Private ruling: Income tax exempt status
Published: February 2013
Ruling period: 1 July 2011 to 30 June 2014
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the ordinary income and statutory income of the Entity exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is an employer association falling under item 3.1 of the table in section 50-15 of the ITAA 97? | A1: Yes

Relevant facts and circumstances: · The Entity is registered under the Fair Work (Registered Organisations) Act 2009. · The Entity represents all sectors of the local industry and provides specialist services for members, negotiates new award agreements with unions, lobbies government on legislative changes and threats to business and generally protects and preserves the interests of the industry through its support to over 1,100 members. · The objects of the Entity are contained in its constitution which include as an object the promotion and support of employers as well as other objects related to supporting the interests of members. · The constitution states that its membership is open to those entities, either as employers or otherwise that are engaged in the industry. · The Entity has in excess of 1,000 members. X% of the Entity's members are employers. Employer members account for approximatelyY% of the member contributions received by the Entity. · The Entity undertakes a number of activities on behalf of its members. These activities include: Provision of a secure member website: The Entity provides a secure website to members. The majority of items published on this website are specifically directed at members in their capacity as employers. The secure website provides members with access to a range of information specific to their role as employers, including relevant awards, wage rates, tax rates, and occupational health and safety fact sheets. The website also includes some additional information which is relevant to members of the industry generally, including environmental fact sheets and a technical information database. Publication of a member handbook: The Entity publishes a member handbook. This handbook contains a wide range of information directed at employer members. Significant topics include member benefits (eg. services available through the Entity's business partners), industrial relations, occupational health and safety, training and employment, and environmental issues. The handbook also includes some general industry/member advice. Member-only publications: The Entity publishes two monthly newsletters. One is published for the purpose of keeping members up to date on relevant occupational health and safety, industrial relations, and environmental issues. The majority of articles in each report focus on issues which are specifically relevant to members in their capacity as employers. The other report is published for the purpose of keeping members informed on general issues within the industry. However, issues of the report frequently include articles on issues directly relevant to members in their capacity as employers. Telephone assistance: The Entity provides a telephone assistance service to its members. This service is available to all members, who may call and discuss business-related issues with its staff. The majority of these services provided by its staff are focused on issues directly relevant to members in their capacity as employers, including industrial relations, legal advice on employee contracts, occupational health and safety, and employer advocacy. This is evidenced by the number of employees engaged in providing industrial relations advice to members, as discussed below. Business development workshops: The Entity holds a number of business development workshops each year to provide members with advice and guidance on how to maximise their businesses effectiveness. These workshops include information relevant to members in their capacity as employers. Zone Meetings: The Entity's members have access to regular information briefings at zone meetings conducted by the association. These meetings include briefings on topics directly relevant to members in their capacity as employers, including occupational health and safety, in addition to some issues relevant to the industry generally. Special forums: The Entity also hosts a number of forums on specialized topics throughout the year. Printing and stationery services: The Entity provides some printing and stationery services to its members. These services are provided to members on a service fee basis. Business training: The Entity provides business training to its members on a wide range of business related topics. The majority of these topics related directly to employers., including Certificate IV in Occupational Health and Safety, employment contracts, workplace bullying, industrial relations, and various member networking functions. The Entity also provides training on general business topics, including risk and environmental management, fire warden training, and electrical tagging. Advocacy activities: The Entity also conducts advocacy activities on behalf of its employer members. These activities include providing comment to the relevant industry bodies and developing assigned advocacy projects on industry issues, including the Fair Work Act, Modern Awards, Occupational Health and Safety etc. Consumer complaints: The Entity investigates and mediates complaints from the public in relation to services provided by members. These activities are undertaken as and when specific complaints arise and are infrequent in nature. · In addition to activities performed on behalf of members, the Entity also provides the following services directly to members: - Assistance in employer/employee relations; - Assistance with calculating wage rates for members, including long service leave, termination of employment payments and annual leave; - Advising members on the correct job classification and wages that they must pay their employees under the relevant awards or agreements; - Assisting with disputes which may arise between an employee and their employer, ranging from unfair dismissals, underpayments in wages, WorkCover claims, and general breaches in terms or conditions of employment; - Conducting seminars and trainings for members on issues such as new workplace legislation and the impact on businesses and changes to minimum standards of employment conditions under the Awards; - Assisting