Is the company a rebatable employer pursuant to section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Yes. This ruling applies for the following periods : Fringe Benefits Tax (FBT) Year Ending 31 March 20XX FBT Year Ending 31 March 20XX FBT Year Ending 31 March 20XX FBT Year Ending 31 March 20XX The scheme commenced on: 1 April 20XX
1. The Company is a not-for-profit company limited by guarantee. 2. The Company is an industry body. It is committed to advancing the health, integrity and sustainability of the industry at a national level, by promoting safety, professionalism and integrity of the industry to key stakeholders. 3. The Company's charter is not simply to advocate and respond on national issues of importance to the industry, but also to proactively create and execute strategies to enhance the credibility and longevity of the industry. 4. The objects of the Company are concerned with an Australian resource. 5. The Company's constitution contains appropriate non-profit and winding-up clauses. 6. The activities of the Company include holding events, conducting industry research, providing industry training, publishing industry magazines, and representing the industry. 7. The Company is not a charity registered under the Australian Charities and Not-for-profits Commission Act 2012. 8. The Company is exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997).
Fringe Benefits Tax Assessment Act 1986, section 65J Fringe Benefits Tax Assessment Act 1986, subsection 65J(1) Fringe Benefits Tax Assessment Act 1986, subsection 65J(5) Income Tax Assessment Act of 1997, section 50-10 Income Tax Assessment Act of 1997, section 50-47
These reasons for decision accompany the Notice of private ruling for the Company. Issue Fringe Benefits Tax - Rebatable Employer Question Is the Company a rebatable employer pursuant to section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? Summary Yes, the Company is a rebatable employer pursuant to section 65(J) of the FBTAA. Detailed reasoning Rebatable Employer Subsection 65J(1) states the following: 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 9 of the table is relevant to the activities of the Company. For the Company to be considered as a rebatable employer, it needs to satisfy the conditions outlined under the item 9 of the table. Table 1: Rebatable employer 9 A society or association: See subsection (5) of this section. (a) established for the purpose of promoting the development of any of the following Australian resources: Not Applicable (i) agricultural resources; (ii) horticultural resources; (iii)
industrial resources; (iv) manufacturing resources; (v) pastoral resources; (vi) viticultural resources; (vii) aquacultural resources; (viii) fishing resources; and (b) covered by item 8.2 of the table in section 50-40 of the Income Tax Assessment Act 1997 A discussion is provided below in respect of whether each element or condition of Item 9 of the table is satisfied. Society or association or club The term society, association or club is not defined in FBTAA or ITAA 1997 and therefore will be construed according to the ordinary meaning of the word. In Douglas v Federal Commissioner of Taxation 97 ATC 4722; reference was made by the Court to the definitions contained in the Concise Oxford Dictionary for each of these terms. In Pro-campo Ltd. v. Commr of Land Tax (NSW) 81 ATC 4270 the court made the following comments on the meaning of society and association (at 4279): In Theosophical Foundation Pty Ltd v. Commr of Land Tax (NSW) [1966] 67 SR (NSW)... Sugerman JA stated at 82:
A society, in the relevant sense, is a number of persons associated together by some common interest or purpose, united by a common vow, holding the same belief or opinion, following the same trade or profession, etc; an association' (Oxford English Dictionary, 'Society'... The meaning of "society" as the Oxford Dictionary definition shows can be the equivalent of "association" and I do not think that any relevant distinction in nature exists between the two. It merely seems to have happened that some organisations are called "associations", others are called "societies" but no meaningful difference can be detected between the two... In short, the ... words are describing bodies made up of groups of persons who have come together to implement common purposes and objects... The Company is a company limited by guarantee and comprises of members with a common purpose. It is accepted that the Company meets the definition of a society, club or association. Australian Manufacturing resources Resources or their elements include infrastructure, plant and equipment, livestock, personnel, knowledge, expertise and skills. An industry's businesses and their assets may be resources.
Manufacturing resources include plant and equipment, manpower, skill and know-how in manufacturing such articles as steel products, clothing and furniture, and such non-tangible commodities as gas and electricity ( Australian Insurance Association v Federal Commissioner of Taxation 79 ATC 4569 at 4574). The words 'of Australia' limit the exemption to associations whose activities are directed to Australian resources, thereby excluding associations whose activities are directed to the resources of places beyond Australia. Where an association is established for the purpose of promoting the development of a foreign resource, or of both Australian and foreign resources, the test for exemption is not met. The objects of the Company are concerned with promoting the industry throughout Australia. This is done by furthering the standards, goodwill, ethics, reputation, professional development, training and education of the industry on the development of their products as well as their manufacture, installation, construction, renovation and use.
