Edited version of your written advice

Authorisation Number: 1012802729199

Ruling

Subject: FBT rebatable employer

Question 1

Is the entity a rebatable employer pursuant to item 11(a)(i) in section 65J(1) 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 entity is a proprietary limited company.

• The entity has ceased trading and is currently finalising its affairs.

• The entity's primary purpose is to encourage the promotion of animal racing.

• The entity's purpose is stated in the objects clause of its Constitution.

• When the entity was operating its activities were consistent with the objects in its Constitution.

• The entity conducts a range of activities that encourages a wide audience to view animal races.

• The entity applies its income and assets solely to its purpose

• The entity's members are not government entities.

• The entity has non-profit and winding up clauses in its Constitution that ensure it operates in a non-profit manner while operating and upon winding up.

• Upon winding up, the entity will distribute surplus assists in line with its Constitution

• The entity conducts its activities in Australia.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 65J

Income Tax Assessment Act 1997 section 50-45

Reasons for decision

Summary

The entity is an employer falling within the definition of subsection 65J(1) of the FBTAA item 11(a)(i). Accordingly the entity is entitled to the rebate of fringe benefits tax (FBT) contained in section 65J of the FBTAA for the period 1 July 2012 to 31 March 2016.

Detailed reasoning

Section 65J of the FBTAA provides a rebate of FBT for certain non-profit employers and subsection 65J(1) lists the types of non-profit employers eligible to receive the rebate.

The law as stated in the 2013 income year provided that subsection 65J(1) of the FBTAA included as a rebatable employer at paragraph (i):

'a non-profit association, non-profit society or non-profit club established for the encouragement or promotion of animal races'

Further conditions at subsection 65J(5) of the FBTAA were listed to define a 'non-profit society, non-profit association and non-profit club'.

Tax Laws Amendment (2013 Measures No. 2) Act 2013 made amendments to the wording of subsection 65J(1) and the amendments effective from 30 June 2013, now state at item 11(a)(i) of subsection 65J(1) of the FBTAA, a rebatable employer includes:

Type of employer	Special conditions
11. a society, association, or club	See subsection (5) of this section
a) Established for the promotion of i. Animal racing; …; and
b) Covered by item 9.1 of the table in section 50-45 of the Income Tax Assessment Act 1997.

Therefore, whether the entity is a rebatable employer depends on the following characteristics:

1. It is a society, association or club.

2. It is established for the promotion of animal racing.

3. Meets the special conditions in subsection 65J(5) of the FBTAA.

4. From 30 June 2013, it is covered by item 9.1 of the table in section 50-45 of the Income Tax Assessment Act 1997 and meets the special conditions of that section.

1) Society, Association or Club

The FBTAA does not provide a definition as to what a 'society', 'association', or 'club' is and therefore it is necessary to use the common everyday meaning of these words.

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)? provides the following statement in respect of the term 'association':

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 523, also stated that the term 'association' has come to be regarded as attaching to a body of persons associated for a common purpose.

'Society' has an equivalent meaning as 'association' as stated by Lee J in Pro-campo Ltd v Commr of Land Tax (NSW) 81 ATC 4270 at 4279; 1981 12 ATR 26 at 35, which is 'bodies made up of groups of persons who have come together to implement common purposes and objects'.

The entity is an Australian proprietary limited and is an organised body of members instituted for the purposes as stated in its Constitution.

It is accepted that the entity is an association and society.

2) Established for the encouragement of animal racing

The main purpose of the society, association or club must be encouragement of animal racing. To determine an organisation's main purpose, consideration is given to its constituent documents, activities, use of funds and history.

Taxation Ruling TR 97/22 Income tax: exempt sporting clubs discussed the meaning of encouragement as used in section 50-45 of the ITAA 1997, paragraphs 11 to 14 state:

Encouragement

'Encouragement' means 'stimulation by assistance', according to the Macquarie Dictionary. It is essential that the encouragement of a game or sport is the main or dominant purpose of a club. Encouragement can occur directly by:

• forming, preparing and entering teams and competitors in competitions in the game or sport;

• co-ordinating activities;

• organising and conducting tournaments and the like;

• improving the abilities of participants;

• improving the standard of trainers and coaches;

• providing purchased or leased facilities for the activities of the game or sport for the use of club members and visitors; or

• encouraging increased and wider participation and improved performance;

and can occur indirectly:

• through marketing; or

• by initiating or facilitating research and development.

The objects and activities of the entity are to promote animal racing in Australia. Although, the entity does not directly conduct animal racing, it does conduct a range of activities that encourage a wide audience to view animal races. The activities conducted are all in encouragement of racing.

3) Special conditions - subsection 65J(5) of the FBTAA

Before the amendments to section 65J of the FBTAA, the special conditions in subsection 65J(5) of the FBTAA imposed the following conditions:

a) the society association or club is carried on otherwise than for the purposes of profit or gain to its individual members; and

b) it is not owned or beneficially owned by the Commonwealth, State or Territory governments or one of their authorities.

The first requirement is the 'non-profit' requirement, and the entity will satisfy this as it has the appropriate non-profit and winding up clauses in its Constitution to establish it is carried on in a not-for-profit manner.

The second requirement excludes those societies, associations and clubs owned by government. The entity will satisfy this requirement as it has provided a list of its members and it is not beneficially owned by the Commonwealth, State or Territory governments or any of its authorities.

The entity will satisfy the special conditions in subsection 65J(5) of the FBTAA.

Starting from 30 June 2013, amendments were made to subsection 65J(5) to remove the first requirement (non-profit requirement) but keep the second requirement. Thus, the entity will satisfy this requirement.

4) Item 9.1 of section 50-45 of the ITAA 1997

Under item 9.1(a) in section 50-45 of the ITAA 1997, an entity is exempt from income tax if it is:

• a society, association or club;

• established for the encouragement of animal racing; and

• meets the special conditions in section 50-70 of the ITAA 1997

As stated in the reasons above, the entity is a 'society, association or club' and is 'established for the encouragement of animal racing'. Therefore, the only other requirement that it must satisfy is the special conditions in section 50-70 of the ITAA which states:

50-70(1) An entity covered by item 1.7, 2.1, 9.1 and 9.2 is not exempt from tax unless the entity is society, association or club not carried on for the purpose of profit or gain of its individual members and that :

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

b) is a society association or club that meets the description and requirements in item 1 of the table in section 30-15; or

c) is a prescribed society, association or club which is located outside Australia and is exempt from income tax in the country which it is resident;

and the entity satisfies the conditions in subsection (2)

50-70(2) The entity must:

a) comply with all the substantive requirements in its governing rules; and

b) apply its income and assets solely for the purpose for which the entity is established.

Applying the above special conditions to the entity:

Non-profit

The Constitution of the entity has appropriate non-profit and winding up clauses which ensure it operates in a non-profit manner.

Physical presence in Australia

From the activities conducted by the entity it is evident that it incurs its expenditure and pursues its objectives principally in Australia.

Governing rules condition

The entity is governed by its Constitution for the purposes stated in its objects clause. The activities performed by the entity are consistent with its purpose and there is no information to indicate it is not complying with its governing rules.

Income and asset condition

From the entity's Constitution and activities conducted it is apparent that the entity applied its income and assets solely to the purposes set out in its Constitution which, is to promote and encourage Australian animal racing. The entity has ceased trading, and is currently finalising its affairs. In the event there are surplus assets, they will be dealt with in accordance with the entity's Constitution which requires it to be distributed to another like organisation that encourages animal racing.

For the reasons above, the entity will meet the requirements under item 9.1 of section 50-45 of the ITAA 1997.