Private ruling: Rebatable employer status
Published: May 2013
Ruling period: Year ending 31 March 2014 | Year ending 31 March 2015 | Year ending 31 March 2016
Date scheme commenced: 1 April 2013

Ruling: Q1: Is the entity a rebatable employer for the purposes of paragraph 65J(1)(g) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: Yes

Relevant facts and circumstances: The employer has previously received favourable rulings on this subject. Their Constitution contains a set of objects, rules on how the income and assets are applied including rules on how the assets are distributed upon winding-up Their latest annual report contains an overview of its activities. A current membership list was provided.

Relevant legislative provisions: Income Tax Assessment Act 1997 , section 50-5 | Fringe Benefits Tax Assessment Act 1986 , section 65J

Reasons for decision: Detailed Reasoning - Background: Subsection 65J(1) provides a list of entities that are considered to be rebatable employers and paragraph 65J(1)(g) includes non-profit associations, societies, or clubs which is established for musical purposes, or for the encouragement of music, art, science or literature. In respect of a non-profit association, society or club subsection 65J(5) of the FBTAA has an extended meaning which only applies to section 65J of the FBTAA. Subsection 65J(5) of the FBTAA provides that: …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. Earlier rulings have concluded that the employer is a non-profit association, society or club was established for the encouragement of science and was a rebatable employer. Therefore we need to conduct a review as to whether these conclusions would continue to apply. | Detailed Reasoning - Is the employer a non-profit association society or club (as per the extended definition): The term 'association' is not defined in the FBTAA however the Macquarie Dictionary defines the term 'association' as being 'an organisation of people with a common purpose and having a formal structure'. Olsson J in Quinton & Quinton v. South Australian Psychological Board (1985) 38 SASR 523 stated that the term 'association' has come to be regarded as attaching to a body of persons associated for a common purpose. As per the conclusions made previously the employer is an association as there is a body of persons (the members) with a common purposes (as established by the constitution). The Commissioner will accept that an entity is non-profit where its constituent documents prevents it from distributing its profits or assets among members while it is operating or upon winding up. As per previous conclusions the employers constitution contains clauses which prohibit a distribution to members whilst in operation and upon winding up. In looking at whether an entity is an institution of the Commonwealth, State or Territory subsection 65J(3) of the FBTAA includes as an institution of a the Commonwealth, State or Territory any institution established by a law of Commonwealth, State or Territory. This would include a university which is established under a law of a Commonwealth, State or Territory. This is demonstration in example 1 in Taxation Determination TD 2008/2 Fringe benefits tax: in determining whether a charitable institution is a rebatable employer for the purposes of paragraph 65J(1)(baa) of the Fringe Benefits Tax Assessment Act 1986, is the institution 'established by a law of the Commonwealth, a State or a Territory' under subsection 65J(3) of that Act because it is incorporated under either the Corporations Act 2001 or under a law of a State or Territory which relates to the incorporation of Associations? . which states: The Parliament of Victoria passes an Act which incorporates University A. The Act also specifies the powers and purpose of the University. University A is a charitable institution for the purpose of paragraph 65J(1)(baa). The incorporation of and setting the purpose or objects of University A by the Victorian Act constitutes or establishes University A for a charitable purpose . Therefore, University A is an institution 'established by a law of the Commonwealth, a State or a Territory' under subsection 65J(3). ATO Interpretative Decision ATO ID 2009/127 Fringe Benefits Tax Rebatable employer: meaning of 'non-profit association' - members include government bodies, looks at associations that has a membership that consist of are both government and non-government bodies. The reasons for decision of ATO ID 2009/127 states in part . . .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.. As per the above reasons for decision, although the membership could include an institution of the Commonwealth, a State or a Territory, unless all the members are an institution of the Commonwealth, a State or a Territory it will not be beneficially owned by the Commonwealth, a State or a Territory. Therefore as per the previous conclusions the employer is a non-profit association. | Detailed Reasoning - Encouragement of science: Item 1.7 of the table in section 50-5 of the ITAA 1997 provides that an entity is an exempt entity if it is a society, association, or club established for the encouragement of science and in the original ruling in respect of this exemption the following reasons were provided: According to the Macquarie Dictionary , 'encouragement' means 'stimulation by assistance'. It is essential that the encouragement of science is the main or dominant purpose of an entity. Encouragement can occur directly: · co-ordinating activities; · improving the abilities of those involved in the relevant field of science; · organising an conducting activities in the relevant field of science; · improving the standard of professional and others in the relevant field of science; · providing purchased or leased facilities for activities in the relevant field of science; · encouraging increased and wider participation and improved performance in the relevant field of science. and can occur indirectly: · through marketing; or · by initiating or facilitating research and development. (NOTE - the above points have been adopted by analogy to those stated in TR 97/22 concerning the encouragement of a game or sport). To be exempt, the main purpose of the entity must be the encouragement of science. Desirable features include: · an entity conducts activities in the relevant year that are directly related to science. · the scientific activities encouraged by an entity are extensive. · an entity uses a significant proportion of its surplus funds in encouraging science. · the entity's constituent documents emphasise that its main purpose is to encourage science and it operates in accordance with those documents. The entity's objects, as set out at . . . of the Constitution are considered to be sufficiently descriptive of the entity's activities as being related to science. It is considered that the objects and purposes can be characterised as falling within 'encouragement of science' as enumerated, above, both directly and indirectly. The initiation or facilitation of research and development is an indirect activity in terms of encouragement. Indirect encouragement is considered to include instances where arrangements are established such as research projects or collaborative ventures. The agency arrangements established through Project Agreements for the conduct of research and development is considered to fall within indirect encouragement of science. The nature and extent of the activities of the entity have not been requested. However, on the basis of the objects set out in the Constitution and the fact that the entity is basically a facilitator, being its intended role, it was considered that further information was not necessary The entity is considered to be an association established for the encouragement of science. This requirement is satisfied. Subsequent rulings have been based on this conclusion and if we return to the objects this conclusion continues to apply. In addition overview of activities supports a conclusion that the employer was established (and is operated) for the encouragement of science.