Edited version of your written advice

Authorisation Number: 1051241848176

Date of advice: 26 June 2017

Ruling

Subject: Tax status of religious institution

Question 1

Is the Entity Inc. entitled to an income tax exemption under Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

Question 2

Is the Entity entitled to GST concessions under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, but only in relation to the GST registration turnover threshold and GST concessions for gifts to not-for-profit entities.

Question 3

Is the Entity entitled to FBT concessions or exemptions under the Fringe Benefits Tax Assessment Act 1986 (FBT Act)?

Answer

No

This ruling applies for the following periods:

Financial year ending 30 June 2014

Financial year ending 30 June 2015

Financial year ending 30 June 2016

Financial year ending 30 June 2017

Financial year ending 30 June 2018

Financial year ending 30 June 2019

Financial year ending 30 June 2020

Financial year ending 30 June 2021

Financial year ending 30 June 2022

Financial year ending 30 June 2023

The scheme commences on:

1 July 2013

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.

1. The Entity is a not-for-profit organisation. Its constitution contains the relevant not-for-profit clauses.

2. The Entity is a religious institution.

3. The Entity is located in Australia.

4. The Entity is not a charity.

5. The Entity has a number of political activities.

6. The Entity has a number of community service activities.

7. The Entity complies with all substantive requirements in its governing rules and applies its income and assets solely for the purpose for which the entity is established.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5,

A New Tax System (Goods and Services Tax) Act 1999 Section 9-17,

A New Tax System (Goods and Services Tax) Act 1999 Section 23-15,

A New Tax System (Goods and Services Tax) Act 1999 Section 38-220,

A New Tax System (Goods and Services Tax) Act 1999 Section 38-250,

A New Tax System (Goods and Services Tax) Act 1999 Section 38-255,

A New Tax System (Goods and Services Tax) Act 1999 Section 38-260,

A New Tax System (Goods and Services Tax) Act 1999 Section 38-270,

A New Tax System (Goods and Services Tax) Act 1999 Section 40-160,

A New Tax System (Goods and Services Tax) Act 1999 Division 49,

A New Tax System (Goods and Services Tax) Act 1999 Division 63,

A New Tax System (Goods and Services Tax) Act 1999 Division 157,

A New Tax System (Goods and Services Tax) Act 1999 Section 111-18,

Fringe Benefits Tax Assessment Act 1986 Division 13,

Fringe Benefits Tax Assessment Act 1986 Section 57,

Fringe Benefits Tax Assessment Act 1986 Section 58,

Fringe Benefits Tax Assessment Act 1986 Section 58G,

Fringe Benefits Tax Assessment Act 1986 Section 58T,

Fringe Benefits Tax Assessment Act 1986 Section 65J and,

Fringe Benefits Tax Assessment Act 1986 Section 136,

Income Tax Assessment Act 1997 Division 50,

Income Tax Assessment Act 1997 Section 50-1,

Income Tax Assessment Act 1997 Section 50-5,

Income Tax Assessment Act 1997 Section 50-10,

Income Tax Assessment Act 1997 Section 50-47 and

Income Tax Assessment Act 1997 Section 50-70.

Reasons for decision

Question 1

Detailed reasoning

Section 50-1 of the ITAA 1997 provides that the 'total ordinary income and statutory income of the entities covered by the following tables is exempt from income tax’. The following sections of the ITAA 1997 provide the categories that entities must fall into in order to be income tax exempt. The categories are:

● Charity, education and science (section 50-5);

● Community service (section 50-10);

● Employees and employers (section 50-15);

● Government (section 50-25);

● Health (section 50-30);

● Mining (section 50-35);

● Primary and secondary resources, and tourism (section 50-40); or

● Sports, culture and recreation (section 50-45).

Item 1.1 of section 50-5 of the ITAA 1997 provides that a 'registered charity’ is an exempt entity. In order to be a 'registered charity’, an entity must be registered with the Australian Charities and Not-for-profits Commission (ACNC).

Item 2.1 of section 50-10 of the ITAA 1997 provides that a 'society, association or club established for community service purposes (except political or lobbying purposes)’ is an exempt entity.

Section 50-47 of the ITAA 1997 is a special condition for all items under Division 50 of the ITAA 1997. It prevents an entity from self-assessing as income tax exempt under Division 50 if the entity is an ACNC type of entity. If the entity is an ACNC type of entity, it will need to be registered with the ACNC.

