Edited version of your private ruling

Authorisation Number: 1012371724191

Ruling

Subject: Income tax exemption

Question:

Is the Entity exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a public authority pursuant to item 5.2 in section 50-25 of the ITAA 1997?

Answer:

Yes.

This ruling applies for the following periods:

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

Year ended 30 June 2018

The scheme commences on:

1 July 2013

Relevant facts and circumstances:

The Entity was established to operate as a national body to govern the operation of a resource market.

The Entity is incorporated as a non profit company limited by guarantee under the Corporations Act 2011 (Cth).

Legislation governing this resource market was amended to confer statutory functions and powers to the Entity to enable it to perform its role in governing and regulating this market.

The Entity has also been provided with broad information gathering and advisory powers to carry out its objects and statutory functions.

The Entity has the power to make binding rules and procedures and has been granted enforcement powers to require persons to comply with the procedures.

The Entity is comprised of certain types of members.

Relevant legislative provisions

Section 50-1 of the Income Tax Assessment Act 1997

Section 50-25 of the Income Tax Assessment Act 1997

Reasons for decision

Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the ordinary and statutory income of the entities covered by the tables listed in Subdivision 50A of the ITAA 1997 is exempt from income tax.

Section 50-25 of the ITAA 1997 is contained in Subdivision 50A of the ITAA 1997 and covers exempt government entities. Item 5.2 of the table in section 50-25 of the ITAA 1997 provides that 'a public authority constituted under an Australian law' is an exempt entity. There are no special conditions to be met under this provision.

The term 'public authority constituted under an Australian Law' is not defined in the ITAA 1997. However, the High Court of Australia has considered the meaning of the term and this has been discussed in Taxation Ruling No. IT 2632 Income tax: meaning of 'public authority' in definition of 'exempt public body' in Division 16D.

IT 2632 at paragraph 14 states that in determining whether a particular body is a 'public authority' it is necessary to:

a) Weigh all relevant circumstances, especially the nature of the functions of the body concerned, treating the question of the status of the body as essentially a question of fact and degree to be determined in the light of the particular facts of each case.

b) Consider whether the body has one primary function or a variety of functions not all of which involve the exercise of powers and functions not possessed by the ordinary citizen and which have been conferred by statute and are essentially of a public nature.

c) Examine all the characteristics of the body to determine whether it can be seen in general to conform to the common understanding of a public authority. To so conform a body would be expected to have public duties, functions or powers to perform and these would ordinarily be carried out under statutory authority for the benefit of the public. While not essential, a distinguishing characteristic is the possession of exceptional powers conferred by statute beyond those possessed by private individuals. However, the derivation of profits for distribution to shareholders or members would not ordinarily be a characteristic of a "public authority". The examination will involve a consideration of:

(i) the significance of any features of the body clearly alien to, or inconsistent with, the concept of what is a public authority; and

(ii) the relevant statutory context, namely, the overall statutory scheme and policy.

IT 2632 at paragraph 16 also discusses the meaning of 'constitute' and states:

16. The ordinary meaning of the word "constitute", according to the Macquarie Dictionary is "to set up or found (an institution etc)." The expression "is constituted" (emphasis added) in subparagraph (c)(i) of the definition of "exempt public body" indicates that the particular organisation or body concerned and its activities must be looked at year by year, and not merely at the time it was first set up or founded. In addition, the context of the word "constituted", indicates that the particular organisation or body concerned must be constituted as a public authority.

In FC of T v. Bank of Western Australia Limited; FC of T v. State Bank of New South Wales Limited 96 ATC 4009, a number of propositions were derived from previous cases about public authorities, that is:

i. A question whether a particular entity is an authority will be a question of fact and degree dependent upon all the circumstances of the case: Western Australian Turf Club per Stephen J with whom Barwick CJ agreed at ATC 4134; CLR 290. No one factor will be determinative, rather there will be a ``range of considerations'': the Fruit Marketing case at 580.

ii. A private body, corporate or unincorporated, established for profit will not be an authority: Renmark Hotel at ATD 429; CLR 17 per Rich J, Silverton Tramway per Dixon CJ at ATD 297; CLR 566.

iii. Incorporation by legislation is not necessary before a body may be classified as an authority: Renmark Hotel per Rich J at ATD 430; CLR 19, Western Australian Turf Club at ATC 4135; CLR 293.

iv. For a body to be an authority of a State or of the Commonwealth, the body in question must be an agency or instrument of government set up to exercise control or execute a function in the public interest. It must be an instrument of government existing to achieve a government purpose: the Fruit Marketing case at 580.

v. The body in question must perform a traditional or inalienable function of government and have governmental authority for so doing: Renmark Hotel at ATD 428; CLR 16 per Rich J, General Steel per Barwick CJ at 134, Anti-Cancer Council case at 450-451 per Mason CJ, Brennan and Gaudron JJ.

vi. It is not necessary for a person or body to be an authority that he, she or it have coercive powers, whether of an administrative or legislative character: Renmark Hotel per Rich J at ATD 430; CLR 18. Conversely the fact that a person or body has statutory duties or powers will not of itself suffice to characterise that person or body as an authority: Western Australian Turf Club per Stephen J at ATC 4137; CLR 297.

vii. At least where the question is whether a body is a ``public authority'' the body must exercise control power or command for the public advantage or execute a function in the public interest: Silverton Tramway per Dixon CJ at ATD 297 and 298; CLR 565 and 567. The central concept is the ability to exercise power or command: the Fruit Marketing case per Gibbs J at 580.

Based on the principles established in case law and IT 2632, the following factors have been considered in determining whether the entity is a 'public authority constituted under Australian Law' for the purposes of item 5.2 of the table in section 50-25 of the ITAA 1997:

(1)Conferred by statute and of a public nature

The Entity was established to operate as a national body to govern the operation of a resource market.

Legislation governing this resource market was amended to confer statutory functions and powers to the Entity to enable it to perform its role in governing and regulating this market.

The Entity has been vested with a wide range of statutory functions and powers to achieve these functions.

The Entity has also been provided with broad information gathering and advisory powers to carry out its objects and statutory functions.

In carrying out its statutory functions, the Entity must have regard to the objectives stipulated in the legislation which is to promote the efficient operation of the market for the long term interests of consumers.

It is evident that the Entity is authorized by statute to perform a function of government and is of a public nature.

(2) Exercise powers and functions not possessed by the ordinary citizen

The Entity has been established to administer a resource and has been conferred with exceptional statutory powers to govern and regulate the operation of that market.

Further, the Entity also has the power to make binding rules and procedures and has been granted enforcement powers to require persons to comply with the procedures.

It is evident the Entity will exercise powers and functions not possessed by the ordinary citizen.

(3) Operates on a non profit basis

The Entity has been established as a non-profit company limited by guarantee and is required by legislation to perform its functions on a non-profit basis. Further, the constitution prohibits the Entity from making distributions to its members and provides that any profits, income and property, however derived must be applied solely towards the promotion of its objects.

It is accepted the Entity has not been established for the private interests of its members and operates on a non profit basis.

Conclusion

Having regard to the public duties, statutory functions and powers of the Entity, it is evident that the Entity has been established to perform a function of government and does not have features that are inconsistent with the concept of a 'public authority'.

Therefore, the Entity is exempt from income tax pursuant to section 50-1 of the ITAA 1997 on the basis that it qualifies as a public authority constituted under an Australian law under item 5.2 of the table in section 50-25 of the ITAA 1997.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).