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Edited version of private ruling
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Ruling
Subject: State or Territory Body - section 24AS - Income Tax Assessment Act 1936
Division 1AB of the Income Tax Assessment Act 1936 (ITAA 1936) provides that a body that is a State/Territory body (STB) is exempt from income tax under this Division unless it is an excluded STB.
Under Division 1AB of the ITAA 1936 there are five ways a body can be an STB, of relevance section 24AS provides that an entity is an STB if it:
· it is not a company limited solely by shares; and
· it is not established by State or Territory legislation; and
· all the legal and beneficial interests (including, but not limited to, interests as to income, profits, dividends, capital and distributions of capital) in it are held only by one or more government entities; and
· all the rights or powers (if any) to vote, appoint or dismiss its governing person or body and direct its governing person or body as to the conduct of its affairs are held only by one or more government entities.
Excluded STB
Section 24AM of the ITAA 1936 provides that the income of an STB is exempt from income tax unless section 24AN [excluded STB] applies to the STB.
An excluded STB is defined in section 24AT of the ITAA 1936 as an STB that:
· at a particular time, is prescribed as an excluded STB in relation to that time; or
· is a municipal corporation or other local governing body (within the meaning of section 50-25 of the Income Tax Assessment Act 1997 (ITAA 1997); or
· is a public educational institution to which any of paragraphs 50-55(a) to (c) of the ITAA 1997 applies; or
· is a public hospital to which any of paragraphs 50-55(a) to (c) of the ITAA 1997 applies; or
· is a superannuation fund.
The entity does not fall within the definition of an excluded STB in section 24AT of the ITAA 1936. Accordingly, section 24AN does not apply to the entity. The entity is not an excluded STB.
It is not a company limited by shares
The entity is a company limited by guarantee which does not issue shares. It is not a company limited by shares.
It is not established by State or Territory legislation
In re East and West India Dock Company (1888) LR 38 Ch D 576, 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. Federal Commissioner of Taxation (1949) 79 CLR 10, 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.
Thus, an entity will not be 'established by a law of the Commonwealth, a State or a Territory' where the law only gives the institution artificial legal status as an incorporated body.
The entity is limited by guarantee under the Corporations Act 2001 which gives it artificial legal status as an incorporated body. The objects and purpose of the entity are contained in its constitution, is not established under State or Territory legislation.
All Legal and beneficial interests are held only by government entities
Subsection 24AT(ba) of the ITAA 1936 includes 'a municipal corporation or other local governing body (within the meaning of section 50-25 of the Income Tax assessment Act 1997)' in the definition of a 'government entity'.
The entities constitution states that:
The income or property of the Company, from wherever it is derived, must be applied solely in support of the Objects.
….
Subject to the dissolution clause, no portion of the income or property of the Company may be paid directly or indirectly, by way of dividend, bonus or otherwise to the Members.
….
if upon the winding up or dissolution of the Company any property remains, after satisfaction of all its debts and liabilities, that property must be paid to or distributed to the Members.
The sole member of the entity is a municipal corporation.
As the entity has a non-profit clause the income or property of the entity must be applied solely in support of its objects. There are no beneficial interests in the entities profits while it is operating. Should the entity be wound up all remaining property must be paid to a municipal corporation. Pursuant to Subsection 24AT(ba) of the ITAA 1936 a municipal corporation is a government entity.
All the legal and beneficial interests (including, but not limited to, interests as to income, profits, dividends, capital and distributions of capital) of the entity are held only by a government entity.
All rights or powers to vote, appoint or dismiss, or direct, the governing person or body and are held only by one or more government entities
A municipal corporation is a government entity pursuant to Subsection 24AT(ba) of the ITAA 1936.
The Power to appoint or dismiss the governing person or body
The municipal corporation, a government entity, has the ultimate power to appoint or dismiss the governing body of the entity.
The power to direct the governing person or body
The municipal corporation, a government entity, has the ultimate power to direct the governing body of the entity.
Conclusion
The entity is not an excluded STB and meets all the requirements of an STB in accordance with section 24AS of the ITAA 1936 it is therefore exempt from income tax pursuant to section 24AM of the ITAA 1936.
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