Private ruling: Exemption from income tax
Published: March 2015
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018
Date scheme commenced: 1 July 2014

Ruling: Q1: Is the entity exempt from income tax pursuant to the provisions of section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is a society, association or club established for community services purposes (except political or lobbying purposes) under item 2.1 of the table in section 50-10 of the ITAA 1997? | A1: Yes | Q2: Is the entity a rebatable employer under section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) on the basis that it is a non-profit society, non-profit association or non-profit club, established for community service purposes under item 5 of the table in subsection 65J(1) of the FBTAA? | A2: Yes

Relevant facts and circumstances: The entity is made up of representatives from a particular industry to receive and resolve complaints lodged by users of the services of that industry. The entity provides its services free of charge to people who use or are affected by the industry providers. The entity's operations are funded by a member levy. The entity's constitution has appropriate non-profit and dissolution clauses. A copy of the Constitution and the Charter of the entity were made available to the Commissioner.

Relevant legislative provisions: Section 50-1 of the Income Tax Assessment Act 1997 | Section 50-10 of the Income Tax Assessment Act 1997 | Section 50-70 of the Income Tax Assessment Act 1997 | Subsection 65J(1) of the Fringe Benefits Tax Assessment Act 1986 | Subsection 65J(5) of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision: Summary: The entity is accepted as satisfying the requirements for income tax exemption under item 2.1 of section 50-10 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Item 2.1 of the table in section 50-10 of the ITAA 1997 in conjunction with section 50-1 of the ITAA 1997, provides that the total ordinary income and statutory income of a society, association or club established for community service purposes (except political or lobbying purposes) is exempt from income tax, subject to the special condition detailed in section 50-70 of the ITAA 1997. Accordingly to be an entity described in item 2.1, the entity must: • Be a society, association or club; • Be established for community service purposes; and • Satisfy the special condition in section 50-70 of the ITAA 1997. | Detailed Reasoning - Society, association or club: The terms society, association or club is not defined in the ITAA 1997. The terms should therefore be construed according to the ordinary meaning of the words. This approach was taken in Douglas v. Federal Commissioner of Taxation 36 ATR 532; (1997) 77 FCR 112; 97 ATC 4722. Reference was made by the court to the definitions contained in the Concise Oxford Dictionary for each of these terms. Society, association or club was accepted by the court as referring to a voluntary organisation having members associated together for a common or shared purpose. The entity is an organisation comprised of members with a common purpose. The entity comprises representatives of entities from a particular industry and members of the community who represent the customers. Their common purpose is to receive, investigate and facilitate the resolution of complaints and disputes within the industry. It is accepted that the entity is a society, club or association. | Detailed Reasoning - Special conditions: Section 50-70 of the ITAA 1997 states that an entity covered by item 2.1 is not exempt unless it is not carried on for the purposes or gain of its individual members, and: • It has a physical presence in Australia, and to that extent it pursues its objectives and incurs its expenditure principally in Australia; or • It is a deductible gift recipient; or • It is prescribed by law in the income tax regulations and it is located outside Australia and is exempt from income tax in its country of residence. The entity is not established for the profit or gain of its members. It is an organisation which is incorporated in Australia and which pursues its objectives and expenditure solely in Australia. The entity therefore meets the special conditions of section 50-70 of the ITAA 1997. | Detailed Reasoning - Established for Community Service purposes: Item 2.1 requires the society, association or club to be established for community service purposes. The required 'community services purposes' must be the entity's main or predominant purposes ( Royal Australasian College of Surgeons v F C of T (1943) 68 CLR 436; Cronulla Sutherland Leagues Club Limited v. F C of T 90 ATC 4215). Item 2.1 is the equivalent of subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 (ITAA 1936). Guidelines on the scope of the exemption provided by subparagraph 23(g)(v) are provided by 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 Income Tax Assessment Act 1936 ? TD 93/190 states that the purpose of enacting the provision 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 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'. The Explanatory Memorandum for the Taxation Laws Amendment Bill (1990) which introduced subparagraph 23(g)(v) provides