Edited version of private advice

Authorisation Number: 1052051896685

Date of advice: 3 November 2022

Ruling

Subject: Income tax exemption - rebatable employer

Question

Is the entity exempt from income tax pursuant to the provisions of section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is a society, association or club established for community services purposes (except political or lobbying purposes) under item 2.1 of the table in section 50-10 of the ITAA 1997?

Answer

Yes

Question

Is the entity a rebatable employer under section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) on the basis that it is a non-profit society, non-profit association or non-profit club, established for community service purposes under item 5 of the table in subsection 65J(1) of the FBTAA?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

1.    The entity is established as a company limited by guarantee, not having share capital.

2.    The entity is made up of representatives from a particular industry to receive and resolve complaints lodged by users of the services of that industry.

3.    The entity provides its services free of charge to people who use or are affected by the industry providers.

4.    The entity's operations are funded by a member levy.

5.    The entity's constitution has appropriate non-profit and dissolution clauses.

Relevant legislative provisions

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 section 23

Fringe Benefits Tax Assessment Act 1986 section 65J

Reasons for decision

Item 2.1 of the table in section 50-10 of the ITAA 1997 in conjunction with section 50-1 of the ITAA 1997, provides that the total ordinary income and statutory income of a society, association or club established for community service purposes (except political or lobbying purposes) is exempt from income tax, subject to the special condition detailed in section 50-70 of the ITAA 1997.

Accordingly, to be an entity described in item 2.1, the entity must:

•                     be a society, association or club;

•                     be established for community service purposes; and

•                     satisfy the special condition in section 50-70 of the ITAA 1997.

Society, association or club

The terms society, association or club is 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 36 ATR 532; (1997) 77 FCR 112; 97 ATC 4722. Reference was made by the court to the definitions contained in the Concise Oxford Dictionary for each of these terms. Society, association or club was accepted by the court as referring to a voluntary organisation having members associated together for a common or shared purpose.

The entity is an organisation comprised of members with a common purpose. It comprises representatives of entities of an industry.

It is accepted that the entity is a society, club or association.

Special conditions

Section 50-47

Where an entity is covered by an exempt entity category but also meets the description of an 'ACNC type of entity' (i.e.it is a 'charity'), it will not be exempt from income tax unless it is registered as a charity with the ACNC and endorsed by the ATO.

The meaning of 'ACNC type of entity' is provided in Division 995 of the ITAA 1997. Section 995-1 of the ITAA 1997 refers to column 1 of the table in subsection 25-5(5) of the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act) for the meaning of 'ACNC type of entity'. The entity type at Column 1 of the table in subsection 25-5(5) is 'charity'.

The meaning of charity is provided, for the purposes of all Commonwealth law, at section 5 of the Charities Act 2013 (CA):

'charity'means an entity:

(a)          that is a not-for-profit entity; and

(b)          all of the purposes of which are:

(i)            charitable purposes that are for the public benefit; or

(ii)           purposes that are incidental or ancillary to, and in furtherance or in aid of, purposes of the entity covered by subparagraph (i); and

(c)           none of the purposes of which are disqualifying purposes; and

(d)          that is not an individual, a political party or a government entity [emphasis added].

Section 11 of the CA concerns certain disqualifying purposes which aren't relevant here and section 12 defines 'charitable purpose' under various heads.

The entity is not registered as a charity with the ACNC and is not an ACNC type entity.

Section 50-70

Section 50-70 of the ITAA 1997 states that an entity covered by item 2.1 is not exempt unless it is not carried on for the purposes or gain of its individual members, and:

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

•                     it is a deductible gift recipient; or

•                     it is prescribed by law in the income tax regulations and it is located outside Australia and is exempt from income tax in its country of residence.

The entity is not established for the profit or gain of its members. It is an organisation which is incorporated in Australia and which pursues its objectives and expenditure solely in Australia.

The entity therefore meets the special conditions of section 50-70 of the ITAA 1997.

Section 50-70 of the ITAA 1997 states that an entity covered by item 2.1 is not exempt unless it is not carried on for the purposes or gain of its individual members, and:

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

•                     it is a deductible gift recipient; or

•                     it is prescribed by law in the income tax regulations and it is located outside Australia and is exempt from income tax in its country of residence.

The entity is not established for the profit or gain of its members. It is an organisation which is incorporated in Australia and which pursues its objectives and expenditure solely in Australia.

The entity therefore meets the special conditions of section 50-70 of the ITAA 1997.

Established for Community Service purposes

Item 2.1 requires the society, association or club to be established for community service purposes. The required 'community services purposes' must be the entity's main or predominant purpose. Item 2.1 is the equivalent of subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 (ITAA 1936). Guidelines on the scope of the exemption provided by subparagraph 23(g)(v) are provided by 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? (TD93/190).

TD 93/190 states that the purpose of enacting the provision was to create a category of exemption for community bodies whose activities are not accepted as being charitable because they do not fall within one of the four heads of charitable purpose. The provision does not give exemption from income tax to a broad range of organisations that are established within the community whose purposes are not of an altruistic nature. Altruistic purposes are an essential element of even the widest interpretation of 'community service purposes'.

TD 93/190 indicate that to determine whether an association is established for community service purposes it is necessary to consider its constitution, its current operations and activities, and also the circumstances and needs of those who benefit from the operations. If it can be shown that an entity is established mainly to provide benefits to the community, it will not be a disqualifying attribute if there is an incidental benefit derived by members.

While there may be some benefits to the members of the entity the member benefits are incidental and do not detract from or alter the entity's main community purpose of providing assistance free of charge to the community.

Conclusion

As a non-profit association established for community service purposes (not being political or lobbying purposes) that satisfies section 50-70 of the ITAA 1997, the entity meets the requirements of item 2.1 of section 50-10 of the ITAA 1997. Accordingly, the entity is accepted as a community services organisation and is exempt from income tax pursuant to section 50-1 of the ITAA 1997.

Issue 2

Summary

The entity is a non-profit association established for community service purposes as per paragraph 65J(1)(j) of the FBTAA and is entitled to claim the fringe benefits tax rebate.

Detailed Reasoning

Subsection 65J(1) of the FBTAA provides that an employer will be a rebatable employer if it is exempt from income tax at any time during the year of tax under any of the provisions set out in the table; and satisfies the special conditions also set out in the table.

Item 5 of the table in subsection 65J(1) of the FBTAA is relevant in this instance:

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

b.            covered by item 2.1 of the table in section 50-10 of the ITAA 1997.

As per question 1, the entity is accepted as an association established for community service purpose and covered under item 2.1 in section 50-10 of the ITAA 1997.

The special conditions for item 5 of the table are found in subsection 65J(5) of the FBTAA. Relevantly, paragraph 65J(5)(b) provides that a society, association or club is not covered by table item 5 for a year of tax if it is:

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 a Territory; or

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

This special condition is satisfied as members of the Scheme are private companies and statutory authorities.

Conclusion

As the entity meets the requirements of section 65J of the FBTAA, it is determined to be a rebatable employer.