Private ruling: Income tax and fringe benefits tax
Date of advice: 12 August 2016
Published: September 2016
Ruling period: Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 31 March 2017 | Year ended 31 March 2018 | Year ended 31 March 2019
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the Company exempt from income tax on its ordinary and statutory income under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is covered by item 2.1 of section 50-10 of the ITAA 1997? | A1: Yes | Q2: Is the Company 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 per item 5 to subsection 65J(1) of the FBTAA? | A2: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The sole purposes of the Company are set out in its constitution. The constitution also states that: • the Company must not distribute income, profits or dividends to members • the directors are not entitled to be paid directors' fees • any payments made by the Company to the directors must be approved by the directors and • any distributions from the Company on its winding up must be vested in one or more other entities that have similar purposes to the Company. The activities undertaken by the Company are to provide tangible assistance to a segment of the community. The Company is located in Australia and undertakes its activities only in Australia.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 50-1, | Income Tax Assessment Act 1997 section 50-10, | Income Tax Assessment Act 1997 section 50-70 and | Fringe Benefits Tax Assessment Act 1986 section 65J.

Reasons for decision: Summary: The Company is exempt from income tax on its ordinary and statutory income under section 50-1 of the ITAA 1997 on the basis that it is covered by item 2.1 of section 50-10 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 50-1 of the ITAA 1997 provides that the ordinary and statutory income of certain entities is exempt from income tax, in some cases subject to special conditions. Item 2.1 of section 50-10 of the ITAA 1997 exempts the income of an entity if it is a: society, association or club established for community service purposes (except political or lobbying purposes). Additionally the special conditions in section 50-70 of the ITAA 1997 must also be met. A society, association or club The terms society, association or club are 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 (1997) 77 FCR 112; 36 ATR 532; 97 ATC 4722. The definitions for each of these terms was accepted as referring to a voluntary organisation having members associated together for a common or shared purpose. The Company is an association. Established The meaning of the term established in the context of section 50-10 of the ITAA 1997 was determined in the case of Wentworth District Capital Ltd v FC of T [2010] FCA 862; (2010) 2010 ATC 20-202; (2010) 80 ATR 50 ( Wentworth ). Perram J found that the issue of whether the body in question was established was to be addressed in each income year by looking at its activities in that year while at the same time it was relevant to look at the objects or purposes for which the body was incorporated. An entity might be established for the requisite purpose in one year, but not another. Therefore, when determining whether the Company is established for community service purposes, this must be determined on a year by year basis, considering both the Company's activities during the year as well as its objects in its governing documents. Community service purposes The phrase 'community service purposes' is not defined in the tax law. It is given its ordinary meaning. In Navy Health Ltd v Federal Commissioner of Taxation (2007) 163 FCR 1; [2007] FCA 931; (2007) 2007 ATC 4568, Jessup J said that: 'I consider that the essence of 'community service' is that a service is provided to the community, or a section of the community. Here the word "service" is used in the sense of 'help, benefit or advantage', particularly 'the action of serving, helping or benefiting, conduct tending to the welfare or advantage or another'. In this regard, His Honour went onto say that the benefit provided must not be vague. Specifically, His Honour said that community service: '...deals with 'service' in a much more concrete setting, and requires, in my view, the community, or a section of the community, to benefit by way of the receipt of some identifiable help, benefit or advantage...' The principles to be used in the characterisation of community service purposes were outlined by Perram J in Wentworth and the decision made was upheld by the full federal court on appeal in FC of T v Wentworth District Capital Ltd (2011) 191 FCR 151; [2011] FCAFC 42; (2011) 2011 ATC 20-253. These principles are: 1. the kind of community service referred to in section 50-10 of the ITAA 1997 is a practical or tangible help, benefit or advantage conferred on the community or an identifiable section thereof. 2. a service provided for reward is not a community service, at least when there is no element of subsidisation. 3. community service purposes is to be interpreted broadly and are not only restricted to the act of provision of such services but also include activities such as the facilitation and promotion of such services. 4. the entity claiming the exemption must be established for those purposes and requires an analysis of what the entity is doing in the relevant year of income, both as a matter of its constitutive documents and also by reference to its actual activities. 5. the main or dominant purpose of the entity must be connected to the delivery of a community service. Based on the constitution and activities of the Company it is considered to be established for community service purposes. Political or lobbying purposes The purposes of the Company are not considered to be political or lobbying purposes. Special conditions in section 50-70 of the ITAA 1997 The special condition in subsection 50-70(1) is: An entity covered by item 1.7, 2.1, 9.1 or 9.2 is not exempt from tax unless the entity is a society, association or club that is not carried on for the purpose of profit or gain of its individual members and that: (a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or (b) is a society, association or club that meets the description and requirements in item 1 of the table in section 30-15; or (c) is a prescribed society, association or club which is located outside Australia and is exempt from income tax in the country in which it is resident; and the entity satisfies the conditions in subsection (2). The Company has a physical presence in Australia therefore subsection 50-70(1) of the ITAA 1997 is satisfied. The special condition in subsection 50-70(2) is that: The entity must: (a) comply with all the substantive requirements in its governing rules; and (b) apply its income and assets solely for the purpose for which the entity is established. The governing rules of an entity are those rules that authorise the policy, actions and affairs of an entity. The governing rules condition is applied on a continuous basis throughout an income year. The Company meets the special conditions specified in section 50-70 of the ITAA 1997. In summary the Company is an entity established for community service purposes under section 50-10 of the ITAA 1997 whilst its circumstances remain consistent. Therefore its income will be exempt in accordance with section 50-1 of the ITAA 1997. | Summary: The Company is a rebatable employer under section 65J of the FBTAA on the basis that it is a non-profit society, non-profit association or non-profit club established for community service purposes per item 5 to subsection 65J(1) of the FBTAA. | Detailed Reasoning - Detailed reasoning: Section 65J of the FBTAA provides a fringe benefit tax (FBT) rebate for certain not-for-profit employers. Organisations that qualify for a FBT rebate are referred to as 'rebatable employers'. Subsection 65J(1) of FBTAA states: An employer is a rebatable employer for a year of tax if the employer: (a) is exempt from income tax at any time during the year of tax under any of the provisions set out in the following table; and (b) satisfies the special conditions (if any) set out in the following table. In item 5 of the table referred to above, the following type of employer is a rebatable employer provided it satisfies the special conditions set out in subsection (5) of section 65J of the FBTAA: a society, association or club: (a) established for community service purposes (except political or lobbying purposes); and (b) covered by item 2.1 of the table in section 50-10 of the Income Tax Assessment Act 1997 . The special conditions in subsection 65(5) of the FBTAA are: A society, association, or club is not covered by table item 4, 5, 8, 9, 10, 11or 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 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 Territory. The Company is an entity established for community service purposes under section 50-10 of the ITAA 1997 as decided in the reasoning to Question 1 above. The Company also meets the special conditions outlined in subsection 65J(5) of the FBTAA as it is not a company whose rights are beneficially owned by the Commonwealth, a State of Territory or an authority or institution of the Commonwealth, a State or Territory. Therefore the Company meets the requirements of subsection 65J(1) of the FBTAA and is a rebatable employer.

Reasons for decision: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.