Edited version of private advice

Authorisation Number: 4120080575870

Date of advice: 18 August 2020

Ruling

Subject: Rebate for certain non-for-profit employers

Question 1

Whether the association is considered to be a rebatable employer in accordance with Item 5 of subsection 65J(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), and therefore entitled to a rebate of the amount of Fringe Benefits Tax (FBT) payable pursuant to subsection 65J(2A) of the FBTAA.

Answer

Yes

Relevant facts and circumstances

This description of facts is based on the following documents which form part of and are to be read with this description. The relevant documents are the private ruling application (and accompanying documents being the 2018-2019 Annual Report for the association, current member profiles, and the Constitution of the association).

The entity has previously received private rulings from the ATO in respect of this matter. These rulings provide that the entity satisfies the definition of a rebatable employer in accordance with former paragraph 65J(1)(j) FBTAA.

The entity is seeking a continuation of the private ruling already in place on the basis that the entity has continued to provide the same services to the community since the previous ruling issued.

The objectives of the entity outlined in the Constitution are as follows:

·   To aid in the relief of poverty, sickness, suffering, distress, misfortune, destitution, or helplessness by means of providing family support to disadvantaged families.

·   To assist presenting 'at risk' families by reducing social isolation and family malfunctions with the provision of practical and emotional support, information, educational and personal development, and social and living skills programs.

The Annual Report provides a description of the programs and services that the entity provides to the community. Some of which are as follows:

·   Early intervention Placement Prevention

·   Brighter Futures Partnership

·   Staying Home Leaving Violence

·   Financial Counselling Consortium

·   Highly effective parenting

·   Healthy relationships

·   Personal development groups

·   Incredible years for children

·   Home visiting

·   Outreach and In service support, counselling and practical assistance

Relevant legislative provisions

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

Fringe Benefits Tax Assessment Act 1986 Subsection 65J(2A)

Fringe Benefits Tax Assessment Act 1986 Subsection 65J(3)

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

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 formersubparagraph 23(g)(v)

Reasons for decision

Summary

The entity is a rebatable employer in accordance with item 5 of subsection 65J(1) of the FBTAA, and therefore entitled to a rebate of FBT payable pursuant to subsection 65J(2A) of the FBTAA.

Detailed reasoning

Certain not-for-profit employers that are not entitled to an income tax deduction for FBT payable on benefits provided to their employees are entitled to a rebate of the amount of FBT otherwise payable, provided that certain conditions are satisfied.

To qualify for a rebate of FBT otherwise payable, the employer must be a rebatable employer.

Rebatable employer requirements

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

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

(b)          satisfies the special conditions (if any) set out in the table contained in the subsection.

Item 5 in the table contained in the subsection applies to societies, associations and clubs established for community service purposes (except for political or lobbying purposes).

Exempt from income tax

Item 5 of the table in subsection 65J(1) of the FBTAA requires that societies, associations and clubs established for community service purposes (except for political or lobbying purposes) be covered by item 2.1 of the table in section 50-10 of the ITAA 1997.

Item 2.1 of section 50-10 of the ITAA 1997 classifies societies, associations and clubs established for community services (except for political lobbying purposes) as exempt entities, subject to special conditions contained in section 50-70 of the ITAA 1997.

An exempt entity means an entity all of whose ordinary income and statutory income is exempt from income tax, no matter what kind of ordinary income or statutory income the entity might have or an untaxable Commonwealth entity.

If an entity is considered to be an 'association' for the purposes of item 2.1 of section 50-10 of the ITAA 1997, then it is an 'association' for the purposes of Item 5 of the table in subsection 65J(1) of the FBTAA.

Taxation Determination TD 93/190 considers the application of former subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 (ITAA 1936). TD 93/190 is considered relevant in this matter as former subparagraph 23(g)(v) of the ITAA 1936 was the predecessor of item 2.1 of section 50-10 of ITAA 1997.

Paragraph 3 of TD 93/190 states in part:

That the Explanatory Memorandum to subparagraph 23(g)(v) confirms that the words 'community service purposes' are to be given a wide interpretation. Those words extend to a range of altruistic purposes that are not otherwise charitable, such as 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 then provides that 'Altruistic purposes are an essential element of even the widest interpretation of 'community service purposes'.

Paragraph 7 also provides that 'the purposes for which an organisation is established are demonstrated by its current operations and activities, which may show different purposes to those suggested by a cursory reading of its constitution.'

The objectives of the entity as outlined in the Constitution are as follows:

1. To aid in the relief of poverty, sickness, suffering, distress, misfortune, destitution, or helplessness by means of providing family support to disadvantaged families in a locality within Australia.
2. To assist presenting 'at risk' families by reducing social isolation and family malfunctions with the provision of practical and emotional support, information, educational and personal development, and social and living skills programs.

