ATO Interpretative Decision

ATO ID 2009/127

Fringe Benefits Tax

Rebatable employer: meaning of 'non-profit association' - members include government bodies
FOI status: may be released

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Issue

Is the employer, (who is an association carried on otherwise than for the purposes of profit or gain to its members), a 'non-profit association' for the purposes of section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), where the association is an incorporated company limited by guarantee and included in its membership are both government bodies and non-government bodies?

Decision

Yes. The employer is a 'non-profit association' as defined in subsection 65J(5) of the FBTAA for the purposes of section 65J of the FBTAA. This is because the member organisations (who beneficially own the members interests and rights in the company) are not all government bodies. As a consequence the interests and rights of the members in the company are not beneficially owned by such government bodies as described in subparagraph 65J(5)(b)(ii) of the FBTAA.

Facts

The employer is an association relating to the public health care system of a State of Australia ('the association'). The association is not carried on for the purpose of profit or gain to its individual members.

The association is an incorporated company limited by guarantee. Membership of the association is by organisation. A member must be an organisation that provides health services in the particular State.

Members have the right to receive notices of, to attend, be heard, and have the right to vote, at general meetings. The interests and rights of the members in the company are beneficially (and legally) owned by the member organisations.

Pursuant to subsection 65J(3) of the FBTAA, a number of the member organisations are taken to be institutions of the State for the purposes of section 65J of the FBTAA (for discussion on the extended meaning of 'institution of the Commonwealth, a State or a Territory' refer to Taxation Determination TD 2008/2).

The remaining member organisations are private organisations in the health services industry.

The association is not a body which is formed by government, controlled by government and performing functions on behalf of government and is an 'association' for the purposes of section 65J of the FBTAA (refer to Taxation Determination TD 95/56).

Reasons for Decision

Subsection 65J(1) of the FBTAA provides that certain non-profit associations will (subject to all relevant conditions being satisfied) be rebatable employers (for the available rebate categories of certain non-profit associations, refer to paragraphs 65J(1)(g) to 65J(1)(l) of the FBTAA).

Subsection 65J(5) of the FBTAA defines, for the purposes of section 65J of the FBTAA, what is a 'non-profit association':

65J(5) For the purposes of this section, a society, association or club is a non-profit society, non-profit association or non-profit club, as the case may be, if, and only if:

(a)
the society, association or club is carried on otherwise than for the purposes of profit or gain to its individual members; and
(b)
the society, association or club is neither:

(i)
an incorporated company where all the stock or shares in the capital of the company is or are beneficially owned by:

(A)
the Commonwealth, a State or a Territory; or
(B)
an authority or institution of the Commonwealth, a State or a Territory; nor

(ii)
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:

(A)
the Commonwealth, a State or a Territory; or
(B)
an authority or institution of the Commonwealth, a State or a Territory.

As the association is not carried on for the purpose of profit or gain to its individual members, paragraph 65J(5)(a) of the FBTAA is satisfied.

Paragraph 65J(5)(b) of the FBTAA further requires that neither of subparagraphs 65J(5)(b)(i) or (ii) of the FBTAA are satisfied in order for the association to be a non-profit association. That is, the association will be a non-profit association for the purpose of section 65J of the FBTAA unless subparagraph 65J(5)(b)(i) or (ii) applies.

As the association is not an incorporated company by way of stock or share ownership, subparagraph 65J(5)(b)(i) of the FBTAA does not apply.

In terms of the requirements of subparagraph 65J(5)(b)(ii) of the FBTAA, the association is an incorporated company limited by guarantee and the interests and rights of the members in the company are beneficially owned by the member organisations.

The facts show that a number of the member organisations are institutions of the State, within the extended meaning of that term given in subsection 65J(3) for the purposes of section 65J of the FBTAA.

The facts also show that the remaining member organisations are private organisations in the health services industry.

The provision requires that 'the interests and rights of the members in or in relation to the company are beneficially owned by...the Commonwealth, a State or a Territory, or an authority or institution of the Commonwealth, a State or a Territory.'

Subparagraph 65J(5)(b)(ii) of the FBTAA refers to 'the' interests and rights of the members in or in relation to the company, not just to some of these interests and rights. Moreover, it refers to these rights of 'the members' in the plural. Without more this wording is indicative that that the provision should be read in relation to all the relevant interests and rights in the company of all of the members being beneficially owned by a relevant government body or bodies. As such, all of the member organisations (who beneficially own the interests and rights in the company) would need to be relevant government bodies in order to deny the 'non-profit association' status under this subparagraph.

The Supplementary Explanatory Memorandum to the Taxation Laws Amendment (Fringe Benefits Tax Measures) Bill 1992, which introduced paragraph 65J(5)(b) of the FBTAA, explained that:

...the Bill will ensure that the meaning of a society, association or club does not include, for the purposes of section 65J, an incorporated company which is beneficially owned by the Commonwealth, a State or a Territory or an authority or institution of the Commonwealth, a State or a Territory. [New paragraph 65J(5)(b)]

The Supplementary Explanatory Memorandum confirms the intention that the Act does not distinguish between companies limited by shares and companies limited by guarantee in the way it effectively excludes companies owned by a government body or bodies from being non-profit associations.

As beneficial ownership by shares in subparagraph 65J(5)(b)(i) of the FBTAA requires all of the stock or shares in the capital of the company to be beneficially owned by a government body, then on a consistent basis, the test for government ownership in subparagraph 65J(5)(b)(ii) of the FBTAA for a company limited by guarantee should as a matter of intended policy be that the interests and rights in the company of all of the members be beneficially owned by a government body such as an institution of the State.

The plain reading of the provision expressed above (that for subparagraph 65J(5)(b)(ii) of the FBTAA to be satisfied the relevant interests and rights of all of the members in the company need be beneficially owned by government bodies) is consistent with the intended policy.

Accordingly, as the member organisations of the association are not all relevant government bodies, then 'the' interests and rights of 'the members' in the association cannot be said to be beneficially owned by such government bodies. Subparagraph 65J(5)(b)(ii) of the FBTAA is not satisfied.

As subparagraph 65J(5)(b)(i) and (ii) of the FBTAA are not satisfied, paragraph 65J(5)(b) of the FBTAA is satisfied in respect of the association.

As paragraph 65J(5)(a) of the FBTAA is also satisfied the association is a 'non-profit association' as defined in subsection 65J(5) for the purposes of section 65J of the FBTAA.

Date of decision:  29 October 2009

Year of income:  Year ended 31 March 2010

Legislative References:
Fringe Benefits Tax Assessment Act 1986
   section 65J
   subsection 65J(1)
   subsection 65J(3)
   subsection 65J(5)
   paragraph 65J(5)(a)
   paragraph 65J(5)(b)
   subparagraph 65J(5)(b)(i)
   subparagraph 65J(5)(b)(ii)

Related Public Rulings (including Determinations)
TD 95/56
TD 2008/2

Other References:
Supplementary Explanatory Memorandum to the Taxation Laws Amendment (Fringe Benefits Tax Measures) Bill 1992

Keywords
FBT rebatable employers
Fringe benefits tax
Health organisations
Non profit associations & clubs

Siebel/TDMS Reference Number:  6326185

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  6 November 2009

ISSN: 1445 - 2782