Northrop J characterised the organisation's activities as those of simple or mere trustees. They were insufficient to constitute the organisation as an institution. The fact that it had a recognised identity and permanent nature was not sufficient.

An institution must have a separate identity. Constituent documents and separate accounts and records will help to indicate a separate identity. The need for a separate identity is illustrated by the decision in Case X33 90 ATC 308. In that case a gift of land was made to a church to facilitate the construction of an old peoples' home. Although there was some evidence that separate funds were held for a home, no institution existed separately from the church. Even though it is possible to consider an aged persons' home as a public benevolent institution it could not be established that the home was an institution outside of the church.

These cases indicate that the question of whether an organisation is an institution depends upon a range of factors including its activities, size, permanence and recognition. Even if the organisation is incorporated this in itself is not sufficient for the organisation to be considered to be an institution. If the organisation is controlled and operated by family members and friends it will not be considered to be an institution. If another body controls the organisation the organisation will not be considered to be institution in its own right.

In applying these cases to your situation, it is relevant to note that:

· you are an agency of a government department;

· you do not have a separate constitution which sets out your objectives, powers and functions;

· you were brought into existence by government regulation;

· your objectives and functions are set out under a government Act which apply to all research and development corporations established by that Act;

· your annual operational plans and activity plans require Ministerial approval,

· you are required to prepare and provide budget estimates which are to be given to the responsible minister within the time required by the responsible minister;

· your accountability and reporting responsibilities are set out under the relevant Act.

These factors indicate that you are not an institution in your own right. Rather, you are an instrumentality of government.

Support for this conclusion is provided by a review of the factors listed in paragraph 3 of 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 Tax Assessment Act 1986 (FBTAA)?

Paragraph 3 of TD 95/56 states:

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.

These factors are considered below:

Were you formed by government?

As you are a statutory authority that was established under an Act of parliament you were formed by government.

Are you controlled by government?

The Act provides that you are a body corporate with perpetual succession.

The Act determines how you operate. For example the Act sets out how you are constituted.

The Act provides that you will consist of:

· a Chairperson

· an Executive Director, and

· no fewer than five or more than seven other directors.

The Minister, who appoints the directors, also determines how many directors are necessary.

The directors are nominated by a Selection Committee, set up under the Act, who then refer the nominees to the Minister for appointment. The Minister can either reject or request further information on the nominees if they are not satisfied with the nominations.

Further, while a director may resign by giving written notice to the Minister, the Minister can terminate the appointment of the Chairperson or a director.

Control is further demonstrated by several clauses within the Act and information that is contained within your Annual Report.

These factors indicate you are controlled by government.

Do you perform functions on behalf of Government?

The Act provides your functions and powers to enable you to undertake your objectives.

In carrying out your functions you are required to prepare both an activity plan and an annual operational plan. Both of these must be submitted to the Minister.

The Act sets out what you can do and what powers you have to fulfil your functions. There is no provision for you to change your functions or even to hold a vote to enable change.

The Act provides that where you cease to exist as a result of the repeal of regulations, all the agreements and instruments that you have entered into have the effect that the Commonwealth is substituted for you. Therefore should you cease to exist, your agreements with other entities would be fulfilled by the Commonwealth.

These factors indicate that you are performing functions on behalf of government. Therefore, you were formed by government, are controlled by government and perform functions on behalf of government.

3. If you are an institution, are you a scientific institution?

The term 'scientific' is not defined in the FBTAA, and therefore it takes on its ordinary meaning.

The Macquarie Dictionary version 5.0.0 - 01/10/01 defines 'scientific' as:

1. having to do with science or the sciences: scientific studies.

2. occupied or concerned with science: scientific men.

3. regulated by or conforming to the principles of exact science: a scientific method.

4. systematic or accurate.

In Royal Australasian College of Surgeons v. Federal Commissioner of Taxation (1943) 68 CLR 436 (RACS Case), the High Court considered the meaning of 'scientific institution' for the purposes of section 23(e) of the Income Tax Assessment Act 1936 (ITAA1936).

In the RACS Case, the organisation's principal activities included holding conferences of surgeons for the discussion and study of surgical matters and the dissemination of knowledge of surgery.  Papers were read and addresses given at these meetings.  The programmes of three annual meetings put into evidence showed that a very large number of papers had been read, addresses given and demonstrations conducted, all relating to surgical science.

The college also:

· provided a technical surgical library for the use of its members;

· published a surgical journal;

· conducted examinations for admission to fellowship of the College;

· administered funds devoted to surgical research, and

· conducted and assisted such research in various ways. 

In considering whether the College was a scientific institution Latham CJ referred to the judgement of the case of Inland Revenue Commissioners v Aberdeen Medico-Chirurgical Society (1931) 16 Tax Cas. 237 where the Lord President at 249 stated:

If these objects and activities are of mixed character, being partly professional and partly literary or scientific, then the question must be decided according to the prevalent or main character.

