Private ruling: Income tax Exempt and FBT rebate
Date of advice: 22 August 2018
Published: October 2018
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021 | Year ended 30 June 2022
Date scheme commenced: 1 July 2017

Ruling: Q1: Is The Company a non-profit organisation established for the purpose of promoting the development of Australian agricultural resources pursuant to item 8.2(a) of the table in section 50-40 of the Income Tax Assessment Act 1997 (ITAA 1997) and therefore exempt from income tax under section 50-1 of the ITAA 1997? | A1: Yes. | Q2: Is The Company a rebatable employer pursuant to section 65J(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)? | A2: Yes.

Relevant facts and circumstances: The Company is registered with the Australian Securities Commission as an Australian Public Company limited by guarantee. The Company has been established to be a non-profit institution to develop and implement multidisciplinary research programs. The research programmes promote an industry, which in turn supports Australia’s agricultural sector. Objects of The Company The Constitution sets out the objects for which The Company is established, which are generally to develop and implement co-operative and multidisciplinary research programs. Income and property of The Company In accordance with Constitution, The Company is restricted to applying its income and property towards the promotion of its objects. Winding up On winding up of The Company the Constitution specifies that no surplus income or property will be paid of transferred to any member of The Company, but will be transferred to an organisation with similar objects as The Company. Members and participants The Company has entered into a Participants Agreement which provides the following information: ● Participants are either members of The Company, or are entitled to become members, ● The Funding Agreement outlines that Participants will provide contributions in accordance with their agreement. Funding The Company have entered into a Funding Agreement with a Commonwealth department. The Funding Agreement outlines the amounts that Participants will contribute each year, as well as the amount the Commonwealth department will contribute each year. Other funding The Company is also funded by way of cash and in-kind contributions provided by third party contributions, as well as Participant contributions. The amounts of cash and in-kind contributions are detailed in the Funding Agreement. A summary of that information follows: In-Kind staff Contributions over 5 years: A number of staff In-Kind non-staff Contributions over 5 years: $Specified amount Cash contributions over 5 years: $Specified amount Intellectual property The ownership and utilisation of intellectual property (IP) arising from the activities of The Company is set out in the Project Agreement document. The Company will own any IP arising from the project, and will allow project parties a worldwide, irrevocable, perpetual, royalty free licence to the project parties to use the IP for non-commercial purposes

Relevant legislative provisions: Income Tax Assessment Act 1997 section 50-1 | Income Tax Assessment Act 1997 section 50-40 | Fringe Benefits Tax Assessment Act 1986 subsection 65J(1) Further issues for you to consider | Non-profit organisations that are not charities can self-assess their entitlement to income tax exemption. They do not need to be endorsed by us to be exempt from income tax. | As the governing documents of The Company contain appropriate clauses that prevent distribution of profits and assets to members, both while active and in the winding up process the Board of The Company would be able to self-assess their entitlement to income tax exemption. | Provided The Company is exempt from income tax the board can self-assess their entitlement to be a rebatable employer for FBT purposes. | A worksheet is provided on our web site for non-profit entities to complete to help them review their tax exempt status. Once completed the document can be forwarded to your Board for approval. | The worksheet can be found by going to our website www.ato.gov.au and searching for QC 26029.

Reasons for decision: Summary: Summary The Company satisfies all requirements of item 8.2(a) of section 50-40 of the ITAA 1997 and is therefore exempt from income tax under section 50-1 of the ITAA 1997. Detailed reasoning An entity will be exempt from income tax if it satisfies the following requirements: ● The entity is a non-profit association or society; and ● the dominant or principal purpose for which the organisation is established is promoting resource, aviation or tourism development; and ● the resources whose development is being promoted are within the umbrella of aviation, tourism and resources specified in the item 8.2(a) of section 50-40 of the ITAA 1997; and ● the resources, apart from aviation and tourism, are resources of Australia. | Detailed Reasoning - Association or society: An association or a society is a group of people with a common aim or joint purpose, however does not include a body formed and controlled by the Government. It is accepted that The Company would be an association or society. The Company is in receipt of funding provided under a Commonwealth program, which is administered by a Commonwealth department, however they also receive funding from Participants and third parties. Although The Company is required to be accountable to the Commonwealth for the spending of grant funds, it is responsible for its own management and governance, as dictated by the terms of its Constitution. As The Company receives significant cash and in-kind contributions from non-Commonwealth sources it is free to conduct other non-grant activities autonomously. It is accepted that The Company is an association or society that was not formed, and is not controlled by, the Government. | Detailed Reasoning - Non-profit: To be non-profit an association or society must not be carried on for the purposes of profit or gain to its individual members. Its constituent documents should contain a prohibition against distribution of profits and assets among members while the association is functioning and on its winding up. The Company’s Constitution contains a suitable non-profit clause while the entity is operating. The clause on winding up is consistent with the non-profit requirement as all surplus funds of The Company will be transferred to another non-profit organisation with similar purposes to The Company upon its winding up. Consequently it is accepted that The Company is a non-profit association or society. | Detailed Reasoning - Principal or dominant purpose of promoting Australian agricultural resources: To be an exempt entity an association or society must be established principally or predominantly for the purpose of Australian resource development. The principal or dominant purpose of the The Company is outlined in the Constitution. The Constitution sets out the objects for which The Company is established. The objects of the The Company support that it has been established for the development of an Australian industry. The development of the Australian industry directly supports Australia’s agricultural industry. Enhancing the value and expansion of the industry is integral to the vitality of Australia’s broader agricultural industry. It is accepted the The Company promotes the development of an Australian resource, in this case agriculture, as specified in item 8.2(a) of the table in section 50-40 of the ITAA 1997. | Detailed Reasoning - Benefits to members: If an association or society carries on activities for the profit or gain of its individual members it will fail the non-profit requirement as such a purpose is likely to be inconsistent with the purpose of promoting resource development. As stated previously, the Constitution of the The Company contains clauses which prevent members receiving a distribution of profits and assets while the association is functioning and on its winding up. Further to this, the Project Agreement, and the Participants Agreement discuss the ownership and utilisation of intellectual property arising from the activities of The Company, and in particular the Project Agreement allows a royalty free licence to Participants to use IP for non-commercial purposes. That is to say that intellectual property may be utilised by the Participants, but may only be used for non-commercial purposes. It is accepted that the activities carried on by The Company are consistent with promoting resource development, and are not to benefit Participants of members. | Detailed Reasoning - Conclusion: The Company satisfies all requirements to be a non-profit entity, and is therefore exempt from income tax under section 50-1 of the ITAA 1997. | Detailed Reasoning - Question 2: Summary As The Company is a rebatable employer, and is entitled to receive a rebate on their fringe benefits tax (FBT) payable in relation to benefits provided for their employee. Detailed reasoning Section 65J(1) of the FBTAA 1986 provides a rebate to certain non-profit, non-government organisations. As it has been established that The Company is a non-profit, non-government entity it is entitled to the rebate on FBT.