Edited version of your written advice

Authorisation Number: 1012918517470

Date of advice: 7 December 2015

Ruling

Subject: Rebate for certain non-for-profit employers

Question 1

Whether the association is considered to be a rebatable employer in accordance with Item 5 of subsection 65J(1) of the Fringe benefits Tax Assessment Act 1986 (FBTAA), and therefore entitled to a rebate of the amount of Fringe Benefits Tax (FBT) payable pursuant to subsection 65J(2A) of the FBTAA.

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 2017

Year ended 31 March 2018

Year ended 31 March 2019

Year ended 31 March 2020

The scheme commences on:

1 April 20XX

Relevant facts and circumstances

This description of facts is based on the ruling application and other documents attached to the application including the current Annual Report, member profiles, and Constitution.

The association has previously received private rulings from the ATO in respect of this matter. These rulings provide that the entity satisfies the definition of a rebatable employer in accordance with former paragraph 65J(1)(j) FBTAA.

The association is seeking a continuation of the private ruling already in place on the basis that the entity has continued to provide the same services to the community since the previous ruling issued.

The association can be described as follows:

• a non-profit organisation established for community service purposes (not being political or lobbying purposes)

• a non-profit organisation which is exempt from income tax, but not registered as an income tax exempt charity

• an entity whose Constitution and Annual Report provide that the association has been formed for purposes beneficial to the community

The objectives of the entity outlined in the Constitution are as follows:

• To aid in the relief of poverty, sickness, suffering, distress, misfortune, destitution, or helplessness by means of providing family support to disadvantaged families.

• To assist presenting 'at risk' families by reducing social isolation and family malfunctions with the provision of practical and emotional support, information, educational and personal development, and social and living skills programs.

The Annual Report provides a description of the programs and services that the association provides to the community. Some of which are as follows:

• Early intervention Placement Prevention

• Staying Home Leaving Violence

• Financial Counselling Consortium

• Highly effective parenting

• Healthy relationships

• Personal development groups

• Home visiting

• Outreach and In service support, counselling and practical assistance

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 65J(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 65J(2A)

Fringe Benefits Tax Assessment Act 1986 Subsection 65J(3)

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

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 section 50-10

Income Tax Assessment Act 1997 section 50-70

Income Tax Assessment Act 1936 former subparagraph 23(g)(v)

Reasons for decision

Certain not-for-profit employers that are not entitled to an income tax deduction for FBT payable on benefits provided to their employees are entitled to a rebate of the amount of FBT otherwise payable, provided that certain conditions are satisfied.

To qualify for a rebate of FBT otherwise payable, the employer must be a rebatable employer.

The association has previously received private rulings from the ATO. These rulings provide that the entity satisfies the definition of a rebatable employer in accordance with former paragraph 65J(1)(j) FBTAA. This paragraph has since been repealed. Subsection 65J(1) has been re-written with effect from the 2014 and later FBT years.

Subsection 65J(1) of the FBTAA

Subsection 65J(1) of the FBTAA provides that an employer is a rebatable employer for the 2014 and subsequent FBT years if the employer:

• is exempt from income tax at any time during the FBT year; and

• satisfies the special conditions (if any) set out in the table contained in the subsection.

Item 5 (in column 1) of subsection 65J(1) provides that societies, associations and clubs established for community service purposes, (but not for political or lobbying purposes), and covered by item 2.1 of the table in section 50-10 of the ITAA 1997, are rebatable employers. Column 2 then provides that this is subject to special conditions as contained in subsection 65J(5).

Section 50-10 of the ITAA 1997

Item 2.1 of section 50-10 of the Income Tax Assessment Act 1997 (ITAA 1997) allows an income tax exemption for an association established for community service purposes (but not for political or lobbying purposes). If the association is considered to be an 'association' for the purposes of item 2.1 of section 50-10 of the ITAA 1997, then it is an 'association' for the purposes of subsection 65J(1) of the FBTAA.

