ATO ID 2009/127: Rebatable employer: meaning of 'non-profit association' - members include government bodies
Date of decision: 29 October 2009
Year of income: Year ended 31 March 2010
Business line: Superannuation and Employer Obligations

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 outlined in subparagraph 65J(5)(b)(ii) 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
Summary: Subsection 65J(1) of the FBTAA provides that certain non-profit associations will (subject to all relevant conditions being satisfied) be rebatable employers. Broadly, section 65J of the FBTAA provides that an employer will be a rebatable employer for a year of tax if the employer is exempt from income tax at any time during the year of tax under any of the provisions set out in the table in subsection 65J(1) and satisfy the special conditions (if any) set out in that table. Item 5 of the table provides that 'a society, association or club' which is (a) established for community service purposes (except political or lobbying purposes); and (b) is covered by item 2.1 of the table in section 50-10 of the Income Tax Assessment Act 1997 will be a rebatable employer provided the special conditions in subsection 65J(5) are met. The facts indicate that the association relates to the public health care system of a State of Australia and therefore would likely be deemed to have been established for community service purposes. Subsection 65J(5) of the FBTAA provides that, for the purposes of section 65J of the FBTAA, the type of societies, associations or clubs that will not be covered by the table in subsection 65J(1) and therefore not deemed rebatable employers under the provision. Subsection 65J(5) provides that: 65J(5) 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 Subsection 65J(5) addresses the meaning of a "non-profit society", '"non-profit association" and a "non-profit club". The provision provides that a society, association or club will not be rebatable employers if they are (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 Sate or a Territory. Paragraph 65J(5)(b) applies the same rules to incorporated companies limited by guarantees. That is, the association will not be characterised as a non-profit association for the purposes of section 65J of the FBTAA if paragraphs 65J(5)(a) or (b) are satisfied. As the association is not an incorporated company by way of stock or share ownership, paragraph 65J(5)(a) of the FBTAA will not apply. Conversely, as the association is an incorporated company limited by guarantee, consideration will be directed towards the application of paragraph 65J(5)(b). The facts indicate that several 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.' Paragraphs 65J(5)(a) and (b) 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 paragraph. 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. 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 subparagraphs 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.

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 and determinations: TD 95/56 | TD 2008/2
Other references: Supplementary Explanatory Memorandum to the Taxation Laws Amendment (Fringe Benefits Tax Measures) Bill 1992
Subject references: FBT rebatable employers Fringe benefits tax Health organisations Non profit associations & clubs