Additionally, the Annual Report provides a description of the programs and services that the entity provides to the community. Some of these include:

·   Early intervention Placement Prevention

·   Brighter Futures Partnership

·   Staying Home Leaving Violence

·   Financial Counselling Consortium

·   Highly effective parenting

·   Healthy relationships

·   Personal development groups

·   Incredible years for children

We accept that the objectives and specific activities outlined in the Constitution and the Annual Report of the entity indicates that the entity was formed for purposes beneficial to the community pursuant to item 2.1 of section 50-10 ITAA 1997.

On this basis, the entity is considered an income tax exempt entity.

Special conditions attached to income tax exemption

The special conditions applicable to item 2.1 of the table in section 50-10 ITAA 1997 are contained 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)          it 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).

Subsection 50-70(2) of the ITAA 1997 provides that:

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.

We accept that the entity satisfies the requirements contained in paragraph 50-70(1)(a) of the ITAA 1997, in that its objectives and specific activities and programs outlined in the Constitution and the Annual Report, and the non-profit clauses in the Constitution indicate that the entity was formed for purposes beneficial to the community pursuant to item 2.1 of section 50-10 of the ITAA 1997. Additionally, 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 operates in a locality within Australia and incurs its expenditure and pursues its objectives principally in Australia.

In terms of the requirements contained in paragraph 50-70(2)(a) and 50-70(2)(b) of the ITAA 1997, Taxation Ruling TR 2015/1 Income tax: special conditions for various entities whose ordinary and statutory income is exempt, is presently relevant.

Paragraph 7 of TR 2015/1 provides that the governing rules condition requires an entity to 'comply with all the substantive requirements in its governing rules'. Paragraph 18 then provides that the 'substantive' requirements in an entity's governing rules are those rules that define the rights and duties of the entity.

Paragraph 22 of TR 2015/1 refers to the income and assets condition in paragraph 50-70(2)(b), which requires an entity to 'apply its income and assets solely for the purpose for which the entity is established'. The term 'apply' means that an entity must make use of all of its income and assets, solely for the purpose for which the entity is established - as per Paragraph 30 of TR 2015/1 - and the term 'solely' means that the entity must exclusively or only apply its income and assets for that purpose - as per Paragraph 33.

We accept that the Constitution of the entity contains clauses relating to the source and management of funds, and the fact that all funds will be used in pursuance of the objects of the association. Additionally, a nominated charity will receive any surplus funds in the event that the association is dissolved, and the Constitution provides that no member will share in any of the proceeds of the entity except for salary and/or wages or reimbursement for any funds expended by the member for business purposes.

On this basis, we accept that EFSS meets all the requirements, including the special conditions, to be exempt from income tax.

Special conditions attached to the FBTAA

For the entity to satisfy the requirements under subsection 65J(1), the special conditions in subsection 65J(5) must also be met.

Subsection 65J(5) of the FBTAA refines the meaning of society, association or club.

Briefly, it provides that a society, association or club must not be an incorporated company where it is beneficially owned by:

·                     the Commonwealth, a State or a Territory; or

·                     an authority or institution of the Commonwealth, a State or a Territory.

Although Taxation Determination TD 95/56 refers to former subsection 65J(1) FBTAA, it provides some guidance here in that it provides at paragraph 1 that a body cannot be an 'association' where it is formed by government, is controlled by government, and performs functions on behalf of government.

A review of the Constitution with respect to membership, the committee and non-profit clauses, indicates that the entity has not been formed or controlled by government, to carry out functions on behalf of government, and is therefore not a body formed by the federal, state or territory governments, for the purpose of subsection 65J(5) of the FBTAA.

Conclusion

In accordance with the rebatable employer requirements, the entity is a rebatable employer for the FBT years ending 31 March 2021, 31 March 2022, 31 March 2023, 31 March 2024 and 31 March 2025 because:

(a)          it is exempt from income tax as a society, association or club established for community service purposes (not for political or lobbying purposes) and meets the special conditions that apply to this income tax exemption, that is:

·                     it is not carried on for the purpose of profit or gain of its individual members;

·                     it has a physical presence in Australia and incurs its expenditure and pursues its objectives in Australia;

·                     it complies with the substantive requirements in its governing rules; and

·                     it applies its income and assets solely for the purpose for which it is established.

(b)          it satisfies the special conditions that apply to societies, associations and clubs established for community service purposes that are contained in the FBT legislation, that is:

·                     it is not an incorporated company that is beneficially owned by the Commonwealth, a State or a Territory or an authority or institution of the Commonwealth, a state or a Territory (i.e. it has not been formed or controlled by the government or carries out functions on behalf of the government).

We accept that the entity is a non-profit entity established as a community services organisation which has previously been provided with rebatable employer status commencing from 1 April 2002 under former subsection 65J(1) of the FBTAA.

The information provided to us suggests that the entity continues to provide services to the community and meets all of the requirements to be considered a rebatable employer in accordance with item 5 of subsection 65J(1) of the FBTAA, and therefore entitled to a rebate of the amount of FBT payable pursuant to subsection 65J(2A) of the FBTAA.