Taxation Determination TD 93/190 considers the application of former subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 (ITAA 1936). TD 93/190 is considered relevant in this matter as former subparagraph 23(g)(v) of the ITAA 1936 was the predecessor of item 2.1 of section 50-10 of ITAA 1997.

TD 93/190 states in part:

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.

It is essential that the association have an altruistic purpose (i.e. it must be established and operated with regard to the well-being and benefit of the community.)

It is accepted that the objectives and specific activities outlined in the Constitution and the Annual Report indicate that the entity was formed for purposes beneficial to the community pursuant to item 2.1 of section 50-10 of the ITAA 1997.

Subsection 65J(5) of the FBTAA

In order for the association to satisfy the requirements under subsection 65J(1), the special conditions in subsection 65J(5) must also be met.

Subsection 65J(5) of the FBTAA refines the meaning of society, association or club.

Briefly, it provides that a society, association or club must not be an incorporated company where it is beneficially owned by:

• the Commonwealth, a State or a Territory; or

• an authority or institution of the Commonwealth, a State or a Territory.

A review of the Constitution with respect to membership, the committee and non-profit clauses, indicates that the entity has not been formed or controlled by government, to carry out functions on behalf of government, and is therefore not a body formed by the federal, state or territory governments, for the purpose of subsection 65J(5) of the FBTAA.

Subsections 50-70(1) and 50-70(2) of the ITAA 1997

The association must also satisfy the special conditions applicable to item 2.1 of the table in section 50-10 ITAA 1997 in conjunction with section 50-1 ITAA 1997, in order for their ordinary and statutory income to be exempt from income tax.

These special conditions are contained in section 50-70 of the ITAA 1997.

The association satisfies the requirements contained in paragraph 50-70(1)(a) of the ITAA 1997, in that its objectives and specific activities and programs outlined in the Constitution and the Annual Report, and the non-profit clauses in the Constitution indicate that the entity was formed for purposes beneficial to the community pursuant to item 2.1 of section 50-10 of the ITAA 97, and also subsection 65J(1) of the FBTAA. Additionally, the entity is a society, association or club that is not carried on for the purpose of profit or gain of its individual members, and is located in Australia, and incurs its expenditure and pursues its objectives principally in Australia.

In terms of the requirements contained in paragraph 50-70(2)(a) and 50-70(2)(b) of the ITAA 1997, Taxation Ruling TR 2015/1 is presently relevant.

Paragraph 7 of TR 2015/1 provides that the governing rules condition requires an entity to 'comply with all the substantive requirements in its governing rules'. Paragraph 18 then provides that the 'substantive' requirements in an entity's governing rules are those rules that define the rights and duties of the entity.

Relevant clauses of the entity's Constitution contain the substantive requirements that define the rights and duties of the entity. Such clauses deal with the powers of the committee, the preparation of financial accounts, the source and management of the funds of the association, the use of funds in pursuance of the objects of the association, and the management of surplus property in the event of winding up.

Paragraph 22 of TR 2015/1 makes reference to the income and assets condition in paragraph 50-70(2)(b), which requires an entity to 'apply its income and assets solely for the purpose for which the entity is established'.

It is accepted that the Constitution of the association contains clauses relating to the source and management of funds, and the fact that all funds will be used in pursuance of the objects of the association. Additionally, a nominated charity will receive any surplus funds in the event that the association is dissolved, and the Constitution provides that no member will share in any of the proceeds of the entity except for salary and/or wages or reimbursement for any funds expanded by the member for business purposes.

In conclusion, the association is a non-profit entity established as a community services organisation and has previously been provided with former subsection 65J(1) rebatable employer status.

The entity's objectives and activities have not changed, as they have provided the same services to the community since the previous ruling issued.

The entity is therefore considered to be a rebatable employer in accordance with item 5 of subsection 65J(1) FBTAA, and therefore entitled to a rebate of the amount of FBT payable pursuant to subsection 65J(2A) of the FBTAA.