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 when 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?

No. The mere incorporation of a charitable institution under the Corporations Act 2001 or a law of a State or Territory which relates to the incorporation of Associations [1] does not mean that the institution is 'established by a law of the Commonwealth, a State or a Territory' under subsection 65J(3) of the Fringe Benefits Tax Assessment Act 1986 . [2]

A charitable institution will only be 'established by a law of the Commonwealth, a State or a Territory' under subsection 65J(3) when the relevant law specifically constitutes or establishes the institution for purposes that are charitable. [3]

The Corporations Act 2001 or a law of a State or Territory which is relevant to the incorporation of associations merely creates an artificial legal personality, however it does not of itself establish the charitable institution.

The Parliament of Victoria passes an Act which establishes University A as a body corporate. 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).

XYZ is a non-profit society that is incorporated under the Associations Incorporation Act 1981 (Vic) and is a charitable institution for the purpose of paragraph 65J(1)(baa). Its powers and purpose are set out in its constitution .

The incorporation by the Associations Incorporation Act 1981 (Vic) does not on its own constitute or establish XYZ for a charitable purpose .

Therefore, XYZ is not 'an institution established by a law of the Commonwealth, a State or a Territory' within subsection 65J(3 ).

When the final Determination is issued, it is proposed to apply to FBT years commencing both before and after its date of issue. However, the Determination does not apply to the extent that it conflicts with the terms of settlement of a dispute agree to before the date of issue of the Determination (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10).

Subsection 65J(1) lists the categories of organisations which are rebatable employers. Excluded from these categories are organisations that are also public benevolent institutions or health promotion charities.

Paragraph 65J(1)(baa) provides that a rebatable employer is a charitable institution that is endorsed under subsection 123E(1), other than an 'institution of the Commonwealth, a State or a Territory'.

Subsection 65J(3) provides that for the purpose of section 65J, 'an institution established by a law of the Commonwealth, a State or a Territory is taken to be an institution of the Commonwealth, the State or the Territory, as the case requires'.

An institution is an establishment, organisation or association, instituted for the promotion of some object, especially one of public or general utility. It may be constituted in different ways including as a corporation or unincorporated association. [4]

The ordinary meaning of the word 'establish', according to the Macquarie Dictionary [5] is 'to set up on a firm or permanent basis; institute; found: to establish a government, to establish a business, to establish a university' .

In In re East and West India Dock Company , [6] the Court considered whether a dock company was a company 'constituted by Act of Parliament for the purpose of making a railway'. Chitty J said at page 582: The term 'constituted' is not equivalent to 'incorporated', it is of wider import. It seems to be equivalent to 'established'.

In Renmark Hotel Inc v. FC of T , [7] the High Court considered whether the Renmark Hotel was a 'public authority constituted under any.....State Act'. Rich J said at page 19: The word 'constituted' is not the same as 'incorporated'. For the purposes of paragraph 23(d) it is conceivable that an unincorporated body might be constituted under a State Act so as to satisfy the exemption. On the other hand mere incorporation under an Act does not constitute the body. The word 'constituted' immediately follows 'public authority'. It means constituted as a public authority.

A charitable institution will not be 'established by a law of the Commonwealth, a State or a Territory' under subsection 65J(3) where the law only gives the institution artificial legal status as an incorporated body.

A charitable institution is an institution established and maintained for purposes that are charitable in the technical legal sense. [8] A charitable institution will be 'established by a law of the Commonwealth, a State or a Territory' where: • the law provides for the founding or setting up of the organisation, association or body as a charitable institution; and • the law sets out the purposes or objects of the organisation which are charitable.

We invite you to comment on this draft Taxation Determination. Please forward your comments to the contact officer by the due date. (Note: the Tax Office prepares a compendium of comments for the consideration of the relevant Rulings Panel. The Tax Office may use a sanitised version (names and identifying information removed) of the compendium in providing its responses to persons providing comments. Please advise if you do not want your comments included in a sanitised compendium.) Due date: 29 June 2007 Contact officer details have been removed following publication of the final ruling.