further guidance. The Explanatory Memorandum states that the words 'for community service purposes' are to be given a wide interpretation and that: They extend to a range of altruistic purposes including promoting, providing or carrying out activities, facilities or projects for the benefit or welfare of the community, or of members of the community, or of any members of the community who have particular need of those activities, facilities or projects by reason of their youth, age, infirmity or disablement, poverty or social circumstances. An exclusion from the exemption will apply to bodies established for political or lobbying purposes. The Explanatory Memorandum and TD 93/190 indicate that to determine whether an association is established for community service purposes it is necessary to consider its constitution, its current operations and activities, and also the circumstances and needs of those who benefit from the operations. If it can be shown that an entity is established mainly to provide benefits to the community, it will not be a disqualifying attribute if there is an incidental benefit derived by members. The entity has been established as a free, confidential and impartial alternative dispute resolution scheme available to people who use the services of the industry. In the case of industry ombudsmen entities, ATO Interpretative Decision ATO ID 2003/721 Income tax exemption: community service purposes - Industry Ombudsman, states that: The required 'community service purposes' must be the entity's 'main or predominant purposes' ( Royal Australian College of Surgeons v. FCT (1943) 68 CLR 436; (1943) 7 ATD 289, Cronulla Sutherland Leagues Club Limited v. FCT (1990) 23 FCR 82; 90 ATC 4215; (1990) 21 ATR 300). It is a question of fact in each case as to whether any benefits derived by members are merely incidental to a main community service purpose of the industry ombudsman entity. Taxation Determination TD 93/190 states that in relation to former subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 (ITAA 1936), which is the same as item 2.1 of the table in section 50-10 of the ITAA 1997, that - (t)he 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 ... but which, nevertheless, conduct activities of benefit to the community. [emphasis added] A question that needs to be answered in this regard is whether it is a section of the community or a closed and restricted class of persons that receives benefits from the industry ombudsman entity. This is a question of degree ( Dingle v. Turner [1972] AC 601; per Lord Cross of Chelsea at 624). In the case of industry ombudsman entities, the arguments in favour of a finding that it is a section of the community that is benefited are based upon the proposition that 'ordinary consumers of an industry's services' is a section of the community, and that the availability of the Ombudsman's services is not too nebulous or remote to be regarded as a benefit to the community. Where membership of the ombudsman entity is effectively compulsory for all industry service providers, it is illusory to say that 'customers of members' is a restricted class. It is considered that where the industry ombudsman entity is established to make its Ombudsman's services available to ordinary industry consumers, without barring some and not others on the basis of their relationship with ombudsman entity members, it can reasonably be said that these entities are 'established for community service purposes' in a wide sense. They are 'altruistic' to the extent that they provide their service for the benefit of the community free of charge. Taking into account the facts provided to the Commissioner, it is considered that the entity has been established for community service purposes. | Detailed Reasoning - Conclusion: As a non-profit association established for community service purposes (not being political or lobbying purposes) that satisfies section 50-70 of ITAA 1997, the entity meets the requirements of item 2.1 of section 50-10 of the ITAA 1997. Accordingly the entity is accepted as a community services organisation and is exempt from income tax pursuant to section 50-1 of the ITAA 1997. | Summary: The entity is determined as being a rebatable employer. | Detailed Reasoning - Detailed Reasoning: Subsection 65J(1) of the FBTAA provides that an employer will be a rebatable employer if it is exempt from income tax at any time during the year of tax under any of the provisions set out in the table; and satisfies the special conditions also set out in the table. Item 5 of the table is relevant in this instance: (a) society, association or club established for community service purposes (except political purposes or lobbying purposes); and (b) covered by item 2.1 of the table in section 50-15 of the ITAA 1997. As per question 1, the entity is accepted as an association established for community service purpose and covered under item 2.1 in section 50-10 of the ITAA 1997. The special conditions for item 5 of the table are found in subsection 65J(5) of the FBTAA. The special condition is satisfied. | Detailed Reasoning - Conclusion: As the entity meets the requirements of section 65J of the FBTAA, it is determined to be a rebatable employer.