Edited version of private advice

Authorisation Number: 1052127676653

Date of advice: 31 July 2023

Ruling

Subject: FBT - rebatable employer

Question

Is the organisation (Organisation X) a rebatable employer pursuant to item 5 of the table in section 65(J) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following periods:

FBT year ending 31 March 202X

FBT year ending 31 March 202X

FBT year ending 31 March 202X

FBT year ending 31 March 202X

The scheme commenced on:

1 April 202X

Relevant facts and circumstances

Organisation X is an Australian Public Company.

Organisation X is not registered as a Charity with the Australian Charites and Not-for profits commission (ACNC).

Organisation X has self-assessed that they are an exempt entity for income tax purposes under section 50-45 of the Income Tax Assessment Act 1997 (ITAA).

Organisation X has a corporate constitution (Constitution) in place.

Their corporation constitution states that no portion of the income or property of the organisation will be paid or transferred, directly or indirectly by way of dividend, bonus or otherwise to any member.

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

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 listed under subsection 65J(1) is relevant to Organisation X. To be considered as a rebatable employer, Organisation X need to satisfy the conditions outlined under the item 5.

Item 5 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. 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'.

Application to your circumstances

According to the relevant rules of the Constitution, we are satisfied that Organisation X is a membership-based organisation who is recognised by the Australian Government.

Therefore, we accept that Organisation X is a "society, club, or association" under the requirement of Subsection 65J(1) Item 5 of the FBTAA

Community service purpose (except political and lobbying purposes)

Item 2.1 under section 50-10 of Income Tax Assessment Act 1997 (ITAA 97) requires:

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

The expression "community service purposes" has a wide meaning. 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? (TD 93/190) provides the guidance on the scope of the exemption provided under former section 29(g)(v) of the ITAA 1936.

Paragraph 2 to 4 of the TD 93/190 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 an 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'. In other words, the required 'community services purposes' must be the entity's main or predominant purpose.

Application to your circumstances

According to the relevant rules of the Constitution, it is evident that Organisation X's purposes are altruistic.

Therefore, we are satisfied that Organisation X is a society, club or association established for community service purposes,

Special conditions pursuant to section 50-10 of the ITAA 1997

Under section 50-10 item 2.1 of ITAA 1997, it requires that 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 also the entity should meet the special conditions pursuant to 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.

Application to your circumstances

According to the relevant rules of the Constitution, it is evident that Organisation X does not operate for the purpose of profit or gain of its individual members.

Organisation X 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. Additionally, we are also satisfied that Organisation X is a society, club or association established in Australian for community service purposes. Therefore, it is agreed that Organisation X meets the requirement of subsection 50-70(1)(a).

In relation to the requirement under subsection 50-70(2), we note that Organisation X continues to apply its income and assets solely for its established purpose and complies with all the substantive requirements in its governing rules.

Therefore, we are satisfied that Organisation X complies with all the substantive requirements in its governing rules and apply its income and assets solely for its established purpose. And it is agreed that Organisation X meets the requirement of subsection 50-70(2).

According to the application of Organisation X's circumstances as outlined above, we are satisfied that both special conditions under subsection 50-70 of the ITAA 1997 are satisfied.

Special conditions pursuant to section 65J(5) of the FBTAA

According to subsection 65J(1) of the FBTAA, an employer is not covered by item 5 of this section unless it meets the special conditions required by subsection 65J(5) of the FBTAA. It requires that:

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.

Application to your circumstances

As Organisation X is a company limited by guarantee and none of the interests and rights in or in relation to their 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 Organisation X from being covered by item 5 of subsection 65J(1) of the FBT

Conclusion

Organisation X 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.