'ACNC type of entity’ is defined under section 995-1 of the ITAA 1997 as an 'entity that meets the description of a type of entity in column 1 of the table in subsection 25-5(5) of the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act)’. The relevant entity under the ACNC Act is a charity.

Section 50-70 of the ITAA 1997 provides further special conditions that must be met in order for an organisation to be income tax exempt under section 50-10 of the ITAA 1997. The entity must be a not-for-profit 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 in which it is resident.

Further, 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.

As the meaning of 'society, club or association’ is not defined under the ITAA 1997, its ordinary meaning is used. In the case of Douglas v. Federal Commissioner of Taxation 36 ATR 532; (1997) 77 FCR 112; 97 ATC 4722, the court stated that 'society, association or club’ could be construed as referring to a 'voluntary organisation having members associated together for a common or shared purpose’.

ATO Interpretative Decision 2003/721 Income Tax: Income tax exemption: community service purposes – Industry Ombudsman (ATO ID 2003/721) considers what is required for an entity to be a society, association or club established for community service purposes. It requires the main or predominant purpose of the entity to be a community service purpose.

Taxation Determination 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? (TD 93/190) provides the Commissioner’s view on the application of subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 (ITAA 1936). Subparagraph 23(g)(v) of the ITAA 1936 is the same as section 50-10 of the ITAA 1997 and therefore TD 93/190 is directly applicable in this case.

Paragraph 3 of TD 93/190 states that 'community service purposes’ are to be given a wide interpretation. These purposes could include 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.

Paragraph 4 of TD 93/190 states that 'community service purposes’ must be altruistic.

Paragraph 6 discusses the exclusion of political or lobbying activities in the provision. Even though political or lobbying purposes may be motivated by altruism, they will still be excluded under section 50-10 of the ITAA 1997. TD 93/190 further provides that political or lobbying activities are not limited to political party activities, but also extends to activities that aim to influence changes to the law or its administration.

The Explanatory Memorandum to Taxation Laws Amendment Bill (No. 2) of 1990 (Cth) confirms the meaning of the phrase 'political or lobbying purposes’ under section 50-10 of the ITAA 1997. It states:

Political or lobbying purposes include standing candidates for election, campaigning for changes to the law or to government policy, and the like. Community service organisations may engage in political or lobbying activities, provided these are no more than merely incidental to other purposes beneficial to the community. But a body will be unable to claim exemption from income tax under this subparagraph if its only undertakings for the benefit of the community are political or lobbying ones.

Paragraph 7 of TD 93/190 provides that the purposes that an organisation is established for are demonstrated by its current operations and activities, and may be different to those suggested in the entities governing documents.

Application to the facts

Section 50-5 – Registered Charity

The Entity is not a registered charity and is therefore not income tax exempt under section 50-5 of the ITAA 1997.

Section 50-10 – Community Service Organisation

The Entity fits within the ordinary meaning of a 'society, association or club’ as it is an organisation comprised of members who associate together for a common purpose.

The Entity has a religious purpose as demonstrated by their constitution and the activities they undertake.

The Entity also has a purpose of engaging in political and lobbying activities which is demonstrated by their activities.

The Entity also undertakes a number of activities that could be characterised as community service purposes as they are altruistic in nature and provide benefits to members of the community.

Main or dominant purpose

The main or dominant purpose of the Entity is their religious purposes. These activities cannot be characterised as providing services to the community, nor are they altruistic in nature. These activities aim to propagate the Entity’s views and expand their membership. Therefore this purpose is not a community service purpose which means the Entity is not a society, association or club established for community service purposes.

Political or lobbying purposes

The political and lobbying purposes carried out by the Entity are more than 'merely incidental’ to their main purpose. Therefore, even if the main purpose of the Entity was a community service purpose, it would fail to meet the requirements of section 50-10 of the ITAA 1997 because its political and lobbying activities are more than merely incidental to its other purposes.

Special Condition under section 50-47

The Entity is not an ACNC type of entity.

Special Condition under section 50-70

The Entity has a physical presence in Australia and incurs its expenditure and pursues its objectives principally in Australia.

The Entity complies with all substantive requirements in its governing rules and applies its income and assets solely for the purpose for which the entity is established.

