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ATO Interpretative Decision

ATO ID 2003/721 (Withdrawn)

Income Tax
Income tax exemption: community service purposes - Industry Ombudsman

Attention This ATO ID is withdrawn. Guidance on the issue contained in this ATO ID can be found at Community service organisations (QC 46312).
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 1 September 2017.

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Issue

Is an industry ombudsman entity exempt from income tax under section 50-10 of the Income Tax Assessment Act 1997 (ITAA 1997) and section 65J of the Fringe Benefit Tax Assessment Act 1986 (FBTAA), where it is established by its members, pursuant to a requirement of a State/Territory statute, to provide a free ombudsman service to all domestic and small business consumers of an industry?

Decision

Yes. An industry ombudsman is an exempt entity under section 50-10 of the ITAA 1997 and section 65J of the FBTAA where it is established at the direction of Government for consumer protection purposes and is available free of charge to all domestic and small business consumers of that industry.

Facts

Various public utility service providers (for example, electricity, gas, water), being licence holders under a State/Territory statute, are required as a condition of their licence, to be a member of an industry ombudsman scheme approved by the relevant Minister of State. The stated purposes of the Government in requiring the establishment of the ombudsman scheme is to provide protection for domestic and small business consumers in the event of disputes with service providers.

The industry ombudsman entity is usually established as a company limited by guarantee, with appropriate non-profit and dissolution clauses. The principal objects typically encompass such matters as to assist in the avoidance of complaints and disputes in the provision of services to domestic and small business customers; and to receive, investigate and facilitate the resolution of such complaints and disputes.

The members of the ombudsman entity are responsible for the funding of the Ombudsman and maintaining the independence of the Ombudsman. The Ombudsman provides its services free of charge to all domestic and small business customers.

Under these schemes, the member service providers must comply with any decision of the Ombudsman.

Reasons for Decision/Explanation

Item 2.1 of the table in section 50-10 of the ITAA 1997, in conjunction with section 50-1 of the ITAA 1997, specifies that the total ordinary income and statutory income of a 'society, association or club established for community service purposes (except political or lobbying purposes)' is exempt from income tax. The special conditions in section 50-70 of the ITAA 1997, relevantly require that the entity is 'not carried on for the purpose of profit or gain of its individual members'.

The required 'community service purposes' must be the entity's 'main or predominant purposes' ( Royal Australian College of Surgeons v. FCT [1943] ALR 377; [1943] HCA 34; (1943) 68 CLR 436; (1943) 7 ATD 289, Cronulla Sutherland Leagues Club Limited v. FCT [1990] FCA 90; (1990) 23 FCR 82; 90 ATC 4215; (1990) 21 ATR 300). It is a question of fact in each case as to whether any benefits derived by members are merely incidental to a main community service purpose of the industry ombudsman entity.

Taxation Determination TD 93/190 states that in relation to former subparagraph 23(g)(v) of the Income Tax Assessment Act 1936 (ITAA 1936), which is the same as item 2.1 of the table in section 50-10 of the ITAA 1997, that -

   (t)he purpose of enacting subparagraph 23(g)(v) was to create a category of exemption for community bodies whose activities are not accepted as being charitable ... but which, nevertheless, conduct activities of benefit to the community. [emphasis added]

A question that needs to be answered in this regard is whether it is a section of the community or a closed and restricted class of persons that receives benefits from the industry ombudsman entity. This is a question of degree ( Dingle v. Turner [1972] AC 601; per Lord Cross of Chelsea at 624).

In the case of industry ombudsman entities, the arguments in favour of a finding that it is a section of the community that is benefited are based upon the proposition that 'ordinary consumers of an industry's services' is a section of the community, and that the availability of the Ombudsman's services is not too nebulous or remote to be regarded as a benefit to the community.

Where membership of the ombudsman entity is effectively compulsory for all industry service providers, it is illusory to say that 'customers of members' is a restricted class.

It is considered that where the industry ombudsman entity is established to make its Ombudsman's services available to ordinary industry consumers, without barring some and not others on the basis of their relationship with ombudsman entity members, it can reasonably be said that these entities are 'established for community service purposes' in a wide sense. They are 'altruistic' to the extent that they provide their service for the benefit of the community free of charge.

Taxation Determination TD 95/56 will not operate to preclude Industry Ombudsman entities from being rebatable employers under paragraph 65J(1)(j) FBTAA where they are not bodies that are directly formed by government or controlled by government, even though they may be seen to perform functions on behalf of government.

Amendment History

Date of Amendment Part Comment
8 April 2016 Facts Minor alterations to formatting/style.
  Case References Insert medium neutral case references.

Date of decision: 16 July 2003

Year of income:Year ended 30 June 2001
 Year ended 30 June 2002

Legislative references:
Income Tax Assessment Act 1936
   paragraph 23(g)(v)

Income Tax Assessment Act 1997
   section 50-1.
   section 50-10.
   section 50-70.

Fringe Benefits Tax Assessment Act 1986
   section 65J
   paragraph 65J(1)(j)

Case references:
Royal Australian College of Surgeons v. FCT
   [1943] ALR 377
   [1943] HCA 34
   (1943) 68 CLR 436
   (1943) 7 ATD 289

Cronulla Sutherland Leagues Club Limited v. FCT
   [1990] FCA 90
   (1990) 23 FCR 82
   90 ATC 4215
   (1990) 21 ATR 300

Dingle v. Turner
   [1972] AC 601

Related Public Rulings (including Determinations)
Taxation Determination TD 93/190
Taxation Determination TD 95/56

Keywords
Income tax general exemption
Ombudsman
Community services organisations
FBT rebatable employers

Siebel/TDMS reference number: 338104; 1-7PXX8DL

Business line: Small Business/Individual Taxpayers

Date of publication: 15 August 2003

ISSN: 1445-2782

ATO ID 2003/721 (Withdrawn) history   Top  
   Date   Version 
   16 July 2003   Original statement   
    8 April 2016   Updated statement   
 You are here ®   1 September 2017   Withdrawn   


 


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