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Ruling

Subject: Fringe benefits tax rebatable employer

Question 1

Can the employer claim a rebate under subsection 65J(2A) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) on the basis that it is a rebatable employer pursuant to paragraph 65J(1)(j) of the FBTAA?.

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

Year ended 31 March 2016

The scheme commences on:

1 July 2012

Relevant facts and circumstances

The employer is a non-profit company, limited by guarantee, and does not have issued share capital.

The Memorandum of Association lists the objects for which the employer was established.

The Memorandum of Association contains non-profit clauses relating to income and property and winding-up or dissolution.

Details of member entities were provided.

Detail of activities undertaken were provided.

Relevant legislative provisions

FBTAA Subsection 65J(1),

FBTAA paragraph 65J (1)(j)

FBTAA subsection 65J(5).

Income Tax Assessment Act 1997 Section 50-10

Income Tax Assessment Act 1936 Section 23

Reasons for decision

Summary

The employer is a rebatable employer as specified under paragraph 65J(1)(j) of the Fringe Benefits Tax Assessment Act 1986, is entitled to a rebate under subsection 65J (2A).

Detailed reasoning

Section 65J of the FBTAA is about the rebate that is available for certain employers and lists the types of entities that are rebatable contained in subsection 65J(1) of the FBTAA. Based on the details provided the most relevant entity type is the one contained in paragraph 65J(1)(j) of the FBTAA.

Subsection 65J(1) of the FBTAA states in part:

For the purposes of this section, 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, and is covered by any of the following paragraphs at any time during the year of tax:

(j) a non-profit society, non-profit association, or non-profit club, established for community service purposes (not being political purposes or lobbying purposes);

In order to satisfy the requirements of subsection 65J(1) of the FBTAA an employer must be neither a public benevolent institution (PBI) or a health promotion charity (HPC) . The Commissioner's view of what is a PBI can be found in Taxation Ruling TR 2003/5, Income tax and fringe benefits tax: public benevolent institution and paragraph 7 of TR 2003/5 states:

A public benevolent institution is a non-profit institution organised for the direct relief of such poverty, sickness, suffering, distress, misfortune, disability, destitution, or helplessness as arouses compassion in the community.

The information provided demonstrated that the employer has not been organised for the purposes outlined in paragraph 7 of TR2003/5 and therefore will not be a PBI.

A HPC is defined in subsection 136(1) of the FBTAA to 'mean a charitable institution whose principal activity is to promote the prevention or control of diseases in human beings'.

The information provided demonstrates that the employer is not a charitable institution which has a principal activity to promote the prevention or control of diseases in human beings, therefore the employer will be a rebatable employer if any of the paragraphs of subsection 65J(1) of the FBTAA apply.

We will now move on to the requirements of paragraph 65J(1)(j) of the FBTAA.

Society, association or club

Paragraph 2 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)? states:

Subsection 65J(1) of the FBTAA lists the categories of organisations which are rebatable employers. In paragraphs 65J(1)(f) to 65J(1)(l), association' is one of the terms used to describe the types of rebatable organisations. The Shorter Oxford English Dictionary defines the term 'association' to be 'a body of persons associated for a common purpose; the organisation formed to effect their purpose. The Macquarie Dictionary defines 'association' as being 'an organisation of people with a common purpose and having a formal structure'. Olsson J, in Quinton v. South Australian Psychological Board (1985) 38 SASR, also stated that the term 'association' has come to be regarded as attaching to a body of persons associated for a common purpose.

The employer is a company. The meaning of the word company is given in the Macquarie Dictionary as;

'an association, such as a corporation, formed by a group of people with a common purpose, such as the acquisition of profit by means of commercial enterprise: a publishing company.'

Accordingly, as the company is an incorporated body and company it will be an 'association'. It is a body of persons associated for the common purpose as outlined through the memorandum of understanding. It is not necessary to consider further whether it is also a 'society' or 'club'. The employer can be considered an association.

Non-profit society, association or club

Subsection 65J(5) of the FBTAA has an extended meaning of 'non-profit association' to only allow such a status only if these two requirements are met:

· that the association is not carried on for the purpose of gain or profit for its members: and

· that it is not an incorporated or unincorporated company whose shares or interests are owned or beneficially held by a government or government authority.

TR 2003/5 discusses the non-profit requirement and states in paragraph 78 that:

We will accept an organisation as being non-profit where, by its constituent document or by operation of law (for example, a statute governing the organisation), it is prevented from distributing its profits or assets among members while it is operating and on its winding-up.

The employer's constituent documents contain appropriate income and winding up clauses preventing the distribution of profits and requiring the transfer of property, on winding up, to other organisations which are not also exempt from income tax.

In addition the constituent documents contain no evidence that there is any beneficial ownership, either directly or indirectly, by a Commonwealth, State or Territory government nor any of the institutions or authorities referred to in this section.

Community service purposes

There is an income tax concession for a society, association or club established for community service purposes in item 2.1 of the table in section 50-10 of the Income Tax Assessment Act 1997 (ITAA 1997). However the phrase is not defined in either the FBTAA or ITAA 1997.

Prior to section 50-10 of the ITAA 1997 being enacted there was a similar concession for a society, association or club that is established for community service purposes in subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 (ITAA 1936), and 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?, explains that the meaning of 'community service purposes' an concludes that these words extend to a range of altruistic purposes that are not otherwise charitable. In detail paragraphs 3 to 5 in TD 93/190 state:

There are four heads of charitable purpose, one of which is other purposes beneficial to the community; but this is limited by the common law to those purposes which are also charitable within the meaning of the Statute, 43 Elizabeth, Ch. 4.  The term 'community service purposes' has a broader meaning than other purposes beneficial to the community which are also charitable. The Explanatory Memorandum (EM) to subparagraph 23(g)(v) confirms that the words 'community service purposes' are to be given a wide interpretation. Those words extend to a range of altruistic purposes that are not otherwise charitable, such as promoting, providing or carrying out activities, facilities or projects for the benefit or welfare of the community or any members of the community who have a particular need by reason of youth, age, infirmity or disablement, poverty, or social or economic circumstances.

However, 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 not accepted that common association as such is altruistic. Neither the purposes of members, nor the purposes of their organisation, are altruistic merely because the members form a non-profit organisation to advance their common interests. Members who seek to advance their common interests are not therefore motivated by an unselfish regard for others, and neither is their organisation. It follows that an organisation established for the purposes of its members is not therefore established for community service purposes. Only when the purposes of the organisation are altruistic can they be community service purposes. 

In order to qualify as a community service organisation, the employer must show that its purposes are altruistic and that it conducts activities which are for the benefit or welfare of the community or to members of the community who have a particular need.

The information provided demonstrates that the employer is established for community service purposes.

It is considered that the functions undertaken by the employer meet the criteria of paragraph 65J(1)(j) of the FBTAA and therefore is a community service organisation.