Conclusion

The Entity is not exempt from income tax as it does not fall under any of the exemption categories under Division 50 of the ITAA 1997.

Question 2

Detailed reasoning

Concessions the Entity is entitled to

Section 23-15 of the GST Act provides the registration turnover threshold for entities. Subsection 23-15(2) of the GST Act provides for a higher threshold for non-profit bodies. The registration turnover threshold is currently set by the A New Tax System (Goods and Services Tax) Amendment Regulations 2007 (No 2). The registration turnover threshold for all entities other than non-profit bodies is $75 000 and the registration turnover threshold for non-profit entities is $150 000.

As the Entity is a not-for-profit entity, it is entitled to the higher GST registration turnover threshold of $150 000.

Section 9-5 of the GST Act provides when a taxable supply is made. One of the requirements, under subsection 9-5(a) provides that a taxable supply is made if the supply is made for consideration. Section 9-17(2) provides that making a gift to a non-profit body is not the provision of consideration. Therefore, GST is not payable on gifts to not-for-profit entities.

As the Entity is a not-for-profit entity, GST will not be payable on any gifts made to the Entity, or on gifts from the Entity made to other not-for-profit entities.

Concessions that the Entity is not entitled to

As the Entity is not a registered charity or income tax exempt, it is not entitled to the following GST concessions in relation to:

● GST religious groups (Division 49 of the GST Act)

● Non-profit sub-entities for branches (Division 63 of the GST Act)

● Donated second-hand goods (Section 38-255 of the GST Act)

● Raffles and bingo (Section 38-270 of the GST Act)

● Fundraising events (Section 40-160 of the GST Act)

● Non-commercial activities (Section 38-250 of the GST Act)

● Accounting on a cash basis (Division 157 of the GST Act)

● Reimbursement of volunteer expenses (Section 111-18 of the GST Act)

● Retirement villages (Section 38-260 of the GST Act)

● Religious services (Section 38-220 of the GST Act)

Conclusion

The Entity is eligible for the higher GST registration turnover threshold which is $150 000 for not-for-profit entities. Further, GST concessions in relation to gifts also apply, meaning that GST is not payable on gifts made to the Entity, or by the Entity to other not-for-profit entities.

Question 3

Detailed reasoning

Under the FBTAA, there are a number of FBT concessions and exemptions available for not-for-profit organisations if they meet the relevant criteria in each section.

Section 65J of the FBTAA allows FBT rebates to certain not-for-profit employers. Rebatable employers are listed in a table under section 65J of the FBTAA and are any of the following entities, if they are covered by the relevant items in Division 50 of the ITAA 1997.

1. a registered charity

2. a scientific institution

3. a public educational institution

4. a society, association or club established for the encouragement of science

5. a society, association or club established for community service purposes (except political or lobbying purposes)

6. an employer association or an employee association

7. a trade union

8. a society or association established for the purpose of promoting the development of aviation or tourism

9. a society or association established for the purpose of promoting the development of Australian resources

10. a society or association established for the purpose of promoting the development of Australian information and communications technology resources

11. a society, association or club established for the encouragement of animal racing, art, a game or sport, literature or music.

12. a society, association or club established for musical purposes.

The Entity does not fall within any of these categories and is therefore not a rebatable employer.

Division 13 of the FBTAA lists further exempt benefits that may be provided to registered religious institutions. These include benefits provided to religious practitioners (section 57 of the FBTAA), live-in residential carers (section 58 of the FBTAA) and live-in domestic workers (section 58T of the FBTAA).

A 'registered religious institution’ is defined under section 136(1) of the FBTAA as an institution that is a registered charity and which is registered as a charity with the subtype of 'advancing religion’.

As the Entity is not registered as a charity, it is not a 'registered religious institution’ and therefore benefits provided under sections 57, 58 and 58T of the FBTAA will not be exempt benefits.

Section 58G relates to exemptions for FBT for car parking fringe benefits. These benefits are available where the employer is a scientific institution, a registered charity, or a public educational institution.

As the Entity is not a registered charity and does not fall under any other relevant category, any car parking fringe benefits will not be exempt benefits.

Conclusion

The Entity is not eligible for any FBT concessions or exemptions which relate specifically to them being a not-for-profit organisation or a religious institution, as it is not a charity and does not meet the requirements under any of the sections.