with government submissions in respect of issues such as shop trading hours, WorkCover matters and anti-discrimination legislation; - Providing occupational health and safety equipment (such as safety gloves and eyewear) to members; - Providing business advice to members, such as how to improve service management, dealing with complaints, whether or not to advertise, when not to accept credit etc; - Producing a magazine for the industry providing industry news and events, calendar of training and business events, profiles, new products and services and new information technology; - Provision of stationery and printing services to members, such as business cards, promotional products, etc; and - Providing occasional technical information to members through a Technical Help Fax Line. This service is minor and infrequent in nature. · The Entity presents itself to the public through three primary channels: - its website; - its journal/magazine; and - various media releases. · W% of the Entity's FTE staff work on employment related matters. · Z% of the Entity's expenditure is spent on employment related matters. · The Entity is incorporated in Australia, is located in Australia and as are all of its members.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 50-1 | Income Tax Assessment Act 1997 section 50-15

Reasons for decision: Summary: The Entity is an employer association registered under the Fair Work (Registered Organisations) Act 2009 . It is located in Australia, incurs its expenditure and pursues its objectives principally in Australia. As such it is exempt from income tax under section 50-1 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 50-1 of the ITAA 1997 states that the ordinary income and statutory income of certain entities are exempt from income tax. The exemption is subject to special conditions. An employer association falling under item 3.1(b) of the table in section 50-15 of the ITAA 1997 is one such entity. The special conditions outlined in section 50-15 of the ITAA 1997 that apply to an employer association are that the association: a) is registered under the Fair Work (Registered Organisations) Act 2009 or an Australian law relating to the settlement of industrial disputes; and b) is located in Australia, and incurs its expenditure and pursues its objectives principally in Australia. | Detailed Reasoning - Employer Association: An employer association is not defined in the legislation. In Associated Newsagents Co-operative Ltd at 70 ATC 4032 the High Court found an association of employers to be 'a combination of persons who associate in their capacity as employers of labour'. It contrasted this with 'an association of persons merely because they pursue the same calling'. Whether an association is an employer association is a matter of fact to be determined in light of the circumstances. Relevant considerations will be both the extent to which the association's membership comprises employers and the extent to which its purposes concern employment matters. They will indicate whether the association is 'a combination of persons who associate in their capacity as employers of labour'. Employer membership will be indicated by the eligibility rules for membership, the constituent documents, membership statistics, etc. Limitation of membership to employers will be a strong, but not determinative, indicator. Employment matters are not limited to industrial relations and the settlement of disputes. They also include staff recruitment and development, superannuation and workers compensation, occupational health and safety, staff training and accreditation, terms and conditions of employment, managerial systems and job design, staff performance and appraisal, and dismissals. An association will be an employer association if its members are predominantly employers and its purpose is to promote their common interests in relation to employment matters. The membership structure and main purpose of the Entity will now be examined. | Detailed Reasoning - Membership structure: Membership to the Entity is firstly open to entities that are engaged in the relevant industry. Although membership is not limited to employers the constitution indicates that employers are their target group. Furthermore, from the way that the Entity promotes itself on its website as an employer-based organisation indicates that it is seeking membership from employers. Given that a substantial amount of its members (X%) are employers, the membership structure of the Entity is supportive of the fact that it is an employer association. | Detailed Reasoning - Purpose: Taxation Ruling TR 97/22 Income tax: exempt sporting clubs , provides guidance on how to determine the purpose of an organisation. Although TR 97/22 applies to sporting clubs, the general principles can be applied. TR 97/22 highlights some of the key features that are relevant when determining the main purpose of an organisation. These include: i) the objects of the entity as stated in its constituent documents; ii) the activities of the entity; iii) the purposes for which a significant proportion of the entity's resources are expended; and iv) the manner in which the entity presents itself to potential members and the public. TR 97/22 also outlines that an entity may have ancillary purposes to its main purpose. In Cronulla Sutherland Leagues Club Limited v FCT 90 ATC 4215 Lockhart J stated: "It [the club] may have other objects or purposes which are merely incidental or ancillary thereto which are secondary and even unrelated to the main object or purpose without disqualifying the body from exemption." However, if the main purpose becomes the carrying out of those other activities, the organisation is not exempt. Nor is it exempt if the organisation is equally involved in another purpose or purposes. Lockhart J at ATC 4225; ATR 312 said: "But if it has two co-ordinate objects, one of which is outside the exemption, the exemption cannot apply because it would be impossible to say that one object is the main or predominant object." The principal purpose of an entity must be determined after objectively weighing all its features. | Detailed Reasoning - Objects: The Entity's constitution lists a number of objects. Some of the objects deal with the association's activities on behalf of members as employers, others deal with the powers necessary for it to execute its primary objects. In light of the