Private ruling: Income Tax Exemption and Rebatable Employer
Date of advice: 27 August 2015
Published: August 2015
Ruling period: 1 July 2014 to 30 June 2015 | 1 July 2015 to 30 June 2016 | 1 July 2016 to 30 June 2017
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the purpose of promoting the development of tourism under item 8.1(b) in section 50-40 ITAA 1997? Yes. | A1: Yes. | Q2: Are you a rebatable employer pursuant to section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA ) for the purpose of promoting the development of tourism under item 8(a)(ii) in subsection 65J(1) of the FBTAA? | A2: Yes.

Relevant facts and circumstances: You combined with two predecessor organisations. The objectives with the two predecessor organisations are very similar if not identical to you. The two predecessor organisations were income tax exempt on the basis that: • their activities were referred in in section 50-40 (item8.1 and 8.2) of the Income Tax Assessment Act 1997 (ITAA 1997), and • did not carry on for the profit or gain of its individual members. One former entity transferred its surplus assets including cash to the current entity. The Commonwealth, a State or a Territory are not members of the entity or hold any interest in the entity. Income Tax Exemption You were established to achieve the following objectives: • promote, market and advocate for best practice, and • promote the development of resources. Your objectives are as follows: • promote and market the development and advocate for best practice, • represent itself and act as the peak unified policy forum at the national level, • collect, analyse and disseminate research, scientific, technical and other information concerning that industry, • co-operate with appropriate organisations at the State, Territory, national level and internationally towards the scientific, technical and advancement generally of that industry, • maintain a high level of liaison and so-operation with its members, State, Territory and Commonwealth governments and their departments and authorities, local government and relevant industry associations, • periodically monitor and assess the services provided or the products manufactured by persons involved in industry to ensure compliance with all applicable standards, codes and requirements, • participate in the development of, give advice and provide publicity on legislation or proposed legislation of concern to the industry, and • provide and influence technical education, activities, projects and resources to promote and advance the processes, skill and know-how of, and enhance the success of, those involved in industry. The key activities involved in are as follows: • promote the industry's products to Australian consumers (tourists), • facilitate a national accreditation program, and • liaise with industry bodies and government departments on matters related to the industry. You do not carry on for the purposes of profit or gain of its members. The constitution prevents the distribution of any surplus assets to any members in the event of winding up the organisation. The nature of indirect benefits provided to members does not prevent the organisation from satisfying the requirements for income tax exemption. Fringe Benefit Tax Rebatable Employer Status You promote the development of: • Tourism, and • Australian industrial resources. None of the interests or rights of members are beneficially owned by: • The Commonwealth, a State and Territory, or • an authority or institution of the Commonwealth, a Sate or Territory

Relevant legislative provisions: Fringe Benefits Tax Assessment Act - Subsection 65(J)(1) Item 8 (a) | Fringe Benefits Tax Assessment Act - Subsection 65(1) | Fringe Benefits Tax Assessment Act - Subsection 65(5) | Income Tax Assessment Act 1997 - Section 50-1 | Income Tax Assessment Act 1997 - Item 8.1 Section 50-40

Reasons for decision: Summary: Are you exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the purpose of promoting the development of tourism under item 8.1(b) in section 50-40 ITAA 1997? Assessable income of an entity is exempt under s50-1 of the ITAA 1997 where the entity falls within the following description contained in item 8.1 of s50-40 of the ITAA 1997. Item 8.1 states the following: a society or association established for the purpose of promoting the development of: (a) aviation; or (b) tourism The exemption is subject to a special condition that the society or association is not carried on for the profit or gain of individual members. To satisfy the requirements of item 8.1(b) of the table in section 50-40 of the ITAA 1997, an entity must: 1. be a non-profit association; and 2. have a dominant or principle purpose of promoting the development of tourism. | Detailed Reasoning - Non-profit association: Non-profit requirement Section 50-40 of the ITAA 1997 requires that the association not be carried on for the purposes of profit or gain to its individual members. This means that the organisation is not operating for the profit or gain of its individual members, whether these gains would have been direct or indirect. This applies both while the organisation is operating and when it winds up. Any profit made by the organisation goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members. In Taxation Ruling TR 2011/4 at paragraph 235 an organisation is accepted as non-profit where its constituent or governing documents contain clauses: … that prevent the institution from distributing its profits or assets for the benefit of particular persons while it is operating and on winding up (commonly called the 'non-profit' or 'not for profit' clauses). The courts have tended to regard these clauses as an essential aspect of the constituent documents. The association's actions should be consistent with this requirement. Where members in their individual capacity are to receive benefits from an association, it will fail the non-profit test Your Constitution (Clause 6.7.2) prevents benefits or profits being distributed to members both during its operation and on winding up. Therefore it is accepted that you are not carried on for the profit or gain of its individual members Association The terms 'association' and 'society' are not defined and have their ordinary meaning. The Macquarie Dictionary defines association as an organisation of people with a common purpose and having a formal structure. Society has an equivalent meaning ( Pro-campo Ltd v. Commr of Land Tax (NSW) 81 ATC 4270 at 4279; (1981) 12 ATR 26 at 35). You are incorporated under the Corporations Act 2001 and are governed by your constitution. The common purpose for which your shareholders have joined together is expressed in the constitution to promote tourism through research and development and innovation activities. Therefore, it is accepted that you are an association. | Detailed Reasoning - Dominant or principal purpose of promoting the development of tourism: Tourism Tourism is not defined in the ITAA 1997 and has its ordinary meaning. The Macquarie dictionary defines the term tourism as the practice of touring, especially for pleasure; the occupation of providing local services, as entertainment, lodging, food, etc, for tourists. The Shorter Oxford English Dictionary defines the term to mean 'The theory and practice of touring; travelling for pleasure', and Butterworths Australian Legal Dictionary defines it to mean 'The practice of travel and associated activities for the primary purpose of recreation.' Promotion of Development Item 8.1(b) of the table in section 50-40 does not refer to the promotion of tourism. It is directed to the promotion of the development of tourism. Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating co-operation, and similar activities. Income Tax IT 2415 states: The term 'development' is used in section 50-40 in a commercial or business sense. It comprehends all the elements which must be taken into account to ensure that the specified resources are best used Promoting the development may be direct or indirect. It need not be on a large scale or use commercial means. However, not all activities connected with a resource will necessarily be for its development. For example, the development of agricultural resources might be directly promoted by research, experimental farms, control of pests, education in farming methods, or the introduction of new and improved classes of products. It might be indirectly promoted by improved marketing methods, cooperative buying and selling, solution of labour disputes, or ameliorative legislation. Development of resources can be promoted by facilitating the cooperation of business and instrumentalities. Chambers of commerce and regional development bodies may help promote resource development in these ways. As Taxation Ruling IT 2415 points out at paragraph 9: Although the connection may not be as readily apparent the development of marketing techniques may also be relevant to the development of resources - it could be said that there is little point in developing resources if the products of the resources cannot be sold. Another area where the connection with development of resources may not be direct is the development of tourism - but it does play a part in the development of the resources specified in paragraph 23(h). As the Tribunal pointed out in Case W49 at 89 ATC 474; 20 ATR 3602: The enlargement of the market is one of the objectives of "promoting the development" of any relevant industry. Your objects as stated above are consistent with those necessary to promote the development of tourism. Dominant Purpose The purpose of the association must be promoting the development of the relevant resources. Any other purpose of the organisation must be incidental, ancillary or secondary to promoting development of the relevant resources. This means that to be exempt under item 8.1(b) in the table of section 50-40 of the ITAA 1997, an association must be established principally or predominantly for the purpose of promoting the development of tourism. It is not sufficient that one of an association's purposes falls within the provision nor is it sufficient that the development of tourism is incidental to, involved with, or a consequence of an association's purposes. In Boating Industries Association of New South Wales v. FC of T 85 ATC 4224; (1985) 16 ATR 383 at 85 ATC 4228; 16 ATR 387-8, the taxpayer was the Boating Industries Association of N.S.W. Its objects included the promotion of interests in safe boating and the organisation of and staging of exhibitions and demonstrations intended to arouse public interest in marine activities. The Association contended that it was a non-profit organisation established for the purpose of promoting the development of manufacturing resources of Australia. The Commissioner rejected the Association's contention and assessed it on