Edited version of private advice

Authorisation Number: 1052120190487

Date of advice: 22 May 2023

Ruling

Subject: Rebatable employer

Question One

Is the entity exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a society or association established for the purpose of promoting the development of Australian industrial resources pursuant to item 8.2(c) of section 50-40 of the ITAA 1997?

Answer

Yes.

Question Two

Is the entity a rebatable employer pursuant to section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) for the purpose of promoting the development of Australian industrial resources under item 9 in subsection 65J(1) of the FBTAA?

Answer

Yes.

This ruling applies for the following period:

Fringe Benefits Tax (FBT) year ended 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

The scheme commences on:

1 April 20XX

Relevant facts and circumstances

The entity is a member-based industry association and is the top body for its specific industry in Australia.

The members of the entity are from a variety of industries.

The entity has objects in its constitution and undertakes activities that promote the development of an industrial resource.

The entity is a not-for-profit company limited by guarantee.

None of the interests or rights of members are beneficially owned by the Commonwealth, a State or Territory, or any authority or institution of the Commonwealth, a State or Territory.

The entity has appropriate non-profit and winding up clauses.

Reasons for decision

Question One

Summary

The entity is exempt from income tax under section 50-1 of the ITAA 1997 as a society or association established for the purpose of promoting the development of Australian industrial resources pursuant to item 8.2(c) of section 50-40 of the ITAA 1997.

Detailed reasoning

Section 50-1 of the ITAA 1997 provides that the ordinary and statutory income of the entities covered by the tables in Division 50 is exempt from income tax.

To be an exempt entity under item 8.2(c) of the table in section 50-40 of the ITAA 1997, an entity must be a society or association established for the purpose of promoting the development of Australian industrial resources. The society or association must also not be carried on for the profit or gain of its individual members and must satisfy the special condition in section 50-47 of the ITAA 1997.

Society or association

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

In Pro-Campo Limited v. Commissioner of Land Tax (NSW) 81 ATC 4270; (1981) 12 ATR 26, the Court made the following comments on the meaning of 'society' and 'association' (at 4279):

The meaning of "society" as the Oxford Dictionary definition shows can be the equivalent of "association" and I do not think that any relevant distinction in nature exists between the two. It merely seems to have happened that some organizations are called "associations", others are called "societies" but no meaningful difference can be detected between the two...In short the...words are describing bodies made up of groups of persons who have come together to implement common purposes and objects...

Further, in Theosophical Foundation Pty Ltd v. Commissioner of Land Tax (NSW) (1966) 67 SR (NSW) 70 at 82, Sugerman JA stated:

A society, in the relevant sense, is 'a number of persons associated together by some common interest or purpose, united by a common vow, holding the same belief or opinion, following the same trade or profession, etc; an association' (Oxford English Dictionary, 'Society'...

As such, the interpretations of 'society' and 'association', as described above, highlight a 'body of persons' and 'an organisation of people' with a common purpose.

The entity is a company limited by guarantee and its members pay an annual subscription fee. By their subscription, members have agreed to support the purposes and objects of the entity, which undertakes activities in furtherance of its objects.

The entity and its members have a common interest in the items expressed in the Constitution and associated themselves with each other for the purpose of achieving these items. As such, the entity is considered to be a society or association.

Established for the purpose of promoting the development of Australian industrial resources

The expression 'industrial resources' is not defined in the ITAA 1997. In Australian Insurance Association v. Federal Commissioner of Taxation 79 ATC 4569, Sheppard J considered the meaning of 'industrial resources' for the purposes of paragraph 23(h) of the Income Tax Assessment Act 1936 (the predecessor to section 50-40 of the ITAA 1997):

There is a degree of specificity in the words used in the section. It refers to aviation, then to four resources of primary industry, then to manufacturing and finally to industrial resources. The use of these various expressions does not suggest that the draftsman intended to give the word "industrial" any wide meaning intended to embrace business or commercial resources... (at 4574)

The building, mining and quarrying industries, and the resources which these industries have... are industries in the accepted sense of the word. ... Thus a reference to the resources of those industries as the industrial resources of Australia does not impose upon the language any strain... (at 4575)

Sheppard J also stated that 'industrial resources' include the businesses and their assets of an industry:

... the undertakings of the Australian insurance companies, viewed as a whole, are resources of Australia. I use the word "undertakings" in the broadest sense. I include within it not only the businesses of the various companies but also their assets and the knowledge and skills of their staffs. (at 4573).

'Resources' or their elements also include infrastructure, personnel, knowledge, expertise and skill.

The term 'development' is used in section 50-40 of the ITAA 1997 in a commercial or business sense. It comprehends all the elements which must be taken into account to ensure that the specified resources are used in the best interests of Australia.

In Co-operative Bulk Handling Ltd v. Federal Commissioner of Taxation [2010] FCA 508, Gilmour J (at first instance) accepted that 'promoting the development of resources' under section 50-40 of the ITAA 1997 entails 'unlocking, exploiting or bringing out the inherent potentialities and latent capabilities' of the resources (at paragraph 80).

This reflects the meaning of 'development' given by Kitto J in Federal Commissioner of Taxation v. Broken Hill Proprietary Company (1969) 120 CLR 240 in the phrase 'development of mining property' used in section 122 of the Income Tax and Social Services Contribution Assessment Act 1936-1964 (Cth):

In its ordinary English sense the word "development", when used in relation to a property, refers to the unfolding, the bringing out, of some latent capability of the property... It covers, I think, any preparation, adaption or equipment of the property for the exploitation of an inherent potentiality which cannot be exploited, or fully exploited, without some such preliminary treatment. (at 247)

The promotion of development may be direct or indirect (direct promotion includes research, education, and new or improved products, and indirect promotion includes marketing), and may be promoted by facilitating the cooperation of businesses and instrumentalities.