activities undertaken by the Entity, where it expends its resources and how it presents itself to the public, the main purpose of the organisation is considered to be the one relating to the promotion and support of employers. The remaining objects are considered to expand the scope of the activities that the Entity undertakes on behalf of its members. Some of these objects include supporting its members as employers and others relate to providing non-employment related services. However, these are considered ancillary to the main purpose of providing employment related services. | Detailed Reasoning - Activities: There are a number of services that the Entity provides to its members. These services are related to employment matters but there are also some services that are not. Those services that are considered employment related are: · Assistance in employee/employer relations; · Assistance with calculating wage rates for members, including long service leave, termination of employment payments and annual leave; · Advising members on the correct job classification and wages that they must pay their employees under the relevant awards or agreements; · Assisting with disputes which may arise between an employee and their employer, ranging from unfair dismissals, underpayments in wages, WorkCover claims, and general breaches in terms or conditions of employment; · Conducting seminars and trainings for members on issues such as new workplace legislation and the impact on businesses and changes to minimum standards of employment conditions under the Awards; · Providing occupational health and safety equipment (such as safety gloves and eyewear) to members; and · Training member's employees through an apprenticeship program. Those services that are partly employment related are: · Producing a magazine the industry providing industry news and events, calendar of training and business events, profiles, new products and services and new information technology; and · Assisting with government submissions in respect of issues such as shop trading hours, WorkCover matters and anti-discrimination legislation. Those services that are not employment related are: · Providing business advice to members, such as how to improve service management, dealing with complaints, whether or not to advertise, when not to accept credit etc; and · Providing occasional technical information to members through a Technical Help Fax Line. This service is minor and infrequent in nature. As is evident, a majority of the services provided are on employment related matters. The services outlined above are delivered through a number of means. These are: · Provision of a secure member website; · Publication of an annual member handbook; · Member-only publications; · Telephone assistance; · Business development workshops; · Zone meetings; · Special forums; · Printing and stationery services; · Business training; · Technical training; and · Advocacy activities. As is evident in the Entity's submission, the main purpose for the provision of the website, the publication of the member handbook and other publications, the telephone assistance, workshops, meetings, training and advocacy are to provide assistance to its members in their capacity as employers, on employment related matters. Any non-employment related services provided through these means appear to be incidental to their main purpose of providing employment related information. | Detailed Reasoning - Purpose for which resources are expended: As outlined above, a majority of the services provided by the Entity are on employment related matters on behalf of its members. The Entity has also provided a breakup of the number of FTE spending time on employment related and non-employment related activities. This breakup shows that W% of its FTE spent time on employment related services to its members. Additionally the Entity has provided a breakup of its expenditure in the relevant income year between employment and non-employment related activities and it shows that V% of total expenditure was on employment related activities. Therefore it can be concluded that a significant proportion of the Entity's resources are spent on the employment related activities that are associated with employer associations. | Detailed Reasoning - Presents itself to public: The Entity presents itself to the public as an employer association. On its website it states that it is an employer association. | Detailed Reasoning - Conclusion: The objects of the Entity include objects that indicate its purpose is to act in the interests of its members in their capacity as employers. In light of the activities conducted by the Entity, the way that it expends its resources and the way it presents itself to the public, this all supports the finding that the Entity is an employer association. | Detailed Reasoning - Special condition (a): The first special condition that must be satisfied for income tax exemption to apply is that the employer association must be registered under the Fair Work (Registered Organisations) Act 2009 or an Australian law relating to the settlement of industrial disputes. The Entity has advised that they are registered under the Fair Work (Registered Organisations) Act 2009 and so would meet this requirement. | Detailed Reasoning - Special condition (b): The second special condition that must be satisfied for income tax exemption to apply is that the employer association must be located in Australia, incur its expenditure and pursue its objectives principally in Australia. The Entity is incorporated in Australia and is located in Australia. Given that its members are also located in Australia and it is an employer association, it is accepted that it incurs its expenditure and pursues its objectives principally in Australia. | Detailed Reasoning - Disclaimer: You cannot rely on the rulings in the Register of private binding rulings in your tax affairs. You can only rely on a private ruling that we have given to you or to someone acting on your behalf. The Register of private binding rulings is a public record of private rulings issued by the ATO. The register is an historical record of rulings, and we do not update it to reflect changes in the law or our policies. The rulings in the register have been edited and may not contain all the factual details relevant to each decision. Do not use the register to predict ATO policy or decisions.