income tax. The Association objected and the Commissioner disallowed the objection. The Association appealed. In dismissing the appeal it was held that section 23(h) (repealed and replaced with section 50-40) requires that the relevant organisation be "established" for the purpose stated, not merely "involved". It is the purpose of the establishment of the body that is crucial. In this case it was clear from the evidence that the taxpayer's principal activity was safe boating and not the promotion of Australian manufactured boats. Accordingly the taxpayer was not established for the purpose of promoting the development of manufacturing resources of Australia. Where an entity conducts ancillary or incidental activities this would not of itself change what is regarded as the entity's main purpose. In that regard, Lockhart J in Cronulla Sutherland Leagues Club Limited v FC of T (1990) 23 FCR 82; 90 ATC 4215 at 4255; (1990) 21 ATR 300 at 312 said: It [the club] may have other objects or purposes which are merely incidental or ancillary thereto or which are secondary and even unrelated to the main object or purpose without disqualifying the body from exemption. You promote the development of tourism and Australian manufacturing resources. The manufacturing aspect would not be considered to be for the promotion of tourism. The facts indicate that 80% of the activities are directed towards tourism. Therefore, the manufacturing activity is considered incidental to your main objects. As long as this remains the case, it will not affect the dominant purpose. Consideration of the constituent documents, the activities, the history and the use of funds indicate that the main purpose of the association is the advancement of tourism. You satisfy this requirement as its dominant purpose is the promotion of tourism. It is considered that you are entitled to income tax exemption under item 8.1(b) of s 50-40 of the ITAA 1997 as you are a non-profit association established for the purposes of promoting the development of tourism. | Detailed Reasoning - Question 2: Are you a rebatable employer pursuant to section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA ) for the purpose of promoting the development of tourism under item 8(a)(ii) in subsection 65J(1) of the FBTAA? In determining whether you are an eligible rebatable employer pursuant to paragraph 65(J)(1) of the FBTAA, we must first determine if you are a rebatable employer. An employer is a rebatable employer for a year of tax if the employer: • is exempt from income tax at any time during the year of tax, and • satisfies any special conditions set out in the table to ss65J(1)of the FBTAA. Specifically, item 8(a)(ii) of the table in ss65J(1) of the FBTAA covers the following: A society or association: (a) established for the purposes of promoting the development of: (i) aviation; or (ii) tourism; and (b) covered by item 8-1 of the table in section 50-40 of the Income Tax Assessment Act 1997 Therefore, to qualify as a rebatable employer under item 8(a)(ii) of the table in subsection 65J(1) of the FBTAA, an entity must: • be established for the purpose of promoting the development of tourism and be covered under item 8.1 of s50-40 of the ITAA 1997. As discussed in relation to question 1 you fulfil the requirements for tax exemption under item 8-1 of the table in section 50-40 of the ITAA 1997 as you promote the development of tourism. In addition, the association must comply with s65J(5) of the FBTAA. Subsection 65J(5) of the FBTAA states: A society, association or club is not club is not covered by table item 4, 5, 8, 9, 10, 11, 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. Therefore, to qualify as a non-profit association under ss65J(5) of the FBTAA, an entity must: • be non-profit • be a society, association or club, and • not be under beneficial ownership of the Commonwealth, a State or a Territory or an authority or institution of the Commonwealth, a State or a Territory. | Detailed Reasoning - Non-profit: As discussed above, you are considered to be non-profit as your constitution contains an appropriate non-profit and dissolution clause. | Detailed Reasoning - Society, association or club: As discussed in Question 1 in relation to your income tax exemption status, you meet the ordinary meaning of an association. However, Taxation Determination TD 95/56 serves to slightly modify the ordinary meaning of an 'association' for the purpose of s65J of the FBTAA. It states that a body cannot be an association where it is: • formed by government • controlled by government, and • performs functions on behalf of government. You are a public company limited by shares formed pursuant to the provisions of the Corporations Act 2001 and you are not directly created as a result of an Act or law passed by the government. Your constitution was developed in consultation with your shareholders. Therefore, you are not considered to be formed by government. You effectively control and manage your affairs without any requirement to take direction from government. Therefore, you are not considered to be controlled by the government or perform functions on behalf of the government. Therefore, you are considered to be an association for the purposes of TD 95/56. You can claim a rebate pursuant to subsection 65J(1) of the FBTAA) on the basis that you are a rebatable employer pursuant to item 8(a)(ii) in subsection 65J(1) of the FBTAA.