Explanatory Memorandum
(Circulated by the authority of the Treasurerthe Hon John Dawkins, M.P.)This Memorandum takes account of amendments made by the House of Representatives to the Bill as introduced.Chapter 18 TOURISM INDUSTRY ORGANISATIONS
Overview
18.1 The Bill will amend the Income Tax Assessment Act 1936 (the Act) so that the income of a non-profit society or association established to promote the development of tourism will be exempt from income tax [Clause 173] .
18.2. The Bill will also amend the Fringe Benefits Tax Assessment Act 1986 (FBTAA) so that, if such a non-profit society or association is required to pay fringe benefits tax, it will be entitled to a rebate of part of the fringe benefits tax payable [Clause 173] .
Summary of amendments
18.3 The proposed amendments will:
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- exempt from income tax the income of a non-profit society or association which is established for the purpose of promoting the development of tourism, and
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- make such a non-profit society or association a "rebatable employer" entitled to a rebate of part of any fringe benefits tax payable.,/list
18.4 These measures will place non-profit organisations that promote the development of tourism on the same footing as other non-profit organisations specified in the current paragraph 23(h) of the Act, e.g., those that promote the development of aviation.
18.5 These amendments have the following dates of effect:-
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- The amendment to provide the exemption from income tax applies to income derived on or after 1 July 1993.
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- The amendment to provide the rebate of fringe benefits tax will take effect on 1 April 1994.
Background to the legislation
18.6 Paragraph 23(h) exempts from income tax the income of a non-profit society or association established for the purpose of promoting the development of aviation or of the agricultural, pastoral, horticultural, viticultural, manufacturing or industrial resources of Australia.
18.7 Exemption is not available to an organisation that is carried on for the purposes of profit or gain to its individual members. The organisation must be established to promote the development of the particular industry and exemption is not available if the organisation is established with a dominant purpose other than promoting the development of that industry.
18.8 The Commissioner of Taxation is of the view that an organisation established to promote tourism is not exempt from tax under paragraph 23(h). Taxation Determination TD 93/122 explains this view.
18.9 It is proposed that paragraph 23(h) be amended to extend to a non-profit tourism industry organisation the same tax exemption as a society or association promoting the development of aviation or a resource described in paragraph 18.6 above.
18.10 A new system of taxing fringe benefits (referred to as "grossing up") takes effect on 1 April 1994. The system will increase the amount of fringe benefits tax an employer has to pay by including the amount of fringe benefits tax payable in the taxable value of that benefit.
18.11 However, the fringe benefits tax paid will be allowed as an income tax deduction to affected employers.
18.12 Some non-government and non-profit employers will be entitled to a rebate of part of the fringe benefits tax so that the amount of tax they will have to pay will not be substantially different from the amount they would have had to pay under the old system.
18.13 Subsection 65J(5) of the FBTAA provides guidance on what is a "non-profit" body. Such an organisation will qualify for the rebate if it is:
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- not carried on for the purposes of profit or gain to individual members, and
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- not a company where all the shares are beneficially owned by, or by an authority of, the Commonwealth, a State or a Territory, and
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- not a company limited by guarantee where the members' interests and rights are beneficially owned by, or by an authority of, the Commonwealth, a State or a Territory.
18.14 Section 65J of the FBTAA defines a "rebatable employer".
18.15 An amendment of section 65J of the FBTAA is proposed, consistent with the proposed amendment of paragraph 23(h), so that non-profit, non-government tourism industry organisations will receive the same special treatment as other rebatable employers.
Explanation of the amendments
18.16 Paragraph 23(h) is proposed to be amended to provide an exemption for the income of non-profit societies or associations established for the purpose of promoting the development of tourism [Clause 175] .
18.17 For income tax purposes, the activities of such tourism industry organisations may be international, national or regional in nature.
18.18 Under the proposed amendment, exemption will be available to a society or association that is established for the dominant purpose of promoting the development of tourism, provided it is not carried on for the purposes of profit or gain to its individual members. It will be a question of fact whether, in a year of income, a society or association meets these requirements. The amendment applies to income derived on or after 1 July 1993 [Clause 176] .
18.19 Under the new "grossing-up" system, the amount of fringe benefits tax payable is calculated by reference to the tax-inclusive value of the fringe benefit. Therefore, income tax deductions are allowed for the amount of fringe benefits tax paid.
18.20 A "rebatable employer" is entitled to a rebate of fringe benefits tax at the rate of 48%. Because an employer can claim a rebate of 48% of the fringe benefits tax it has paid, its fringe benefits tax liability will not be substantially different from the amount that would have been payable had the system for valuing these benefits not changed.
18.21 The amendment proposed by Clause 178 will make any non-profit society or association established to promote the development of tourism a rebatable employer for which the special arrangements apply. This means that such an organisation will be entitled to claim a rebate of 48% of the fringe benefit tax it pays when the arrangements come into effect on 1 April 1994 [Clause 179] .