Exempt Entities: employer association

Is the taxpayer, an association of contractors, an exempt entity that is an employer association under item 3.1(b) of the table in section 50-15 of the Income Tax assessment Act 1997 (ITAA 1997), and a rebatable employer that is an employer association under item 6 of the table in subsection 65J(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

No. The taxpayer is a combination of persons who associate in their capacity as contractors rather than as employers of labour and as such is not an employer association.

The taxpayer is an industry association whose membership is open to any person who is a contractor, and who is substantially engaged in the work usually performed by a contractor, within the industry. Employees are not eligible for membership.

The objects clause in the taxpayer's rules and constitution states that the taxpayer's object is to protect and further the interests of employers in the industry through a range of activities.

The taxpayer is registered under the state industrial relations legislation as an industrial union of employers and is able to represent its members in the state Industrial Commission.

The majority of the taxpayer's members are employers but a significant minority of members are contractors without employees. The taxpayer's revenue is from fees received proportionally from members. The majority of the taxpayer's expenditure relates to representing or assisting its members in respect of their roles as employers.

The material published by the taxpayer describes the taxpayer as an organisation that represents contractors. It provides services which are relevant to employers only but also provides other services, such as industry information and member discounts and services, that are relevant to members who are not employers.

By virtue of section 50-1 of the ITAA 1997, an entity that is an 'employer association' for the purposes of item 3.1(b) of the table in section 50-15 of the ITAA 1997 is exempt from income tax on the total of its ordinary and statutory income providing it meets the following special conditions: (a) is registered or recognised 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. (c) complies with all the substantive requirements in its governing rules; and (d) applies its income and assets solely for the purpose for which the association is established

An association will also be eligible for a rebate of fringe benefits tax if it meets the requirements of subsection 65J(1) of the FBTAA which 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. Item 6 of the table in subsection 65J(1) provides: Rebatable employer Item Column 1 Column 2 Type of employer Special conditions 6 an employer association or an employee association covered by item 3.1 of the table in section 50-15 of the Income Tax Assessment Act 1997 None.

Rebatable employer

Item | Column 1 | Column 2

Type of employer | Special conditions

6 | an employer association or an employee association covered by item 3.1 of the table in section 50-15 of the Income Tax Assessment Act 1997 | None.

Item 3.1(b) of the table in section 50-15 of the ITAA 1997 is a rewritten form of paragraph 23(f) of the Income Tax Assessment Act 1936 (ITAA 1936), which used the term "association of employers". Accordingly the terms employer association and association of employers have the same meaning.

The High Court has considered the meaning of association of employers for the purposes of paragraph 23(f) of the ITAA 1936 in Associated Newsagents Co-operative Limited v. FC of T 70 ATC 4030; (1970) 1 ATR 609 (Associated Newsagents Co-operative Case). Associated Newsagents Co-operative Limited was registered as an industrial union of employers under the relevant state legislation and was a party to an award and to certain industrial agreements relevant to the newsagents industry. Owen J said at ATC 4032; ATR 616: Its members are associated not because they or some of them are employers of labour but because they carry on the occupation of newsagents. The words "association of employers" in s 23(f) are, in my opinion, confined to a combination of persons who associate in their capacity as employers of labour and do not cover an association of persons merely because they pursue the same calling.

To be an employer association it must consist of persons who are associated in their capacity as employers of labour. Factors indicating this include whether the association's membership consists of employers and whether the association's purposes are related to employment matters.

An employer association would normally be one whose membership consists solely of employers. However the inclusion of the words 'or some of them' by Owen J at ATC 4032; ATR 616 in the Associated Newsagents Co-operative Case suggests that an employer association may have members who are not employers.

Where a significant number of members of an association are not employers and a significant amount of the association's income is from membership fees from those members it would be reasonable to conclude that the members are associated in a capacity other than as employers.

In Taxation Ruling TR 97/22, the Commissioner has indicated that one of the tests for eligibility of an entity for income tax exemption under a particular provision is that its main purpose must relate to the subject of the exemption provision. TR 97/22 indicates the activities of an entity that are relevant to determining its main purpose and lists a number of factors that can be considered, including: • the objects of the entity as stated in its constituent documents • the activities conducted by the entity in the relevant period • the purposes for which a significant proportion of the entity's available resources are expended; and • the manner in which the entity presents itself to potential members and to the public.

The object of the taxpayer is to represent the interests of employers in the industry and the majority of the taxpayer's resources are used for that purpose. However the taxpayer's activities indicate that it has another purpose of providing a range of services to its members that are unrelated to their role as an employer. Whilst these activities may be an ancillary purpose for members who are employers, for members who are not employers that purpose would be the main reason for their membership.

The taxpayer's publications describe the taxpayer as an organisation that specifically represents the interests of contractors in the industry and support the conclusion the taxpayer's primary purpose is to represent contractors, rather than employers, in the industry.

Accordingly the taxpayer is not considered to be an association of persons who associate in their capacity as employers of labour. It is an association of persons who associate in their capacity as contractors within the industry.

The taxpayer is not an employer association for the purpose of item 3.1(b) of the table in section 50-15 of the ITAA 1997 and item 6 of the table in subsection 65J(1) of the FBTAA.

Date of amendment Part Comment 1 September 2014 Reasons for Decision Removed duplicate of phrase 'which used the term "association of employers"' that had been inserted twice. 29 August 2014 Issue Updated to reflect amendments to subsection 65J(1) of the FBTAA 1986 in Act No. 124 of 2013 Decision Updated to reflect amendments to subsection 65J(1) of the FBTAA 1986 in Act No. 124 of 2013 Reasons for Decision Updated item 3.1(b) of the table in section 50-15 of the ITAA 1997 to reflect amendments in Act No. 124 of 2013 Updated subsection 65J(1) of the FBTAA 1986 to reflect amendments in Act No. 124 of 2013 Included reference to paragraph 23(f) of the ITAA 1936 (repealed) Legislative References Updated reference to subsection 65J(1) of the FBTAA Year of Income The amendments to item 3.1(b) of section 50-15 of the ITAA 1997 and subsection 65J of the ITAA 1936 in Act No. 124 of 2013 take effect from 30 June 2013

Date of amendment | Part | Comment

1 September 2014 | Reasons for Decision | Removed duplicate of phrase 'which used the term "association of employers"' that had been inserted twice.

29 August 2014 | Issue | Updated to reflect amendments to subsection 65J(1) of the FBTAA 1986 in Act No. 124 of 2013

Decision | Updated to reflect amendments to subsection 65J(1) of the FBTAA 1986 in Act No. 124 of 2013

Reasons for Decision | Updated item 3.1(b) of the table in section 50-15 of the ITAA 1997 to reflect amendments in Act No. 124 of 2013 Updated subsection 65J(1) of the FBTAA 1986 to reflect amendments in Act No. 124 of 2013 Included reference to paragraph 23(f) of the ITAA 1936 (repealed)

Legislative References | Updated reference to subsection 65J(1) of the FBTAA

Year of Income | The amendments to item 3.1(b) of section 50-15 of the ITAA 1997 and subsection 65J of the ITAA 1936 in Act No. 124 of 2013 take effect from 30 June 2013