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Ruling

Subject: Fringe benefits tax Rebatable employer status

Question 1

Is the Rulee entitled to a rebate of fringe benefits tax under subsection 65J(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) on the basis that it is a rebatable employer under subsection 65J(1) of the FBTAA?

Answer: Yes.

This ruling applies for the following periods:

Year ended 31 March 2013

Year ended 31 March 2014

The scheme commences on:

1 April 2012

Relevant facts and circumstances

The Rulee was established in 2001 as a company limited by guarantee by a statutory body and an industry peak body.

The Rulee is an income tax exempt entity.

The Rulee received previous advice from the Taxation Office in the form of a private ruling confirming their status as a rebatable employer in accordance with paragraph 65J(1)(l) of the FBTAA.

The Rulee's constitution provided to the Commissioner in relation to the previous ruling has not altered.

The Rulee was formed as a partnership between the government and industry for the purpose of improving the efficiency and competitiveness of the industry.

The Board of Directors consisted industry representatives. The admission of new members and the appointment of Directors were determined by processes involving approval by current Board of Directors and voting by existing members.

In 2007, the Annual General Meeting approved a new constitution and admitted two new members. All previous member resigned membership.

The Rulee currently has five members.

Member 1 is the peak body representing the industry across Australia.

Member 2 is an industry-owned corporation. Its members include retailers, co-operative associations, and producers.

Member 3 is a private company that is privately owned.

Member 4 is an industry association acting as an industry representative body. Its role includes lobbying government, promoting industry issues and pooling resources. It is not owned or controlled by Government.

Member 5 is a member of Member 4 and is also an industry representative body. It is not owned or controlled by Government.

The statutory body has committed funding for the Rulee to undertake specific projects for the next two years.

The Rulee's constitution states the purpose of the company.

Under the constitution the board of director controls the decision making and operations of the company.

The constitution contains acceptable non-profit and winding up clauses.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 65J ,

Fringe Benefits Tax Assessment Act 1986 Subsection 65J(5) and

Fringe Benefits Tax Assessment Act 1986 Paragraph 65J(1)(l) .

Reasons for decision

Section 65J of the FBTAA allows certain employers, that are not public benevolent institutions or health promotion charities, a rebate on their fringe benefits tax liability.

The Rulee is neither a public benevolent institution nor a health promotion charity.

Under paragraph 65J(1)(l) of the FBTAA, an employer is a rebatable employer if it is a non-profit society or non-profit association established for the purpose of promoting the development of specified Australian resources.

The Rulee will satisfy the requirements of paragraph 65J(1)(l) of the FBTAA if it is considered to be:

· a 'non-profit society' or 'non-profit association'; and

· established for the purpose of promoting the development of the resources of Australia.

It is accepted that the Rulee has been established for the purpose of promoting the development of the resources of Australia.

Non-profit society or association

Subsection 65J(5) of the FBTAA provides that a non-profit society or non-profit association is a society or association that:

is not carried on for the purposes of profit or gain to its members; and

is neither:

(i) an incorporated company where all the stocks or shares in the capital is or are beneficially owned by the Commonwealth, a State or a Territory, or an authority or institution of the Commonwealth, a State or a Territory;

nor

(ii) an incorporated company where the company is limited by guarantee and the interests and rights of the members in or in relation to the company are beneficially owned by the Commonwealth, a State or a Territory, or an authority or institution of the Commonwealth, a State or a Territory.

The terms association and society are not defined in the FBTAA and therefore take on their ordinary meaning. The Macquarie Dictionary defines 'association' as 'an organisation of people with a common purpose and having a formal structure.' 'Society' has an equivalent meaning.

However, in determining whether you are an association for fringe benefits tax purposes, it is also necessary to consider the application 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)?

TD 95/56 states that a body which is formed by government, is controlled by government and performs functions on behalf of government cannot be an association for the purposes of subsection 65J(1) of the FBTAA. The reasoning being that such a body is clearly not formed to give effect to the purposes of the members of that body, but to give effect to the purposes of government.

Formed by government

The Rulee was formed in 2001 as a partnership between government and industry. It was established as a company limited by guarantee for the purpose of improving the efficiency and competitiveness of the industry.

The Board of Directors consisted of industry representatives. The admission of new members and the appointment of Directors were determined by processes involving approval by current Board of Directors and voting by existing members.

While the formation of the Rulee was initiated by the government and one of the two founding members was a statutory body, it was also formed with the support and involvement of the industry and there was scope for the admission of other members from within the industry.

It is considered that the Rulee was not formed by government.

Controlled by government

In 2007, the Annual General Meeting approved a new constitution and admitted two new members. All previous members resigned membership.

Since then three additional members have been admitted.

The members include an industry peak body, an industry-owned corporation, a private company and two industry representative bodies. None of the members are owned or controlled by government.

In determining where control of the Rulee lies the following is taken in to consideration:

· The members are non-government bodies representing the industry and whose objects are essentially to promote the advancement of the industry.

· The members of member organisations are retailers, co-operative associations, producers, state and regional industry councils, sector representative bodies and private companies.

· The Rulee was not formed by government (as discussed above).

· The Board members are industry representatives rather than government representatives.

· The statutory body has committed funding for the Rulee to undertake specific projects for the next two years.

· The statutory body does not have control over the Rulee beyond the project itself.

· The Rulee's constitution gives the Board the power to manage the business of the company and to exercise every right, power or capacity of the company in general meeting. This means that decisions made by the Board regarding the operation of the Rulee are made by a majority of industry representatives.

· The day to day operation of the Rulee is in the hands of the Board of Directors, the majority of who represent the industry, and staff.

Based on the above factors it is considered that the control of the Rulee lies with its members rather than a government body. The Rulee is not controlled by government.

Perform functions on behalf of government

In pursuit of its stated objects the functions performed by the Rulee include the undertaking of projects funded by government bodies. In this sense it can be said that the Rulee performs functions on behalf of government.

Although it can be said that the Rulee performs functions on behalf of government, it is clear that it is to give effects to its purposes and not the purposes of government.

Therefore, in accordance with TD 95/96, the Rulee is an 'association' for fringe benefits tax purposes.

Carried on for the purposes of profit or gain to its member

The constitution of the Rulee contains appropriate non-profit and winding up rules designed to ensure that there will be no distribution of profits to members both while in operation or in the event of dissolution.

Therefore, it is accepted that the Rulee is not being carried on for the profit or gain of its members.

Beneficial ownership

Subsection 65J(5) of the FBTAA prevents a company limited by guarantee from being a non-profit association where the interests and rights of the members in or in relation to the company are beneficially owned by the Commonwealth, a State or a Territory, or by an authority or institution of the Commonwealth, a State or a Territory.

The Rulee is a company limited by guarantee and has five members. All members are independent organisations and not owned by government. The members of the member organisations are retailers, co-operative associations, producers, state and regional industry councils, sector representative bodies and private companies.

The interests and rights of members are not beneficially owned by the Commonwealth, a State or a Territory, or by an authority or institution of the Commonwealth, a State or a Territory.

Conclusion

The Rulee is an association that is not carried on for the profit or gain of its members and the interests and rights of members are not beneficially owned by the Commonwealth, a State or a Territory, or by an authority or institution of the Commonwealth, a State or a Territory.

Accordingly, the Rulee is a non-profit association as defined in subsection 65J(5) of the FBTAA and qualifies as a rebatable employer under paragraph 65J(1)(l) of the FBTAA.