In applying the prevalent or main character test Latham CJ at 444 in the RACS case stated: 

Unless the promotion of surgical science is the main substantial or primary object of the College, it cannot be described as a scientific institution. 

Similarly, Rich J at 447 in the RACS Case, stated: 

The Act gives no definition of "scientific" and one must therefore look to the objects and practice of the particular institution. By "practice" I understand its activities. … I have come to the conclusion that the main or real object of the College is the promotion and advancement of surgery.  By this I mean that its essential purpose is to enlarge and extend the boundaries or area of the science of surgery. Its other objects are not collateral or independent but merely concomitant and incidental to the main object.

Starke J at 448 in the RACS Case, stated: 

The objects of the College are therefore of a mixed character and the memorandum does not make it clear which are its main or dominating characteristics. The activities of the College must therefore be examined.

If it be found that those activities are mainly or predominantly directed towards the promotion or advancement of scientific knowledge or, in other words, the advancement of surgical knowledge and practice, then the authorities make it clear that a finding that the College is a scientific institution is in point of law correct.

McTiernan at 449 of the RACS Case, stated:

It is not necessary, to satisfy the section, that the object of the association should be exclusively scientific. But it is necessary that the promotion of the science of surgery should be its main object.

In applying the principle of the RACS Case in defining a 'scientific institution', it is accepted that it is not necessary for your objects and activities to be exclusively scientific. However, it is necessary for your dominant purpose to be the advancement of science.

Your objectives do not provide a basis for concluding that your principle objective is the promotion of science.

Support for this conclusion is provided by a government overview which states that you do not undertake the research activities. Rather, in consultation with the industry you identify the research needs that are consistent with the priorities identified by the Government.

These factors indicate your primary purpose is to plan and provide funding to research bodies in accordance with the priorities of Government. While you analyse the results and promote the commercialisation for the industry, this by itself is not sufficient to conclude that you are a scientific institution.

Alternatively, as discussed above, you were formed by government, are controlled by government and perform functions on behalf of government. The way in which this may affect the consideration of whether you are a scientific institution is provided by paragraphs 50 to 52 of Taxation Ruling TR 2003/5 Income tax and fringe benefits tax: public benevolent institutions.

Paragraphs 50 to 52 of TR 2003/5 state:

Functions of government

50. Purely governmental bodies performing the accepted functions of government operate to promote the welfare of the community generally and are unlikely to be public benevolent institutions. Even where they provide direct relief to those in need, it will be merely incidental to the performance of governmental functions and not public benevolence.

51. In Metropolitan Fire Brigades Board v. FC of T 91 ATC 4052; (1990) 21 ATR 1137 a fire brigade was constituted under legislation with the responsible Minister having important powers of control. Its operations were chiefly funded by taxes on property owners. The Full Federal Court held that the fire brigade was not a public benevolent institution because it was 'a body constituted, funded and controlled by government and performing functions on behalf of government'. The Court, at ATC 4056; ATR 1141, compared the relief provided by the fire brigade to government providing pensions: 'It is simply, like the appellant, using government funds to exercise a function of government.' This case was applied in Mines Rescue Board of New South Wales v. FC of T 2000 ATC 4191; (2000) 44 ATR 107 and on appeal at 2000 ATC 4580; (2000) 45 ATR 85. The degree to which the Board was governmental precluded it from being a public benevolent institution. Indicators of the Board being governmental included its establishment as a statutory body representing the Crown, governmental authority for funding, and the Minister's powers on directors, functions, planning and investment. It was not determinative that the Minister had not sought to exercise powers of control, that the funding came from coal mine owners, and that providing emergency rescue services at underground coal mines has not always been regarded as a governmental responsibility.^F3

52. Another example would be a drug and alcohol abuse unit of a State Health Department providing assistance as part of a wider organisational function directed to the general good of the community. The unit would not be a public benevolent institution as the relief was provided as a function of government.

Although this ruling concerns the meaning of a public benevolent institution the reasons given in paragraphs 50 to 52 as to why a governmental body can not be a public benevolent institution apply equally when considering whether a body is a scientific institution.

That is, a body which is a governmental body will not be a scientific institution if the scientific research is incidental to the performance of governmental functions. In a similar manner to the decision of Metropolitan Fire Brigades Board v. FC of T which is referred to in paragraph 51 of TR 2003/5 you are not considered to be a scientific institution as you are a body constituted, funded and controlled by government and performing functions on behalf of government.

4. If you are a scientific institution are you carried on by a company, society or association for the purposes of profit or gain to its individual shareholders or members?

As you are not a scientific institution it is not necessary to consider this requirement. However, as noted above, it appears that you were established for the benefit of your stakeholders (the Australian Government and the industry).

Therefore, as you do not satisfy any of the three criteria you are not considered to be a scientific institution.