Edited version of your written advice

Authorisation Number: 1013074549833

Date of advice: 18 August 2016

Ruling

Subject: Fringe benefits tax

Question 1

Are you a rebatable employer under section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) on the basis that you are a non-profit society, non-profit association or non-profit club established for community service purposes per item 5 to subsection 65J(1) 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

Year ended 31 March 2021

Year ended 31 March 2022

The scheme commences on:

2016

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a not-for-profit incorporated organisation under the Associations Incorporation Act 1987.

You conduct your activities exclusively in Australia and maintain a physical presence in Australia.

You have provided details about your purpose and activities.

Your activities are not of a political or lobbying purpose.

You are not beneficially owned by the Commonwealth, State or a Territory, or an authority or institution of the Commonwealth, a State or a Territory. Similarly you are not limited by guarantee and the interests and rights of your members are not beneficially owned by the Commonwealth, a State or a Territory, or an authority or institution of the Commonwealth, a State or a Territory.

Your Constitution includes non-profit and winding up clauses.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary

You are a rebatable employer under section 65J of the FBTAA on the basis that you are a non-profit society, non-profit association or non-profit club established for community service purposes per item 5 to subsection 65J(1) of the FBTAA.

Detailed reasoning

An employer is a rebatable employer for a year of tax under subsection 65J(1) of the FBTAA if the employer:

• is exempt from income tax at any time during the year of tax under any of the provisions set out in the table in that subsection, and

• it satisfies the special conditions (if any) set out in that table.

The type of employer referred to under Item 5 of the table is exempt from income tax as:

a society, association or club:

(a) established for community service purposes (except political or lobbying purposes); and

(b) covered by item 2.1 of the table in section 50-10 of the Income Tax Assessment Act 1997

and satisfies the special condition in subsection 65J(5) of the FBTAA.

An entity covered by item 2.1 of the table in section 50-10 of the Income Tax Assessment Act 1997 (ITAA 1997) is a society, association or club established for community service purposes (except political or lobbying purposes) that satisfies the special conditions of section 50-70 of the ITAA 1997.

A society, association or club

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

This approach was taken in Douglas v. Federal Commissioner of Taxation (1997) 77 FCR 112; 36 ATR 532; 97 ATC 4722. The definitions for each of these terms was accepted as referring to a voluntary organisation having members associated together for a common or shared purpose.

You are considered to be an association.

Established

The meaning of the term established in the context of section 50-10 of the ITAA 1997 was determined in the case of Wentworth District Capital Ltd v FC of T [2010] FCA 862; (2010) 2010 ATC 20-202; (2010) 80 ATR 50 (Wentworth). Perram J found that the issue of whether the body in question was established was to be addressed in each income year by looking at its activities in that year while at the same time it was relevant to look at the objects or purposes for which the body was incorporated. An entity might be established for the requisite purpose in one year, but not another.

Therefore, the determination whether you are established for community service purposes must be determined on a year by year basis, considering both your activities during the year as well as its objects in your governing documents.

Community service purposes

The phrase 'community service purposes' is not defined in the tax law. It is given its ordinary meaning.

Paragraphs 2 to 4 of 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?, state the following in relation to former subparagraph 23(g)(v) of the Income Tax Assessment Act 1936, which is the same as item 2.1 of the table in section 50-10 of the ITAA 1997:

…The purpose of enacting subparagraph 23(g)(v) was to create a category of exemption for community bodies whose activities are not accepted as being charitable… but which, nevertheless, conduct activities of benefit to the community.

… The Explanatory Memorandum 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'.

In Navy Health Ltd v Federal Commissioner of Taxation (2007) 163 FCR 1; [2007] FCA 931; (2007) 2007 ATC 4568, Jessup J said that

'I consider that the essence of 'community service' is that a service is provided to the community, or a section of the community. Here the word "service" is used in the sense of 'help, benefit or advantage', particularly 'the action of serving, helping or benefiting, conduct tending to the welfare or advantage or another'.

In this regard, His Honour went onto say that the benefit provided must not be vague. Specifically, His Honour said that community service

'...deals with 'service' in a much more concrete setting, and requires, in my view, the community, or a section of the community, to benefit by way of the receipt of some identifiable help, benefit or advantage...'

The principles to be used in the characterisation of community service purposes were outlined by Perram J in Wentworth and the decision made was upheld by the full federal court on appeal in FC of T v Wentworth District Capital Ltd (2011) 191 FCR 151; [2011] FCAFC 42; (2011) 2011 ATC 20-253. These principles are:

1. the kind of community service referred to in section 50-10 of the ITAA 1997 is a practical or tangible help, benefit or advantage conferred on the community or an identifiable section thereof.

2. a service provided for reward is not a community service, at least when there is no element of subsidisation.

3. community service purposes is to be interpreted broadly and are not only restricted to the act of provision of such services but also include activities such as the facilitation and promotion of such services.

4. the entity claiming the exemption must be established for those purposes and requires an analysis of what the entity is doing in the relevant year of income, both as a matter of its constitutive documents and also by reference to its actual activities.

5. the main or dominant purpose of the entity must be connected to the delivery of a community service.

In seeking to achieve your object you are involved in activities that confer a practical or tangible benefit to the community.

The services that you provide are not provided for reward.

Your activities are consistent with your purpose.

You are therefore considered to be established for community service purposes.

Political or lobbying purposes

Your purposes are not considered to be political or lobbying purposes.

Special conditions in section 50-70 of the ITAA 1997

Subsection 50-70(1) of the ITAA 1997 provides that an entity covered by item 2.1 is not exempt from tax unless 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:

(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 in which it is resident;

and the entity satisfies the conditions in subsection (2).

Under subsection 50-70(2) of the ITAA 1997 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.

The governing rules of an entity are those rules that authorise the policy, actions and affairs of an entity. The governing rules condition is applied on a continuous basis throughout an income year.

Your current activities are consistent with the substantive requirements of your constitution in the pursuit of your objects.

The requirement that you must apply your income and assets means that you must make use of all of your income and assets solely for the purpose for which you are established.

Your income may still be applied for the purpose for which you are established if some your income is accumulated provided the accumulation is consistent with the rules for which you are established.

Your constitution provides that your property and income shall be applied solely towards the promotion of your objects. Your financial statements indicate that your income and assets have been applied to the purpose for which you have been established.

Consequently, you meet the special conditions specified in section 50-70 of the ITAA 1997.

Special condition in subsection 65J(5) of the FBTAA:

Under Item 5 of the table in subsection 65J(1) of the FBTAA covered by item 2.1 of the table in section 50-10 of the Income Tax Assessment Act 1997

A society, association or club is not covered by table item 4, 5, 8, 9, 10, 11 or 12 in subsection (1) of a year of tax if it is:

(a) an incorporated company where all the stock or shares in the capital of the company is or are beneficially owned by:

i. the Commonwealth, a State or Territory, or

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

(b) 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:

i. the Commonwealth, a State or Territory, or

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

You satisfy subsection 65J(5) of the FBTAA as you are not beneficially owned by the government.

In summary you are an entity established for community service purposes, are covered by item 2.1 of the table in section 50-10 of the ITAA 1997 and you meet the special conditions in subsection 65J(5) of the FBTAA. Therefore you meet the requirements of subsection 65J(1) of the FBTAA and are a rebatable employer.