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Ruling

Subject: State/Territory Body - Income tax exempt status

Question 1

Is the entity a State/Territory Body (STB) exempt from income tax pursuant to section 24AM of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commences on:

1 July 2012

Relevant facts and circumstances

The entity is a company limited by shares. Its shareholders are Government Councils from regional and metropolitan areas.

Relevant legislative provisions

Income Tax Assessment Act 1936 - section 24AM

Income Tax Assessment Act 1936 - section 24AN

Income Tax Assessment Act 1936 - section 24AO

Income Tax Assessment Act 1936 - section 24AT

Income Tax Assessment Act 1997 - section 50-25

Income Tax Assessment Act 1997 - section 995-1(1)

Reasons for decision

Subdivision A of Division 1AB of the ITAA 1936 provides income tax exemption for certain State Territory Bodies (STB's) in respect of income derived on or after 1 July 1994.

There are five different ways in which a body can be an STB under Division 1AB. Section 24AO of the ITAA 1936 provides the first way in which a body can be an STB.

24AO A body is an STB if:

1. Is the entity an STB pursuant to section 24AO of the ITAA 1936?

(a) Company

The entity an Australian proprietary company limited by shares.

The first requirement has been met.

(b) Shares beneficially owned by one or more government entities

All the legal and beneficial interests in an STB which are exempt from income tax under section 24AO of the ITAA 1936 must be held only by one or more government entities.

The definition of government entity is set out in section 24AT which provides:

…

government entity means:

The term "local governing body" is defined in subsection 995-1(1) of the ITAA 1997 as meaning a local governing body established by or under a State Law or Territory Law. Broadly this refers to a city, town, municipal, or shire council.

All the shares in the entity are owned by municipal councils, these councils fall within the definition of a local governing body.

Therefore the entity meets the requirement of item (b).

Summary

Both requirements for the entity to be an STB pursuant to section 24AO of the ITAA 1936 have been met.

2. Is the entity an excluded STB as defined in section 24AT of the ITAA 1936?

Under section 24AM, the income of an STB is exempt from income tax unless section 24AN applies, that is, it is an excluded STB.

Section 24AT sets out the meaning of an excluded STB:

24AT In this Division:

The entity is not included in the list of STB's for the State or Territory under the schedules listed at Regulation 3 of the Income Tax (Excluded STB's) Regulations 1997. The entity is therefore not prescribed as an excluded STB.

It is clearly evident that the entity is not a public hospital, a public educational institution, or a superannuation fund. The entity is not a municipal corporation or local governing body. Its shareholders are Councils which are local governing bodies. However, the explanation at section 24AT of the ITAA 1936 provides that bodies owned or controlled by a local governing body may be an STB even though the local governing body itself is an excluded STB.

Consequently, as the entity does not fall within any of the criteria for section 24AT to apply, it is not an excluded STB.

3. Is the income of entity exempt from income tax pursuant to section 24AM of the ITAA 1936?

Section 24AM states:

It has already been established that 24AN of the ITAA 1936 does not apply because the entity is not an excluded STB.

It has also been established that the entity is an STB that meets the requirements of section 24AO because:

As the entity is an STB that is not an excluded STB, its income is exempt from income tax pursuant to section 24AM of the ITAA 1936.

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