The Company provides industry training and education, undertakes industry related research, runs trade shows and expos and publishes trade magazines. It can be said that the Company is involved in the manufacture of their product as well as the promotion of Australian manufacturing resources. Established for the purpose of promoting development Established refers not only to the motives and objectives which lead to the formulation of the association but also to its purpose since that time. The term 'development' is not defined in the FBTAA however is used in section 50-40 of the ITAA 1997 in a commercial or business sense. It comprehends all the elements which must be taken into account to ensure that the specified resources are used in the best interests of Australia. In Co-operative Bulk Handling Ltd v Federal Commissioner of Taxation [2010] FCA 508, Gilmour J (at first instance) accepted that 'promoting the development of resources' under section 50-40 of the ITAA 1997 entails "unlocking, exploiting or bringing out the inherent potentialities and latent capabilities" of the resources. (at paragraph 80) This reflects the meaning of 'development' given by Kitto J in
Federal Commissioner of Taxation v Broken Hill Proprietary Company (1969) 120 CLR 240 in the phrase 'development of mining property' used in section 122 of the Income Tax and Social Services Contribution Assessment Act 1936-1964 (Cth): In its ordinary English sense the word "development", when used in relation to a property, refers to the unfolding, the bringing out, of some latent capability of the property... It covers, I think, any preparation, adaption or equipment of the property for the exploitation of an inherent potentiality which cannot be exploited, or fully exploited, without some such preliminary treatment. (at 247) Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating cooperation and similar activities. Taxation Ruling IT 2415 Income Tax: Associations promoting development of Australian resources states the following on the meaning of 'established for the purpose of promoting development':
8. It is important to note that paragraph 23(h) does not refer to the promotion of specified resources - it is directed to the promotion of the development of the specified resources. In the context of paragraph 23(h) the term "development" must be taken to be used in a commercial or business sense, i.e. it comprehends all the elements which must be taken into account to ensure that the specified resources are used in the best interests of Australia. Reference might usefully be made to the observations of the High Court in FCT v. Broken Hill Pty. Co. Ltd ., 69 ATC 4029; 1 ATR 40 on the meaning of the term "development" in relation to the development of a mining property.
9. There can be little doubt that the identification of, and programmes to overcome, manpower needs and the establishment of systematic training schemes in a particular industry are necessary for the efficient operation of the industry - they are part and parcel of the development of the resources specified in paragraph 23(h). although the connection may not be as readily apparent the development of marketing techniques may also be relevant to the development of resources - it could be said that there is little point in developing resources if the products of the resources cannot be sold... In Federal Commissioner of Taxation v Co-operative Bulk Handling Ltd [2010] FCAFC 155 Mansfield and McKerracher JJ made the following comments on the meaning of 'established' and 'purpose' in section 50-40 of the ITAA 1997: Two aspects, at least, of s 50-40 may be disposed of at the outset as they are common ground. First, "established" means maintained at the time at which qualification under the section is at issue...
Secondly, "for the purpose" means "for the sole or dominant purpose" of conducting the relevant activity... In Boating Industries it was held that the requirement of s 23(h), a predecessor of s 50-40, was that the relevant organisation be "established" for, and not merely "involved" in, the purpose stated... The focus must be upon the periodic or recurrent purposes of the body in the year of income... (at paragraphs 13-15). If an association operates principally to confer benefits on its members jointly or as a group, it is unlikely to be predominantly for promoting resource development. The objects of the Company include promoting and expanding their industry and related industries throughout Australia, furthering the standards, goodwill, ethics, reputation and professional development and training within industry and related industries. In addition, the Company also educates the industry, government, and public about safety and development of their products and associated equipment and pursues issues of State, Territory and National concern relating to the industry.
To achieves its objects the Company holds several expos and shows across Australia that showcase products, publishes trade magazines, holds excellence awards, provides accredited and non-accredited training and professional development to the industry, undertakes industry research, and has an advocacy and advisory role through its affiliation with various professional bodies and committees that deal with issues such as Australian standards, building codes, and chemical security. The above shows that the Company is concerned with education, training, research and marketing of their industry, and is ensuring that the manufacturing resources (their products) are used in the best interests of Australia.
Members of the Company do benefit from the operations of the Company through the expos and trade shows, training (including its Certification and Accreditation Program which is only available to the Company members) and industry advocacy. However, the Company is the national peak body for the industry, and their industry generally benefit from these activities. As such, any benefits to the Company members are considered incidental or ancillary to Company's main purpose of promoting the development of their manufacturing resources. Accordingly, it is accepted that the Company is promoting the development of Australian manufacturing (their products) resources. Not be carried on for the profit or gain of its individual members In Federal Commissioner of Taxation v Co-operative Bulk Handling Ltd 2010 ATC 20-231, Mansfield and McKerracher JJ stated the following about the meaning of 'not be carried on for the profit or gain of its individual members': In all cases of exemption, it must be the position that it is not open to the body to disburse any profits or dividends to members. (at paragraph 95)
The Commissioner accepts an organisation is non-profit where its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people - both while it is operating and when it winds up. These documents should contain acceptable clauses showing the organisation's non- profit character. The organisation's actions must be consistent with this requirement. A non-profit organisation can still make a profit, but this profit must be used to carry out its purposes. The profits must not be distributed to owners, members or other private people. There are two requirements in the statement of non-profit character above. First, an entity's constituent documents must display a non-profit character. Second, the entity's actions must be consistent with this non-profit character. The Company's constitution prohibits it from applying its income and property for the benefit of individuals while it operates and on winding-up. There is no evidence that the Company acts contrary to this prohibition. The special condition in subsection 65J(5) provides that:
A society, association or club is not covered by table item 4, 5, 8, 9, 10, 11 or 12 in subsection (1) of 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 Territory, or (ii.) an authority or institution of the Commonwealth, a State or a Territory. The Company satisfies subsection 65J(5) of the FBTAA as it is not beneficially owned by the government and is an independent not for profit company. Conclusion As the Company meets the requirements of section 65J of the FBTAA, it is determined to be a rebatable employer.