Issue
Does a real property meet the definition of 'business real property' under section 66 of the Superannuation Industry (Supervision) Act 1993 (SISA) where the property is used by a not for profit business?
Decision
Yes. A property used by a not for profit business will satisfy the definition of 'business real property' under section 66 of the SISA when the entity satisfies the ordinary indicators of a 'business'.
Facts
The not for profit entity is a training organisation providing commercial training products and services to the community.
The entity satisfies the ordinary indicators of a 'business': • it has a business plan • it maintains records • it is registered with the State Department of Fair Trading • it pays market rates for the rent of the premises • it employs staff on a permanent basis and remunerates their services at market rates • it has been operating for over 10 years, and • it carries on its main activity in the same manner and provides the same products and services as other companies and training organisations in the industry.
The training organisation is a not for profit Registered Training Organisation.
The entity is a viable and ongoing concern. It is not a loss-making entity and generates enough income to meet its costs. It usually makes a small profit retained within the entity.
Reasons for Decision
'Business' as defined under subsection 66(5) of the SISA includes: ... any profession, trade, employment, vocation or calling carried on for the purposes of profit, including: (a) the carrying on of primary production; and (b) the provision of professional services but does not include occupation as an employee.
The definition of 'business' under subsection 66(5) of the SISA is an inclusive one and enlarges the ordinary meaning of the term.
A set of indicators has been developed over the years by case law to evidence the carrying on of a 'business' in its normal and ordinary meaning ( Ferguson v. FC of T 79 ATC 4261 (1979) 9 ATR 873). Some of these indicators include: • significant commercial purpose or character of the activity • whether the entity has more than just an intention to engage in business • purpose of profit as well as a prospect of profit from the activity • repetition and regularity of the activity • whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business • whether the activity is planned, organised and carried on in a businesslike manner • the size, scale and permanency of the activity, and • whether the activity is better described as a hobby or recreation.
No one factor is the key determinant and the absence of any particular factor is not fatal to an activity receiving classification as a 'business' ( Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922). The Tax Office has adopted these indicators in Taxation Ruling TR 97/11.
'Business real property' under subsection 66(5) of the SISA includes, amongst other interests, any freehold or leasehold interest of the entity in real property; where the real property is used wholly and exclusively in one or more businesses (whether carried on by the entity or not), excluding any interest held in the capacity of beneficiary of a trust estate.
In the case of a not for profit entity where its main purpose is something other than to produce profit, if the activity otherwise satisfies the ordinary indicators of a 'business', such a not for profit entity may be classified as a 'business' for the purposes of subsection 66(5) of the SISA.
As such, real property used by a not for profit business satisfies the definition of 'business real property' under subsection 66(5) of the SISA.