Edited version of private ruling

Authorisation Number: 1011835178287

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Subject: Income tax exemption

Ruling

Issue 1

Question

Is Entity A exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as an entity described in item 2.1 of section 50-10 of ITAA 1997?

Answer

Yes, Entity A is exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as an entity described in item 2.1 of section 50-10 of ITAA 1997.

Issue 2

Question

Is Entity A a rebatable employer under paragraph 65J(1)(j) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes, Entity A is a rebatable employer under paragraph 65J(1)(j) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

This ruling applies for the following periods:

Year ended 30 June 2006

Year ended 30 June 2007

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commences on:

29 June 2006

Issue 1

Facts

Entity A is a non-profit company and has a number of members. The object of the Entity is to promote community safety.

Reasons for decision

Item 2.1 of the table in section 50-10 of the Income Tax Assessment Act 1997 (ITAA 1997) in conjunction with section 50-1 of the ITAA 1997, provides that the total ordinary income and statutory income of a society, association or club established for community service purposes (except political or lobbying purposes) is exempt from income tax, subject to the special condition detailed in section 50-70 of the ITAA 1997.

To be an entity described in item 2.1 the entity must:

· be a society, association or club,

· be established for community service purposes, and

· satisfy the special condition in section 50-70 of the ITAA 1997.

Each of these requirements is examined below in relation to Entity A.

Society, association or club

The term society, club or association is not defined in the ITAA 1997. The term should therefore be construed according to the ordinary meaning of the words.

This approach was taken in Douglas v. Federal Commissioner of Taxation 36 ATR 532; (1997) 77 FCR 112; 97 ATC 4722. Reference was made by the court to the definitions contained in the Concise Oxford Dictionary for each of these terms. Society, association or club was accepted by the court as referring to a voluntary organisation having members associated together for a common or shared purpose.

Entity A has been formed to promote community safety. The members of Entity A have a common interest, and therefore Entity A is a society, club or association.

Established for community service purposes

Item 2.1 requires the society, club or association to be established for community service purposes. The required community service purposes must be the entity's main or predominant purposes (Royal Australasian College of Surgeons v FCT (1943) 68 CLR 436; Cronulla Sutherland Leagues Club Limited v FCT 90 ATC 4215).

Item 2.1 is the equivalent of subparagraph 23(g) (v) of the Income Tax Assessment Act 1936 (ITAA 1936). Guidelines on the scope of the exemption provided by subparagraph 23(g)(v) are provided by Taxation Determination TD 93/190 Income tax: what is the scope of the exemption from income tax provided by subparagraph 23(g)(v) of the Income Tax Assessment Act 1936?

TD 93/190 states that the purpose of enacting the provision was to create a category of exemption for community bodies whose activities are not accepted as being charitable because they do not fall within one of the four heads of charitable purpose.

The provision does not give exemption from income tax to a broad range of organisations that are established within the community, but whose purposes are not of an altruistic nature. Altruistic purposes are an essential element of even the widest interpretation of 'community service purposes'.

It is also relevant to refer to the Explanatory Memorandum for the Taxation Laws Amendment Bill (No 2) 1990 which introduced subparagraph 23(g) (v) of the ITAA 1936. The Explanatory Memorandum states that the words '"for community service purposes" are to be given a wide interpretation':

They extend to a range of altruistic purposes' including 'promoting, providing or carrying out activities, facilities or projects for the benefit or welfare of the community, or of any members of the community who have particular need of those activities, facilities or projects by reason of their youth, age, infirmity or disablement, poverty or social or economic circumstances. An exclusion from the exemption will apply to bodies established for political or lobbying purposes.

The Explanatory Memorandum and TD 93/190 indicate that to determine whether an association is established for community service purposes it is necessary to consider its constitution, its current operations and activities, and also the circumstances and needs of those who benefit from the operations. If it can be established that an entity is established mainly to provide benefits to the community, it will not be a disqualifying attribute if there is an incidental benefit derived by members.

The objectives of Entity A are to promote community safety. Entity A is altruistic and community service purposes are the main or predominant purpose. Therefore, Entity A is 'established for community service purposes'.

Special Condition

Section 50-70 of the ITAA 1997 states that an entity covered by item 2.1 is not exempt unless it is not carried on for the purposes of profit or gain of its individual members, and:

· it has a physical presence in Australia and, to that extent it pursues its objectives and incurs its expenditure principally in Australia; or

· it is a deductible gift recipient; or

· it is prescribed by law in the income tax regulations and it is located outside Australia and is exempt from income tax in its country of residence.

The constitution of Entity A contains clauses to prevent distributions to members both whilst it is operating and upon its winding up. Therefore, Entity A is not established for the profit or gain of its members. Entity A is incorporated in Australia and must pursue its objectives principally in Australia. Entity A will principally incur all of its expenditure in Australia and satisfies the special condition in section 50-70 of the ITAA 1997.

Conclusion

Entity A is a 'community services organisation' described in item 2.1 because it is a society, association or club established for community service purposes, and it satisfies the special condition. Entity A is exempt from income tax pursuant to section 50-1 of the ITAA 1997.

Legislation

Section 50-1 of the Income Tax Assessment Act 1997

Section 50-10 of the Income Tax Assessment Act 1997

Section 50-55 of the Income Tax Assessment Act 1997

Issue 2

Reasons for decision

Paragraph 65J(1)(j) of FBTAA provides that an employer is a rebatable employer for a year of tax if the employer is not a public benevolent institution, is not a health promotion charity, and is a non-profit society, non-profit association, or non-profit club, established for community service purposes (not being political purposes or lobbying purposes). Entity A is clearly not a public benevolent institution or a health promotion charity as it is not set up to provide benevolent relief or to prevent or control diseases. As discussed earlier, Entity A is a non-profit society, association or club established for community service purposes and therefore, satisfies paragraph 65J(1)(j) of FBTAA. Therefore, Entity A is a rebatable entity.

Conclusion

Entity A is a rebatable employer under paragraph 65J(1)(j) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Legislation

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