In Federal Commissioner of Taxation v. Co-operative Bulk Handling Ltd [2010] FCAFC 155, Mansfield and McKerracher JJ made the following comments on the meaning of 'established' and 'purpose' in section 50-40 of the ITAA 1997:

Two aspects, at least, of s 50-40 may be disposed of at the outset as they are common ground.

First, "established" means maintained at the time at which qualification under the section is at issue...

Secondly, "for the purpose" means "for the sole or dominant purpose" of conducting the relevant activity... In Boating Industries it was held that the requirement of s 23(h), a predecessor of s 50-40, was that the relevant organisation be "established" for, and not merely "involved" in, the purpose stated... The focus must be upon the periodic or recurrent purposes of the body in the year of income... (at paragraphs 13-15).

The purposes of the entity will have benefits for its members however, such benefits are considered incidental to the purpose of promoting the development of Australian industrial resources. The purpose of this entity and the objects of the entity as stated in its constitution falls within promoting the development of an Australian industrial resource.

Not be carried on for the profit or gain of its individual members

The exemption under item 8.2 of section 50-40 of the ITAA 1997 is also subject to the special condition that the entity is not carried on for the purposes of profit or gain of its individual members. An association or society will fail the non-profit test if the members, in their individual capacity, are to receive any benefits.

In Federal Commissioner of Taxation v. Co-operative Bulk Handling Ltd (supra), Mansfield and McKerracher JJ stated the following about the meaning of 'not be carried on for the profit or gain of its individual members':

In all cases of exemption, it must be the position that it is not open to the body to disburse any profits or dividends to members. (at paragraph 95)

Accordingly, to satisfy this special condition, the entity's constituent documents must demonstrate a non-profit character (both while it is operating and when it winds up) and the entity's actions must be consistent with this non-profit character.

The entity's constituent documents and activities are consistent with the requirement that it is not carried on for the profit and gain of its individual members.

There is no evidence that the entity acts contrary to this prohibition.

The entity is not carried on or the profit or gain of its individual members.

Special condition in section 50-47 of the ITAA 1997

Section 50-47 of the ITAA 1997, which provides a special condition for all entities covered by section 50-1 of the ITAA 1997, states:

An entity that:

(a) is covered by any item; and

(b) is an ACNC type of entity;

is not exempt from income tax unless the entity is registered under the Australian Charities and Not-for profits Commission Act 2012.

Broadly, an entity that can be registered as a charity is an Australian Charities and Not-for profits Commission (ACNC) type of entity. The Charities Act 2013 (Cth) (the CA) sets out the requirements to be a charity. Section 5 of the CA provides that a charity is a not-for-profit entity with purposes that are only charitable purposes for the benefit of the public, or purposes that are incidental or ancillary to charitable purposes. Section 12 of the CA provides the meaning of charitable purpose, and includes advancing education, advancing social and public welfare, and advancing the security or safety of Australia or the Australian Public.

Purposes concerned with promoting the development of businesses of an Australian industry are not charitable purposes. The entity does not meet any of the charitable purpose heads listed in section 12 of the CA. As such, the entity is not capable of being a registered charity and is not an ACNC type of entity.

Therefore, section 50-47 of the ITAA 1997 does not apply to the entity.

Conclusion

The Commissioner considers that the entity:

•         is a society or association established for the purpose of promoting the development of Australian industrial resources pursuant to item 8.2(c) of section 50-40 of the ITAA 1997;

•         is not carried on for the profit or gain of its individual members pursuant to item 8.2(c) of section 50-40 of the ITAA 1997; and

•         is not an ACNC type of entity, satisfying the special condition in section 50-47 of the ITAA 1997.

On this basis, the entity is exempt from income tax under section 50-1 of the ITAA 1997.

Question Two

Summary

The entity is a rebatable employer under section 65J of the FBTAA on the basis that it is a non-profit society or non-profit association established for the purpose of promoting the development of Australian industrial resources under item 9 of the table in subsection 65J(1) of the FBTAA.

Detailed reasoning

Paragraph 65J(1)(a) of the FBTAA states 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 listed at paragraph 65J(1)(b).

Item 9 in the table in paragraph 65J(1)(b) of the FBTAA refers to a society or association established for the purpose of promoting the development of Australian industrial resources and the entity must be covered by item 8.2 of the table in section 50-40 of the ITAA 1997.

As discussed in the answer to Question One, the entity meets the requirements of an exempt entity under item 8.2(c) of the table in section 50-40 of the ITAA 1997 as a society or association established for the purpose of promoting the development of an Australian industrial resource and is not carried on for the profit or gain of its individual members.

A special condition in item 9 of the table in paragraph 65J(1)(b) of the FBTAA refers to subsection 65J(5) of the FBTAA which provides that an entity is not covered by item 9 if it is:

(a)  ...

(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.

The entity is a company limited by guarantee. Th entity's members are comprised of organisations from various industries. Therefore, the interests and rights of the members are not considered to be beneficially owned by the Commonwealth, a State or a Territory or by a relevant government organisation or institution. The entity is not formed by government or controlled by government, nor is it performing functions on behalf of the government. Therefore, subsection 65J(5) of the FBTAA is not considered to be satisfied such that the entity would still be covered by item 9 in the table in paragraph 65J(1)(b) of the FBTAA.

Accordingly, it is considered that the entity satisfies the requirements to be a rebatable employer under subsection 65J(1) of the FBTAA and can access the FBT rebate.