Edited version of private advice

Authorisation Number: 1052077842125

Date of advice: 10 February 2023

Ruling

Subject: Rebatable employer

Question

Is the organisation a rebatable employer pursuant to item 5 of the table in section 65(J) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as a not-for-profit entity established for the community service purposes?

Answer

Yes.

This ruling applies for the following period:

FBT year ending 31 March 20XX

The scheme commenced on:

1 April 20XX

Relevant facts and circumstances

The organisation was established in 19XX and is an incorporated entity as a company limited by guarantee.

The organisation has self-assessed that they are Income Tax Exempt.

The organisation is not a charity.

The organisation is not a political or lobbying organisation.

The Constitution confirms it is a Not-for-Profit entity.

The Objectives of the organisation are outlined in the constitution.

The organisation is a community service organisation.

The elected Board of X members meets monthly to discuss strategic actions and project requirements and outcomes. The daily activities are delegated to a full time employed Executive Officer and the staff of the organisation. Any new events, promotions, activities, etc are reviewed to ensure they meet the Objectives outlined in the constitution before they are implemented. Once approved, each project is then reviewed regularly to ensure they still meet the objectives.

The organisation complies with all the substantive requirements of its governing rules.

The organisation must not distribute any income or assets directly or indirectly to its members ensuring that its income and assets are solely for the purpose for which the entity was established.

The organisations' purposes are altruistic as they are for the wellbeing and benefit of others including members but more specifically the city and surrounding districts generally. The organisation promotes, carries out activities and provides facilities for the benefit of the community who have a particular need by reason of social and economic circumstances. Due to the physical distance from other major trade centres and a concentration of industry unique to regional Australia (agriculture, mining, sport) the organisation provides a necessary service that promotes regional trade for the benefit and welfare of the community.

None of the activities are offered as member only. The whole community are encouraged to participate in the activities.

In the past 12 months the organisation has used its funds to pay the executive officer and staff salary, office rent, insurance, and event project management. The directors are all voluntary. Each event or promotion is budgeted for separately with costs being covered by ticket sales or event sponsorship.

Any interest or rights in relation to the organisation are not beneficially owned by the Commonwealth, a State or Territory or an authority or institution of the Commonwealth, State or Territory.

Relevant legislative provisions

Section 65J of the Fringe Benefits Tax Assessment Act 1986

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

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

Section 50-10 of the Income Tax Assessment Act of 1997

Section 50-70 of the Income Tax Assessment Act of 1997

Reasons for decision

Question

Is the organisation a rebatable employer pursuant to item 5 of the table in section 65(J) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as a not-for-profit entity established for the community service purposes?

Summary

Yes, the organisation is a rebatable employer pursuant to item 5 of the table in section 65(J) of the FBTAA.

Detailed reasoning

Subsection 65J(1) provides that an employer is a rebatable employer for a year of tax if the employer:

(a)  is exempt from income tax at any time during the year of tax under any of the provisions set out in the following table; and

(b)  satisfies the special conditions (if any) set out in the following table

.

Item 5 of the table is relevant to the activities of the organisation. For the organisation to be considered as a rebatable employer, it needs to satisfy the conditions outlined under the item 5 of the table.

Item 5 outlines that a society or 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

Society or association or club

The term society, association or club is not defined in FBTAA or ITAA 1997. In DOUGLAS & ORS v Federal Commissioner of Taxation 97 ATC 4722; judge Onley J advised that 'unassisted by authority I would construe the collation "society, association or club'' to refer to a voluntary organisation having members associated together for a common or shared purpose'.

The organisation is an incorporated entity as a company limited by guarantee. The elected Board meets monthly to discuss strategic actions and project requirements and outcomes. The daily activities are delegated to a full time employed Executive Officer and the staff.

We accept that the organisation is a society, club, or association.

Established for community service purpose (except political and lobbying 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 of section 50-10 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 ITAA 1936?

Paragraph 2 to 4 of the TD93/190 summarises that 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 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'.

The organisation's purposes are altruistic as they are for the wellbeing and benefit of others including members but more specifically the area and surrounding districts. The organisation promotes, carries out activities and provide facilities for the benefit of the community who have a particular need by reason of social and economic circumstances.

The organisation is not a political or lobbying organisation. We accept that X is established for a community purpose.

Therefore, the organisation is a society, club or association established for community service purpose.

Is the organisation exempt from income tax pursuant to section 50-10 of the ITAA 1997?

Under section 5-10, item 2.1, an entity will be exempt from income tax if it is a society, association or club established for community service purposes (except political or lobbying purposes) and subject to the special conditions pursuant to section 50-70.

The special conditions for item 2.1 in the table in section 50-10 of the ITAA 1997 are found in section 50-70 of the ITAA 1997.

Subsection 50-70(1) of the ITAA 1997 provides that:

An entity covered by item 1.7, 2.1, 9.1 or 9.2 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 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;

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 organisation meets the requirement of paragraph 50-70(1)(a) based on its constitution and the location of its activities. Its activities are consistent with its principal objects. The organisation's core focus is on the community wellbeing and not about any specific member or members in isolation.

In relation to the requirement under subsection 50-70(2), we note that in the past 12 months X has used it funds in undertaking activities consistent with its principal objects.

The organisation continues to apply its income and assets solely for its established purpose and complies with all the substantive requirements in its governing rules. It is accepted that this condition is satisfied.

Therefore, the special conditions in section 50-70 of the ITAA 1997 are satisfied.

An employer is not covered by item 5 of subsection 65J(1) of the FBTAA if subsection 65J(5) of the FBTAA applies to it:

A society, association or club is not covered by table item 4, 5, 8, 9, 10, 11 or 12 in subsection (1) for 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 a 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 a Territory; or

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

As the organisation is a company limited by guarantee and none of the interests and rights in or in relation to the organisations members are beneficially owned by the Commonwealth, a State or a Territory or an authority or institution of the Commonwealth, State or Territory subsection 65J(5) of the FBTAA does not exclude it from being covered by item 5 of subsection 65J(1) of the FBTAA.

Conclusion

The organisation is an association established for community service purposes (except political or lobbying purposes) and are covered by item 2.1 of the table in section 50-10 of the ITAA 1997. It is therefore a rebatable employer as it meets the requirements of item 5 of subsection 65J(1) of the FBTAA.